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2018 (4) TMI 1623
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....e 2007-08 31.10.2007 4.15 lacs 30.03.2015 4.49 crores 2009-10 30.09.2009 4.16 lacs 30.33.2015 1.20 crores 2.During the course of hearing,the Authorised Representative(AR)did not press first five grounds of appeal.Hence, same stands dismissed as not pressed. ITA/7102/Mum/2016,AY.2007-08: 3.Effective Ground of appeal,raised by AO,is about not sustaining addition of Rs. 3.65 crores made under the head peak credit of transactions related to bogus purchases.The AO had received information from the office of the DGIT(Inv.),Mumbai regarding search actions which were carried out in the cases of Bhanwarlal Jain Group and Rajendra Jain Group.As per the informa - tion of the investigation wing,Bhanwarlal Jain(BJ)and other persons associated with him as well as Rajendra Jain(RJ)and person of his group had admitted, under oath during the course of search and seizure proceedings,that they were providing accommodation entries for bogus purchases, through their various benami concerns.On the basis of the information received,the AO held that the assessee had obtained non-genuine bills form following five entities: Name Amount 1.M/s. A2 Jewels(A....
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....rove genuineness of the transactions, that notices issued u/s.133(6) remained unserved, that there was no justification for restricting the addition to 12.5%.He relied upon the case of N K Proteins Ltd.(2017-TOIL-23-SC-IT,dated 16/01/2017). The Authorised Representative(AR)argued that the AO had not provided opportunity of cross examining BJ,that from day-one the assessee was asking for cross examination, that he had raised a specific ground before FAA about not following the principles of natural justice and denying the opportunity of cross examination by the AO, that the FAA wrongly stated that request by assessee was made late, that AO had rejected the books of account without finding any defect in them, that on the basis of uncorroborated statement of third parties books of accounts should not have been rejected,that assessee had filed the evidence to prove genuineness of purchases, that it had filed ledger account(Pg.36 of the PB),copy of bank statement,confirmation letter(Pg.49 of the PB),purchase bill, copy of acknowledgement of return of income for the AY.2007-08 from LD along with bank statement of the supplier, that it had also filed an affidavit of the supplier statin....
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....ments of the AR and the DR and the finding of the Tribunal.The order reads as under: "3 .Briefly stated the facts are that, the assessments for the Assessment Years 2011-12 to 2013-14 were reopened u/s. 147 of the Act based on the information received from DGIT(Investigation), Mumbai that the assessee is one of the beneficiaries of bogus purchases made by certain entities operated/managed by Bhanwarlal Jain group which is only a bogus concern. During the course of search, Shri Bhanwarlal Jain has admitted in the statement taken on oath u/s. 132(4) of the Act that he has indulged in providing accommodation entries and also admitted that these are paper companies with no real business transactions. It was also admitted by him that he was engaged in business of bill shopping through all the concerns due to which they do not have any physical stock of diamond with them at any of its places at any point of time. It was also admitted that they were merely lending names of various concerns to importer of diamonds who takes actual delivery. Based on this information from DGIT(Investigation) the assessments were reopened and in the course of re-assessment proceedings assessee was r....
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....ri Bhanwarlal Jain are only providing accommodation entries to the beneficiaries and assessee is one among such beneficiaries. Therefore, the Assessing Officer concluded that the material was debited against various suppliers have entered into stock register and the assessee has shown corresponding sales against the said purchases debited and this could only mean that the diamonds were brought by the assessee from the gray market without bill and to adjust these transactions into the Books of Accounts, assessee has obtained bills from Shri Bhanwarlal Jain group concerns. Therefore, he concluded that the assessee obtained only the bogus bills without movement of goods and goods were purchased in gray market by paying cash. Therefore, taking note of all these factors into consideration the Assessing Officer in so far as the Assessment Years 2012-13 and 2013-14 treated 12.5% of the purchases as non-genuine and in so far as Assessment Year 2011-12 is concerned 100% of the purchases were treated as bogus purchases. 5. The Ld.CIT(A) upheld the action of the Assessing Officer in treating the purchases as nongenuine as there is no movement of goods and it was admitted by Shri Bhan....
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....ubted merely on the basis of a statement of a 7 thirdparty namely Mr. Bhanwarlal Jain. In fact, one of the parties i.e. M/s. Daksh Diamonds has been granted a registration under the new GST Act as well. The Sales Tax Department has not initiated any action against the assessee for disallowance of set-off in respect of VAT paid on the purchases from the impugned parties. 8. Learned Counsel for the assessee further submitted that the AO did not appreciate the fact that the assessee purchased diamonds from the impugned parties and there is a practice of hand delivery of such precious and low-weighing materials. Therefore, no adverse conclusion can be drawn merely due to absence of documents proving deliveries. 9. Ld. Counsel for the assessee submitted that, the credit period of six months is very common in the diamond industry. The AO's observation in the order for AY 2011-12 that unreasonable credit period has been granted by Daksh Diamonds is factually incorrect. The AO has mentioned that all the parties have been paid regularly except for Daksh Diamond. However, out of total purchases of Rs..9,47,27,364/- outstanding creditors at the year-end were Rs..4,49,93,....
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....es are not bogus and they cannot be treated as non-genuine. Therefore, pleaded to delete the addition/disallowance made by the Assessing Officer. 15. Ld. DR vehemently supported the orders of the authorities below. Ld. DR further submits that as per the CBDT instructions profit margin for the diamond trade is 6% and therefore at least 6% is to be estimated as the profit element from these purchases following the CBDT Instructions. 16. We have heard the rival submissions, perused the orders of the authorities below. In this case the assessments were reopened based on the information from the DGIT(Investigations), Mumbai that assessee is a beneficiary from the entities operated by Shri Bhanwarlal Jain wherein the search took place and it was found that Shri Bhanwarlal Jain is providing only accommodation entries and there were no actual sale transactions. Assessing Officer observed that the assessee could not prove the movement of goods from the suppliers to the assessee. In the absence of delivery challans and based on the statements of Bhanwarlal Jain that they have provided only accommodation bills, the Assessing Officer has concluded that the assessee has obtain....
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..../s. Daksh Diamonds specifically stated that it had made bogus sales to the appellant. The purchase invoices, payments to the parties through cheques and closing stock inventory submitted by the appellant are certain important evidences regarding the purchases made by the appellant that cannot be set aside summarily. Therefore, the conclusion drawn regarding the purchases made from M/s.Daksh Diamonds being entirely bogus, is not justified. 15. In this regard, the ratio was laid down by the Hon'ble High Court of Bombay in the case of CIT v.Nikunj Eximp Enterprises(P.)Ltd.,is very relevant,wherein it was held that- "When the assessee have filed letter of confirmations of the suppliers, Bank statements highlighting the payment entries through account payee cheque, copies of invoices, stock reconciliation statements before the AO; and merely because the suppliers did not appear before the AO, one cannot conclude that the purchases were not made by the assesses. The AO cannot disallow the purchases on the basis of suspicion because the suppliers were not produced before them." 16.The facts and circumstances as outlined above, clearly suggest that the purcha....
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....ed, particularly in the cases where the corresponding sales are not doubted. Alternatively, the profit embedded in such sales against the alleged bogus purchase, can only be brought to tax. 18. In the case of CIT-1 Vs Simit P. Sheth, ITA no. 553 of 2012, order dated 16.01.2013, while deciding a similar issue the Hon'ble High Court of Gujarat has held that: "We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and nonexistent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, CIT believed that when as a trader in steel the assessee sold ....
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....en made from M/s.Daksh Diamonds. The appellant has not placed any evidence on record that the goods were purchased from the above party at arms' length price. The appellant has also not placed on record any comparable bills/invoices for purchases of similar items made from other parties to establish that the purchases from M/s.Daksh Diamonds in question was at par with the purchases made from other parties during the period under consideration. The possibility of such purchases from unregistered dealers without invoices cannot be ruled out. Hence possibility of such purchases from unregistered dealers without invoices cannot be ruled out. In view of the above, the correctness of the purchase prices mentioned on such bills/invoices issued by M/s.Daksh Diamonds in question cannot be accepted and some additional profit needs to be estimated on such purchases made from M/s.Daksh Diamonds. As the purchases invoices issued against the alleged bogus purchases remains unverifiable, and part of the profit element on the purchases made from M/s.Daksh Diamonds already included in the above gross profit rate shown for the year under consideration, it would be fair and just, if the addition....
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....missions of the Ld.DR that the profit element should be estimated at 6% as per the CBDT Circular the assessee has already shown 6.04% of overall Gross Profit during these three Assessment Years. The disallowance/estimation of profit on purchases by treating them as bogus cannot be made only on the statements recorded from third parties, especially when those parties have responded to the notice issued u/s.133(6) of the Act by filing all necessary documents to prove that they have made sales to the assessee. It is also the submission of the assessee that none of the impugned parties have been declared as Hawala dealers or suspicious dealers by the Sales Tax Department and the genuineness of the purchases have been doubted merely on the basis of the statement given by the Bhanwarlal Jain group. The assessee has furnished all necessary evidence to prove the genuineness of the purchases, the parties have also responded to the notices u/s. 133(6) of the Act by filing necessary evidence as to prove that the purchases are genuine. Thus the assessee discharged the onus to prove the genuineness of the transactions made by the assessee from the impugned parties. The Assessing Officer complet....
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.... the notices issued by the AO u/s 133(6) of the Act during the course of assessment proceedings, in our view, the said replies cannot be rejected without bringing on record any material to show that they are not true. We notice that the AO did not bring any material on record and he simply relied upon the report given by the investigation wing. As per Ld A.R, the statement given by Shri Bhanwarlal jain is a general statement only. The assessee, as stated earlier, has furnished confirmation of ledger accounts and also affidavits to prove the genuineness of transactions. We notice that the AO could not controvert those documents. 12. In view of the foregoing discussions, we are of the view that the assessee has duly discharged the burden to prove the genuineness of purchases. On the contrary, the AO has simply relied upon the report given by the investigation wing. In this view of the matter, we are of the view that no addition is called for on account of alleged bogus purchases. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the impugned addition." 20. In view of what is discussed above,we are of the view that the ....
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....o objected to addition of Rs. 25.53 lakhs to his income as well invoking of section 69C of the Act. 7.1.While deciding the appeal filed by the AO,we have decided the issue against the AO. Following the same,we decide ground no.6 in favour of the assessee.We are also of the opinion that provisions of section 69C are not applicable in case of alleged bogus purchases. 8.Next Ground is about addition of Rs. 79,80,000/-.During the assessment proceedingings,the AO found that the assessee had taken unsecured loans of Rs. 79.80 lakhs.After discussing the modus operandi followed by BJ Group,the AO treated the amount in question as unexplained cash credit,invoking the provision of section 68 of the Act. 8.1.In the appellate proceedings before the FAA,the assessee made detailed submissions.After considering the assessment order and the submission of the assessee,the FAA held that he had received unsecured loan of Rs. 79.80 lakhs from LD,that he had admitted that loan was received through banking channels and that same could not be considered as unexplained cash credit,that during the appellate proceedings the assessee had changed its stand,that before him the assessee claimed that it....
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.... re-opened under section 147, on the basis that the information has been received from DGIT(Inv), Mumbai upon search and seizure action u/s 132 of the Act carried out on the group of Shri Bhanwarlal Jain that the assessee has received accommodation entries from the said parties/ concerns managed and operated by him.According to the information,the assessee obtained accommodation entries in the form of unsecured loans from M/s Laxmi Trading Company, M/s Rose Impex and Megha Gems, which are belonging to Shri Bhanwarlal Jain. The AO accordingly formed an opinion that the income to the tune of Rs. 2,02,62,016/- has escaped assessment within the meaning of section 147 of the Act and accordingly reopened the assessment by issuing notice under section 148 of the Act dated18.3.2015 and ultimately the assessment was completed vide order dated 4.3.2016 passed under section 143(3) read with section 147 of the Act assessing the total income of the assessee at an income of Rs. 1,66,31,511/- as against the earlier assessment made at Rs. 33,82,280/- made under section 143(3) dated 20.3.2013 thereby making two additions namely unexplained cash credit from the parties referred hereinabove of Rs. 1,....
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....ce of any written submission against the view taken by the AO in the assessment order it is held that the AO has rightly made the addition. The grounds of appeal No.1 is accordingly dismissed. 5 Decision on grounds of appeal no.2: 5.1 As per the assessment order the AO took a view that the appellant had introduced unexplained cash credits from entities related with Bhanwarlal Jain group of cases through accommodation entries arranged on commission basis. The AO accordingly computed 3% of Rs. 1,15,00,000/- as undisclosed expenditure within the meaning of section 69C of the Act. In this way addition of Rs. 3,45,000/- was made to the total income of the appellant. 5.2 During the course of appeal proceedings, no one appeared nor was any written submission made. In the statement of facts and grounds of appeal only general facts are stated. In absence of any written submission and/or document to substantiate the argument of the appellant against the view taken by the AO in the assessment order it is held that the AO has rightly made the addition. The grounds of appeal no.2 is accordingly dismissed. Aggrieved by the order of the FAA, the assessee is in appeal be....
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....tion entries. In support of his contention, the ld.AR relied on the decision of the Hon'ble Supreme Court in the case of ITO V/s Lakhmani Mewal Das reported in (1976) 103 ITR 437 (SC), the decision of the Hon'ble Delhi High Court in the case of CIT V/s Gangeshwari Metal (P) Ltd reported in (2013) 96 DTR 299, wherein it has been held that there was a clear lack of enquiry on the part of the AO. Once the assessee had furnished all the material including PAN, loan confirmations and bank statements, in such an eventuality, no addition can be made u/s 68 of the Act. According to the ld.AR, the AO merely proceeded on the basis of information received from the third party and framed the assessment by making additions by stating in the assessment order that the explanation of the assessee is not acceptable. The ld. AR further relied upon the number of decisions like : i) CIT V/s Varinder Rawley (2014) 366 ITR 232 (P&H); ii) CIT V/s Sachital Communications (2014) 227 Taxman 219 (Mag); iii) CIT V/s Patel Ramniklal Hirji (2004) 222 Taxman 15 (Mag); iv) CIT V/s Jaikumar Bakliwal (2014) 366 ITR 217 (Raj); v) Nemi Chand Kothari V/s CIT (2003) 264 ITR ....
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....e Act and filed confirmations before the AO that loans were actually given to the assessee. From all these details and facts on record, we find that the assessee has discharged its onus cast upon it by filing all the necessary details as called for by the AO to corroborate the transactions of borrowing the money and thereby satisfied all the three main ingredients i.e. creditworthiness of the creditors, genuineness of the transactions and identity of the creditors by filing all the details as discussed above which proved that the identity of the creditors, genuineness of the transactions and creditworthiness of the creditors have been established by the assessee. So much so that the loan creditors in response to the notice issued under section 133(6) appeared before the AO and confirmed the that they have given interest bearing loans to the assessee on which TDS have been deducted and paid and form no.16A issued to the loan creditors also filed before the AO. Once the assessee has filed all and other three appeals the necessary documents before the AO then the onus is shifted to the department to disprove the stand of the assessee, which department has failed to do so in the presen....
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....itors were name lenders - Whether live link or close nexus which should be there between material before Income-tax Officer and belief which he was to form regarding escapement of income of assessee from assessment because of latter's failure or omission to disclose fully and truly all material facts was missing in case - Held, yes - Whether, thus, High court was not in error in holding that said material could not have led to formation of belief that income of assessee had assessment because of his failure or omission to disclose fully and truly all material facts - Held, yes. In the case of Smt. Sangmitra Bharali (upra) the Hon'ble Gauhati High-Court held as under : " I. Section 68, read with sections 45 and 54F, of the Income-tax Act, 1961 - Cash credits (Undisclosed income v. LTCG) - Assessment year 2001-02 - Assessee held shares of company BPAL just for a period over 12 months and declared sale value 25 times more than purchase price - Company BPAL was not found at given address nor were its directors traceable - Purchase was not made through banking channel nor purchase price was verifiable in any way - Whether it was simply a sort of modus operandi to conve....
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.... In the case of Sachitel Communications P.Ltd (supra), the hon'ble Gujara High Court has held as under : "II. Section 68 of the Income-tax Act, 1961 - Cash credit (Loans) - Assessment year 2006-07 - Commissioner (Appeals) and Tribunal concurrently found that assessee proved identity of creditor and capacity to pay and that payment was made through banking channel - Whether no addition could be made on account of unsecured loan - Held, yes [Para 3] [In favour of assessee]" In the case of Patel Ramniklal Hirji, the Hon'ble Gujrat High Court has held as under : "The addition on the basis that four depositors furnished requisite details to prove their identity and showed the place of their residence. The loan was received through account payee cheques. Copies of Bank Statements was given and the details of PAN were available. All the materials duly proved the genuineness of the transaction of loan as well as creditworthiness of the depositors. Hence, the addition u/s. 68" In the case of Jaikumar Bakliwal (supra), the Hon'ble Rajasthan High Court has held as under: "Three things are required to be proved by recipient of money i.e. (1....
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....under the law for the assessee to try to find out as to what source or sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transctions, which he had with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor. No such additional burden can be placed on an assessee, which is not envisaged by section 106 of the the Evidence Act. The Revenue/Assessing Officer, however, remains free to show that the amount, which has come to the hands of the assessee by way of loan from the creditor actually belonged to the assessee, but this conclusion cannot be reached by mere failure on the part of the sub-creditor to show his creditworthiness and/or the genuineness of the trsnaction between the creditor and sub-creditor, for, the creditor may receive any amount from sources known to the creditor only and if he fails to show how he has received the amount, in question, or if he fails to show the creditworthiness of his subcreditor, such an amount may be treated as the income from undisclosed source of the creditor or of the sub-creditor, a....
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.... Accommodation entry - without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s. 68. It is further held that: "The oral statement of a third party recorded by Search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s. 68 on account of alleged accommodation entries. " Besides, it is further submitted that the Hon'ble Bombay High Court in the case of Mls. Rushabh Enterprise v. ACIT had occasion to go through the identical issue and two of the Creditors in that case, i.e. Mls. Laxmi Trading Co. and Mls. Rose Impex were also parties in the case of the assessee. In the case of Andaman Timber Industries (supra), the Hon'ble Supreme Held as under :. "Not allowing the assessee to cross exarrune the witnesses by the Adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullify in as much as it amounted to violation of principles of Natural Justice because of which the assessee was adversely affected." ....