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TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 1050
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....TA/7100/Mum/2016: 2. Effective Ground of appeal, raised by AO, is about not sustaining addition of Rs. 2.04 crores made under the head peak credit of transaction of bogus purchases. The AO had received information from the DGIT(Inv.),Mumbai regarding a search action which was carried out in the cases of Bhanwarlal Jain Group and Rajendra Jain Group. As per the information of the investigation wing, Bhanwarlal Jain(BJ)and other persons associated with him had admitted, under oath during the course of search, that they through their various benami concerns would provide accommodation entries for bogus purchases. On the basis of the information received that AO held that the assessee had obtained non genuine bills from M/s. Daksh Diamonds(DD) worth Rs. 2.04 crores. He made an addition of Rs. 2,04,30,250/- to the total income of the assessee, invoking the provisions of section 69 C of the Act. The AO further observed that BJ had explained the modus operandi and had confessed that the group was issuing bogus bills and was providing accommodation entries. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA)and made detailed su....
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....ave been rejected, that assessee had filed the evidence to prove genuineness of purchases, that it had filed ledger account, copy of bank statement, confirmation letter from purchaser, acknowledgement of return of income for 2007-08 and bank statement of the supplier, that it had filed an affidavit of the supplier stating that disputed transaction was genuine. He further stated that VAT department had treated these transaction as genuine, that BJ had retracted his statement, that there was no evidence of cash withdrawal, that the stock register was maintained properly and was not doubted by AO, that the AO had not rejected the sales. He referred to cases of Indo Unique Trading Pvt. Ltd.(ITA.s/6341/ Mum/2016 & 6721/Mum/2016-AY.07-08,dtd.16/8/2017);wherein the addition made by AO were deleted by the Tribunal. In that case statement made by BJ were considered. He also relied upon the cases of Ronak Gems Pvt. Ltd. (ITA/3118/Mum/2017, AY. 2007-08,dated 04/10/2017);M/s.Vaman International Pvt. Ltd. (ITA.s/1020 & 1041/Mum/2017,A.Y.2007-08,2008-09 & appeals for other AY. s); Kaysons agencies Private Ltd. (ITA/3812/Mum/2014,AY.2005-06,dtd.17/3/2017); M/s. Fancy Wear (ITA/1596/Mum/2016,AY.20....
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....ee. However, the Assessing Officer not convinced with the submissions of the assessee and since no delivery challans were furnished to prove the delivery of goods have been actually made by the alleged suppliers to the assessee and since the Directors/ Proprietors of the supplier companies/firms have deposed on oath that all the concerns controlled and managed by them are not doing any real trading in diamonds but indulged in paper transaction only, the Assessing Officer rejected the submissions of the assessee that the purchases made from these entities are genuine. The Assessing Officer stated that the statement recorded from Shri Bhanwarlal Jain clearly established that the concerns controlled and operated by them are not carrying out any genuine business activity. 4. It was also observed by the Assessing Officer that the report received from the office of the DGIT (Investigation) during the course of post search inquiries the modus-operandi followed by the group concerns have been accepted by the key persons in the group. Even during the post search enquires Shri Bhanwarlal Jain admitted the fact that they are engaged in paper transaction only without any physical stock of th....
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.... the disallowances were made only based on the admission of Shri Bhanwarlal Jain in the course of search and seizure proceedings and since the parties have confirmed that the transaction has entered into by the assessee are genuine the purchases cannot be treated as non- genuine, especially since sales are not disputed and they have accepted. Ld. Counsel for the assessee further submitted that, assessee submitted Copies of purchase invoices, Ledger confirmations, Copies of Bank Statements reflecting payments made to the suppliers and Stock register reflecting inward of goods purchased from them and corresponding sales in support of genuineness of its purchases. Learned Counsel for the assessee submitted that AO issued notices u/s. 133(6) calling for relevant details from the parties. Each of the party has replied and submitted Ledger A/c of the assessee in their books of accounts, Copies of Sales Invoices issued by them, Bank statements reflecting the payments made by the assessee to them, Copies of acknowledgement of Income-tax Returns filed by them, Audited Profit & Loss A/c and Balance Sheet for all the years involved. Ld. Counsel for the assessee submitted that none of the subm....
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....major flaw in these transactions is the unverifiable nature of transactions of these purchases from M/s. Daksh Diamonds as it was not found available at the given address." However, Ld. Counsel for the assessee submitted that the fact is that the AO issued notices u/s. 133(6) to all the parties which were not only served upon them but were also responded by all of them. 12. Ld. Counsel for the assessee submitted that the Ld. CIT(A) agrees with the fact that the AO has merely relied upon the statement recorded by the Investigation wing and in-depth investigation was not carried out to the extent required. The Ld.CIT(A) ought to have made the investigation either on his own or through the AO which in his opinion was required before confirming any addition. The statements of Mr. Bhanwarlal Jain and others relied upon by the AO have been retracted by them. Learned 9 Counsel for the assessee submitted that the impugned parties have been engaged into imports as well which evident from the audited P & L Account submitted by them. This fact has also been noted by the AO in his order. 13. The Ld. Counsel for the assessee further submitted that the GP margin earned by the assessee from....
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....llant on the issue. I have also considered various case laws relied upon by the appellant. My observations are as under. 12. The AO has formed his view about the bogus nature of the purchase made by the appellant from M/s.Daksh Diamonds on the basis of various incriminating. documents and evidences seized during the course of search & seizure action in the case of Bhanwarlal Jain Group, which has established that the said group was engaged in providing accommodation entries of bogus sales/purchases/loans to various beneficiaries. 13. In my opinion, simply relying upon the information received from the DGIT (Inv.) regarding the default committed by M/s. Daksh Diamonds cannot be taken as the sole basis to treat the entire purchases made from it as bogus or non-genuine. The Assessing Officer has primarily relied on the conclusions drawn by the Investigation Wing on the basis of the statement given before the Income tax authorities and heavy reliance on such statement to treat entire purchases made from the above party as bogus, cannot be held to be justified. The information received from the DGIT(Inv.) was a piece of evidence to initiate in-depth independent investigation on the ....
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....ailing market prices of the materials purchased and to ascertain that the price paid for the materials purchased from M/s.Daksh Diamonds is not over invoiced. In the absence of any such verification of the correctness of the price paid for the materials purchased by the appellant, the purchase price paid as mentioned on the invoices/bills cannot be accepted as the correct price paid for the goods purchased from M/s.Daksh Diamonds. In view of the same, the possibility of over-invoicing of the materials purchased to reduce the profit, 'cannot be ruled out. Therefore, the gross profit rate shown by the appellant for the year under consideration cannot be relied upon. In the circumstances, the correct approach in such transactions would be to estimate the additional benefit or profit earned on these purchases and not to disallow the entire purchases from M/s. Daksh Diamonds. The disallowance of the entire amount of purchases from M/s.Daksh Diamonds would not be logical and would amount to travesty of justice. In my view either the purchases from above mentioned party are over invoiced or the purchases were actually made but not from the said party from which it was claimed to have ....
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.... No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428 came to be approved." (Emphasis supplied) 19. Similarly while dealing with an identical issue, in the case of CIT v. Bholanath Poly Fab (Purchase)Ltd. ITA. No. 63 of 2012, in the order dated 23/10/2012, the Hon'ble High Court of Gujarat has held as under:- "We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assesses did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT (2009] 316 ITR 274 (Guj). Such decision is also followed by this co....
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.... parities are not found available in the given address. However, we see that the parties have responded in these cases for the notices issued u/s. 133(6) of the Act, they have filed Ledger Account of the assessee in their books of accounts, Copies of Sales Invoices issued by them, their Bank statements reflecting the payments made by the assessee to them, Copies of acknowledgement of Income-tax Returns filed by them, Audited Profit & Loss A/c and Balance Sheets to show that the transactions of sales made to the assessee are genuine. On a careful consideration of the submissions made by the assessee, we find considerable force in the submissions not to treat the purchases made by the assessee from the parties as non-genuine/bogus. 18. The reason for treating these purchases as non-genuine /bogus is the statements given by Bhanwarlal Jain group and non-submission of delivery invoices by the assessee. It is the submission of the assessee that the statements given by Bhanwarlal Jain group have been retracted by them subsequently and there is a practice of hand delivery of such precious and light weighing materials like Diamonds is prevailing in the industry. Therefore, no adverse con....
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....erused the record. We notice that the assessing officer has reopened the assessment for the second time after expiry of four years from the end of the assessment year, on the basis of information received from the investigation wing about the bogus nature of transactions entered by Shri Bhanwarlal Jain group. Even though the AO has mentioned the reasons that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, yet he has not specified the manner of failure. 11. On the contrary, we notice that the assessee has proved the genuineness of purchases by obtaining confirmation letters in the form of affidavits from all the suppliers. The AO has done independent enquiry during the course of assessment proceedings by issuing notices u/s 133(6) of the Act to all the suppliers. We notice that the notices were duly served upon the suppliers and they have also responded by filing their replies duly confirming the transactions. The AO has rejected the replies by observing that the replies lacked details and they did not mention about the nature of transactions. In our view, the said observations are vague in nature. On the contr....
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....of the case under consideration are almost identical to the facts of Vama International(supra).In that case also the AO had added the entire purchases to the income of the assessee and the FAA had given part relief to the assessee. In the instant case, the assessee was denied the opportunity of cross examination though it had made a request to the AO during the assessment proceedings. By not allowing cross examination of the third party, whose statement was being used against the assessee, the AO had violated the basic principles of natural justice. Only on that count the order can be quashed. But, we are considering other factors.BJ has retracted his statement. So, the authenticity of the material relied upon by the AO reduces to a great extent. The supplier has admitted the transaction and the AO has not doubted the sales. It is also found that DD had filed VAT returns. Considering the all these facts and respectfully following the order of the Tribunal in the case of Vama International (supra),we decide the effective ground of appeal against the AO. ITA/7047/Mum/2016: 6.During the course of hearing before us,the AR did not press first five grounds of appeal.Hence, same stands....
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....at LD had admitted receiving back the money, that the assessee was one of the creditors of LD. He referred to the cases of Sanghavi Reality Pvt. Ltd.(ITA.s/3018-20/Mum/2017 AY.2008-09-2011-12),Vikram Muktilal Vora(ITA/842/Mum/2017,AY.2007-08),Gujarat Construction (ITA/7040/Mum/2016,AY.2007-08) 8.3.We have heard the rival submissions and perused the material before us. We find that the FAA had observed that the transaction with LD could not be considered genuine as it had advanced unsecured loans to the assessee. It is found that LD in its affidavit has admitted that it had advanced loan to the assessee. Here we would like to refer to the case of Reliance Corporation (ITA/1069-71/Mum/ 2017, AY.2008-09 to 2010-11,dtd.12/04/2017)wherein the similar issue was dealt with. In that case also,on the basis of search and seizure operations carried out in the case of BJ, additions u/s.68 were made to the total income of the assessee. We are reproducing the relevant portion of the order and it reads as under: 4.Facts of the case are that the assessee filed its return of income on 15.10.2010 declaring a total income at Rs. 56,732/-.The return was processed under section 143(1) and the asses....
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....olding as under : "4 Decision on grounds of appeal no.1: 4.1 The relevant facts are like this. The assessee is a firm which is engaged in the business of builders & developers. A search & seizure action was conducted in the Bhanwarlal Jain group of cases by Investigation Wing Mumbai. As a result of search, it was found by the Investigation Wing that this group is a leading entry provider of Mumbai. There are many concerns floated by the group who provide accommodation entries of bogus loan The AO received an information that the appellant has also taken loan from concerns found in the list of entry providers related with Bhanwarlal Jain group of cases. The AO asked the appellant to show cause as to why loan taken from M/s Laxmi Trading Company & M/s Rajan Diamonds should not be disallowed and added to the total income. As per the assessment order the appellant did not file any written submission on this issue. The AO added the amount of fresh loans and interests on existing doubtful loans paid during the AY 2010-11 to the total income of the appellant. In this way, addition of Rs. 1,29,04,231/- was made to the total income of the appellant and other three appeals 4.2 During the....
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.... submitted that the addition was made out of unsecured loans raised by the assessee from the group concern of Bhanwarilal Jain Group engaged in providing accommodation entries. On the contrary , there was no indication or proof that loans taken by the assessee were merely accommodation entries and the money actually gone back to the lenders . The ld.AR also submitted that the creditors appeared before the AO in response to the notice issued u/s 133(6) and during the course of recording statements by the AO the lenders confirmed the loans having given to the assessee. Besides all the necessary details were submitted before the AO during the assessment proceedings. The assessee also provided the loan confirmation from the creditors, PAN of creditors ledger extract copy of Income tax return, profit and loss account, balance sheet and bank statement of the creditors and also of the assessee and form no.16 issued qua the TDS deducted and deposited. The ld. AR further submitted that the assessee has completely discharged its onus cast upon it by filing necessary informations/details before the AO and the AO without carrying out any further investigations and verification in the matter so....
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....f the FAA should be upheld by dismissing the appeal of the assessee. 8.We have heard the rival contentions perused the material placed before us including the orders of authorities below and orders relied upon by the parties. We find that undisputedly the assessee has borrowed money by way of loan from three aforesaid three parties i.e. M/s Laxmi Trading Company, M/s Rose Impex and Megha Gems from whom the assessee borrowed the money and total outstanding including the interest as on 31.3.2010 were amounting to Rs. 1,29,04,231/-. The case of the assessee was re-opened upon receiving the and other three appeals information from DGIT(Inv), Mumbai that the assessee was one of the beneficiary of the said accommodation entries provided by Mr. Bhanwarlal Jain and group. We find from the record that the assessee filed during the course of assessment proceedings all the details like loan confirmation letters from the creditors, PAN of the creditors, bank statements og the creditors and the assessee, form no.16 qua TDS on interest ,profit and loss account and balance sheet including the ledger account of the creditors, and ITR etc. Moreover, the loan creditors also appeared before the AO ....
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.... of his belief that there has been escapement of assessee's income from assessment in particular year because of his failure to disclose fully and truly all material facts - Held, yes - Whether duty cast upon assessee is to make true and full disclosure of primary facts at time original assessment, and it is for Income-tax Officer to draw correct inference from primary facts - Held, yes - Whether if Income-tax Officer draws inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment - Held, yes - ITO completed original assessment by allowing deduction of interest paid to certain creditors - Subsequently, he reopened assessment for reasons recorded in report submitted to Commissioner for and other three appeals obtaining sanction under section 147(a) that one creditors had confessed that he was doing only name lending and that other creditors were only name lenders - There was no material to show that confession made by said creditor related to loan to assessee and not to someone else and also that said confession related to period which was subject matter of assessment - T....
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....rries out the exercise which is required in law and the other in which the Assessing Officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer, after noting the facts, merely rejected the same. [Para 9] * There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the relevant material. In such an eventuality no addition can be made under section 68. [Para 10] * In view of above, impugned order passed by the Tribunal was to be upheld. [Para 11] In the case of Varinder Rawley (supra), the Hon'ble Punjab and Hariyana High Court has held as under: "where the assessee shows that the entries regarding credit in a third party's account were in fact received from third party and are genuine, he discharges the onus. In that case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to the assessee", particularly in a case where no summons u/s 131 is issued against the third party" ....
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....cular amount of money in the bank, there is no limitation under the law on the part of the and other three appeals assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the trasnactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuinenss of the transaction and the creditworthiness of the creditor visa-vis the transactions, which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to w....
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....The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources." (ii) that no assessment could be made contrary to the provisions of law. In the instant case, the very basis for making the assessment was under challenge. If the assessment was based on a completely erroneous view of law, such findings could not be regarded as mere findings of facts, but must be treated as substantial questions of law. Therefore, the question raised in the appeal was a substantial question of law because it went to the very root of the assessment made. The aforesaid view has been also considered and fortified and favourably referred to by the Allahabad High Court in the case of C.I.T. v. Shalimar Buildwell Pvt. Ltd. (2014) 220 Taxman 138 (All.) In the case of Lalpuria Construction P. Ltd (supra) the Hon. Rajasthan High Court has held t "that in the case of Accommodation entry - without giving an opportunity of cross examination me....