TaxTMI 
TaxTMI 
2019 (9) TMI 496
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....peal of the revenue for the Asst Year 2007-08 is as to whether the ld CITA was justified in deleting the addition made towards Bogus Purchases in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee is engaged in the business of import, export and trading of cut and polished diamonds and rough diamonds. The assessment was reopened pursuant to the search conducted u/s 132 of the Act in the case of Bhanwarlal Jain Group wherein it was found that the group was engaging in providing accommodation entries of unsecured loans and bogus bills to various beneficiaries. As per the information received by the ld AO of the assessee from Director of Income Tax (Inv.) II, Mumbai , it was found that the assessee had obtained accommodation purchase bills / unsecured loans from following parties :- Jewel Diam Financial Year 2006-07 - Rs. 81,14,182/- A2 Jewel Financial Year 2006-07 - Rs. 50,85,612/- --------------------- Rs. 1,31,99,794/- -------------------- 3.1. The assessee pleaded that the ld AO had not provided the reason on what basis the Director of Income Tax (Inv.) II Mumbai had come to the c....
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....purchases in the books of account, it cannot be taxed u/s 68 or 69 of the Act. Hence the reopening was challenged by the assessee on this count. However, the ld AO proceeded with the reassessment proceedings. 3.3. The assessee submitted the following details before the ld AO vide submissions dated 7.10.2014 :- a) Copy of purchase bills from M/s Jewel Diam and M/s A2 Jewel. b) Copy of ledger account of M/s Jewel Diam and M/s A2 Jewel. c) Copies of bank statements of the assessee showing the payment for purchases made to these two parties. d) Copy of stock register showing receipt of diamonds purchased from M/s Jewel Diam and M/s A2 Jewel. 3.4. It was submitted that the goods purchased from above two parties had been exported and quantitative tally thereof is duly given in the tax audit report u/s 44AB of the Act and the same perfectly tallies with the books of accounts of the assessee. The exports made by the assessee from the said purchases was through customs department who have verified and certified the quantity and price of the goods. The assessee also produced both the parties before the ld AO for examination who had duly confirmed the....
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.... assessee. The ld AO further placed reliance on the various documents seized from the premises of Shri Bhanwarlal Jain and his group during his search u/s 132 of the Act and relied on their statements recorded on oath at the time of search and observed as under:- "21. It is known market practice to make purchases in cash and to adjust such purchases against bogus purchase bills procured from bogus billers or hawala dealers. Payment by cheque is issued to such bogus billers, who return back the cash to the beneficiary / entry taker because there is no real transaction and hence,no payment is due to the bogus biller / hawala dealer. Considering the above facts of the case and the modus operandi adopted, where the goods are purchased from the grey market in cash, it is proved that the assessee has made unexplained cash purchases from the market." 22 To summarize : A search action was conducted on Sh. Bhawarlal Jain group of cases by DGIT(lnv.), Mumbai on 03/10/2013. During the course of search action, incriminating documents were seized and statements u/s 132(4) was recorded from Bhawarlal Jain and several other persons who assist Sh. Bhawarlal Jain, wherein it was a....
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.... unaccounted cash was Rs. 1,13,99,794/- because goods of that amount were purchased in cash but no cheques were issued. Therefore, there was no question of receiving the cash back in repeated transaction for this amount. In the interest of justice, even after giving the benefit of principle of telescoping is given to the assessee for the amount of as the cash purchases for that amount might have been made from the peak cash available with the assessee at Rs. 1,31,99,794/- . (Peak working attached as Annexure 'C) 23. From the discussion in the preceding para, there is no doubt that the purchases are not made from the parties from whom it is shown in the books of accounts. Further, reckoning the modus operand! enunciated above, details available on record and findings on record it is not difficult to understand the manner in which the whole transaction of bogus purchases has taken place. In any case, the onus is on the assessee to prove genuineness of purchases and parties from whom these purchases have shown to be made. The logical corollary the above fact leads to the conclusion that purchases are made from grey market by investing the assessee's own unaccounted cash f....
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....so provides accommodation entries for purchases. Nowhere has he mentioned that he provided accommodation entry to the assessee. Similarly the parties who appeared before the ld AO nowhere confirmed that they had provided accommodation entries to the assessee. Shri Bhanwarlal Jain and other people who have given statements during the search have retracted their statements. The ld CITA observed that the ld AO had not explained anywhere in the order the relevance of Annexure B attached to the assessment order, eventhough the same is termed as a clinching documentary evidence by the ld AO to make the addition towards purchases made from the alleged disputed parties, whereas the names of these parties do not figure in the said Annexure. Moreover, the seized document of Shri Bhanwarlal Jain on which heavy reliance has been placed by the ld AO relates to the period 1.1.2008 to 31.12.2008 and hence the same cannot be relied upon for making any addition for the Asst Year 2007-08. The ld CITA also noted that the ld AO took objection that the stock register is maintained carat wise and the details of the quality, cut and clarity of the diamond is not given and therefore it cannot be relied up....
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.... that the ld AO presumed that the assessee had made cash purchases to the tune of Rs. 7,76,88,848/- and worked out the peak credit at Rs. 3,29,30,159/- and made an addition thereon. 7. The ld CITA observed for the Asst Year 2009-10 , the assessee during the course of assessment proceedings had submitted the following documents :- a) Ledger account of all parties in its books b) Copies of purchase bills c) Stock register / quantity details d) Bank statement duly marked e) Account confirmation f) Corresponding export bills g) One to one mapping chart for good purchases and subsequently sale through exports h) Quantitative tally chart i) ITR Acknowledgement and bank statement duly marked of purchase entries j) Affidavit of Kothari & Co, Mouli Gems , Rose Gems Pvt Ltd and Meridian Gems k) Requesting letter to purchase party to appear before the ld AO for verification of transaction l) Statement of gross profit for last 9 years showing consistency in gross profit In addition to the above, the assessee produced all the purchase parties before the ld AO for examination wherein....
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....find that the ld AO had made addition by considering the peak credit of purchases. The theory of peak credit could be used only when the transactions are carried out outside the books. In the instant case, the entire purchase transactions are duly reflected in the regular books of accounts of the assessee and payments for the same were made by account payee cheques from disclosed sources. Hence the peak credit theory cannot be made applicable and the addition deserves to be deleted on this count. 8.1. Moreover, the addition has been made by the ld AO u/s 69C of the Act. The basic principle of section 69C of the Act is that the incurrence of an expenditure is not in dispute whereas the source for such expenditure is in dispute. In the instant case, since the addition is made u/s 69C of the Act, it could be safely concluded that the purchases has been accepted as genuine by the ld AO and only the source is disputed. We find that the source for such purchases have been explained from the regular books of accounts by making payment by account payee cheques. Hence there cannot be any addition u/s 69C of the Act. Hence the addition deserves to be deleted on that count also. 8.2. In....
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....anwarlal Jain and the other people who have given statements during the search have retracted their statements. The assessing officer has not explained anywhere the order the relevance of annexure B attached to the assessment order. She terms it as clinching documentary evidence to make the addition of purchases made from the parties. She explains a few entries and states that the figures coincide with the data found in the sony pen drive. But these figures do not have any correlation with the purchases made by the appellant from the abovementioned four parties. As already mentioned, the appellant expresses ignorance about this paper and says he is not aware how these entries are made by Shri Bhanwarlal Jain and disowns the same by stating that nothing has been found either in his premises or in the premises of the aforementioned four parties. None of the parties have confirmed providing accommodation entries to the appellant nor did Shri Bhanwarlal Jain mentioned the appellant in any of his statements. On the other hand, all the parties from whom the purchases have been made have not only filed affidavits but have appeared before the assessing officer and have confirmed the purcha....
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....re accommodation entries. 4.3.3. The appellant has requested the assessing officer to provide for the cross examination of Shri Bhanwarlal Jain on whose statement she has completely placed reliance. But this was denied to him. The Hon'ble Apex Court in the case of Andaman Timber Industries in CIVIL APPEAL NO.4228 of 2006 held as under:- "According to us, not allowing the assessee to cross-examine 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 nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However....
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....tness and the tribunal merely observed that the cross examination of the dealers in that case, could not have brought out any material which would not otherwise be in possession of the appellant. The Supreme Court set aside the impugned order and observed that it was not for the adjudicating authority to the adjudicating authority to presuppose as to what could be the subject matter of the cross examination and make the remarks such as was done in that case. In the instant case, although the appellant has called upon us to draw an inference that the burden shifted to the revenue in the present case, once it was established that the payments were made and repaid by cheque, be need not hasten and adopt that view after giving out through to various issue raised and the decisions cited by Mr. Tralshawalla and finding that on a very fundamental aspect, the revenue was not justified in making an addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT, Quite apart from denial of an opportunity of cross examination, the revenue did not even prove the material on the basis of which th....
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...., the appellant has completely disowned the paper as it was not found either in his premises or in the premises of the purchase parties. Apparently, this pertains to the period 1/1/2018 to 31/12/2018. The assessing officer has not explained the relevance of this paper. She merely says the information in the paper tallies with the information in the pen drive found at the premises of Shri Bhawarlal Jain. How this proves that the appellant has taken accommodaton entries from Mouli Gems, Rose Gems Pvt. Ltd. Kothari and Co., and Meridian Gems and how the cheques were given by the appellant and cash received back has not been brought on record by the AO that the appellant has received cash from these four parties. It appears that the reliance placed by the AO on the statement Shri Bhanwarlal Jain and the paper attached as Annexure-B to the assessment order is misplaced. 4.3.8. In view of the above discussion, the addition made by the assessing Officer of Rs. 3,29,30,159/- cannot be sustained and is directed to be deleted. This ground of appeal is allowed. 9.1. Moreover, we find that the ld AO had placed heavy reliance on the seized document of Shri Bhanwarlal Jain relating t....
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.... pressed by the ld AR at the time of hearing. The same is reckoned as a statement made from the Bar and accordingly the same is dismissed as not pressed for both the years. 11. In the result, the appeals of the revenue are dismissed and cross objections of the assessee are dismissed. Order pronounced in the open court on this 02/08/2019 ============= Document 1 DIA TRA IG COMPANY ATE COMAPANY 10-05-2006 A2 JEWEL 15-05-2006 JEWEL DIAM 03-07-2006 A2 JEWEL 11-08-2006 A2 JEWEL 26-09-2006 JEWEL DIAM 17-11-2006 A2 JEWEL 22-11-2006 A2 JEWEL 16-11-2007 KOTHARI & COMPANY 28-02-2008 KOTHARI & COMPANY 03-05-2008 KOTHARI & COMPANY 06-08-2008 MOULI GEMS TYPE PURCHASE ACCOUNT PURCHASE ACCOUNT PURCHASE ACCOUNT UNION BANK OF INDIA UNION BANK OF INDIA STATE BANK OF INDORE STANDARD CHARTERED BANK PURCHASE ACCOUNT STATE BANK OF INDORE PURCHASE ACCOUNT PURCHASE ACCOUNT 09-08-2008 ROSE GEMS PRIVATE LIMITE PURCHASE ACCOUNT Pe DR CR BALANCE 2644464.00 2644464.00 5085612.00 7730076.00 5469718.00 13199794.00 2644464.00 10555330.00 5085612.00 5469718.00 2469718.00 3000000.....