TaxTMI 
TaxTMI 
2017 (12) TMI 1757
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.... AO. 2. The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the AO be restored. 3. The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary. 4. As per the facts of the present case, the assessee is engaged in the business of trading, processing and exporting of cut and polished diamonds. The assessee filed its return of income for AY 2007-08, 2009-10 & 2010-11 on 29.10.07, 20.09.09 and 11.10.10 declaring income of Rs. 16,70,00,919/- for AY 2007-08, Rs. 14,70,61,990/- for AY 2009-10 and Rs. 19,29,65,680/- for AY 2010-11. The assessment was completed u/s 143(3) r.w.s. 147 on 27.03.15 for AY 2009-10 and on 17.03.16 for AYs 2009-10 and 2010-11 determining the total income at Rs. 23,56,80,640, Rs. 15,45,65,180/- & Rs. 25,25,19,220/- respectively by making the disallowance. 5. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties had passed a consolidated order thereby partly allowing the appeals of the assessee and restricted the additions @ 3% of the bogus purchases. Aggrieved by the order of Ld. CIT(A), both i.e. revenue....
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....he said ground has passed the detail order in para no. 2 to 5. The operative portion of CIT(A)'s order is contained in para no. 4.2, 4.2.1 & 4.2.2 and the same is reproduced below:- 4.2 I have carefully considered the facts of the case and submissions of the ld.AR. I have also gone through the decisions relied on by the Id.AR. As seen from the facts of the case the AO has reopened the assessment based on the information received from the DIT(Inv.), Mumbai on the basis of search and seizure action conducted by the investigation wing during the course of which Bhanwarlal Jain and his appointed directors/partners have given categorical statements clearly stating the modus operandi followed by them in providing the accommodation bills. They have also admitted unequivocally before the investigation wing that they were not involved in any real trading of diamonds except giving bogus bills to those who need them for certain commission. Having observed that those parties appearing in the books of the appellant are non-existant sellers and they have not made any sales except the bogus invoices issued in the names of the companies/firms floated by them (as many as 70 concerns), the AD has ....
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.... per cent of purchase cost as probable profit of assessee - Tribunal however, sustained addition to extent of 12.5 per cent - Whether since purchases were not bogus but were made from parties other than those mentioned in books of account, only profit element embedded in such purchases could be added to assessee's income - Held, yes - Whether hence, order of Tribunal needed no interference - Held, yes [Pares 6, 7 & 9] [In favour of assessee]' (emphasis supplied). 4.2.1. In the instant case, the AO has made independent enquiry by issuing notices u/s 133(6) of the Act to the suppliers. Even though the notices were served and replies were received from the said parties, the AO was not satisfied since the information lacks the details sought by her. With regard to the information received from DIT(Inv.), Mumbai the summary of the communication was already passed on to the appellant while communicating reasons for reopening. The AO could not have passed on a copy of such statement given by the key persons of Bhanwarlal Jain group since it is a comprehensive statement detailing the names of several bogus concerns floated by them (as many as 70 concerns) and the modus operandi o....
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....cases as they were decided as per the facts and circumstances of that particular case before them. I am of the considered opinion that the theory laid down by the Hon'ble Gujrat High Court in the case of Simit P Seth (supra.) should be applied in the instant case. The decision rendered by Gujarat High Court in the above case is on the basis of VAT benefit the appellant might have saved by taking'accommodation entries. While deciding this case the Honorable High Court has drawn strength from its earlier decision in the case of Vijay Proteins P Ltd., 58 ITAT 428. In Simit P Seth's case the Honorable High Court has ordered the disallowance at 12.5% since the VAT rates are higher (10%) in the type of goods dealt by Simit P Seth, iron &steel, (where the average GP is 2.5%). In the case of diamond business, which the appellant is dealing, the VAT charges are only 1% and the customs duty, when imported, is about 2%. Keeping in view the above tax rates, the intention of the assessee to save from the transaction should be viewed only to the extent of saving from the above taxes/levies by indulging in taking accomodaton entries. It is also pertinent to mention here the relevance ....
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....present case. Keeping in view the above instruction of the Board on the one hand and the saving gained by the assessee by involving in accommodation entries to the extent of levies on the other, I find it appropriate to take 3% of the reported bogus purchases for adding u/s 69C over and above the regular profits disclosed by the appellant instead of adding 9% as was done by the AO (1.5 times of 6%). The AO is directed accordingly. In view of this the ground is partly allowed. After having gone through the facts of the present case, judgments relied upon by both the parties as well as considering the orders passed by revenue authorities and hearing the parties at length, we find that the AO had made the additions by passing a detailed order wherein the AO had considered the statement of Bhawarlal Jain recorded on oath during the course of search proceedings on Bhawarlal Jain group. The AO has taken into consideration the specific statement of the said Bhawarlal Jain wherein he had admitted that accommodation entries were provided to the beneficiary assessee to reduce their profit liability. As per the facts of the present case, the department had conducted certain enquiries, search....
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....ent embedded in these purchase transactions to factorize profit earned by assessee against purchase of material in the grey market and undue benefit of VAT against bogus purchases, we are of the considered view that restricting the additions @ 3% of purchases by Ld. CIT(A) is unreasonable. The ends of justice would be met in case the additions are restricted @ 6 % of bogus purchases. Consequently orders passed by Ld. CIT(A) are set aside. The issue of accommodation entries is a reality, to arrest such rampant malpractices, a restraint is always inevitable as we cannot encourage such malpractice of obtaining accommodation entries to avoid the impact of levies and defrauding revenue. Since it is proved on record that assessee was indulged in bogus purchases, therefore the assessee is not being given benefit to reduce already GP declared from GP ratio of 6%. Hence no benefit of GP is being given. Hence we direct the AO to restrict the additions to the extent of 6% of the bogus purchases for adding u/s 69C over and above the regular profits disclosed by the assessee. Accordingly this ground raised by the revenue is partly allowed. 10. In the net result, the appeal filed by the reven....