TaxTMI 
TaxTMI 
2021 (2) TMI 65
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and in the circumstances of the case the Ld. CIT(A) is wrong, unjust and has erred in law in upholding the rejection of books of accounts of the appellant by the assessing officer u/s 145(3) of the I.T. Act, 1961 on account of alleged unverifiable purchases of Rs. 116043373/- and in further directing application of G.P. rate of 12% on declared turnover on this count resulting in upholding addition to the extent of Rs. 4123468/- as trading addition. 3. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them." Grounds of Revenue's appeal: "1. Whether on the facts and in the circumstances of the case and bad in law the Ld. CIT(A) is correct in holding that trading addition of Rs. 2,48,87,372/- made by the A.O. on account of disallowance of 25% of bogus purchases on the basis of corroborative information received from Investigation Wing, Mumbai is not sustainable and only a trading addition of Rs. 41,23,468/- be made by applying GP rate of 12%?" 2. Without prejudice to the above, whether having upheld the applicability of section 145(3), the CIT(A) was justified in estimating the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment within the meaning of section 147 of the I. T. Act, 1961. Therefore, it is a fit case to issue notice u/s 148 of the I. T. Act, 1961". The A.O. proceeded to reassess the assessee and issued notice u/s 143 (2) which were complied by filling explanations producing copies of purchase invoices, Bank statements in support of payments made by cheques to persons from whom purchases made and also export invoices showing that goods so purchased were exported and also filed quantity tally of purchase & export sales and contended that purchases made by assessee are genuine and not bogus. However, the A.O. vide impugned reassessment order by rejecting books of accounts of assessee and invoked provisions of section 145 (3) of the Act and disallowed 25% of said purchases and made trading addition of Rs. 2,90,10,840/- in declared income. 4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of the parties as well as after perusing the material placed on record, given part relief to the assessee by observing as under: "9. I have perused the written submissions submitted by the Ld. A/R and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ections raised before A.O. objecting initiation of reassessment proceedings reproduced in assessment order. It is prayed that the same may kindly be considered while disposing the ground of appeal. It is submitted that from the plain reading of the reasons recorded, it can be noted that notice u/s 148 is issued solely on the basis of information received from Investigation Wing, Mumbai where it referred to various evidences found during search operation in case of Rajendra Jain group of cases. The primarily condition for initiating action u/s 147 is that A.O. must have reason to believe that any income chargeable to tax has escaped assessment. This satisfaction must be of A.O. himself and not a borrowed satisfaction. Reason to belief cannot be at the instance of investigation conducted by others or third party statement etc. In the present case, the reasons says that assessee has suppressed its profits by taking accommodation entry of Rs. 11,60,43,373/- in the nature of bogus purchases from four companies. The A.O. has not examined the information received by him to verify whether assessee has made any purchases from these parties and whether the same is reflected in the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(RB) Vs. Settlement Commission (1989) 176 169, 174 (SC) held that any order made in violation of principle of natural justice is void and nullity which is further supported from the decision of Hon'ble Supreme Court in case of CCE Vs. Andaman Timber Industries 127 DTR 241 held that assessment based on statement without giving an opportunity to cross examine him is not sustainable in law. Now it is settled law that by obtaining statements from the third person(s) cannot and should not be the only basis to reopen the case of assessee unless some other positive material or corroborative evidence is available on record. In the case of B & Brothers Engineering Works Vs. DCIT (2003) 78 TTJ (Ahmd TM) 876 it was held that admission by itself could not lead to conclusion that 'on money' was received. The recording of confessional statement is not the end of the matter and no assessment can be mechanically concluded on a confessional statement being an uncorroborated testimony such a statement cannot be considered as sacrosanct as held in ACIT Vs. Agarwal (1994) 50 ITD 52. Thus, such statements cannot be considered as an information for assessing officer to form reason to believ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed the excessive loss, deduction, allowance or relief in the return, the same is deemed to be case where income chargeable to tax has escaped assessment. [Para 13]. In the instant case, a perusal of the reasons recorded by the Assessing Officer for issuing notice under section 148 reveals that during the assessment proceedings it was noticed that the assessee had received share application money from several entities which was utilized during the year and subsequently returned in financial year 2013-14. That apart on further examination of certain information received from the Directorate of Investigation which had carried the investigation in the case of the entities, details whereof has been set out in the reasons recorded, it was ascertained that those entitles which were companies with no real business and are only engaged in business of providing accommodation entries of bogus nature to beneficiary concerns which was further 'confirmed by the directors/dummy directors/key persons of the said entities in their respective statements. Thus, on the basis of the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d and clubbed together and we decide these grounds by common order. These grounds relate to challenging the order of the ld. CIT(A) in upholding the rejection of books of accounts of the appellant by the assessing officer u/s 145(3) of the Act on account of alleged unverifiable purchases of Rs. 11,60,43,373/- and in further directing application of G.P. rate of 12% on declared turnover on this count resulting in upholding addition to the extent of Rs. 41,23,468/- as trading addition and also in holding that trading addition of Rs. 2,48,87,372/- made by the A.O. on account of disallowance of 25% of bogus purchases on the basis of corroborative information received from Investigation Wing, Mumbai is not sustainable and only a trading addition of Rs. 41,23,468/- be made by applying GP rate of 12%. At the outset, the ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied upon the written submissions filed before the Bench and the same are reproduced below: "The assessee's ground of appeal relates to objecting the action of Ld. CIT(A) as wrong, unjust and has grossly erred in law in confirming that purcha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le for the transactions carried on by the third party in its books of accounts including Bank A/c. The assessee further submitted that alleged statements made on behalf of alleged concerns cannot be relied and used in case of assessee and for this relies on judgement in case of S. P. Agarwalla Alias Sukhdev Prasad Agarwala Vs. ITO (1983) 140 ITR 1010 (Cal) wherein it was held that mere confusion statement by a third party that he was a mere name lender in transaction without naming the assessee would not be sufficient to hold that same transaction as bogus. However Ld. A.O. not found any of contention of assessee as tenable. The Ld. A.O. further held that onus is on assessee to prove the purchases claimed by it the assessee submits that it had made purchases from the party as recorded in its books of accounts and produced all the documents from party to prove genuiness of purchases it submits that it had discharged the initial burden casted upon it to prove the genuineness of purchases from the said parties as has been held by ITAT, Jaipur Bench, Jaipur in its decision in case of Sagar Mal Daga & Co. Vs ITO (2004) XXXII TAX WORLD 40 and Radha Mohan Lal Agarwal Vs. I.T.O. (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t disbelieved purchases but only disbelieved the purchase vouchers. The trading account as such has not been disturbed as op. stock, closing stock and sales as declared have been accepted. The A.O. has only doubted the sellers from whom purchases was made by assessee. He relied on the following decisions: 1. CIT Vs. Sathya Narayan P. Rathi (2013) 351 ITR 350 2. (2013) 356 ITR 451 CIT Vs. Simit P. Seth 3. Vijay Kedia (HUF) Vs. ACIT (ITA No. 197 & 248/JP/2016) decided on 29-01-2018 4. DCIT Vs. Gem Paradise (ITA No. 747 & 65/JP/12) order dated 26-12-2017. 5. Shri Rajkumar Agarwal, the ITAT Jaipur Bench, Jaipur has decided vide ITA No. 504/JP/2013. The turnover and trading results of assessee for the last three years are as under:- A.Y. Turnover Gross profit G.P. rate Remarks 2008-09 (Only stones) 1,88,54,584 25,33,190 18.28% 2009-10 (i) Diamond (ii) Stones & Studded jewellery 2,54,77,175/- 2,53,28,369/- 25,47,717/- 50,66,543/- 10.00% 20.00% In appeal Hon'ble ITAT accepted the declared G.P. rate of 10% vide order dated 15-04-2020 in Appeal No. 1126/JP/2020 2010....
X X X X Extracts X X X X
X X X X Extracts X X X X
....As per facts of the present case, during the course of search operation carried out by Investigation Wing of the Department in case of Rajendra Jain group Mumbai on 3-10-2013, it was revealed to the department that the assessee Shri Sunder Das Sonkia, Prop. M/s S. Naveen Jewellers also arranged accommodation entry from Sh. Rajendra Jain group and obtained bogus purchase bills of Rs. 11,60,43,473/- from M/s AVI Exports, M/s Aadi Impex, M/s Sun Diam P. Ltd., M/s Kalash Enterprises the paper concern of Rajendra Jain group which were treated as bogus and non-genuine. However, in order to prove his contention, the ld AR had drawn our attention to the documents submitted during the course of assessment proceedings, which are in the shape of purchase invoice received from the party, VAT Registration No. of party under MVAT Act, permanent account No. of party under I. T. Act, payments having been made by account payee cheques which stood debited in the Bank account of assessee company and credited in Bank A/c of seller party, confirmation from party confirming the purchase transaction etc. It was submitted by the ld AR that the assessee had discharged the initial burden casted on him and r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble, and accordingly, apparent sellers were providing accommodation entries to the assessee and, therefore a conclusion was drawn that purchase price was inflated (though the facts as appear from order suggests deflation of price and not inflation of price). No such facts were brought on record in this case. In respect to these parties there is no finding that purchases declared by assessee company were not on prevalent market price. (iii) It was found that the amounts were credited on account of cheques of the assessee and they were being withdrawn by some unknown person whose address or whereabouts could not be known. No such facts were brought on record in this case. Apart from above, we noticed that the assessee has also relied upon the decision in the case of CIT Vs. Sathya Narayan P. Rathi (2013) 351 ITR 350 the Hon'ble Court noticed that "the assessee was not able to prove the purchases to the extent of Rs. 61.40 lakhs, the Assessing Officer disallowed the entire amount, but in first appeal it was felt that the profit element therefrom alone could be assessed, so that only 30 per cent of such purchases amounting to Rs. 18.42 lakhs was taxed. The Tribunal reduc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e was a finding of facts that the assessee inflated the purchases upto 25% and therefore, it was not a case of non verification of the purchase and rejection of books of accounts but the fact was established in the investigation that the assessee inflated the purchase price and accordingly the addition of 25% being inflated purchases was made and upheld by the Tribunal which was again upheld by the Hon'ble High Court. On the contrary in the case of the assessee the AO not given any finding of inflated purchases by the assessee but doubted the very transactions of purchases due to non production of these parties before the AO. The AO has not given the finding that the prices of the goods was inflated by the assessee but the AO doubted the genuineness of the purchases on the ground that the suppliers were found to be accommodation entries providers. When the AO rejected the book results u/s 145 (3) of the Act, then the AO after rejection of the books of account can proceed to make the assessment on the basis of best judgement instead of resorting make the addition to the book results. Accordingly, in the facts and circumstances of the case and in view of the decision of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... & 622/JP/12 dated 15.12.2017) which has also been relied upon by the ld CIT(A) while passing the impugned order. In the instant case, the ld. CIT(A) has therefore rightly held that after rejection of books of accounts, the past history of the assessee has to be seen for estimating the gross profit rate. At the same time, we find that the basis of estimating the gross profit rate of 19.25% as against declared GP rate 14.99% is not discernable from the order of the ld. CIT(A) where he has only stated that purchases to the tune of Rs. 2,11,15,458/- were found bogus/unverifiable which constitute 50% of total purchases. Further, he has not taken into consideration the fact that the assessee has started diamond trading business during the year under consideration wherein he has disclosed gross profit rate of 10%. Given that the assessee has disclosed gross profit rate of 10% in respect of diamond trading which is stated to be pretty robust as per industry standards and in respect of trading of semi precious stone and studded jewellery, he has disclosed a gross profit rate of 20% which is better than the average gross profit rate of last three assessment years, in the facts and circumsta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e computed in accordance with the method regularly employed by the assessee. With effect from 1-4-1997, by the Finance Act, 1995, the position has been altered by directing that the income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be subject to the provisions of sub-section (2) in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Thus, for the purpose of computing income on the basis of method of accounting adopted by the assessee, the same is confined to maintenance of accounts on cash basis or mercantile system of accounting, i.e., to say, on accrual basis. No other system, even if employed regularly by the assessee, is acceptable for computing the income as per the provisions of the Act. However, this provision ipso facto does not mean that rejection of books of account of an assessee must yield to different conclusion in the computation of income as returned by the assessee on the basis of accounts made by him employing any other method of accounting. 5. Be that as it may, the provision which was in force in the accounting period relevant to asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jection of books of account, it does not mean that it must lead necessarily to additions in the returned income of the assessee. What changes in either case is the basis for computing the income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources'. The result would depend on the other principles of computing the income. Therefore, we hold that merely changing the basis or method of arriving at end-result of working out the computation of taxable income under the Act, necessarily does not result in devising at profits or gains from business or other sources different from one returned by the assessee, where he has returned his income, which is different from the result reached by the assessee as per method of accounting employed by him, by adopting different basis by the assessing authority. 6. In light of aforesaid discussions and respectfully following the decisions referred supra, the addition of Rs. 21,65,807/- so confirmed by the ld CIT(A) is hereby directed to be deleted and the ground of appeal so taken by the assessee is allowed." 14. After having gone through the decision of the Coordinate Bench in asses....