TaxTMI 
TaxTMI 
2022 (4) TMI 496
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the decision in the case of M/s Mayank Diamonds Pvt. Ltd. and estimating disallowance at @ 5% of bogus purchases, without considering the decision of the Hon'ble ITAT, Ahmedabad in an identical case of M/s Vijay Proteins Ltd., wherein 25% of purchases was held to be reasonable amount of disallowance of expenditure. 3. Whether, on the facts and in law the ld. CIT(A) was not justified on relying upon the case of M/s Mayank Diamonds Pvt. Ltd. which is different and distinct from the facts of the case of the assessee. 4. On the facts and circumstances of the case and in law, the ld. CIT(A) ought to have upheld the order of the A.O.. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the A.O. may be restored." 2. The assessee in his cross appeal has raised following grounds of appeal: "1. Ld. CIT(A) has erred in confirming reopening U/s 148 of the Income Tax Act, 1961 of appellant's case for A.Y. 2009-10. 2. Ld. CIT(A) has erred in confirming addition of Rs. 38,32,473/- being 5% of alleged bogus purchases. 3. The appellant reserves the right to add, alter, amend or withdraw any grounds of appeal."....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a search and seizure action was carried out by Investigation wing- Mumbai on Gautam Jain and his Group on 03.10.2013, which resulted in collection of evidence that Gautam Jain group and its associates were operating certain benami concerns in the name of their employees and staff for providing bogus accommodation entries of unsecured loans, sale and purchase of different kinds of material. It was unearth that the assessee is one of the beneficiary of the accommodation entry and that Gautam Jain Group provided accommodation entries of purchases of Rs. 7,66,49,458/-. The statement of Gautam Jain group and its associates under section 132(4) of the Act was recorded, wherein they had admitted that their associate members are managing various entities which are providing accommodation entries. During the course of search, blank cheque book signed by dummy partners / directors /proprietor of entities were found and seized. It was informed that assessee is one of the beneficiaries of bogus purchase form Rajan Gems managed by Gautam Jain Group. 8. On the basis of such information, the Assessing Officer formed opinion that income of the assessee of Rs. 7,66,49,458/-has escaped from asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in the audit report, noted that the assessee has given substantial amount of loans and advances to various parties but has not shown any interest income against such loan. The AO was of the view that why a prudent business man will give loan and advances to the other party without charging any interest as the assesse failed to provide any reason and has shown a very low amount of commission on high value of transaction which is not sufficient for covering the risk involved. On such reasoning, the Assessing officer treated the assessee as a trader and not commission agent. The AO held that the assessee is a beneficiary of bogus accommodation entries from M/s Rajan Gems for an amount of Rs. 7.66 crores. The entries must have been used by the assessee to suppress the profit margin of the assessee by increasing the cost of the items purchased. On the basis of such observation, the Assessing Officer again issued show cause notice to the assessee for disallowance of purchases. The contents of the show cause notice is recorded in para 7 of the assessment order. In the show cause notice, the Assessing Officer asked the assessee as to why 25% of purchases of Rs. 7.66 crores from M/s Rajan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f detailed written submission on reopening, the assessee on merit has submitted that the assessee is a commission agent. His case is covered under section 44AB of the Act and filed his return of income accordingly. The assessee's gross receipt is below the limit of Section 44AB of the Act i.e. Rs. 1,34,257/- . His books of account are audited. In the return of income, the assessee declared income of Rs. 1,14,580/-. The assessee earned commission income and offered the same for taxation. The assessee furnished confirmation alongwith consignment, purchases were made from the parties mentioned therein, and the same has been recorded in the books of account of the said parties. The Assessing Officer ignored the fact that the assessee is a commission agent. No independent investigation was conducted by the Assessing Officer. The ld. CIT(A) after considering the submission of assessee, upheld the validity of reopening by referring the decision of the Hon'ble Supreme Court in the case of Purushottam Das Bangur & Another 224 ITR 362 (SC) as well as the decision of Hon'ble Jurisdictional High Court in the case of Pushpak Bullion (P) Ltd. (2017) 85 taxmann.com 84 (Gujarat) wherein the Hon'bl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2/Ahd/2016 order dated 06/04/2018 and M/s Delux Diamonds, Surat Vs ITO in ITA No. 1396/ahd/2017 order dated 11/04/2018 by considering the fact that the gross profit rate of 5% is an average rate in the diamond industry. The ld. Sr. DR submits that the facts in the case of Mayank Diamond are at variance. In the said the gross profit was estimated at 5%. Here in this case, the Assessing officer disallowed 25% of aggregated of purchases only, which was shown from bogus hawala traders. 14. On the other hand, the ld. AR appearing on behalf of the assessee submits that he is not pressing the grounds of appeal related with validity of reopening and supporting the order of ld. CIT(A) that the ld. CIT(A) after considering all the facts and circumstances of the case, restricted the addition to the extent of 5%. 5% disallowance is quite reasonable keeping in view the profit margin in the diamond industry is very low. 15. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities carefully. As noted above, the ld. AR of the assessee, at the outset supporting his submission and has submitted that he is not pressing the grounds of appe....