TaxTMI 
TaxTMI 
2022 (8) TMI 192
X X X X Extracts X X X X
X X X X Extracts X X X X
....cts and circumstances of the case and in law, the Ld. CIT(A) is justified in restricting the disallowance of Rs.11,47,32,742/- made by the A.O on account of bogus purchase from 100% to 5% of such bogus purchases without appreciating the facts that the assessee failed to prove the bona fide of purchases made from seven bogus parties which were proved to be non-existent in the physical inquiries conducted during the course of assessment? 2) Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in restricting the disallowance from 100% to 5% of such bogus purchases without appreciating that bogus purchase could not be restricted to certain percentage when the entire transaction was found as bogus as upheld by the Hon'ble Guj High Court and Apex Court in the case of N.K Proteins (Industries) Ltd. Vs. ACIT TA No.242/2003 dated 20/06/2016 and SLP(C) CC No.963/2017 dated 16/01/2017?" 3. Brief facts qua the issue are that assessee filed its return of income on 31.10.2014 declaring total income of Rs.26,69,863/-. The case of assessee was selected for complete scrutiny. Accordingly, a notice u/s 143(2) of the Act was issued on 24.09.2015 and duly ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 11,47,32,742 Therefore, assessing officer made addition of Rs.11,47,32,742/- under section 68 of the Act. 4. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before Ld. CIT(A) who has restricted the addition at @ 5% of unverifiable purchases observing as follows: "8.8 In interest of principles of uniformity and consistency the same decision is taken in the instant appeal. The AR has also raised this as alternative plea. Accordingly, a disallowance of 5% of impugned unverified purchases of Rs.14,56,72,642/- is made. The disallowance amounts to Rs.73,28,630/-. The grounds of appeal are partly allowed." 5. Aggrieved, the Revenue is in appeal before us. 6. Before us, Ld. CIT-DR for the Revenue argued that these parties relate to Rajendra Jain Group cases who used to provide accommodation entries/bogus purchase entries therefore, original addition @ 100% of bogus purchases made by the Assessing Officer should be sustained. 7. On the other hand, Ld. Counsel for the assessee contended that out of seven parties only two parties belong to Rajendra Jain Group cases. He further submitted that assessee has subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inds of material. It was unearth that said Bhanwarlal Jain Group provided accommodation entries of Rs. 25,000 crore. The statement of Bhanwarlal Jain was recorded under section 132(4) of the Act, wherein he had admitted that his family 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 three following entities managed by Bhanwarlal Jain Group. The assessee has shown following purchased from the said parties: Name of the Party Amount Parvati Export 2,00,06,398/- Mahalaxmi Gems Pvt Ltd 2,28,37,445/- Mayur Export 5,56,500/- 4,34,00,343/- 5.On the basis of such information, the Assessing Officer (AO) formed opinion that income of the assessee of Rs.4.34 crore has escaped from assessment and that he was satisfied that it is a fit case for reopening under section 147 of the Act. The assessee in response to notice under section 148, filed his reply dated 28.04.2014, stating therein that return of income fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d written submission. The submission of assessee is recorded in para 7 of the order of ld.CIT(A). In the submission, the assessee explained that AO has not mentioned in the reasons recorded as well as in the assessment order, if he has taken prior approval of higher authorities as required under section 151 of the Act. Therefore, reopening of assessment under section 147/148 of the Act is void and need to be quashed. No independent enquiry is conducted by AO before issuing notice under section 148 of the Act. The AO purely acted on the information received from the Investigation Wing. The AO was required to form his own opinion that income has escaped assessment. The AO has not applied his mind to the information the basis and the material of the so-called information. The AO acted on vague information. During the original assessment, the assessee furnished all details related to the transactions of all three concern. The AO has no new material or information for reopening. The assessee disclosed true and material things and the return of income and there is no escapement of income of the assessee. The re-opening of the assessment is based on third party information, which was reco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O had reason to believe that income has escaped assessment. The ld.CIT(A) held that on examination of record, he noted that AO relied on the report of Investigation Wing without furnishing copy of material relied upon to the assessee. The ld.CIT(A) concluded that in holding assessment as invalid for the above reason without going into merit would be amount to gave undue benefit to the assessee for technical mistake or omission by AO and the principle of equity do not allow this, without considering the grounds on merit. 9. On merit, the ld.CIT(A) after discussing the submission of assessee held that AO has not discussed about any details of books of accounts, documents, stock register produced by assessee during the assessment. The AO neither examined nor found any defect in the document to discredit the same. The assessee has produced day to day stock register, details of purchase and sale. The purchases made during the year are sold during the year as seen from the trading account. If the impugned purchases are treated as bogus, then the stock in hand will become negative from 26.06.2006 onwards and no sale is possible in absence of purchases. The AO relied on the statem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at Gross Profit Rate of 5%, which is average rate of profit in industry. The ld.CIT(A) further held that in some other similar cases though he has sustain 5% of Gross Profit Rate considering the fact that where Gross Profit shown by assessee is more than 5%. However, in the present case, the assessee has merely shown Gross Profit Rate only at 0.78% of turnover, accordingly, the ld.CIT(A) was of the view that disallowance of 12.5% of impugned purchases/bogus purchases would be reasonable to meet the end of justice, hence the disallowance was restricted to 12.5% of the impugned purchase. 11.Aggrieved by the order of ld.CIT(A), both the parties have filed cross appeals. The assessee has challenged the validity of reopening as well as sustaining the addition to the extent of 12.5% only. Likewise, the Revenue has assailed the order for sustaining addition to the extent of 12.5% only. We have noticed that there is typing mistake in the ground no. 2 of revenue's appeal wherein the assessing officer has mentioned the additions of '5%' instead of '12.5%'. 12.We have heard the submission of ld.CIT-DR for the Revenue and the ld.Authorised Representative(AR) of the assessee. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....177 (Delhi) and  Chuharmal Vs CIT [1998] 38 Taxman 190 (SC). 14.On the other hand, the ld.AR of the assessee submits that he has challenged the validity of reopening as well as restricting the addition to the extent of 12.50% of the alleged bogus purchases. The ld.AR of the assessee submits during the assessment, the AO has not made any independent investigation. The AO reopened the case of the assessee on the basis of third party information without making any preliminary investigation. The AO received vague information about providing accommodation entry by Bhanwarlal Jain Group. No specific information about the accommodation entry obtained by assessee was received by AO. There is no live link between the reasons recorded qua the assessee. Therefore, the re-opening is invalid and all subsequent action is liable to be set aside. 15.On account of additions of bogus purchases, the ld.AR submits that in the original assessment, the assessee filed its complete details of purchases to prove the genuineness of expenses. The AO accepted the same in the assessment order passed under section 143(3) on 10.03.2009. During re-assessment, the assessee again furnished....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licable before the tax authorities. It was submitted that the ratio of various case laws relied by the ld. AR for the assessee is not applicable on the facts of the present cases. The ratio of decision of Hon'ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. 17.We have considered the submissions of the parties and have gone through the order of the lower authorities. We have also deliberated on each and every case laws relied by both the parties. We have also examined the financial statement of all the assessee(s) consisting of computation of income and audit report. We have also gone through the documentary evidences furnished in all cases. Ground No.1 in assessee's appeal relates to the validity of reopening. The ld AR for the assessee vehemently argued that the AO reopened the case of the assessee on the basis of third party information, and without making any preliminary investigation, which was vague about the alleged accommodation entry by Bhanwarlal Jain Group. And that there was no specific information about the accommodation entry availed by the assessee. There is no live link between the reas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appeal raised by the revenue are interconnected, which relates to restricting the disallowance of bogus purchases to the extent of 12.5%. The AO made of 100% of purchases shown from the hawala dealers/ entry provider namely Bhanwarlal Jain. We find that the AO while making additions of 100%, of disputed purchases solely relied on the report of the investigation wing Mumbai. No independent investigation was carried by the AO. The AO has not disputed the sale of the assessee. The AO made no comment on the evidences furnished by the assessee. We further find that ldCIT(A), while considering the submissions of the assessee accepted the lapses on the part of the AO and noted that no sale is possible in absence of purchases. The Books of the assessee was not rejected by the AO. The ldCIT(A) on further examination of the facts and various legal submissions find that Ahmedabad Tribunal in Bholanath Poly Fab Private Limited (supra) held that in the such cases the addition of bogus purchases was sustained to the extent of 12%, on the observation that the assessee may have made purchases from elsewhere and obtained the bills from impugned supplier to inflate Gross Profit Rate. The ld CIT(A) b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... P Ltd (supra), the assessee had declared GP @ 1.03% on turnover of Rs. 1.86 Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No. 2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed." 9. Since the issue raised in Revenue's appeal is squarely covered by the order of Co-ordinate Bench, in the case of Pankaj K Choudhary (supra) and there is no change in facts and law and the Revenue as well as assessee are unable to produce any documents to controvert the aforesaid findings of Co-ordinate Bench, in the case of Pankaj K Choudhary (supra). We find no reason to interfere in the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee has raised this issue before ld CIT(A) and after considering assessee`s submission, the ld CIT(A) has passed the order. 13. We have heard both the parties and perused the material available on record. We note that during the appellate proceedings, the ld CIT(A) has considered the submission of the assessee and stated that assessee`s case belong to Rajendra Jain group cases and in case of Gotum Jain group case/Bhanwar Lal Jain, the substance of the transactions are that they relate to bogus purchases. The matter discussed by the AO in the assessment order was related to bogus purchases therefore ld CIT(A) corrected unintentional mistake committed by AO that is, corrected the mistake of quoting wrong section. We note that just to quote "wrong section" while making an assessment order does not vitiate the findings of the entire assessment order. The ld CIT(A) has co-terminus power as that of assessing officer and to correct the mistake of section as per the substance discussed in the assessment order does not mean enhancement of assessment without giving notice to the assessee. That is, when the substance of the transactions, as discussed in the assessment order by the assessi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6,69,863/-. The case of assessee was selected for scrutiny and AO framed the assessment order under section 143(3) of the Act, on 23.12.2016, determining total income at Rs.11,74,02,610/- on account of unexplained cash credit u/s 68 of the Act. 19. Later on, Learned Principal Commissioner of Income Tax,(ld PCIT) exercised his jurisdiction under section 263 of the Income tax Act, 1961. On perusal of scrutiny records, it was observed by ld PCIT that long term loans were given by the assessee to various persons as per Note 9 to the balance sheet which stands at Rs.81.49 crores as on 31.03.2015. These persons appear to be related to the assessee-company and also no interest receipt in respect of these long term loans given was shown. Therefore, applicability of section 2(22)(e) of the Act was necessarily required to be verified which was not done during the course of assessment proceedings. 20. Further, ld PCIT noticed that there was gross disproportions between the figures of foreign exchange rate fluctuation loss and fluctuation gain vis-à-vis the corresponding export and import. Therefore, the correctness of the loss claimed on this account was required to be verified f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e parties to whom loan and advances were given, whether they were shareholders or creditors, is not clear which was not examined by assessing officer. Moreover, about the issues raised by ld PCIT, assessing officer has not raised any question by way of issuing notice under section 142(1) of the Act nor assessee has replied it during assessment stage. Therefore Ld. PCIT has exercised his jurisdiction power u/s 263 of the Act hence his order should be upheld. 26. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld PCIT and other materials brought on record. We find merit in the submissions of ld DR for the Revenue, as he pointed out that parties to whom loan and advances were given, whether they were shareholders or creditors, is not clear, therefore contention of the ld Counsel can not be accepted that assessee has given loan not to the shareholders but creditors, as the assessing officer did not make inquiry to this effect. Moreover, about the issues raised by ld PCIT, assessing officer has no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s erroneous and prejudicial to the interest of revenue. 28. We note that ld PCIT raised the following issues in his revision order: i. AO needs to go through the payments made by a closely held company i.e. analysis of balance sheet of the company. ii. Payment made to a person by the company should be beneficial owner of shares i.e. holding not less than 10% of the voting power or to any concern in which such shareholder is a member of partner. Holding of 10% voting power in a closely held company mean holding not less than 10%of equity shares, either in individual capacity or in addition to voting power s a Karta of HUF or on behalf of a mine Shareholding pattern in the holding company is of utmost importance. Similarly, ascertaining the profit ratio in concern where shareholder is a member or partner to have substantial interest is also equally important. iii. It should be confirmed that company making payment of loan/advance is a closely held company and its shareholders holding 10% or more voting power should also old substantial interest in such concern. iv. In case loans/advances including ICD/Deposits etc are made to shareholders/concer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....during the course of hearing stated that assessee is not exporter, however, on examination of Balance Sheet of the assessee, the ld PCIT noticed that assessee has shown foreign exchange gain/loss in its Balance Sheet therefore if the assessee is not exporter then wherefrom these foreign exchange gain and loss arised in the Balance Sheet. Hence, we are of the view that assessing officer failed to conduct inquiry. Reliance is also placed in the decision of the Hon'ble High Court of Delhi in the case of CIT vs. Nagesh Knitwers P. Ltd and others (2012) 345 ITR 135 (Del) wherein it has been held that when the AO has allowed claim of the assessee in a slipshod manner without conducting any inquiry, then in the case of no inquiry, the assessment order is not only erroneous but also prejudicial to the interest of revenue. The order of assessment has to be a speaking order and when the fact of others view has not been mentioned and the claim of expenses pressed by the assessee has been allowed without making any inquiry, then the order must be held as erroneous and prejudicial to the interest of revenue. Hon'ble High Court has also considered ratio of earlier decisions viz. decision....