TaxTMI 
TaxTMI 
2023 (9) TMI 470
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....e action of the ld. AO in making an addition of Rs. 80,48,367/-, being 25% of alleged bogus purchases without any basis." 3. The fact as culled out from the records is that that assessee Company has filed its e-return of income for the A.Y. 2014-15 on 24.09.2014 declaring total income of Rs. 79,20,110/-. The assessee Company derives income from Business or Profession. The case was selected for manual scrutiny assessment. The notice u/s 143(2) of the IT Act, 1961 was issued on 30.09.2015 and served upon the assessee. Due to change of incumbent notice u/s 142(1) of the I.T. Act, 1961 along with questionnaire was issued on 30.09.2016. In compliance thereto, ld. AR of the assessee attended from time to time and filed written reply which were placed on the record and the case was discussed with them. As per the Search and seizure operation conducted over the group concern of Shri Bhanwarlal Jain Group is a leading entry provider of Mumbai. The Group provides accommodation entries of bogus purchases through various benami concerns (70) operated and managed by Bhanwarlal Jain and his son. A search revealed various incriminating documentary evidences were seized. In addition, statement ....
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....indings of the ld. CIT(A) is reproduced here in below:- "5. The brief facts of case relevant to purpose of appeal are that the appellant, M/s Khandelwal Diamonds Pvt. Ltd., is engaged in the business of trading of gems, jewellery, diamonds, precious and semiprecious stones. It had filed its return of income for the A.Y. 2014-15 on 24.09.2014 declaring total income at Rs. 79,20,110- The case of appellant was selected for manual scrutiny. The Assessment u/s 143(3) of the Act was finalized by AO, vide order dated 25.11.2016 wherein an addition of Rs. 80,48,367/- has been made on account of bogus purchase. Being aggrieved by the above, the appellant is in appeal against the said order u/s 143(3) of the Act. 5.2 I have carefully examined the facts of the case, finding of AO in assessment order, submission filed by the appellant and material available on record. The grounds are interlinked, therefore adjudicated together. 5.3 The appellant's case was selected for manual scrutiny on the basis of information that a search and seizure action under section 132 of the Act was carried out in the case of group concerns of Sh. Bhanwarlal Jain by Investigation Wing.....
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....e appellant expressed its inability to produce them. Therefore, the appellant failed to discharge its onus to establish the existence of the concerns which allegedly sold the goods to it. (iii) The AO has observed that assessee should have provided the correct business addresses where these entities are carrying on their business so that the Department could contact them for independent verifications but the appellant did not do so. (iv) Payments by the a/c payee cheque does not make the purchase transaction genuine. 5.5 The AO has observed that the primary onus was on the assessee to establish the genuineness of the purchases claimed by it. Since the primary facts were in the knowledge of the assessee it was his duty to provide the correct address or contact modes of the alleged suppliers. If the investigation done by the department leads to doubt regarding the genuineness of the purchases it is incumbent on the assessee to produce the parties along with necessary documents to establish the genuineness of the transaction. The assessee failed to discharge its onus. Considering the above facts, and placing reliance on various case laws, the AO rej....
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.... accommodation entries through various concerns which were operated/controlled by him and his son, Filing confirmations therefore does not serve any purpose as the real nature of the transactions as established during the course of search was to provide accommodation entries to reduce taxable profits. 5.8 The onus was on the appellant to prove the identity of the so-called suppliers and genuineness of transactions, when the purchases were claimed to have been made from them. Show cause notice was sent by the AO to the appellant to produce the alleged suppliers. However, the appellant has expressed its inability to produce them. This combined with the fact that the alleged aforementioned parties have been declared as being engaged in issuing bogus sale invoices by the DGIT (Inv), Mumbai, leads one to conclude that the purchases from these aforementioned parties are not established. The purchases have failed to stand the test of scrutiny, as the appellant has failed to establish that the transactions are genuine. It is clear that these expenses have been debited in the books of account to reduce profit. In the face of these facts, the AO has rightly rejected the books of acc....
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....ovisions no interference is called for, against the ultimate orders. The test laid down was whether the person has received a fair hearing considering all things as the ultimate test is always the test of prejudice or the test of fair hearing. Further the Hon'ble Supreme Court pointed out a distinction between a case of no opportunity and a case of no adequate opportunity and while examining the latter case, it was held that the violation has to be examined from the stand point of prejudice, in other words the Court or the tribunal has to see whether in the totality of the circumstances, the delinquent officer/employee did or did not have a fair hearing and the orders to be made shall depend upon the answers to the said query. As to whether and under what circumstances the right of cross examination can be demanded as a vested right, in Bakshi Ghulam Mohammad the Hon'ble Supreme Court held that the right of hearing cannot include the right of cross examination and the right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being enquired into. In this case, the appellant has not been able to....
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....ment year- (iv) Where assessment is being made pursuant to ai. search and seizure action under section 132; or ii. requisition made under section 132A; or iii. survey action 133A. (v) where 50 per cent or more of the income from such business of an assessee is claimed as deduction under Chapter-Ill or under Chapter VI-A of the Income-tax Act. (vi) where there is information regarding escapement of income. In this case, appellant's case was selected for manual scrutiny on the basis of information that a search and seizure action under section 132 of the Act was carried out wherein it was revealed that appellant was one of beneficiary of receiving accommodation entries in form of bogus purchase and income had escaped assessment. Therefore, appellant case falls in above exception and instruction numbering 2/2008 dated 22-02-2008 does not apply. 5.12 Keeping in view the facts in entirety, as discussed above and appellants failure to establish that the purchases are genuine it is held that the books of the appellant were not tenable as per provisions of section 145(3) of the Act, and 25% amounting to Rs. 80,48,367/- of t....
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....the first time. As the issue is legal in nature and all facts thereto are arising out of assessment order and no further investigations are required to be carried it is sincerely requested to kindly admit the same in accordance with the judgement of the Hon`ble Supreme Court in the case of NTPC Ltd. (229 ITR 383). The said new ground is as under :- Ground No. 3 : That the ld. AO has erred seriously on facts in applying the provisions of section 145(3) of the Income Tax Act, 1961 without proving any mistake on the part of the appellant. Such illegal action of the ld. AO may kindly be quashed. The ld. AO states in her concluding para of the order at second last page of the order that since the assessee is engaged into sales of diamond and hence the only possibility is of purchases being made from a different concern other than the fifteen parties listed above and consequently purchases made from above 11 parties are treated as bogus purchases and the assessee`s books are therefore rejected u/s 145(3) for the same reason. The ld. AO has stated above facts without :- - Confronting the appellant with the material in her possession which has b....
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....y on facts in sustaining the action of the ld. AO in making an addition of Rs. 80,48,367, being 25% of alleged bogus purchases without any basis. The ld. AO has relied on the judgment of the Hon`ble Gujarat High Court in the case of Sanjay Oil Cake Industries v/s CIT (2008) (10 DTR 153) for making an addition @ 25% of the purchases from 11 parties which have been alleged to be bogus. Such action of the ld. AO is without any basis or any evidence in her possession to make an upfront disallowance of 25%. She forgot to take into consideration the following facts :- - The appellant has dealt with diamond and jewellery during the year under consideration. Out of total turnover of Rs. 8.98 Crores it has declared turnover in diamond at Rs. 4.74 Crores and has declared a turnover of Rs. 4.24 Crores in jewellery. Complete details of the same are appearing at APB 66. The position of Gross Profit declared in both the segments is as under :- Segment Turnover GP Amount GP Percentage Diamond 4,73,96,735 48,70,727 10.28% Jewellery 4,24,27,580 58,88,593 13.88% TOTAL 8,98,24,315 1,07,59,320 11.98% The purchases doub....
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.... good footings and no disallowance was required to be made. iii. Rajendra Prasad Chaudhary v/s ACIT (Jaipur ITAT) (Case law APB 29-39) : The assessee is into diamond trade and 148 proceedings were initiated by ld. AO on the basis of information received from investigation wing of Mumbai. The ld. AO made addition @ 25% on purchases made from concerns of Bhanwar Lal Jain group as per their routine exercise. However the ld. CIT(A) restricted the GP rate to 8.50% (without confirming any addition made on estimated by ld. AO) and on further appeal this bench of Hon`ble ITAT deleted the whole addition. Relevant observations of the Hon`ble ITAT on the issue of GP rate are in pare 12 of the order (at Case law index APB 37-38) wherein the profit rate declared by the assessee at 7.32% and 7.80% has been considered reasonable. On the footings of GP rate the case of the present appellant is on far better footing as it has already declared profit over 10% in diamond trade. The appellant has declared an NP of Rs. 78,92,898 (Profit before tax as per APB 57) on a turnover of Rs. 8,98,24,315 yielding an NP rate of 8.79% which is more than reasonable in the trade of diamond. The fac....
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....s as under:- S. No. Particulars Page No. 1. Details of Supplier 1 2. Confirmation of account, bills of alleged bogus suppliers, 2-34A 3. Details of Purchases during the previous year 2013-14 35-36 4. Account Statement of all suppliers for the relevant PY 37-57 5. Balance Sheet & P & L Account for the year ended 31.03.2014 58-60 6. Balance Sheet & P & L Account for the year ended 31.03.2013 61-62 7. Balance Sheet & P & L Account for the year ended 31.03.2012 63-64 8. Instruction No. 2/2008 dated 22.02.2008 65 9. Quantitative Details of items traded during the relevant PY 68 5.2 The ld. AR of the assessee has relied upon the following judgments: - 1. DCIT vs. M/s Sanghavi Exports International Pvt. Ltd. in ITA No. 3305 & 3375/Mum/2017 dated 21.08.2018. 2. M/s Vama International vs. ITO in ITA No. 7315, 7316 & 7317/Mum/2016 dated 15.02.2018. 3. Shri Rajendra Prasad Choudhary vs. ACIT in ITA No. 1495 & 1496/JP/2018 dated 12.06.2019. 4. Smt. Kanta Choudhary vs. ITO in ITA No. 878/JP/2018 dated 06.12.2018. 5.3 In addition to the written submission so filed b....
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....order has been passed u/s 143(3) of the Act. Therefore the rejection of books of account is not as per provisions of the Act and also not correct on fact as the assessee was neither given any material relied upon nor was one any single defect in the books of account in support of the alleged peculiar purchases. The ld. AR of the assessee in the assessment proceedings submitted copy of invoices, copy of confirmation of account this primary details submitted were enough ever been confronted to be incorrect and there is no whisper in the assessment order as to incorrect of these information simply there is an information from the investigation wing the books which are maintained in the regular course of business and same are audited by an independent Chartered Accountant the same cannot be rejected. To support, this contention, the ld. AR of the assessee relied upon on the written submission filed so far and the various decisions and he has on facts differentiated the relied upon decisions by the ld. DR as the same are on different finding and facts. In those case relied upon by the AO/DR wherein there is recorded the finding that the purchases recorded in the books are bogus based on....
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....equirement of findings of facts because the material is already available in the original assessment proceedings which the ld. AO has not investigated on account of reasons best known to him. Therefore, he prayed that the issue of estimation of profit may be decided by bench based on the arguments and material advanced in this appeal and prayed for the justice. 8. We have heard the rival contention, perused the material available on record and gone through the judgment relied upon by both the parties to drive home to their respective contentions advance before us. Brief facts of the case is that the assessee is engaged in the business of the purchase, sale manufacturing and trading of gold jewellery with diamond and color stones, diamond and gems stones. The case of the assessee was reopened based on the information received pursuant to the search and seizure action u/s. 132 of the Act in the case of Bhanwarlal Jain Group. In that search it was gathered that group provides accommodation entries of bogus purchases through various benami concerns operated and managed by Bhanwarlal Jain and his son. A search revealed various incriminating documentary evidences were seized. In addit....
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....e same as it prevalent in the market. The ld. AR of the assessee to substantiate this view heavily relied upon the details of the quantity filed at paper book page 66 and vehemently argued that the since the sales and quantity records are not found incorrect the consequent observation of the estimating the profit @ 25 % is also incorrect. As the decision relied upon in the case there were issue as to quality of the goods and in fact in some cases observed that the goods in fact not been purchased and the case law cited related to the food and oil industries where the price or very low. Whereas the case of the assessee relates to the costlier jewellery items where the profit margins are very thin and thought cut competition exist and thus profit margin are very less. Even this issue is examined by the board and issued the instructions no. 2/2008 dated 22.02.2008 and the same is reproduced to understand the issue on hand : INSTRUCTION NO. 2/2008 SECTION 143 OF THE INCOME-TAX ACT, 1961 - ASSESSMENT - 'BENIGN ASSESSMENT PROCEDURE' FOR ASSESSEES ENGAGED IN DIAMOND MANUFACTURING AND/OR TRADING INSTRUCTION NO. 2/2008, DATED 22-2-2008 The undersigned is dire....
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....essee that the rate of the profit is more than 6 % then in that case the same should have been accepted. At the same time we are of the considered view that the contention of the ld. DR and that of the lower authorities that the assessee is coming under the exemption category as given in D above. But bench observed that in the exemption will apply only if the assessment of the assessee consequent to his own search whereas the search is not conducted with the business of the assessee. Even the books of account were not found defective and the ld. AO accepted that in fact the assessee has purchased the goods and the same is not doubted. Therefore, now only issue that what will be the rate of profit in present set of facts and material placed on record. As the ld. AO has not found any defects and in the books of accounts maintained which are audited. The assessee has placed on record the quantitative details and bills and consequent payment details which are not found faults by the lower authorities. Merely the Bhanwarlal Jain accepted that he is involved in giving the diamond in cash as well as by issuing the bogus bill too the lower authorities have confirmed the estimation of the p....