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TaxTMI 
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2023 (9) TMI 470
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....67/-, 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 of various persons (who assist Bhanwarlal Jain in providing b....
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.... 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. Mumbai. In the said search and seizure action various incriminating documentary evidence were found and seized. During the course of search, it was found that this....
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....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 rejected the books of account u/s 145(3). However, since the assessee was engaged in corresponding sales, the AO has disallowed an amount of Rs. 80,48,367/- being 25% of alleged purchases. 5.6 As can be seen, information was available before the AO as given by DGIT(....
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....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 account and taking into account facts and circumstances of the case made disallowance of 25% of total purchase of Rs. 3,21,93,468/- amounting to Rs. 80,48,367/- on account of inflation of purchases and suppression of profits. 5.9 The appellant has claimed that the material relied upon i....
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....inction 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 specifically point out as to how it was prejudiced on account of non-furnishing of the statements on oath and on failure to provide the opportunity of cross examination. The appellant has failed to prove the test of prejudice or that the test of fair hearing has not been satisfied. Non-furnishing of the material....
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....e 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 the alleged purchases of Rs. 3.21.93,468/- added back by the AO to the business income of the appellant are held to be justified and addition on this account stands confirmed. Accordingly, grounds of appeal raised by the appellant are dismissed." 5. As the assessee did not find any favor from the finding from the first appellate authority and feeling dissatisfied from the order of ....
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....isions 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 been considered by her as adverse. - Confronting the appellant with the statements of parties recorded during the course of search and which have been relied upon by him. - Allowing any opportunity of cross examination of persons whose statements have been relied upon by her for which demand was raised by the appellant during assessment proceedings - Verifying that the assessee has maintained complete quantitative details of the items purchased and sold by it (....
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....ke 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 doubted by the ld. AO are only for purchase of diamonds for which copies of all the bills are enclosed in paper book. The appellant has already declared a GP rate of 10.28% in the diamond business which is more than reasonable in diamond trade. By making addition of Rs. 80,48,367 the ld. AO has raised the GP upto Rs. 1,29,19,094 i.e. GP Rate of 27.26% which is not possible by any stretch of imagination.. Regarding such addition reliance is placed on the following judgements of the Hon`ble ITAT :- i. Sanghavi Exports International P Ltd. v/s DCIT (Mumbai ITAT) (Case Law APB 1-9) :....
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....levant 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 fact of declare GP and NP rate have been completely ignored by the ld. AO as well as ld. CIT(A). The appellant also relies on instruction no. 2/2008 dated 22.02.2008 issued by CBDT (APB 65) wherein a GP rate of 6% has been deemed reasonable in diamond trade. Although this instruction was issued for the assessments made during the FY 2008-09 but this shows that the CBDT is conscious about the reasonableness of profit earned in diamond industry. It can not be anticipated that reasonable GP rate which was 6% during PY 2008-09 would rise to higher rate in future in this competitive world. The ld. CIT (A) has stated abo....
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....s 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 by the ld. AR of the assessee, he has vehemently argued that though the ld. AO alleged that the assessee has made the purchases which are termed as from the entry provider but at the same time he has agreed that the assessee has sold the goods also and therefore, he has estimated the profit @ 25 % ignoring the facts of the case. It is not disputed by the ld. AO that the assessee has not sold the goods which alleged to be purchased from the bogus bill provider but at the same time he observed that the assessee has taken the bill from those parties but the goods have been received from the different party as the sales is not disputed. Thus, the ld.AR of the assessee submitted that the dealing of the assessee in diamonds and jewel....
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....ted 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 the material placed on record whereas in this case the Assessing Officer in the assessment order recorded that finding that the purchases are in fact bogus but the material are received from the other person this it self proves that though it is alleged that the bills recorded in the books if found bogus the consequent goods have been received and the sales is also recorded in physical of those goods. Not only that in this case there is no finding that the bills and confirmation are also bogus or incorrect on the merit of the case. The ld. AR of the assessee relied upon the judgment of the Coordinate Bench of Mumbai and ITAT, Jaipur wherein the GP rate was accepted at lower than what is disclosed by the assessee. The ld. AR o....
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....e 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 addition, statement of various persons ( who assist Bhanwarlal Jain in providing bogus purchases through benami concerns to the beneficiaries) were recorded. Mr. Bhanwarlal Jain in his statement accepted to the fact that he was engaged in providing bills and his reply relied upon by the ld. AO in his order is reproduced as under : "I do agree that import of diamonds is made on behalf of various certain local parties who do not wish to show such imports in their books of accounts. On receiving the consignment, the material is handed over to real importer out of books. However, in the books of the concerns managed and controlled by me and my son Shri Rajesh Jain, the said consignment still appear as stock since the material has been sold to the real importer out of book....
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....is 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 directed to state that the 'Benign Assessment Procedure', in the case of assessees engaged in diamond business as announced by Hon'ble Finance Minister in his Budget Speech on 28-2-2007 shall be as under :- A. The procedure will apply to assessees engaged in the business of manufacturing and/or trading of diamonds (referred to below as such business). B. If an assessee has shown a sum equal to or higher than 6 per cent of his total turnover from such business as his income under the head 'Profits and gains of business or profession' for a particular assessment year, the Assessing Officer shall accept his trading results. C. (i) The assessee shall be required to maintain separate books of account of such business. (ii) Acceptance of profit at 6 per cent or a....
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....n 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 profit. It is not disputed that the profit declared by the assessee for the diamond and jewellery business declared @ 11.98 %. Whereas the instruction of the board as reiterated here in above suggest that the profit declared 6 % by the assessee should be considered while accepting the income of the assessee dealing in diamonds. On going through the statement of Mr. Bhanwarlal Jain he has not stated that he is not engaged in the business of diamond but accepted the fact that he is giving the delivery of the diamond out of books and also issue invoice so where he gives diamond, he did not give bill and where he gives bill did not give diamond. The fact that the assessee has purchased the diamond is not disputed by the ld. AO. The bench so note that the ld. AO he invoked the provision of section 145(3) of the Act but the assessment is passed u/s. 143(3) and not show cause noti....