TaxTMI 
TaxTMI 
2023 (11) TMI 1188
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....ity of notice issued by ld. AO u/s 148 of the Income Tax Act, 1961 which was challenged before him on the reason of issuing notice u/s 148 on borrowed satisfaction of another wing of the department. 3. That under the facts and circumstances of the case, the ld. CIT(A) has erred seriously on facts in sustaining the action of the Ld. AO in considering purchases of a sum of Rs. 35,09,770/- made from 3 parties as bogus by rejecting the pleas of the appellant that (1) No statement of the parties on which reliance had been placed by ld. AO were provided to the assessee, (2) No Material/records found during the course of search in the case of Bhanwar Lal Jain group which was considered as against the assessee was provided to the assessee and (3) No cross examination of the parties was allowed to the assessee." 3. The fact as culled out from the records is that the assessee filed its e-return of income for A.Y. 2012-13 on 24.09.2012 declaring total income of Rs. 52,71,470/-. As per Information available with this office, it was noticed that a search and seizure action in the cases of Shri Bhanwarlal Jain Group had been conducted by the DGIT (Inv.), Mumbai Charge on 03.10.2013 a....
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.... case of group concerns of Sh. Bhanwarlal Jain. 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 group was indulging in providing accommodation entries to various parties through benami concerns operated and managed by Sh. Bhanwarlal Jain and his son. Sh. Bhanwarlal Jain also admitted the same in his statement on oath recorded during search operation u/s 132(4). The statement of various persons connected with this group and engaged in providing accommodation entries through benami concerns to the beneficiaries were recorded. As per the information received by AO, the appellant M/s Khandelwal Diamonds Pvt. Ltd. was one of the beneficiaries and had obtained accommodation entries in the form of bogus purchases to the tune of Rs. 35,09,770/- from the following 3 parties during the FY 2011-12: Name of the Bill Provider Amount in Rs. Pankaj Exports 15,58,560/- Malhar Exports 15,56,010/- Ankita Exports 3,95,200/- Total Rs. 35,09,770/- 5.4 The AO after detailed discussion rejected the books of account u/s 145(3) and disallowed 25% of the said pur....
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.... suppliers from whom the appellant claimed to have effected purchases are providing bogus bills & accommodation entries. Therefore, in the aforesaid context, the appellant was required to prove the genuineness of the purchases made from those parties. Merely filing bills, confirmation of account & payments by cheque does not tantamount to discharge of the onus cast on the appellant especially when the department had received specific material/information from the Investigation wing, wherein Sh. Bhanwarlal Jain/ the suppliers operating the benami concerns, on oath had admitted the fact that they have merely provided entry / issued bills without physically selling/delivering any goods. Further, it was the duty of the appellant to establish the existence of aforesaid suppliers. It is observed that the purchases made by the appellant from the concerned parties remained unverifiable due to non-production of the parties. Production of suppliers assumes importance in view of specific information with the Department that the concerned parties from whom the appellant claimed to have purchased the goods have actually admitted of providing accommodation entries & bogus purchase bills. Therefo....
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....d upon i.e. statements of Shri Bhanwarlal Jain and group and opportunity to cross examine the parties was not DEPARTMEN given. The contention of the appellant is examined. At this juncture it would be relevant to take note of the decision of the High Court of Delhi in Suman Poddar Vs ITO which was affirmed by the Hon'ble Supreme Court in (2019) 112 taxman.com 330: The first, issue which has been raised by the assessee that it has not been confronted with the statements of various parties relied upon by the Assessing Officer. The assessee has also contended that opportunity of cross-examining those parties/persons was not provided to the assessee. According to the assessee, this resulted in the violation of the principles of natural justice and thus assessment should be held void ab intio. However, in our opinion, not providing opportunity of cross-examination may be in the nature of irregularity which is curable but not an illegality leading to annulling of the assessment In this case, information has been provided by the DGIT(Inv), Mumbai after crystallization and in-depth investigation. It is observed that the AO has issued notices under sections 143(2), 142....
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....n satisfied. Non-furnishing of the report and providing opportunity for cross-examination has in no manner prejudiced the rights of the appellant to discharge the onus cast upon him. It is not in dispute that whatever information which was required to be made known to the appellant has been informed by issuance of a notice to which to the appellant has responded by submitting replies. Therefore, in the absence of any prejudice caused to the assessee on account of non-furnishing of the report or giving opportunity for cross examination, the appellant cannot claim that there has been violation of principles of natural justice and the right to defend itself was in any manner affected. 5.10 As held by several courts, the department is not required to lead clinching evidence to prove that purchases are bogus. The onus of proof at all relevant times rests upon the assessee. It is for the assessee to establish by evidence that a particular allowance is justified. The law does not prescribe any quantitative test to find out whether the onus in a particular case has been duly discharged. It all depends on the facts and circumstances / situations of the case as held by the Hon'b....
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.... appellant is dismissed. 6. Ground No. 3 is general in nature, therefore, not adjudicated upon. 7. In the result, appeal is 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 the ld. CIT(A), assessee has filed the present appeal as per grounds so raised and reiterated in para 2 above. The ld. AR of the assessee in support of the grounds so raised, filed a detailed submission which is reproduced here in below:- "Before making detailed arguments the appellant would like to submit that present case of the appellant is covered case with the decision of the Hon`ble Bench in ITA No. 245/JPR/2023 vide order dated 18.07.2023 of the appellant which relates to AY 2014-15 containing exactly similar facts and hence the appellant relies completely on the submissions given in that case and the order of the Hon`ble Bench for this instant appeal. The only difference between both the cases is that in the cited case the assessment was framed u/s 143(3) whereas in the instant appeal the order was passed consequent to notice u/s 148. In this instant appeal the appellant has a....
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.... Grounds of Appeal : At this juncture the appellant would like to take one additional ground which is legal in nature and which is being taken for 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. 4 : 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 three parties listed above and consequently purchases made from above 3 parties are treated as bogus purchases and the assessee`s books are therefore rejected u/s 145(3....
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....d the purchases made by the appellant from 3 parties as bogus merely on the basis of the information passed on to her by Investigation wing of Mumbai. The appellant had submitted copies of the purchase bills, confirmation of the parties etc. (APB 4-34) but she has not made any comments on such vital documents and she insisted on production of all such parties which was an impossible task for the appellant. She did not share the documents in her possession, statements of the parties searched and even failed to produce all such parties before the appellant for cross examination. She even did not share the outcome of independent enquiries conducted by her about such alleged bogus parties. The ld. AO did not have any thing in her possession to prove such purchases as bogus. Further the ld. CIT (A) has also erred seriously in sustaining the action of the ld. AO without caring for the evidences submitted by the appellant during assessment and appellate proceedings. Therefore then action of the ld. CIOT (A) is not in accordance with law and deserves to be quashed. 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....
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....ubmitted that no further addition was required to be made by the ld. AO and the ld. CIT(A) when the assessee has already declared sufficient gross profit in diamond trade. ii. Vama International v/s ITO (Mumbai ITAT) (Case Law APB 10-28) : The assessee is into diamond trade. Based on the information about search in the case of Bhanwar Lal Jain group the AO reopened the assessments for the AY 2011-12, 2012-13 and 2013-14 and even after submitting all details such as copy of bills, confirmation, bank statement of the supplier, their ITR etc. the ld. AO made 12.50% addition on the amount of purchases from the concerns controlled by Bhanwar Lal Jain in the AY 2012-13 and 2013-14 and in case of AY 2011-12 made 100% addition in the returned income. In first appeal the ld. CIT (A) sustained the findings of the ld. AO but restricted the addition in all the three years @ 12.50% of the amount of purchases made from such concerns. On further appeal the Hon`ble ITAT deleted the whole addition by observing that the assessee has already declared an overall GP of 6.04% which is more than the reasonable GP. In the case in hand also the GP declared by the appellant is on very good footings....
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.... exclusion clause is applicable for the persons who have been searched and is not applicable on other persons. Therefore the conclusion of the ld. CIT (A) for applicability of this instruction is not correct and deserves to be quashed. The appellant had submitted all possible evidences in its possession to prove that all such purchases are genuine. Such documents include bills of purchases, confirmed account statements etc. (APB 4-34) which satisfies the prima facie burden of the appellant. The assessee has maintained complete books of accounts as desired by law including quantitative stock etc. which have not been doubted by the ld. AO and hence her action in making addition @ 25% of such alleged bogus purchases is wrong and unjustified. The appellant has enclosed copies of its Balance Sheet and Profit & Loss Account for the year under consideration for your kind verification (APB 38-39). Ground No. 2 : That the ld. CIT (A) has erred seriously in law and on facts in sustaining the validity of notice issued by ld. AO u/s 148 of the Income Tax Act, 1961 which was challenged before him on the reason of issuing notice u//s 148 on borrowed satisfaction of another wing....
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....he Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. 14 Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a reopening notice on the basis of intimation regarding reopening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that reopening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction. 15 Therefore, in the above facts, the view taken by the impugned order of the Tribunal cannot be found fault with. This view of the Tribunal is in accordance with the settled position in law." Further reliance is also placed on the case of Commissioner of Incometax v. Smt. Sohan Devi Sodani decided by the Hon`ble Rajasthan High Court (2008) 303 ITR 342 wherein the following was held :- "The Tribunal found that merely on the basis of DVO's report the reassessment proceedings could not have been initiated in the absence of Assessing....
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....commodation entries and income to that extent has escaped assessment is not a correct approach in the eyes of law." Reliance is also placed on the judgment of the Hon`ble Delhi High Court in the case of PCIT v/s Meenakshi Overseas P Ltd. (Delhi High Court) (Order dated 26.05.2017 in ITA No. 692/2016) wherein also the ld. AO recorded reasons in a way that it transpired to the Hon`ble Court that same were merely on the basis of report received from investigation wing of the department and the Hon`ble High Court sustained the order of the Hon`ble ITAT who quashed reassessment proceedings on the reason of borrowed satisfaction. The Hon`ble Court held as under :- "36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between th....
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....re termed as from the entry provider but at the same time he has agreed that the assessee has sold the goods also. Hence, 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 jewellery is not doubted. The profit of diamonds business and the date of the jewellery is tabulated and disclosed @ 10.28% and 13.88% respectively, which are higher in terms of percentage for the various decision relied upon hereinabove. Therefore there is no requirement to reject the books result declared by the assessee. The ld. AR of the assessee in support of the additional ground so raised in this appeal as ground No. 3 that while rejecting the books of accounts, the ld. AO has not pointed out any single defect in the book result and has simply relied upon the material or the information received ....
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....finding that the purchases are in fact may be bogus but the material are received from the other person this itself proves that though it is alleged that the bills recorded in the books if found bogus the consequent goods have been received and corresponding sales is also recorded in the books of account. 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 of the assessee further submitted that since the Board has categorically admitted that 6% GP rate to the fair enough if declared by the diamonds dealers whereas in this case for the year under consideration the assessee has disclosed GP @ 5.96%. The findings of the ld. CIT(A) that this instruction is not applicable is against the facts on record. Therefore on these issues, the ld. CIT(A) has erred in holding that the case of the assessee falls in the exception criteria. Based on these arguments, the ld. AR of the assessee submitted that the appeal of the as....
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....F INDIA Suman Poddar v. Income Tax Officer 43-48 7 [1995] 80 Taxman 89 (SC)/[1995] 214 ITR 801 (SC)/[1995] 125 ...[1995] 80 Taxman 89 (SC)SUPREME COURT OF INDIA Sumati Dayal v. Commissioner of ncome-tax 49-54 8 [1999] 236 ITR 34 (SC)/[1999] 152 CTR 418 (SC)[17-12-1997] [1999] 236ITR34 (SC) SUPREME COURT OF INDIA Raymond Woollen Mills Ltd. v. Income-tax Officer 55-56 9. [2022] 139 taxmann.com 352 (Calcutta) HIGH COURT OF CALCUTTA Principal Commissioner of Income-tax v. SwatiBajaj 57-116 10 [1995] 82 TAXMAN 31 (CAL.) HIGH COURT OF CALCUTTA Commissioner of Income-tax v. Precision Finance (P.) Ltd. 117-121 11 [1997] 92 TAXMAN 356 (RAJ.) HIGH COURT OF RAJASTHAN, JAIPUR BENCH Commissioner of Income-tax v. Golcha Properties (P.) Ltd. 122- 126 12 [2001] 117 Taxman 628 (Delhi)/[2001] 250 ITR 575 (Delhi)/[20... [2001] 117 Taxman 628 (Delhi) HIGH COURT OF DELHI Commissioner of Income-tax v. La Medica 127-130 13 [2000] 111 TAXMAN 46 (KER.) HIGH COURT OF KERALA Beena Metals v. Commissioner of Income-tax 131-132 14 [2009] 316 ITR 274 (Gujarat)[04-03-2008] [2009] 316 ITR 274 (Gujarat) HIGH COURT OF GUJARAT SanjayOilcakeIndust....
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....ssee 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 evidence were seized. In addition, statements 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: "Q. 16 In his statement recorded u/s.131 of IT ACT, 1961 on 06.10.2013, Lunkaran Parasmal Kothari has stated that import of Diamond in the concerns managed and controlled by you, is made on behalf of certain local parties who do not wish to show such imports in their books of a....
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....ed from the real importer is used to pay back the party from whom RTGS has been received against bogus accommodation entry." 8.1 Thus, the ld. AO noted that the assessee had shown purchases from the three concerns managed and operated as per evidence provided by the Investigation wing that the purchase of the assessee was bogus. Mr. Jain has agreed that he imports and delivers the goods without a bill. Whereas the parties who take the bill does not take the goods. Even the ld. AO has accepted the fact the assessee has purchased the goods in cash and taken the bill from the alleged firm of Mr. Bhanwarlal Jain to the extent of Rs. 35,09,770/- and has added lumpsum amount of 25 % calculated on these purchases as income of the assessee. Thus, bench noted that the ld. AO has not disputed the fact that the assessee has received the goods from supplier who did not give the bill and has received the bill who did not supply the goods. Therefore, considering that aspect of the matter receipt of the goods is not disputed [ quantitative details filed at page 66 (APB) which is not disputed ] but the only dispute is as to real cost of purchase. The bench further noted that the assessee has ac....
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....ssment is being made pursuant to a- (i) 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 III or under Chapter VI-A of the Income-tax Act; (vi) where there is information regarding escapement of income. E. The rate of profit as a percentage of turnover would be reviewed annually on the basis of revenue generation and results of scrutiny assessments, searches and surveys made during the year. 2. The above instruction is issued under section 119(1) of the Income-tax Act, 1961 and would be applicable for assessments made during financial year 2008-09. The instruction may be brought to the notice of all concerned in your Region. __ 8.2 With the above instructions the board clarified that the profit in this business if disclosed @ 6 % is desirable. As regards the exception we note that in the case of the assessee there is no search conducted only the information shared and it is not disputed that the assessee is in receipt of the goods. In t....