TaxTMI 
TaxTMI 
2023 (1) TMI 1321
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....er and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in ITA No. 15/SRT/2020 for AY.2007-08, have been taken into consideration for deciding the above appeals en masse. 3. The grounds of appeal raised by the Revenue as per lead case, in ITA No. 15/SRT/2020 for AY.2008-09, are as follows: "(i) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 20,48,83,051/- made on account of bogus purchase and instead erred only in upholding commission income @ 0.50% of the Rs. 20,95,86,838/- whereas the assessee was engaged in bogus purchase from four concerns controlled by the entry provider. (ii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A), while accepting the figure of bogus purchases at Rs. 20,95,86,838/- erred thereafter by not enhancing the addition to the extent of differential amount of Rs. 47,03,787/- [Rs. 20,95,86,838 - Rs. 20,47,83,051/- (figure of bogus purchases adopted by the AO)]. (iii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in giving relie....
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.... of purchase from such parties has escaped assessment within the meaning of section 147 of the Act, which lead into invoking of provisions of section 147 followed by issuance of notice u/s. 148 of the Act after recording reasons for such reopening of assessment as required under these provisions. Accordingly, notice u/s. 148 dated 31.03.2015 was issued and served upon the assessee. The assessment was reopened by the AO by recording reasons. The assessment was reopened after examining the information received from the DIT (Inv), Mumbai and recording satisfaction for reopening by the AO. A search and seizure action was conducted in the premises of Shri Gautam Jain and his group concern on 03.10.2013 by the DGIT (Inv), Mumbai. During the course of search proceedings, it was established that the group concerns are all paper companies/firms, / proprietorship concern with no real business activities, operating solely with the purpose of facilitation of fraudulent financial transactions which includes, providing accommodation entries in the form unsecured loans to interested parties, issuing of bogus sales/purchase bills to various parties and providing a bogus front to concerns which do ....
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.... and were associated with the office work, they do have perfunctory knowledge about the nature of business activity of the concerns in which they are shown as Directors, partners and proprietors. However, all of them do not have any technical or in depth knowledge of diamond industry like assorting cutting, manufacturing etc. All these dummy directors/partners/proprietors were paid salary not profit/remuneration. These dummy directors/partners/proprietors were paid salary mostly in cash. At times the salary was disbursed to them on need basis, as and when required. It was observed that the profit of the concerns in which employees are shown as directors, partners and proprietors are maintained more or less equivalent to their annual salary. In the regular books of the said concerns, the profit is shown to be appropriated by the concerns and for doing miscellaneous office work, looking after banking transactions and data entry of the accounts etc. From the above, it clearly indicates that these employees are completely dependent on Gautam Jain and others and have no stake whatsoever in the business of the concerns in which they were shown as directors, partners and proprietors and i....
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....se group concerns. Books of accounts not maintained at the respective registered offices: The registered offices and residential premises of the said group concerns and the Gautam Jain and others in Mumbai and Surat were covered during the search action. However, the Income Tax Authorities did not find any books of account of the said group benami concerns at any of the premises. 8. During the course of search, evidences were found; persons were examined on oath which established that Gautam Jain and others have been using group benami concerns to give accommodation entries in the nature of bogus purchase and bogus unsecured loans to various beneficiaries. There are many players in the diamond market who purchase diamond from the grey market and are in need of bogus purchase bills to regularize the corresponding sale. Further, there are others who want to take accommodation entries of bogus purchases expenses. All such parties approach the Gautam Jain to get bogus import diamonds on behalf of real importers to whom these diamonds are handed over out of books. But in the regular books of accounts of the benami concerns, the imported diamonds still appears as stock ....
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....s operandi to reduce its true profits by inflating its expenses including purchase expenses by taking accommodation entries from such parties. (iii) Thus, in the books of accounts of the assessee, the purchase to the extent made from the above said parties remained unverifiable and hence undersigned arrived at a conclusion that the purchase shown by the assessee in the books of accounts are bogus purchases and debited to trading account to suppress the true profit to be disclosed before the department. (iv) The onus was upon the assessee to establish the genuineness of purchases made by the assessee. (v) Mere filling of evidences in support of purchases and payment through account payee cheque cannot be conclusive in a cause where genuineness of transaction is in doubt. Payment by account payee cheques are not sacrosanct. (vi) If all the evidences point to the fact that no actual goods were supplied by the above any entry providers, then the argument of the assessee that it purchased goods is not tenable. Thus, from the above analysis of the facts, it is crystal clear that the purchases made by the assessee from the above party and claim....
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....ection 114 of Indian Evidence Act, the court may presume the existence of any fact which it thinks likely to have happened regarding being to the common courts of natural events, human conduct and public and private business in their relation to the facts of the particular case. Considering the facts and circumstances of the case discussed above, the assessing officer held that it is a clear that the assessee had obtained the bogus bills to the tune of Rs. 20,48,83,051/- from M/s Krishna Diam Pvt. Ltd. respectively, without actually getting the material (diamond). Thus, the bill issued by the said group concern is nothing but accommodation entry. Hence, the accommodation entry received from M/s Karishma Diamond Pvt. Ltd., M/s Parshwanath Gems P. Ltd., M/s Mihir Diamond and M/s Krishna Pvt. Ltd. to the tune of Rs. 20,48,83,051/- is treated as bogus purchases and added to the total income of the assessee." 12. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has dismissed the technical ground raised by assessee about validity of reassessment u/s 147 of the Act, observing as follows: "7. DISCUSSIO....
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....ssion (supra). 7.1.3 Requirement of giving materials proposed to be relied by the ld. AO t0 the appellant is a statutory requirement , failure to do it is fatal to the assessment as held in many judicial pronouncements such as; (Gangaram v/s CIT 5 ITR 464 - 488 - Gurmuh Singh v/s CIT 12 ITR 692 713 - International Forest v/s CIT 101 ITR 721 ITO v/s Ponkunnam 102 ITR 336 Narayan v/s CIT 20 ITR 287 ; in ITR 361; Nagulokonda v/s CIT 31 ITR 781; Thomakutty v/s CIT 34 ITR 501 Koyanmankutty v/s ITO 58 ITR 871 ; Radheylal v/s CIT 4 ITC 454 ; Gargi v/s CIT 96 ITR 97; Hirji v/s CIT 105 ITR 286 (sec 271). However, quashing reopening and assessment on this ground would mean that the appellant is given undue benefit of mistakes by an individual officer. This is neither fair nor equitable for the revenue. Hence, this ground is not allowed. 13. On merits, Ld. CIT(A) held as follows: "7.2 Ground regarding disallowance of bogus/ unverified purchases 7.2.1 (a) On perusal of the assessment order and submission of AR, it appears that the Ld. AO has held that assessee has made unverified purchases made from concerns belonging to one Gautam Jain Group. The Ld. AO ....
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....hases. 7.2.3 The Operative part of order Ld. CIT(A) dated 12.06.2017 (supra) for A.Y. 2007-08 is reproduced below; Another bone of contention between assessee and department is relating to the true nature of business activity carried out by the assessee during the year. As per Written Submission dated 25.02.2015 filed before AO the assessee has contended that "he was commission agent of rough & polished diamond in Surat making sales Land purchases on behalf of some diamond trades for which he was receiving commission. Though sales and purchases were recorded in books of accounts but they are for inventory purpose and no trading account is made for that. Income and expenditure account is made wherein commission income earned is credited and expenses incurred for earning commission income are debited. During the year under consideration, I did business as commission agent in proprietary concern with name and style of Sanman Exports." Having reproduced the contention raised by the assessee, ld. AO has given her finding which is totally in contrast to the claim of the assessee. She has observed on Pg. 6 point No. 8 of assessment order as under: "Since last ma....
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.... In fact no Trading A/c was prepared to reflect purchases & Sales and fact of his being "Commission agent" is apparent from 3CD Report ,Return of Income & Books of Accounts .The Auditor has clarified that Purchase & sales Registers were made just to record the movement of stock. The assessee has maintained daily stock tally product wise, quantity wise which is tallied without having any shortfall or discrepancy therein to indicate bogus purchases as such. Appellant has stated that goods purchased have been later sold to principals after adding up his mark up as commission ranging from 0.12% to 0.15% thus difference of sales & purchase is commission earned by the appellant which is shown as gross receipts in Audited Income & Expenditure A/c at Rs. 6,67,276/during the year. During appellate hearings, the assessee has also submitted date-wise break up of commission income which was duly found corroborated with the claim of the appellant. On the basis of above submission, it has been established beyond doubt that assessee's case is of a "commission agent" where only markup (profit margin)on purchases have been shown as income, therefore, question of disallowance of entire purchase ....
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....Diamonds Pvt. Ltd.) as 'bogus' only for the reason of statement of Shri Gautam Jain who later on retracted his earlier statement by filing affidavit (copy filed by assessee). There have been serious allegations about "accommodation transaction" through alleged parties. The assessee did not furnish any evidence to establish that purchase price & sale price, charged (after markup) are as per market price. Besides this, ld. AR also could not do one to one mapping of impugned purchases with sales to show as to how much commission income was earned on each such alleged purchases vis-vis other purchases amounting to Rs. 2,01,61,565/-. This puts the entire transaction under a shadow of doubts about unverifiability of purchases price and commission charged on such transactions and therefore I presume that assessee must have purchased the goods from grey/open market & bill must have been obtained from party to support the purchases and price shown in said bill was inflated in order to suppress the profit commission income. There is nothing on record to accept the possible contention of the assesse that price paid to said party was at the Arm's Length Price (ALP). The surrounding....
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....s. 2,00,60,757/- (Rs.2,01,61,565 - Rs. 1,00,808). Ground of appeal is partly." 7.2.4 Since facts are identical for the current year too and also involves same parties and since by the details of purchase and sales filed the AR has made out a case that sales made to impugned parties is higher than so alleged unverified purchases from them, the above finding of Ld. CIT(A) is applicable mutatismutandis to current year. Further, as already stated the Ld. AO has not given any contrary findings or rebutted this explanation of assessee furnished before him during assessment proceedings. Following the above order the suppressed commission is estimated at 0.50% of impugned purchases Rs. 20,95,86,338/-, which works out to Rs. 10,47,931/- for A.Y.2008-09 and 0.50% of impugned purchases Rs. 1,57,66,522/- which works out to Rs. 78,832/- for A.Y. 2009-10. The ground of appeal is partly allowed. 8. In the result the appeal is Partly Allowed." 14. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. 15. Learned CIT-DR and Learned Sr. DR for the Revenue, both have vehemently argued that no documentary evidences have been filed by the assessee, before....
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....treated as the sales / turnover of the agent for the purpose of section 44 Mi. 3. The matter was examined in consultation with the Ministry of Law, There are various trade practices prevalent in the country in regard to age-no business and no uniform pattern is followed by the commission agents, consignment agents, brokers, kaehha arahtias and pacca arahtias dealing in different commodities in different parts of the country. The primary necessity in each instance is to ascertain with precision what are the express terms of the particular contacts under consideration. Each transaction, therefore, requires to be examined with reference to its terms and conditions and no hard and fast rule can be laid down as to whether the agent is acting only a an agent or also as a principle. 4. The Board are advised that so far as kachha arahtias is concerned, the turnover does not include the sales effected on behalf of the principals and only the gross commission has to be considered for the purpose of section 44AB. But the position is different with regard to pacca arahtias. A pacca arahtias is not, in the proper sense of the word, an agent or even del credere agent. The relat....
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.... pointed out that pucca Arahita should maintained books of accounts and it should deduct the TDS, however no TDS has been deducted by the assessee under consideration. The assessee has not demonstrated any features like a pucca Arahita, even if the assessee is a pucca arahita ( for the sake of argument), it should be treated as a trader and benefit on account of commission agent should not be allowed, merely because there is an entry in the audit report and Form No. 3CD. 18. On the other hand, Ld. Counsel for the assessee submitted that first of all the statement recorded under section 132(4) has not been provided to the assessee, hence it is violation of principle of natural justice. The ld Counsel stated that assessee is a pucca Arahita. The Ld. Counsel also stated that even if assessment order was made by the Assessing Officer under section 144 of the Act, the Assessing Officer has to refer the return of income filed by the assessee. Therefore, the best judgment assessment framed by the Assessing Officer under section 144 of the Act, in case of ITA No. 87/SRT/2017 for AY.2007-08 may be quashed. 19. The Ld. Counsel, also argued that reasons recorded by the Assessing Officer....
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....y, so that the bogus transaction is looks like genuine transaction. In bogus transaction, the fabricated evidences are always maintained perfectly. The assessee has obtained accommodation entry only to inflate the expenses and to reduce the ultimate profit. No stocks of diamonds were found at the time of search on Bhanwarlal Jain Group. The assessee has shown a very meagre gross profit (GP) @ 0.78% and not net profit (NP) at 0.02%. The ld. CIT(A) restricted the addition to the extent of 12.5% which is on the lower side. The ld. CIT-DR for the revenue prayed that disallowance made by the AO may be upheld or in alternative submitted that it may restricted at least @ 25%, keeping in view that the NP declared by the assessee is extremely on lower side. 13. On the validity of reopening, the ld.CIT-DR for the revenue submits that the AO received credible information about the accommodation entry provided by Bhanwarlal Jain Group. The assessee is one of the beneficiaries, who had availed accommodation entries from such hawala trader. At the time of recording reasons, the mere suspicious about the accommodation entry is sufficient as held by Hon'ble jurisdictional High Court i....
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....provided cross examination of the alleged hawala dealers. The disallowances sustained by the Ld. CIT(A) @ 12.5% of the impugned purchases, is on higher side and deserve to be deleted in total. The ld.AR of the assessee submits that entire purchases shown by assessee are genuine. In without prejudice and alternative submissions, the Ld. AR for the assessee submits that in alternative submission, the disallowance may be sustained on reasonable basis. To support his various submission, the ld.AR for the assessee is relied upon case laws: 1 M/s Andaman Timber industries Vs Commissioner of Central Excise, CIVIL APPEAL No. 4228 OF 2006 (Supreme Court) 2 CIT vs. Indrajit Singh Suri [2013] 33 taxmann.com 281 (Gujarat) 3 Albers Diamonds Pvt. Ltd. Vs ITO 1(1)(1), Surat I.T.A. No. 776 &1180/AHD/2017 4 The PCIT-5 vs. M/s. Shodiman Investments Pvt. Ltd. TTANO. 1297 OF 2015 (Bombay High Court) 5 ShilpiJewellers Pvt. Ltd. vs. Union of India &Ors. WRIT PETITION No. 3540 OF 2018 (Bombay High Court) 6 CIT in Vs. Mohmed Juned Dadani 355 ITR 172 (Gujarat) 7 Micro Inks Pvt. Ltd. Vs. ACIT [2017] 79 taxmann.com 153 (Gujarat) 8 Shakti....
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....such entry to various persons; based on such report the AO has reason to believe that the income of the assessee has escaped assessment and thus the action of AO in reopening is justified. 18. We find that the Hon'ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd Vs DCIT (supra) while considering the validity of similar notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a person who is engaged in providing accommodation entries, held that where after scrutiny assessment the assessing officer received information from the investigation wing that well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in reopening assessment. Further similar view was taken by Hon'ble Jurisdictional High Court in Pushpak Bullion (P) Ltd Vs DCIT (supra). Therefore, respectfully following the order of Hon'ble High Court, we find that the assessing officer validly assumed the jurisdiction for making re-opening under section 147 on the basis of information of investigation wing Mumbai. So far as other submissions of....
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....ustain the addition @12% of such bogus purchases. And on further appeal, the Hon'ble High Court sustained Gross Profit Rate @ 5% being average rate of profit in industry. 20. Now adverting to the facts of the present case, the ld.CIT(A) held that in some other similar cases; though he had sustain 5% of Gross Profit Rate, considering the fact that where Gross Profit shown by those assessee's are 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. 21. We have seen that during the financial year under consideration the assessee has shown total turnover of Rs. 66,09,62,458/-. The assessee has shown Gross Profit @ .78% and net Profit @ .02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs. 1,81,840/- only. We are conscious of the facts that dispute before us is only with regard of the disputed purchases of Rs, 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwar....
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....he Revenue are partly allowed. Registry is directed to place one copy of this order in all appeals folder / case file(s). Order pronounced on 13/01/2023 by placing the result on the Notice Board. ============= Document 1 Sr. No. 1 2 3 4 Name of the Entry Provider M/s Karishma Diamond P. Ltd. M/s Parshwanath Gems P. Ltd. M/s Mihir Diamond M/s Krishna Diam P. Ltd. Total Amount (Rs.) 6,04,13,365/- 3,07,13,636/- 6,06:44,332/- 5,31,11,718/- 20,48,83,051/- Document 2 $2. In your case, on verification of the details and submission made by you, it is seen that you have made transactions with parties which were benami concerns, run and operated by Shri Gautam Jain & Other group of cases of Mumbai wherein information has been received from the Investigation Wing, Mumbai that a search and seizure action was carried out by the Investigation Wing , Mumbai on 03.10.2013, which resulted in collection of evidences and other findings, which conclusively proved that the said Shri Gautam Jain & Other group of cases, through a web of benami concerns, run and operated by them, provided accommodation entr....
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.... of the evidences, the following facts emerged: > No Stock of diamond found: During the course of search, the offices, business premises, business and residential premises of various dummy directors, partners and proprietors Document 3 any stock or were covered. At none of these premises, any of diamond trade, at a given point of time would at least have some stock of diamond available. Books of accounts not maintained at the respective registered offices: The offices and residential premises of the Group were covered during the search action. However, the team of the Income Tax Authorities did not find any books of account 5. Entries. 6. C. It is important here to discuss the Modus Operandi of giving Accommodation a. Actual importers of rough diamonds import part of their diamonds through the benami concerns operated by Gautam Jain and Family with a view to suppress their turnover, profits and capital requirement. The consignments are sent on credit by the suppliers in the names of the benami concerns at the instance of the actual importer. On receipt of consignments by these benami concerns, the diamond is handed ov....
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....inted out as above that of bogus nature of purchase, ! am of the opinion that the provision of section 145 (3) of the Act is directly applicable which read as follows: Document 4 7. "Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section(1) or accounting standards as notified under sub-section(2), have not been regularly followed by the assessee, the Assessing officer may make an assessment in the manner provided in section 144* From the above details and evidences made available with this office, it is seen that the following entities of Shri Gautam Jain & Other group of cases have given accommodation entries of various bogus transactions as under, during F.Y.2007-08 to the assessee: Sr. No. Name of the Entry Provider Amount (Rs.) 1 M/s Karishma Diamond P. Ltd. 6,04,13,365/- 2 M/s Parshwanath Gems P. Ltd. 3,07,13,636/- 3 M/s Mihir Diamond 6,06,44,332/ M/s Krishna Diam P. Ltd. 5,31,11,718/ 20,48,83,051/ 8. Total Since the evidential and material facts found during the cou....
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....e diamond traders for which assesseereceive commission. The relationship between assessee and those traders is like that of agent and principal. According to accepted accounting practice the difference of sales and purchases is commission earned by a commission agent Though sales and purchases are recorded in my books of accounts, but they were for inventory purposes and no trading account is made for that. Income and expenditure account is made where in commission income earned is credited and expenses incurred for earning commission income are debited. During the year under consideration assessee did business as commission agent in proprietary concern with name and style of M/s.Arpan Jewels. During the year under consideration the assessee.has made purchases and sales for some of his principals which includes the subjected parties M/s. Mihir Diamonds, M/s. Karishma Diamonds Pvt. Ltd. and M/s. Pashwanath Gems Pvt. Ltd. Assessee had followed the established accounting practice for consignment agent preparing his books of accounts and had recorded sales and purchases with these parties as consignment sales and purc....