TaxTMI 
TaxTMI 
2024 (3) TMI 148
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.... ITA No.7755/Del/2018 -do- AO Order dated 31.12.2017 Assessment order under Section 143(3)/147 of the I.T. Act, 1961 4. CO No.16/Del/2023 (in ITA No.7755/Del/2018) -do- -NA- -NA- ITA No.7755/Del/2018 & CO No.16/Del/2023 - (A.Y. 2011-12) 2. We shall first refer to appeal of the Revenue in ITA No.7755/Del/2018 relevant to Assessment Year 2011-12 as adverted in the course of hearing. The Cross Objection thereon in CO No.16/Del/2023 filed by assessee seeking to raise jurisdictional infirmities in the action of Assessing Officer shall also be adverted simultaneously. 3. The grounds raised by the Revenue read as under: "On the facts and circumstances of the case: 3. The CIT(A) has erred in restricting the addition to the extent additional gross profit at 5% of addition made u/s 69C on account of bogus accommodation purchase bills from M/s Kriya Impex Pvt. Ltd. at Rs. 69,20,152/- thereby allowing relief of Rs. 61,94,144/- when the purchase from such party was acknowledged to be an accommodation entry. 4. The CIT(A) erred in deleting addition of Rs. 1,45,32,138/- which was made to the net profit by rejecting the books of accounts u/s 145(3) as the transaction recorded in t....
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....011-12 on 29.09.2011 declaring total income of Rs. 93,61,190/- for the year under consideration. The said return of income filed by assessee was not selected for scrutiny assessment. 2. Search & seizure operation u/s. 132 of the I.T. Act was conducted on 03-10-2013 on Rajendra Jain Group, Sanjay Choudary Group & Dharmichand Jain, Group by the DDIT(Inv), Unit 1(3), Mumbai. The Rajendra Jain Group, Sanjay Choudary Group & Dharmichand Jain Group, were Known entry operators of Mumbai indulging in providing accommodation entries in the nature of bogus sales and unsecured loans, 2.1 During the course of search operation, statements of various persons were recorded including Sh. Rajendra Jain, Sanjay Choudhary & Dharmichand Jain. In the statement recorded, it was admitted by them that they were providing accommodation entries through several companies/ concerns in the garb of Sales/ unsecured loan to various parties. They also admitted that they were not doing any real business and only providing accommodation entries. They further admitted that no physical goods were handed over by them to the parties to which sales had been shown in their books of accounts. A list of companies / con....
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....hen I was working for Shri Ratantal Jain, besides other concerns, he had been also operating through M/s Minar Gems, a proprietor concern in my name. So, after quitting the job, I took the idea of operating through various concerns including several proprietorship concerns in the names of our employees. In such a case, the effective control of business remains with us and the business income of such proprietorship concern get adjusted against the overall salary payable to such employee on annual basis. Q:13 Please furnish details of all the business concerns which are directly or indirectly controlled by you alongwith Shri Surendra Jain. Ans. Sir, we are operating through a no. of business concerns of all the three nature i.e. proprietorship firm, partnership firm as well as companies in the name of various persons including our employees. But for all practical purposes, myself and Sh. Surendra Jain are handling the entire business network on profit sharing basis. Q.14 During the survey action undertaken at various office premises of yours not a single piece of diamond has been found by respective, survey teams though there is substantial turnover shown by various concerns co....
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.... lending parties receives cash from loan parties against the cheque given to them. The cash is used to settle the accounts to whom they have sold the goods through angadia. In this process these name lending concerns receive interest on such loan which they return back in cash after deducting their commission. 4.1 Further on analysis of the data provided by the Investigation Wing assessee firm M/s. Jagan Nath Hemchand was found to be enlisted in the name of the beneficiaries of accommodation entry from Kriya Impex Pvt Ltd. and the value of transactions was Rs. 65,20,452/-, which is managed by Sh. Rajendra Jain and as brought out above he was found to be an entry provider indulged in providing accommodation entries the nature of Bogus sales/purchases. Sh. Rajendra Jain has himself confessed on oath that he is not doing any real trading but indulged in paper transaction only and he provides accommodation entries by issuing, accommodation bill without affecting any real trading to the assessed with modus operandi as discussed above. This therefore is a sham transaction in the nature of accommodation entries and it is evident that the assessee had reduced its income by obtaining bogu....
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....the investigation wing of the department would not mean that the Assessing Officer cannot reply upon it after of course, perusing the same and form his own opinion on the basis of the same." Also, in the case of CIT v Nova Promoters & Finlease (P) Ltd (ITA No. 342 of 2011) dated 15.02.2012 the Hon'ble Delhi High Court, which is the jurisdictional High Court held that as long as there is a 'live link' between the material which was placed before the Assessing Officer at the time when reasons for reopening were recorded. proceedings u/s. 147 would be valid. The Court also held- "We are aware of the legal position that at the stage of issuing the notice u/s. 148, the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment" Here it would be worthwhile to mention that in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. v. ACIT (2007) 291 ITR 500/161 Taxman 316 (Supreme Court). The Hon'ble Apex Court has held that:- "All that is required for the Revenue to assume valid jurisdiction u/s. 148 is the existence of cogent material that would lead a ....
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....sions of Income Tax Act 1961 has escaped assessment during the AY 2011-12 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment which has come to the notice subsequently and hence la notice u/s. 148 is required to be issued in the case of the assessee for A.Y. 2011-12. Therefore, this is a fit case for issue of notice u/s. 148 of the IT Act, 1961. Accordingly, a proposal, in the prescribed proforma, is put up for your kind perusal, consideration and necessary approval u/s. 15(1) of the IT Act, 1961 for issue of notice u/s. 148 of the Act in the case of the assessee for the year under consideration." 6. When the matter was called for hearing, the ld. counsel for the assessee in support of its Cross Objections, submitted that the reasons recorded under Section 148(2) do not meet the pre-requisites of Section 147 of the Act and hence the jurisdiction assumed in consequence of such invalid reasons are without the sanction of law. 6.1 The ld. counsel firstly contends that the jurisdiction assumed under Section 147 itself is incorrect and contrary to the scheme of the Act. In the instant case, the case was reo....
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....as failed to apply his mind to the contents of the investigation report independently. The statement of Rajendra Jain as quoted in the reasons recorded has been taken as a gospel truth without any preliminary inquiry on the propriety of depositions made by him. The Assessing Officer has further failed to apply his mind to the assertions made in paragraph 4 sub paragraphs (iii) and (iv) of the reasons whereby, it would give an impression that the supplier Kriya Impex Pvt. Ltd. (Kriya) was, in real, involved in diamond trading in his own right. The ld. counsel further points out that the Assessing Officer has failed to apply his mind to the two different figures, i.e., Rs. 25,12,590/- and Rs. 65,20,152/- cropped up in the Investigation Report for the same invoice. The assessee had purchased diamonds in the present case as per invoice dated 09.11.2010 of different weights ranging between 102.19 cts to 132.34 cts for which purchase value of Rs. 25,12,590/- was quantified in the invoice issued by Kriya. It is not known as to how another value of Rs. 65,20,152/- has been derived in the Investigation Report. The Assessing Officer has failed to apply his mind to such facts and on this prem....
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....their books. It was further admitted that no physical goods are handed over to the parties to which sales have been shown in the books. It was further found that assessee herein has also entered into purchase transaction with Kriya and thus a beneficiary of such accommodation entries. In this background, the Assessing Officer has perused the observations of the investigation team and formed his own opinion that the purchase transactions shown by the assessee with Kriya are sham transactions in the nature of accommodation entries. In the circumstances, it cannot be said that Assessing Officer did not have tangible material to form belief that income chargeable to tax has escaped assessment. The assessment in the instant case was earlier concluded under Section 143(1) of the Act and there was no occasion for the Assessing Officer to look into such facts. The case of the assessee is squarely covered against the assessee as reported in Chokshi Vachharaj Makanji and Co. vs. ACIT, (2016) 243 taxmann.com 465 (Guj). The Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (SC) has observed that the Revenue need not to prove the escapement conclusively an....
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....se of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to [subsection (1) of] section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.] " *********** "[Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment....
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....oks of account belong to the person searched but entry in such books reflect the undisclosed income of the third party then, whether the AO can assume jurisdiction under s.153C to assess such undisclosed income or not. The expression 'belongs to' was a subject matter of debate. The point in issue was examined by Hon'ble Delhi High Court in Pepsico Holdings Pvt. Ltd. vs. ACIT 370 ITR 295 (Del.). It observed in essence that expression belonging to assessee implies something more than idea of casual association. It was observed by the Hon'ble Delhi High Court that S. 153C cannot be invoked unless the AO is satisfied for cogent reasons that the seized documents do not belong to the searched person. It was observed that finding of photocopies with the searched person does not necessarily mean and imply that they "belong" to the person holding the originals. The distinction between "belongs to" and "relates to" or "refers to" must be borne in mind by the AO. The Assessing Officers should not confuse the expression "belongs to" with the expressions "relates to" or "refers to". The Hon'ble Court went on the explain the purport of the expression by giving illustration that a registe....
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....263 ITR 362 (Guj). Hence, in the light of above discussion, we are of the view that the loose paper and other documents and diaries etc. found from the possession of the searched person cannot be said to be belonging to the assessee or other third parties merely because transaction noted therein relate to or pertain to assessee and/or such other persons. This view is also fortified by express provision of S. 132(4A) of the Act whereby the presumption of documents etc. found in course of search weighs towards searched person. 14.3 As noted, post the legislative amendment, any books of accounts or documents seized or requisitioned requires to be merely pertain to or relate to the assessee in contrast to the earlier position where such books/documents seized etc. must necessarily belong to the third person i.e. assessee herein. Thus, for the assessment year 2012-13 in question, which is governed by pre-amended law of Section 153C of the Act, the provisions of Section 153C of the Act could not be invoked unless document seized etc. 'belongs to' a person (assessee herein) other than the person searched. Thus, while the case of the assessee can be reopened where the document seized in ....
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....atisfaction' arrived by the AO of the searched person, the AO of the third party/Assessee herein would be rendered powerless to assess true income under S. 153C. In contrast, Section 147 can be invoked by the AO of the Assessee independently on arriving at satisfaction of escapement of income for a given assessment year regardless of 'satisfaction' of AO of searched person. Thus, it is self-evident that two sections operate quite differently. The effect of non obstante clause under S. 153C is that pending assessment or reassessment proceedings shall abate. Hence, S. 147 will be rendered inoperative and will give way to Section 153C once power under S. 153C are exercised validly. This however is not the same thing to say that there is any statutory compulsion to resort only to mode prescribed under S. 153A / S.153C in the event of search. The scheme of Act does not suggest that mere search action revealing incrementing material against the person other than searched person would automatically oust the power of the AO over the assessee concerned under S. 147 of the Act. The overriding provisions of S. 153C merely enables the AO to set aside the pending reassessment proceedings an....
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....e of powers under Section 147 runs contrary to provisions of Section 153C of the Act. The objections of the assessee thus merges is void. 11. It is further contended on behalf of the assessee that the reasons recorded under section 148(2) of the Act are marred with several inherent deficiencies which touches the assumption of jurisdiction. The assessee submits that the Assessing Officer has failed to apply his mind to the information made available to him by the Investigation Wing and also such material is not capable of providing inference for assumption of jurisdiction under section 147 of the Act. 12. On perusal of reasons recorded, we observe that based on information gathered in the course of search in the case of Jain and Choudary Group, a detailed and comprehensive information was supplied to the Assessing Officer herein. The Investigation Wing had relied upon the statement of various persons in the group search cases wherein it was categorically asserted that the supplier M/s. Kriya is not engaged in any real business and no physical goods were supplied by such entity to any party named in their books. The name of the assessee company figured in books of accounts and the ....
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.... this group admitted that they were merely dummy directors/proprietors and used to sign different papers for nominal consideration without any actual work done at their end. Money received against such bogus sale were through Banking Channel and same was refunded to beneficiaries after deducting commission for providing bogus accommodation entries. In such backdrop, the Assessing Officer reopened the assessment and made an addition of Rs. 65,20,152/- on account of supply by one M/s. Kriya Impex Pvt. Ltd. which is found to be associate concern of the searched group. The matter was confronted to the assessee in the course of scrutiny assessment. On considering all the evidences furnished such as invoice, payment through banking channels, copy of stock register etc., the AO observed that mere reflection of transactions in the ledger books and payment through banking channel does not satisfy the claim. The statement of the Director of concerns were recorded on oath under the provisions of the Act which proves the true nature of the transactions to be an accommodation entry. A reference was made to the Judgement delivered by the Hon'ble Delhi High Court in the case of CIT vs. La Medica ....
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....the copy of the bank account from which the payments were made through banking channels to the parties. ii. The appellant had also stated that it is engaged in the business of manufacture & trading of jewellery. The items purchased from the concern were either consumed or were reflected in the closing stock declared by the appellant. iii. The appellant had also stated that it is maintaining proper stock register and the entry of purchase and sale of items has been duly recorded in this register. iv. In addition, the appellant has contended that the request of the appellant made vide letter dated 22.09.2017 filed on 26.09.2017 before the AO, to provide an opportunity to cross examine the persons whose statements were being used against it, was not adhered to by the AO. v. The appellant has further submitted that it has produced confirmations from the supplier parties which shows that the appellant has made genuine purchases. vi. The appellant has also submitted that the total sales as well as the quantitative stock tally furnished to the AO have not been disputed by the AO. vii. The AO has not furnished the copies of the documents/evidence seized from third party and the....
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....ith the same. Also, no opportunity has been provided to cross- examine the persons whose statements have been relied against the appellant by the AO. Reference is made to the decision of Delhi High Court in the case of CIT vs. Anil Khandelwal (ITA Appeal No. 247/2015 & ITA 248/2015), in which it has been held that addition made merely on the basis of statement of the third party without any corroborative evidence is not tenable and the presumption u/s 132(4A)/292C is available only in the case of the person from whose possession and control the documents are found and it is not available in respect of a third party. 5.2.2 Even otherwise, the appellant has been able to prove the genuineness of the purchases under consideration and the AO has not been able to corroborate the information received from investigation wing with any evidence to rebut the contentions of the appellant made at the time of assessment. 5.3 In view of the above facts and in consistence with the stand taken by the AO for the AYS 2008-09 & 2009-10, I am of the view that the addition made needs to be restricted to the additional gross profit earned by the appellant in respect of the purchases shown to have bee....
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....e been drawn up merely to claim bogus purchase of diamonds. e. The assesses has claimed that the diamond so purchased from M/s Kriya sold/included transaction manufacturing jewellery and were further However, once It is the assesses and clear that that it no had genuine taken view of the nature of the claimed by accommodation entries and further in purchase and invoice, it is dear that no genuine purchase of diamond was made by the assesses in respect of the above transaction with M/s Kriya Impex Put. Ltd. From this clear that the is making non-existing diamonds, for which only bogus purchase bills the assessee, were used in this sock manufacturing of jewellery and safe by the assessee of the a claim were or where taken by in transactions claimed by the assesses and books of account of the assessee are not reliable and hence are liable to be rejected. the proves that the was made in the stock. f. Once the diamonds were actually not purchased and were non-existent then the claim of the that these diamonds were manufacturing of Jewellery, stocking and subsequent sales are us'd in not reliable being a wrong claim. In view of the bogus purchases claimed by the assesses, which i....
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....irmation from the party, bank statement etc. are sufficient to establish the reliability of the books of account. The AO has neither given proper reasons for rejecting the books of account nor has given any rationale for estimating the turnover and the net profit. In view of these facts, I am constrained to delete the addition made by the AO by rejecting the books of account. Accordingly, the grounds of appeal are allowed." 15. The Revenue is in appeal before ITAT against the conclusion drawn by the CIT(A) which has resulted in substantial relief to the assessee. 16. The ld. DR for the Revenue broadly relied upon the observations made by the Assessing Officer and contended that the CIT(A) was not justified in granting relief and restricting the additions @ 5% of the purchases on the face of such detection of the large scale racket causing serious harm to the interest of the Revenue by falsification of books and inclusion of such bogus bills. The learned DR submitted that the AO was fully justified in rejecting the books of accounts on the face of introduction of bogus purchase bills obtained by the assessee from Kriya in the instant AY 2011-12 and from two parties of the same sea....
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....us purchases and brushing aside the findings of such large scale search and investigation operation. 17. The ld. DR next submitted that the order of CIT(A) is laconic and a summary order has been passed casually without dealing with the relevant observations of the Assessing Officer. Vital evidences have not been looked into by the CIT(A) while granting large scale relief to the assessee in a nonchalant manner. Thus, the ld. DR submitted that the CIT(A) has neither examined the facts incisively nor any opportunity was given to the AO by way of remand. The CIT(A) has inter alia observed that the opportunity to cross examining the persons whose statement has been used by the AO for making additions have not been provided. The CIT(A) was thus considerably influenced by cross examination not offered. The Learned DR pointed out that requirement of cross examination is not absolute and can be dispensed with in appropriate circumstances. Having reopened the case based on cogent evidences and reassessment proceedings set in motion, the onus was upon the assessee to justify the bonafides of purchases recorded in the books by production of the parties and other appropriate evidences. A mere....
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.... be restored. 20. Per contra, ld. AR for the assessee strongly assailed the action of the AO on merits. The ld. AR submitted that the books have been causally rejected without pointing specific defects. A turnover of different figure has been adopted without giving any reason for doing so. Likewise, profits have been taken at Rs. 3.03 crores without any reasons for doing so and profits have been based on some unintelligible assumptions and surmises. The ld. AR also pointed out that CIT(A) was also not justified in adopting the unauthentic figure of Rs. 65,20,152/- instead of the correct figure of Rs. 25 lac for the purpose of estimations of 5% profits thereon. 21. We have carefully considered the rival submissions and perused the assessment order and the first appellate order. The matter referred to and relied upon in the course of hearing and also the case law cited have been perused. 22. The correctness of addition on account of bogus purchases is in question. The issue is essentially factual in nature. The AO for the Assessment Year 2011-12 in question alleged that the assessee has procured bogus bills from alleged supplier M/s. Kriya Impex Pvt. Ltd. in order to inflate the p....