AI Drafter 
TaxTMI 
TaxTMI 
2024 (3) TMI 148
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.... CO No.15/Del/2023 (in ITA No.7754/Del/2018) -do- -NA- -NA- 3. 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,....
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.... Market, New Delhi 110003 PAN AAGFB5833Q Status Firm Assessment Year 2011-12 The assessee M/s Jagan Nath Hemchand filed return of income for the AY 2011-12 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....
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....u know? If yes, Please explain as to how they do justice with the roles and responsibilities assigned to them by you? Ans: Sir, in fact the proprietory concerns in the names of our employees are not independent business activity of their own. When 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....
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....hese name lending concerns make import remittance to the request of importer. (vi) As regards the loans and advances, these name lending concerns import goods on credit basis for longer period and sale the goods on immediate payment basis. Therefore, they receive cheque immediately and use the same for giving loans. These name 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 ind....
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.... a belief that the income chargeable to tax had escaped assessment. Such information was not available during the original assessment. Obviously the assessee would not make such disclosures. The requirement for reopening of the assessment even beyond a period of four years are therefore satisfied. Merely because such information was supplied to the Assessing Officer by 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 th....
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....n record and the reasons for belief that income has escaped assessment has also been sufficiently demonstrated. To conclude, I have examined the entire gamut of facts and circumstances surrounding the case as also the material available on record and after due application of mind on the same as brought out above. I, therefore, reasons to believe, that an income of Rs. 65,20,152/-, in the case of the assesse that was chargeable to tax, under the provisions 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, ....
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....ing Officer however independently met the prerequisites for assumption of jurisdiction under Section 147. Therefore, at the time of issuance of notice under Section 147, there was no statutory embargo for assumption of jurisdiction under Section 147 of the Act. 6.3 The ld. counsel for the assessee next contends that the reasons have been recorded solely on the basis of some investigation report communicated to the Assessing Officer herein. The Assessing Officer however has 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....
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....ere stated to be unearthed. The assessee in the instant case has entered into certain purchase transactions of diamonds with M/s. Kriya which supplier was found to be belonging to Jain & Choudhary Group on whom the search under Section 132 was carried out on 03.10.2013. It was observed that the searched person / group in a deposition on oath has admitted that they have not been doing any real business and are only providing accommodation entries to various parties as recorded in 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....
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....nt or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :] [Provided that in case 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 suc....
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....or requisitioned 'belong to' or belongs to any person, other than the person referred to in section 153 A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person for such jurisdictional Assessing Officer to complete the assessment. This position has been confirmed by the Hon'ble Supreme Court in the case of CIT vs. Calcutta Knitwears 338 ITR 239 (SC). 14.2.3 Therefore, question posed whether, in view of the phraseology employed in the section, if the books 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 sati....
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....nt seized merely pertains or pertain to or any information contained therein relates to the other person without the necessity of these documents etc. to be belonging to such other persons. Thus, in the light of the judicial precedent of the Hon'ble Delhi High Court and further in view of the subsequent legislative amendment, the difference between the expression 'belong to' and 'pertain to' / 'relate to' are visibly clear. Similar legal position has been enunciated by the Hon'ble Gujarat High Court in the case of Kamleshbhai Dharamshibhai Patel vs. CIT 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 ....
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.... 147 in favour of the Revenue. Secondly, for usurping jurisdiction under S. 147, the documents / papers found in the course of search need not 'belong to' the person other than person searched. Mere-demonstrable connection or live link to such third person revealing escapement of income is adequate to invoke remedy under S. 147. Thirdly and significantly, operation of Section 153C is dependent on the 'satisfaction' arrived by the AO of the searched person at the first instance and not that of AO of the person whose income is found to have escaped assessment. In the absence of such 'satisfaction' 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 ....
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....proceedings under s. 153C of the Act has not been invoked and could not possibly be invoked, there was no impediment for initiating proceedings under s.147 of the Act by the AO as discussed in elaboration above. Therefore, in Cargo Clearing Agency and other decisions of the co-ordinate bench cited on behalf of the assessee rendered on similar lines do not give rise to any conflict and are of no assistance to the assessee. 14.6 Consequently, the second additional ground is also dismissed. 10. In the light of nuanced view expressed by the Co-ordinate Bench, we see little merit in the plea that exercise 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 u....
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....s are stated to have admitted that they are only providing accommodation entries through several entities/concerns in the garb of sales/unsecured loan to various parties. They have categorically admitted that they are not doing any real business and are only providing accommodation entries. The search action further resulted in collection of evidences and other findings which provide the foundation that through web of concerns run and operated by them, the group was engaged in providing accommodation entries of various nature like including bogus bills for non-existing supply of material. The Directors/proprietors of 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 ....
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....ls. The appellant also furnished affidavits from the parties in which the sale & delivery of goods to the appellant was confirmed. However, the AO relied upon the information provided by the Investigation Wing and considered that the appellant has shown bogus purchases of Rs. 65,20,152/- and has made the addition. 5.2 I have gone through the complete facts of the case and the submission made by the AR. It is noticed that the main contentions of the appellant are as under: i. During the course of assessment proceedings, the appellant had denied the fact that it had made bogus purchases and had produced the invoice vouchers and 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 addi....
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.... Sh Rawal, without either confronting this statement to the assessee, or providing opportunity to the assessee to cross examine Sh. Rawal. Therefore, the reassessment order is as a result of violation of the natural principle of audi alterm partem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. Hence, on this score alone, the reassessment order is unsustainable in the eye of law and we hereby cancel the same. As a consequence, the order of the Id. CITYA) is also cancelled in toto," In this case, the AO has not furnished the copies of the documents/evidence seized from third party and the same was used against the appellant without confronting her with 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....
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.... specified clearly in the bills b. There are no details regarding size, carat (weight) of the diamonds purchased c. There are no details regarding Quality and specifications Such as cut, colour, polish, clarity inclusions etc. d. The bills have only gross weight m carats and a particular weight has been applied for all the diamonds which are shown in carat. Such a situation cannot be accepted as the assesses has claimed the very high carat of 102. 19 and 132.74 carat, which is not claimed to be a single diamond, but are claimed to be several diamonds and hence if there was any genuineness in the purchase the specific details of each of the various diamonds would have been given along with the specific rates, However, the bill does not give proper details and it is apparent that the bills have 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 an....
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....tating that the purchase bills do not contain specific details like the number of diamonds, size, carat, quality, color, polish, inclusions etc. In this regard, it is pointed out that the appellant is maintaining proper stock register and the diamonds are purchased in bulk lot wise) and as per the trade practice, all these details are not mentioned by the supplier in the invoices. If books are to be rejected based on this reason, it will result in rejection of books in almost all the cases be it related to purchase of fabric, spare parts, machine tools, jewellery, hosiery, scrap, metals, etc. In my view, books of account can be treated as reliable if the books along with the other supporting documents give the true picture of the statement of affairs of the business. In this case, the ledger accounts, stock statement, invoices, VAT Returns, confirmation 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....
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....been sold which were allegedly acquired from Kriya is not identifiable. The ld. DR also pointed out that keeping in mind the size of the diamonds, it is very easy to manipulate information on the mode of supply except for the payment through banking channel which too was made after a considerable gap from the date of such bill. There is no concrete reason to disregard the categorical statement of the suppliers towards accommodation entry. The ld. DR also contended that in such cases, it is not possible for the department to get hold of any clinching proof towards execution of transactions and such act needs to be viewed contextually in a holistic manner keeping in mind such gross circumstances existing in such cases. The ld. DR thus submitted that there was no justification for CIT(A) to casually restrict the addition to the extent of 5% of such bogus 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 CI....
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....explain the purport of assessment of Rs. 3,03,05,000/- as taxable income instead of Rs. 93,61,190/- declared by the assessee followed with increase on account of additions proposed thereon by the AO himself at Rs. 65,20,152/-. The assessed income thus could possibly be Rs. 1,58,81,342/- only instead of Rs. 3,03,05,000/- 19. In conclusion, the Learned DR pointed out that the order of the CIT(A) granting substantial relief deviates from the role and duly cast upon the CIT(A). It is trite that powers of CIT(A) co-terminus with that of the AO only with appellate functions entrusted to him. The CIT(A) has merely found lacuna in the order of the AO without giving opportunity to the AO and without observing co-terminus duty cast upon him in law. The Learned DR thus submitted that the order of the CIT(A) requires to be set aside and order of the AO requires to 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....