TaxTMI 
TaxTMI 
2019 (7) TMI 2026
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....roper reason. The books of account rejected without any opportunity to the assessee and without issuing any show-cause notice in this regard. 3. The Hon'ble CIT (Appeals)-4, has erred in confirming the addition made against bogus purchase to the extent of Rs. 2,98,97,701/- by estimating net profit of 5% on total sales. 4. The Hon'ble CIT (Appeals)-4, has erred in making addition of Rs. 2,98,97,701/- by estimating net profit at 5% without any material on record." 3. The grounds of appeals raised by the Revenue in I.T.A. No. 79/AHD/2017/A.Y. 07-08 read as under: "1. On the facts of the circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the additions of Rs. 7.15 crores on account of bogus purchase. 2. On the facts and in the circumstances of the case and in Law, ld. CIT(A) has erred in estimating income @ 5% of bogus purchases without appreciating the fact that during the course of Search & Seizure operations at the premises of Shri Pravin Jain and other related persons, while recording his statements on oath, Shri Pravin Jain has admitted that they used to operate and manage bogus concerns like, among others, M/s. Kunal gems, Mohit Internation....
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...., of Shri Praveen Kumar Jain, he also admitted that he is indulged in providing accommodation entries and also explained complete modus operandi of providing such entries. Thus, the service provider as also the persons through whom these transactions of accommodation entries were carried out, has accepted the same. On verification of the assessment records, it is seen that the assessee had filed his return of income for the year under consideration disclosing a total income of Rs. 2,73,940/-. Assessment in the case was completed u/s. 143(3) of the Act determining the total income of the assessee at Rs. 3,44,720/-. The assessee has disclosed purchases of Rs. 60,19,35,397/- in his P & L account, which inter-alia included bogus purchases of Rs. 7.15 crores being accommodation entries taken from five bogus concern of Shri Pravin Kumar Jain. Since the evidential and material facts found during the course of search and survey in the case and group cases of Shri Praveen Kumar Jain prove giving of accommodation purchase entries of Rs. 7,15,00,052/-, it is prima facie apparent that the assessee has wrongly taken the same in his books of accounts as purchases for the year under consideration....
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....on that the purchases were not genuine and therefore, bogus. Therefore, the requirement of section 147 of the Act was clearly met and therefore, reopening of assessment is justified. The assessee was one of such beneficiaries who has received accommodation entries. Therefore, the AO has rightly reopened the assessment. The ld. CIT(A) has also supported his view by placing reliance in the case of Phoolchand Bajranglal v. ITO [1993] 203 ITR 456 (SC) and Dishman Pharmaceuticals & Chemicals v. DCIT (OSD) [2012] 346 ITR 228 (Gujarat). 7. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that the notice under section 148 of the Act was issued on 27.03.2014 i.e., after expiry of four years from the end of the relevant assessment year. In the reasons recorded by the AO, there is no whisper or allegation by the AO against the assessee that any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Therefore, after placing reliance on the various decision....
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....nt beyond four years in the case of an assessee firm, and had held that in the case of acquiring fresh information specific in nature and reliable relating to the concluded assessment which went to falsify the statement made by the assessee at the time of original assessment and therefore, he would be permitted under the law to draw fresh inference from such facts and material. The Ld. CIT (DR) further relied in the case of Hon'ble Supreme Court judgement in the case of Pr. CIT v. Paramount Communication (P.) Ltd. [2017-TIOL-253-SC-IT] affirming the judgement of Hon'ble Delhi High Court in the case of Pr. CIT v. Paramount Communication (P.) Ltd. [2017] 79 taxmann.com 409 (Delhi) [2017] 392 ITR 444 (Delhi) held that Information regarding bogus purchase by assessee received by DRI for CCE which was passed on to the revenue authorities was "tangible material on record "to initiate valid reassessment proceedings. Similarly, learned CIT(D.R.) submitted that the Hon'ble Gujarat High Court in the case of Amit Polyprints (P) Ltd. v. DCIT [2018] 94 taxmann.com 393 (Gujarat) held that where reassessment proceedings were initiated on the basis of information received for Investiga....
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....as received from DGIT (Inv) Mumbai which clearly mentioned that the assessee has taken accommodation entries of Rs. 7,15,00,052/- from above mentioned parties which are admitted to be bogus in search and seizure operation carried on in the case of Shri Pravin Kumar Jain group that they have provided accommodation entries. Based on this information and after analyzing and verification of the assessment records and the material available on record, the AO has believe that income chargeable to tax has escaped assessment for assessment year under consideration. Thus, we do not find that there was any borrowed satisfaction of the AO, as there was prima-facie tangible material was available before the AO to form an opinion. Therefore, the assessment was reopened u/s. 147 of the Act by issue of notice under section 148 of the Act. Under these circumstances, it cannot be said that there was no tangible material available with the AO. If the AO has a prima facie material to form an opinion/belief that the income chargeable to tax has escaped assessment. The Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC), held that in determining whether com....
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....re. It was also proved that companies were managed using dummy Directors, who were not aware of any aspect of business of the company. Various evidences including a pen drive, found and seized from the premises of the said Shri. Praveen Kumar Jain located at M/s. Mahalaxmi" Metal and Paper Mart, Kulupwadi Road, Behind National Park, Nr. Raheja Estate, Borivali (E), Mumbai revealed proved the above facts. Various brokers were also searched on that day and it was also revealed by the brokers that the said Shri. Praveen Kumai: Jain is engaged in providing Accommodation entries through his various entities and the data of such brokers were also in the pen drive, in respect of the transactions done by the said Shri. Praveen Kumar Jain through such brokers. In the statement recorded on oath u/s. 132(4) of the Act, of Shri. Praveen Kumar Jain, he also admitted that he is indulged in providing accommodation entries and also explained complete modus operandi of providing such entries. Thus, the service provider as also the persons through whom these transactions of accommodation entries were carried out, has accepted the same. 3. From the details made available through the above referred ....
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.... be obtained from the Commissioner of Income Tax-II, Surat." 10. The plain reading of above reasons would show that the AO had received information from Investigation Wing Mumbai that in the case of the purchases amounting to Rs. 7,15,00,052/- from above stated parties are bogus as admitted by Shri Pravin Kumar Jain in his statement recorded under section 132(4) of the Act. The AO has verified the said information from assessment records available with him and find that the assessee has disclosed total purchases of Rs. 60,19,35,397/- which includes bogus purchases of Rs. 7,15,00,052/- entered in the books of accounts by way of accommodation entries. Therefore, the assessee has suppressed his income to that extent. Thus, the AO has reached a valid conclusion that he has reason to believe the income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. Here, in the instant case, there was report of the investigation wing that the assessee had indulged in bogus transaction. Hence, ratio of above decision is clearly applicable. We further observed that the Hon'ble Delhi High Court in the case of Midland Fruit & Vegetable Products (India) (P) Ltd. v....
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....nt from shell companies working as an accommodation provider, reassessment could not be held unjustified. Similarly, in the case of Aradhna Estate (P) Ltd. v. DCIT [2018] 91 taxmann.com 409 (Gujarat) the Hon'ble Gujarat High Court held that where reassessment proceedings were initiated on the basis of information received from Investigation Wing that the assessee had received certain amount from shell companies working as an accommodation entry provider, merely because these transaction were scrutinized by Assessing Officer during original assessment, reassessment could not be held unjustified. 11. In the light of ratio as laid down by above discussed judgements and that the AO has in his possession a credible information that income chargeable to tax has escaped assessment hence proceedings u/s. 147 read with section 148 of the Act has been correctly initiated. Therefore, the contention and arguments raised by the learned counsel for the assessee are not sustainable in law. Accordingly, the validity of reopening of assessment is held to be sustainable in law, and therefore, upheld. Consequently, Ground No. 1 of the appeal is therefore, dismissed. 12. Ground No. 2 to 4 states....
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....In view of these facts and circumstances, the AO had treated the entire purchases amounting to Rs. 7,15,00,052/- as bogus purchase and added to total income. 14. Being aggrieved, the assessee filed an appeal before the ld. CIT(A). It was submitted that nothing related to the assessee was found during search and seizure action in the case of Shri Pravin Kumar Jain. Nor the searched Assessing Officer has recorded any satisfaction that anything belongs to the assessee. The transaction are covered by audit report and no adverse is noted by them. All the purchases are through banking channel and payment is made by account payee cheques. The AO has not pointed out any defects in the books of accounts and stock is duly reflected in accounts. The addition made solely based on third party statement is not tenable in law. The assessee has also placed reliance on various case laws as mentioned in the appellate order by the Ld. CIT(A). However, CIT(A) observed that in the statement under section 132(4), Shri Pravin Kumar Jain had admitted that these concerns are not available on the premises shown in income-tax return. The address given in respect of these entities were found non-functional. ....
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.... said purchases as bogus under section 69C. (Copy filed-PB-1-3). The learned counsel for the assessee submitted that the AO has not rejected books of accounts; therefore, the whole addition should have been deleted. The learned counsel for the assessee submitted that no addition could be made without giving an opportunity of cross examination of the parties whose statement was relied upon by the AO. The learned counsel for the assessee submitted that the assessee has filed day-today quantity details of polished diamonds purchased from above parties and their corresponding sales from that quantity. It was therefore, claimed that where the relevant quantity of sales of diamonds, the quantity of said diamonds were actually purchased. It was submitted that when the purchases are supported by bills and there is payment by account payee cheques, no addition is called for. The learned counsel for the assessee submitted the CIT(A) has estimated net profit at 5% of total purchases including recorded purchases, which is not correct in the light of tribunal decisions in the case of Deluxe Diamonds v. ITO [I.T.A. No. 1396/Ahd/2017 dated 11.04.2018- Surat-Trib], DCIT v. J.B. Brothers [I.T.A. No....
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....AO. In view of this matter, it is not just or reasonable to treat entire purchases when corresponding sales has not been doubted by the AO. There cannot be any sales without making purchases. We are, therefore, of the view that it is a simple logic that when the AO has not questioned the sales/stock then there is no logic to disallow the 100% bogus purchases. It is obvious that there cannot be any sales without purchases. The books of accounts are audited under section 44AB of the Act and no adverse comments pointed out by the auditors. Quantity records are maintained. There is no evidence that cash received back except statement of Shri Pravin Kumar Jain, which is general in nature and same was not made available to the assessee. We further notice that the Hon'ble Jurisdictional High Court in the case of Mayank Diamonds Pvt. Ltd. v. ITO [Tax Appeal No. 200 of 2003] dated 17.11.2014 has observed as under: "5. We have heard learned advocates for both sides and perused the orders passed by the CIT as well as the Tribunal. As a result of hearing and perusal of records, it is borne out of that the average profit which has been considered for this industry is around 3 to 7%. The T....