TaxTMI 
TaxTMI 
2017 (11) TMI 2072
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....be set aside and that of the AO be restored. 2. Brief facts of the case are that the assessee is a partnership firm engaged in the business of export and trading of Diamonds, filed his return of income for relevant AY on 01.11.2007 declaring total income of Rs. 3,56,960/-. The assessment was processed under section 143(1) of the Act. Subsequently, the assessment was re-opened under section 147 of the Act. Notice under section 148 dated 27.03.2014 was issued and served upon the assessee. The notice under section 148 was served after recording the reasons for reopening. The reasons of re-opening of assessment were based on the information that a search and seizure action was conducted on 03.10.2013 by Investigation Wing of Income-tax Department, Mumbai in group concern of Shri Bhanwarlal Jain. During the said search operation, it was found that Shri Bhanwarlal Jain and family were providing accommodation entries without supply of goods. It was further revealed that assessee is one of such beneficiary who has availed accommodation entries from M/s Little Diam for Rs. 84,00,000/-. Thus, on the basis of information and the evidence gathered, the AO form an opinion that retu....
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....Subsequent re-opening under section 147 is not within the provision of the said section, the AO made the addition on the basis of statement of Lunkaran P. Kothari. The assessee was not given any opportunity to cross-examine Lunkaran P. Kothari. The assessee never dealt with Shri Bhanwarlal Jain. All the transaction carried by assessee were genuine in nature. The AO has not given any finding on various document provided by assessee. The ld. CIT (A) sustained the addition @ 4% on the basis of profit margin on the said purchases. 4. We have considered the rival submission of the parties and have gone through the orders of authorities below. The AO made the re-opening on the basis of information received from Investigation Wing of Income-tax Department. The AO made the addition of entire purchases shown by assessee from M/s Little Diam. The AO has not rejected the books of account of the assessee. The AO has not disputed the sale of the assessee, no discrepancy in the documentary evidences furnished by assessee were pointed out by the AO. The AO made the additions on the basis of third party information. The ld. CIT (A) after considering the contention of the assessee passed the fol....
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....espect of the diamonds sold in the books of accounts. From these findings it can thus be safely assumed that the appellant has grossly failed in its duty to mitigate the burden cast upon it in so far as proving the genuineness of the transaction, from the said party is concerned. 8.5 In this regard it is also pertinent to mention that while dealing with the concept of burden of proof, onus of proving the claim is always on the person who makes such claim. While dealing with the issue of deciding the burden of proof, Hon'ble Supreme Court in the cases of CIT Vs. Durgaprasad More 82 ITR 540 and Sumati Oayal Vs. CIT 214 ITR 801 has held that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real and that Taxing Authorities are entitled to look into surrounding circumstances to* find out the reality and the matter has to be considered by applying the test of human probabilities. The Hon'ble court also held that, it is no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipts in the....
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....lighted the fact that the principle of evidence law are not to be ignored by the authorities, but at the same time, human probability has to be the guiding principle, since the AO is not fettered, by technical rules of evidence, as held by the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775. The Hon'ble Supreme Court, in the case of Chuharmal (supra) held that what was meant by saying that Evidence Act did not apply to the proceedings under Income-tax Act, 1961, was that the rigours of Rules of evidence, contained in the Evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of Evidence Act, in proceedings before them, they were prevented from doing so. It was further held by the Hon'ble Apex Court that all that Section 110 of the Evidence Act, 1872 did, was to embody a salutary principle of common law jurisprudence viz, where a person was found in possession of anything, the onus of proving that he was not its owner, was on that person. Thus, this principle could be attracted to a set of circumstances that satisfies its conditions and was applicable to t....
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....goods, the entire amount covered under such purchase would not be subjected to tax and only the profit element embedded therein was to be taxed. While coming to the above conclusion, the Hon'ble High Court also relied on the decision in the case of Sanjay Oil Cake Ind. 316 ITR 274 (Guj). 8.11 In Sanjay Oilcake Industries v. Commissioner of Income-tax [2009] 316 ITR 274 (Guj), it was held as under: "12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques/ the cheques have been deposited in hank accounts ostensibly in the name of the apparent seuers. thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusio....
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.... ''Having heard the submissions of both sides, we have been informed that the malpractice of bogus purchase is mainly to save 10% sales tax etc... It has also been informed that in this industry about 2.5% is the profit margin. Therefore, respectfully following the decisions of the co-ordinate bench pronounced on identical circumstances, we hereby direct that the disallowance is required to be sustained at 12.5% of the purchase from those parties. With these directions, we hereby decide the grounds of the rival parties which are partly allowed." 8.13 Taking the logic of the above cases and the material available on record, the profit percentage to be adopted on such bogus purchase is to be decided in the present case. The appellant in the grounds as well as in the written submissions, discussed about the Benign Assessment Procedure (BAP) for the assesses who are into manufacturing and / or trading of diamonds, introduced by the GOI. BAP is applicable for those diamond merchants, who were showing a profit margin of 8% of their turnover. Although, BAP talks about the net profit margin (NP), for a petty dealer, operating without any establishment, the GP would be a....
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.... reducing the profit margin already admitted which works out to 3.37%. In view of the above I am of the considered opinion that if the addition is sustained to the extent of 4% of the purchases, towards the profit element embedded in such purchases from M/s Little Diam, a concern belonging to the Bhanwarlal Group, the same will meet the ends of justice. Accordingly, AO is directed to restrict the addition @ 40/0, on the total purchase amount of Rs. 84,00,000/- from the M/s. Little Diam as the profit element embedded in such purchases. Grounds raised on these issue is partly allowed. 5. We have noted that the ld. CIT (A) accepted the alternative plea of assessee and restricted the addition @ 4% of the alleged bogus purchases. We have further seen that the ld. CIT (A) also considered the sale, export sale and local sale and exchange difference of export and on the basis of which the Gross Profit was worked out at 4.63% on such sales. We are of the considered view that under the Income-tax Act only real income can be taxed by the Revenue. Even if the transaction is not verifiable, the only taxable is the taxable income component and not the entire transaction. In our considere....