TaxTMI 
TaxTMI 
2025 (4) TMI 1867
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....prietary concern under the name and style of M/s. Lighting Works Corporation. The said concern is engaged in the business of trading in LED, precious stones and diamonds. The assessee filed his return of income for the year under consideration declaring a total income of Rs. 8,20,900/- and it was taken up for scrutiny by the AO. During the course of assessment proceedings, the AO noticed that the assessee has deposited cash into its bank accounts maintained with Canara Bank during the demonetization period to the tune of Rs. 53,30,94,500/-. Hence, the AO asked the assessee to explain the sources of the above said deposits. 3. The assessee explained that he has carried out the business of trading in diamonds during the year under consideration. He explained that cash realized on sale of diamonds was deposited into bank account. The AO noticed that the assessee has reported sale of diamonds of Rs. 53.33 crores during the period from August, 2016 to 07-11-2016. It was noticed that the assessee did not carry on business in diamonds prior to August, 2016 and also after 07-11-2016. The AO noticed that the assessee has purchased diamonds from the following ten suppliers:- 1 Dharm....
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....d the business of trading in diamonds and precious metals thereafter. He submitted that he had to stop the trading in diamonds after demonetization as the entire diamond market rate got stalled after announcement of demonetization. The assessee submitted that he could not open a bank account in Surat due to some technical reasons and hence, he had to carry the cash to Mumbai and deposited them in his bank account maintained with Canara Bank, Mumbai. The assessee submitted that his customers are mainly small karigars and small time vendors. Hence, they have purchased diamonds from the assessee in cash. It was submitted that the assessee could purchase diamonds on credit on account of good reputation of his family in the market. The assessee submitted daily cash register, purchase bills, sales bills, stock register etc before the AO in support of purchases and sales reported by him. 4.1. The assessee further submitted that all the payments for purchases have been made through banking channels. He also furnished confirmation letters obtained from the suppliers. The assessee also came to know that the AO has issued notices u/s. 133(6) of the Act to all the suppliers and they have al....
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.... if their statement is going to be relied upon by the AO. 5. However, by placing reliance on the investigation report, the AO took the view that the purchases are not genuine purchases. The AO has also pointed out that the inspectors belonging to Investigation wing were deputed to locate the suppliers, but they could not locate the entities at the addresses given by them. Further, the AO examined the financial statements of the above said ten concerns and noticed that all of them are declaring meagre profits, even though they were having high turnover. Hence, the AO fully placed his reliance on the statements given by Shri Ramesh Soni, Shri Praveen Jain and Shri Sumit SurendrasinghKavadia to support his conclusions that the purchases were not genuine. With regard to the contention of the assessee that Shri Ramesh Soni has retracted his statement; the AO expressed the view that the statements are still admissible evidences, even if they are retracted later. The AO further held that the transactions carried on by the assessee should be examined by applying test of human probability and surrounding circumstances. Accordingly, the AO did not accept the contentions of the assessee an....
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....me 533915402 Rounded Off Total Income 533915400 8. Before Ld CIT(A), the assessee made detailed submissions. It was pointed out that all the suppliers have duly responded to the notices issued by the AO us 133(6) of the Act. Further, the assessee submitted that the AO did not discuss anything about the same in the assessment order and accordingly asked for copies of the replies given by all the suppliers. Hence, the Ld CIT(A) directed the AO to submit his comments on the claim of the assessee by way of a remand report. During the course of remand proceedings, the AO issued commission to the DDIT (Inv)-2, Surat requesting him to make necessary enquiries. Before the ld CIT(A), the AO furnished two remand reports. 9. The copies of remand reports were supplied to the assessee by the Ld.CIT(A). Before him, the assessee also furnished a paper book containing various documents in support of the purchases and sales reported by the assessee. The assessee also relied upon various case laws to rebut the conclusions reached by the AO. It was submitted that all the ten parties have replied to the notices issued by the AO u/s 133(6) of the Act during the course of assess....
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....ing the course of remand proceeding, which was conducted after expiry of about 7 years, five suppliers have duly responded to the summons issued by the AO. Accordingly, the Ld CIT(A) held that the AO was not justified in ignoring these factual aspects. With regard to the statements of three persons relied upon by the AO, the Ld CIT(A) noticed that the aggregate amount of purchases made from those parties was only Rs. 20.29 crores out of the total purchases of Rs. 53.14 crores made by the assessee. The Ld CIT(A) also agreed with the contentions of the assessee that the assessee was not implicated in any of those statements. Accordingly, the Ld.CIT(A) held that the AO was not justified in holding that the entire purchases were bogus in nature. 10.1. The Ld CIT(A) also noticed that the assessing officer went on to hold that the sales reported by the assessee were also bogus. With regard to the defects noticed by the AO with regard to the sales bills, the Ld CIT(A) observed that the Income tax Act requires collection of details of buyers only if the bill value is more than Rs. 2.00 lakhs. In the instant case, all the bills were less than Rs. 2.00 lakhs and hence the assessee need no....
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....so placed reliance on the decision rendered by Delhi bench of Tribunal in the case of Agson Global (P) Ltd vs. ACIT (2020)(115 taxmann.com 342), wherein it was held that the AO should examine the books of accounts of the assessee and reach a conclusive finding that they are either not correct or are incomplete. He is also required to look into the method of accounting regularly employed by the assessee. It was further held that, before rejecting the book results, the revenue authorities are duty bound to find patent, latent and glaring defects in the books of accounts. Accordingly, he held that the AO was not justified in rejecting the books of accounts of the assessee. 12. The Ld.CIT(A) also noticed that the AO has rejected books of accounts on one hand, but relied upon the same books of account on the other hand to compute the total income of the assessee in the assessment framed u/s 143(3) of the Act. He noticed that the AO has accepted the profits shown in the books of accounts, which was arrived at by taking into account the purchases and sales reported by the assessee for the year under consideration. Accordingly, the Ld CIT(A) held that the AO has blown both hot and cold ....
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.... the assessee with regard to the purchases and sales reported by the assessee. We noticed earlier that the AO rejected the book of account of the assessee. Hence he did not accept the submissions that the sources of cash deposits are case sales. Accordingly, he came to the conclusion that the cash deposits remained unexplained by the assessee and assessed the same as unexplained income of the assessee. 17. We shall examine the reasons given by the AO to hold that the purchases were not genuine. We notice that the AO has primarily relied upon the report given by the investigation wing, where in they had stated that certain concerns were providing only accommodation bills without actually supplying the materials. The investigation wing had recorded statements from many persons, out of which, the AO has placed reliance on the statements taken from Shri Ramesh Soni, Shri Praveen Jain and Shri Surnit Surendrasingh Kavadia. 17.1. We noticed that the assessee had purchased diamonds from ten concerns, out of which following six concerns are identified as providing accommodation bills:- Shri Ramesh Soni :- Santosh Gems Pvt Ltd Dharmik Exports Pvt Ltd ....
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....eme Court in the case of Andaman Timber Industries (supra) as under:- "According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealer....
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....e by duly replying to the notices issued by the AO u/s 133(6) of the Act. All these factors would show that the AO could not prove that the purchases made by the assessee were not genuine. 18. We shall now examine as to whether the assessee has discharged his onus to prove the genuineness of purchases. We noticed that the assessee has taken a building on rent in Surat for starting the diamond business. The assessee also obtained VAT registration from the Government of Gujarat. The purchases were made from ten companies, out of which the AO has identified only six companies as the concerns providing accommodation entries. The total purchases made by the assessee during the year is Rs. 53.14 crores, out which the purchases made from the above said six companies was only Rs. 20.29 crores. Hence, the AO could not have found fault with the purchases made from remaining four companies, which amounted to Rs. 32.85 crores. Be that as it may, we notice that the assessee has furnished copies of purchase invoices for entire amount of purchases, their payment details, stock register and the details of sales made out of those purchases. All the suppliers have also responded to the notices is....
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....w of ld CIT(A) that there is no valid reason to suspect the genuineness of purchases made by the assessee. 19. The next reasoning given by the AO is related to deficiencies found in the sales bills issued by the assessee to its customers. According to the AO, sales bills did not contain phone number of the customers. Further, the assessee has not issued GI certificate certifying the quality of the diamonds, which is usual practice in diamond trade. Further, all the sales bills were having value of less than Rs. 2 lakhs and hence, the assessee has collected cash against those bills. The AO has also stated that the assessee has not carried on any diamond business before August, 2016 and after November, 2016. 19.1. In response thereto, it was submitted that the provisions of the Income Tax Act mandates collection of PAN details of the customers only, if the value of the sales bills exceeds Rs. 2.00 lakhs. For the bills having less than that value, there is no requirement to collect details of customers. In the absence of any statutory compulsion, the assessee cannot also force the customers to supply their personal information and if the customer refuses to supply the same, the ....
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....re of the view that the Ld.CIT(A) was justified in holding that the AO has drawn adverse inferences on the basis of suspicions, surmises and conjectures, which is not permitted under the law. It was held by the Hon'ble Supreme Court in the case of Umacharan Shaw and Bros vs. CIT [1959] 37 ITR 271 that the suspicion, howsoever strong it may be, it cannot take place of evidence. 20. Accordingly, we also agree with the Ld CIT(A) that the purchases and sales declared by the assessee cannot be treated as bogus in nature. We noticed earlier that the AO had rejected the books of accounts, since he considered the purchases and sales as bogus. Since we have upheld the view of Ld CIT(A) that they cannot be considered to be bogus, we are of the view that the Ld.CIT(A) was also justified in holding that the rejection of Books of Account was not warranted in the facts of the present case. 21. We have noticed that the AO has accepted the book results, even after rejecting the books of accounts. It would mean that the AO has not actually rejected the book results. Thus, we notice that the AO has contradicted his own stand. 22. We noticed earlier that the impugned cash deposits have been ....
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....where, repelling a challenge by the Revenue, to a decision of the ITAT curtailing the disallowance of allegedly bogus purchases to 12.5%, the following observations were made:- "11. We may observe that in the facts of the present case, the basic premise on the part of the A.O. so as to form an opinion that the disputed purchases were [2024] 166 taxmann.com 242 (Bombay) October 15, 2024 Aarti Palkar J-904.ITXA.1753.2018.doc not having nexus with the corresponding sales, appears to be not correct. It is seen that what was available with the department was merely information received by it in pursuance of notices issued under section 133(6) of the Act, as responded by some of the suppliers. However, an unimpeachable situation that such suppliers could be labeled to be not genuine qua the assessee or qua the transaction entered with the assessee by such suppliers, was not available on the record of the assessment proceedings. It is an admitted position that during the assessment proceedings, the assessee filed all necessary documents in support of the returns on which the ledger accounts were prepared, including confirmation of the supplies by the suppliers, purchase bills, de....
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....onsults the Sales Tax Department and a thorough enquiry in regard to such specific transactions being bogus, is also the conclusion of the Sales Tax Department. In a given case in the absence of a cohesive and coordinated approach of the A.O. with the Sales Tax Authorities, it would be difficult to come to a concrete conclusion in regard to such purchase/sales transactions being bogus merely on the basis of general information so as to discard such expenditure and add the same to the assessee's income. 14. Any half hearted approach on the part of the AO to make additions on the issue of bogus purchases would not be conducive. It also cannot be on the basis of superficial inquiry being conducted in a manner not known to law in its attempt to weed out any evasion of tax on bogus transactions. The bogus transactions are in the nature of a camouflage and/or a dishonest attempt on the part of the assessee to avoid tax, resulting in addition to the assessee's income. It is for such reason, the approach of the AO is required to be well considered approach and in making such additions, he is expected to adhere to the lawful norms and well settled principles. After such scr....
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....f total volume of the assessee company and it is stated that there is no day to day involvement of the management. It was further submitted that the assessee is having strict internal controls. Hence we are of the view that the AO has not made a proper ground in support of the disallowance. Accordingly we set aside the order passed by Ld. CIT (A) on this issue and direct the AO to delete the addition of Rs. 3,23,944/-." 18. Thus, we find that according to the Tribunal the assessing officer had merely relied upon information received from the Sales Tax Department, Government of Maharashtra without carrying out any independent enquiry. Tribunal had recorded a finding that assessing officer had failed to show that the purchased materials were bogus and held that there was no justification to doubt genuineness of the purchases made by the respondent - assessee. 19. We are in agreement with the views expressed by the Tribunal. Merely on suspicion based on information received from another authority, the assessing officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent - assessee to co....