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TMI Blog2017 (12) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation Wing and had not satisfied himself on the alleged bogus purchases to conclude as to any income has escaped assessment. b) The Assessing Officer has not established a live link between material being relied upon to reopen the assessment proceedings and the appellant. c) The Assessing Officer has initiated the reassessment proceedings on the basis of change of opinion and without any tangible material in his possession. d) The Assessing Officer in his reasons of reopening has not spelt out any failure on the part of the appellant to file return or disclose fully and truly all the material facts necessary for the assessment as per provisions of sec. 147 of Income Tax Act 1961. e) The legality and validity of the reopening of the assessment has to be adjudged on the basis of reasons recorded and it cannot be supplemented by further reasons. Grounds on merits: (1) On the facts and in the circumstances of the case and in law. the Ld. CIT(A) erred in confirming the addition on account of alleged bogus purchases by applying net profit rate at 6 percent even though the purchase transactions were genuine and supported by documentary evidences. (2) On the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zure action u/s 132 of the IT. Act, 1961 in the case of Bhanwarlal Jain Group was conducted by the DDIT (Inv), Mumbai and found that during the F.Y. 2006-07 relevant to A.Y. 2007-08, M/s. Ralf Gems Pvt. Ltd. has taken accommodation entries of bogus purchase amounting to Rs. 1,19,32,5167- from concerns controlled and managed by the said Bhanwarlal Jain Group. That the following is the details of bogus transactions: Sr. No. Name of the concern Amount 1 Jewel Diam 40,77,555/- 2 Little Diam 78,54,961/- Total 1,19,32,516/- That above concerns are all controlled and managed by Bhanwarlal Jain Group, the hawala dealer. That first of all, the contention of the assessee that it is not sure about the nature of alleged bogus transaction, is self contradictory, as later on, in the submission of the assessee, there is clear cut reference to purchases with the alleged hawala dealers. That notwithstanding the same, it was again clarified to the assessee vide order sheet noting dated 16.01.2015. That mainly the contention of the assessee is that it should be allowed to cross examine the parties and there cannot be sale without purchase. That the fact of the matter is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns controlled and managed by Bhanwarlal Jain Group. Since the AO has acted on external information received consequent to search and seizure operations wherein Bhanwarlal Jain and others have given categorical statements, he has reason to believe that income has escaped assessment, therefore the reopening of assessment to examine the facts of the case is in order. The reopening is also held valid in view of the following rulings- (i) Hon'ble Delhi High Court in the case of OPG Metals and Finsec Ltd v. CIT, 358 ITR 144 has held that re-assessment is valid if the issue is not a subject matter of earlier assessment. Same view was also taken by High Court of Bombay in the case of Export Credit Guarantee Corporation of India Ltd v. Addl.CIT (30 taxma'nn.com 211) (2013) that reopening of an assessment is permissible when the original assessment order passed under s. 1432(3) is silent in respect of the issue/point on which re-assesment notice is issued. Further, no query with regard to the above issue having been made during the assessment proceedings would also indicate absence of application of mind to the tangible material. (ii) It was held in the following cases that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en it is the question of non application of mind whether it is for four years or more makes no difference. (viii) Notwithstanding anything stated above, it is the prerogative of the AO / Revenue to reopen the assessment if the AO has found in the course of time that certain amounts which should have been brought to tax have escaped assessment. The powers were clearly enacted u/s 149 r.w.s. 151 of the Act. As per these provisions what the AO is supposed to see is whether there is an escapement of income and whether it is within four years or beyond four years and whether it is a case of 143(1) or 143(3) so as to take approval from his appropriate senior officers as per the provisions. Once the AO fulfills these requirements then he can reopen the assessment by recording the reasons. The AO will be within his jurisdiction to reopen the assessment and his jurisdiction cannot be challenged per se. Further it is to be understood that mere reopening does not mean that the AO has come to the conclusion that income has escaped. (ix)High Court of Mumbai in the case of Eleganza Jewellery Ltd.(2014) 52 taxmann.com 46 has held that it is a trite law that at this stage only a prima facie vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entries with bogus bills to reduce the profits. Under similar circumstances the Hon'ble High Court of Gujrat in the case of Simit P Seth, 2013 (356 ITR 451) had an occasion to deliver its judgment by confirming the ITAT which has estimated the disallowance at 12.5% of the disputed bogus purchases to meet the ends of justice. The head-note of the decision is reproduced as under- "Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of Profits [Bogus purchases] - Assessment year 2006-07 - Assessee was engaged in business of trading in steel on wholesale basis - Assessing Officer having found that some of alleged suppliers of steel to assessee had not supplied steel to assessee but had only provided sale bills, held that purchases made from said parties were bogus - He, accordingly, added entire amount of purchases to gross profit of assessee - Commissioner (Appeals) having found that assessee had indeed made purchases, though not from named parties but other parties from grey market, sustained addition to extent of 30 per cent of purchase cost as probable profit of assessee - Tribunal however, sustained addition to extent of 12.5 per cent - Whether s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hical practice of taking accommodation entries. It is also pertinent to mention here the relevance of the Board's Instruction No-2/2008 dated February 22, 2008 wherein it has laid down a guideline in the form of benign assessment procedure for assessee's engaged in diamond manufacturing and/or trading, wherein it has stated that- A........ B. It an assessee has shown a sum equal to or higher than 6% of its total turnover from such business as his income under the head profits and gains of business or profession for a particular assessment year, the assessing officer shall except he's the trading results. C......... 4.2.2 Keeping in view the above instruction of the Board, I hereby direct the AO to treat 6% of Rs. 1,19,32,516/- as profits under business income over and above income returned in place of disallowance made under section 69C. In view of this the ground is partly allowed. 8. Against the above order, the Revenue and the assessee are in cross appeal before us. 9. We have heard both the counsel and perused the record. As regards the reopening, we find the Commissioner of Income Tax (Appeals) has passed an apposite order. The reopening has been done ..... X X X X Extracts X X X X X X X X Extracts X X X X
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