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TMI Blog2017 (12) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... s the sale consideration of diamonds sold to Box ‘C’ concern. When the aforesaid transaction is seen in the light of the statement of assessee that in the diamond business, the Angadias bring the diamond to their show room and the assessee selects some diamonds from them, which are invoiced in the name of concerns in Box ‘C’ and the cheques/RTGS are deposited in their bank accounts (Box ‘C’) concerns means the assessee cannot be said to be doing business as suggested by concerns in Box ‘C’. From the aforesaid entire transaction the only inference in respect to the role of persons named in Box ‘D’ can only be that of carriers of diamond to people like assessee. This inference from the aforesaid analysis can only be changed by bringing cogent evidence or at least by bringing on record the statements of the nine persons named in Box ‘D’ to the effect that they corroborate the version given by Shri Rajendra Jain as correct. Thus we are of the considered opinion that the additions saddled on the assessee for AYs. 2008-09, 2010-11, 2011-12, 2012-13 and 2014-15 should be deleted and we order accordingly. - I.T.A. No. 932/Kol/2017, I.T.A. Nos. 933 to 935/Kol/2017 And I.T.A. No. 936/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised on 17.11.2008 to an income of ₹ 8,19,800/- and the case was processed u/s. 143(1) of the Act on 14.11.2010. Later, the AO reopened the case for AY 2008-09, u/s. 147 of the Act after issuing notice u/s. 148 of the Act on 23.03.2015. The AO noticed that the assessee was engaged in the business of manufacturing of jewellery and trading of metal, precious/semi precious stones under the name of his proprietary concern M/s. Manoj Begani. According to the AO, on verification it was found that the assessee has made bogus transaction with M/s. Vitrag amounting to ₹ 27,28,000/- and for that reason the case was reopened. The AO noted that vide notice u/s. 142(1) of the Act dated 03.06.2015, the case was fixed for hearing on 11.06.2015. However, no hearing could take place because of an adjournment application moved by the assessee, so he refixed the case on 18.06.2015 and since the assessee sought adjournment again, the matter was refixed for hearing on 26.04.2015. Thereafter, the AO asked the assessee to produce the Principal Officer of M/s. Vitrag along with the books of accounts to verify the genuineness of the transaction made with the assessee. Thereafter, the AO noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kangan Jewels P. Ltd. 5. 2014-15 147 3,750,000 Arihant Exports 17,210,266 We would like to discuss the background of all the cases for better understanding of the cases before us. From a perusal of the aforesaid chart, we note that for the relevant assessment year which is under consideration in the lead case, is in respect to purchases from M/s. Vitrag (AY 2008-09). In respect to M/s. Vitrag (AY 2008-09) and M/s. Arihant i.e. with respect to AY 2014-2015, we note that both the concerns are controlled by Rajendra Jain group which we discern from perusal of pages 31 and 32 of the Ld. CIT(A) s order. In respect to M/s. Kangan it belongs to Dharmichand Group (AY 2010-11 to 2012- 13) in which Shri Dharmichand Jain is the key person. We note that reopening the assessments and thereafter additions were made on the assessee for all these assessment years before us was based on the statement of Shri Rajendra Jain who controlled M/s. Vitrag (AY 2008-09) and M/s. Arihant (AY 2014-15) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese bills are also settled by movement of cheques from one party to another. The purchase shown in our books from these domestic concern have a long credit period, as reflected in our books. These entries are merely paper transactions which are used for showing high turnover by the beneficiary domestic concerns. B. This block B represent the foreign concerns from whom we import diamonds. These concerns are mostly based in Belgium and name of few such concerns are as under:- a. HRP Diam, Belgium b. Gem blue, Belgium c. Vee Diam, Belgium d. Swintu Diarn, Belgium Here, I would like to clarify that we are just importing the bills of diamonds from such foreign parties and the underlying stock of diamonds is taken by the real importers who do not figure out at any place in the books of accounts maintained by us as well as the foreign exporter. Only in the eye of foreign banker we are the genuine importer of the diamond otherwise all the three parties involved in the transaction knows the reality. To sum up the real importers of the diamond from these foreign concern are the concerns mentioned in Block D however, the bill are issued in the name of conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts, which are shown to be purchased / imported from foreign concerns. Therefore, the diamonds shown to be purchased/imported from foreign concerns thus are against shown to be sold to the independent concerns mentioned in Block E. These concerns in Block E take purchase bills from our concerns (Block C) without actual delivery of diamonds. The payments made through cheques or RTGS by these concerns (Block E) gets utilized for the payments in foreign currency to the foreign concerns mentioned in black B, as per the terms designed and under intimation to the key person controlling the concerns of Block D. Against the payment made by concerns of Block E through cheques or RTGS, the cash component is generally settled by the key persons controlling the concerns of Block D, directly or indirectly by taking services of Angadia. F. The parties mentioned in the block F, are the independent parties in the market which are in requirement for entries of unsecured loans against their unaccounted cash. These entries are usually for long period and the same gets reversed as and when such parities make payments through banking channels and take back the cash.' During the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any receipt number on the invoice which is issued in letter form. The appellant invested its unaccounted money out of books in order to purchase diamond from grey market in cash which has been regularised through taking bogus books from the aforesaid persons. It is Undispelled that the appellant invested its unaccounted money out of books in order to purchase diamond from grey market in cash which has been regularise through taking bogus bills from the aforesaid persons. As it has been stated by Rajendra Jain in his answer to question No.15. As it has been stated by Rajendra Jain in his answer to question No.15. The relevant portion of statement is reproduced as under:- Shri Rejendra Jain in his statement had categorically mentioned that concerns purchasing diamonds in cash from grey market and taking bogus purchase bills to regularize the purchase in books, are the concerns that require bogus purchase bill for diamonds, however, their concerns have bogus stock of diamond in their books of account which are shown to be purchased from foreign concerns. The diamonds shown to be purchased/imported from foreign concerns are shown to be sold to these concerns who take purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. In this case it is clear that the aforesaid concern M/s. VITRAG Jewellers Ltd has not actually purchased any material nor sold any material, only bills were issued which shows that the appellant has purchased diamond from grey market in cash, the aforesaid cash deployed was out of books, which has been subsequently recorded in the books of account by taking bogus purchase bills and banking channels. Thus, the capital in cash deployed by the appellant at the time of such purchase was out of books and no argument has been offered by the appellant on this issue. In case of Income Tax Officer, Ward-6(3), New Delhi vs. M/s. Meghuna Towers Pvt. Ltd. and Vice-Versa Dated-August 4, 2016 ITAT DELHI, held that assessee is one among many persons who may have attempted to benefit from the alleged racketeering. When Investigation Wing of Income Tax Department has busted the racket of bogus accommodation entries; and when the alleged entry operators have admitted on oath that they ran this racket; and when name of the assessee is discovered as one of the beneficiaries of the alleged racket; and when amounts are actually found in the books of assessee to be credited in the name of alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iciary. The information reveals that for the AY 2008-09 the above assessee has taken entry from one M/s. Vitrag Jewels. PAN AOVPK0047C Prop. Mudit Karnawat for a sum of ₹ 27,28,000/- in the guise of purchase. Thus it is seen that the above purchase is bogus. Hence, I have reasons to believe that income chargeable to tax to the tune of ₹ 27,28,000/- has escaped assessment for the AY 2008-09 within the meaning of section 147 of the Income Tax Act, 1961. 11. We note that other than aforesaid reason, no other statements of Shri Rajendra Jain or another were furnished to the assessee, despite they asking for it, which the Ld. CIT(A) at page 60 justified the omission of AO by stating that the relevant material relating to appellant were already included in the reasons so recorded by the AO. Though we note it was made in the context of assessee s ground raised for non-supply of documents/information from DIT(Inv) to AO which has in turn triggered the reasons to believe as contemplated in Sec. 147 of the Act. Though the AO need not supply the entire investigation report of DIT(Inv), the statement of Shri Rajendra Jain and another, which was relied on by the Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vitrag and M/s. Arihant which are found placed in Box C and the assessee is placed in Box E . As per Shri Rajendra Jain, M/s. Vitrag and M/s. Arihant booked the order with the foreign diamond exporter concerns at Belgium (which is shown in Box B ) namely from (a) HRP Diam Belgium, (b) Gem blue Belgium, (c) Vee Diam Belgium and (d) Swintu Diam Belgium and that these concerns supplied diamonds on credit to Shri Rajendra Jain s concerns which are M/s. Vitrag and M/s. Arihant. (This fact can be inferred from Shri Rajendra Jain s statement at page 6 7 (supra) wherein he states as under: Here, I would like to clarify that we are just importing the bills of diamonds from such foreign parties and the underlying stock of diamonds is taken by the real importers who do not figure out at any place in the books of accounts maintained by us as well as the foreign exporter. Only in the eye of foreign banker we are the genuine importer of the diamond otherwise all the three parties involved in the transaction knows the reality. To sum up the real importers of the diamond from these foreign concern are the concerns mentioned in Block D however, the bill are issued in the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur books of accounts, which are shown to be purchased / imported from foreign concerns. Therefore, the diamonds shown to be purchased/imported from foreign concerns thus are against shown to be sold to the independent concerns mentioned in Block E. These concerns in Block E take purchase bills from our concerns (Block C) without actual delivery of diamonds. The payments made through cheques or RTGS by these concerns (Block E) gets utilized for the payments in foreign currency to the foreign concerns mentioned in black B, as per the terms designed and under intimation to the key person controlling the concerns of Block D. Against the payment made by concerns of Block E through cheques or RTGS, the cash component is generally settled by the key persons controlling the concerns of Block D, directly or indirectly by taking services of Angadia. 13. As per the answer to Q. No. 26 reproduced by the Ld. CIT(A) in his order which is reproduced below which becomes clear how the business is run: Q. 26 Please explain the modus operandi of your business. Sir, the diamonds are imported from outside India in the name of my company/proprietorship/HUF, but the actual order is placed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fails to understand and defies logic is the alleged next part played by the assessee i.e. the assessee which falls in Box E gives cheque/RTGS to concerns of Rajendra Jain in Box C which is in turn transferred by Shri Rajendra Jain s concerns in (M/s. Vitrag and M/s. Arihant) to the foreign concerns in Box B from whom they (Box C concerns) have legally booked and imported and received the diamond. From a perusal of the answer given by Shri Rajendra Jain to Q No. 16 which is reproduced above, we note from the answer of Shri Rajendra Jain which he gives as paragraph E to Q. No. 16 it is clearly stated by Shri Rajendra Jain that the payments made through cheques/RTGS by these concerns box E(assessee) gets utilized for the payments in foreign currency to the foreign concerns mentioned in box B as per the terms designed and on the intimation to the key persons controlling the concern of Box D . Against the payments made by concerns of Box E (assessee) through cheques/RTGS, the cash component is generally settled by the key persons controlling the concerns of Box D , directly or indirectly by taking services of Angadia . From the aforesaid statement it is crystal clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal Officer of M/s. Vitrag and since the assessee failed to produce them, he made the disallowance of the entire diamond purchased by the assessee through cheques/RTGS. The assessee has produced the VAT return and VAT audit report also, which is placed at pages 73 to 86 of the paper book. The assessee has also produced the sales bill related to diamonds sold out by the assessee which was made out of the very same purchases disallowed by the AO which is found place from pages 56 to 59 of the paper book. We note that the AO has not disturbed the sales shown by the assessee in respect of the diamond purchased from M/s. Vitrag and M/s. Arihant and M/s. Kangan (AY 2010-11 to 2012-13). When the sales of the very same diamonds have been accepted by AO/CIT(A) without a murmur, the purchases could not have been disallowed without cogent material. In this case, for whatever reason best known for him, Shri Rajendra Jain who controls M/s. Vitrag and M/s. Arihant have made the statements wherein he explains in detail the modus of the whole operation, which defies logic and can be termed absurd on the face of it, and when the fact remains that he and his concerns were legally importing jew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson controlling the concern in Box D directly or indirectly by cheques/RTGS services of Angadia. So, therefore, the entire disallowance of the purchase/expenditure is based on surmises and conjectures; and the assessee by furnishing the documents (supra) has discharged the burden of proof casted upon it to show that the entire purchase was done bonafidely and not with the unaccounted money of the assessee. 16. Even if for argument sake and remote possibility is there to what Rajendra Jain said is taken as true, then the modus would be that nine persons named in Box D used to collect the diamonds from Box C concerns and sells it to persons like assessee in Box E and collects the unaccounted money of theirs (Box E assessee), then we wonder as to what actions the department/AO has taken against these nine parties, who according to Shri Rajendra Jain, are the actual importers and who collects the diamonds once it reaches them (Box C ) and thereafter, the diamonds are collected by nine persons in Box D from Box C and then sold to assessee in Box E and collects unaccounted money. So, whether the department has taken action against them or what action was taken agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n results in breach of Natural Justice and it is a serious flaw which renders the order a Nullity. Without doing all the exercises as aforestated, how the so called unaccounted money supposed to be handed over by the assessee to 9 persons named in Box D can be added in the hands of assessee merely on the statement of persons named in Box C which is riddled with contradictions and which cannot stand logic or reasons. 17. In our view in the light of the fact that sales were supported by invoices from M/s. Arihant, M/s. Vitrag and M/s. Kangan and the monies were paid by account payee cheques/RTGS, the least the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against the assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to the root of the matter and strikes at the very foundation of the reassessment and, therefore, renders the orders passed by the AO and the Ld. CIT(A) vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitted to cross examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus purchase of ₹ 27,28,000/- nor pointed out any quantitative discrepancy in the stock figure. The AO did not issue summons on the suppliers u/s. 131 of the act nor did he do any enquiry with the suppliers jurisdictional AO though PAN details were available. The AO did not do any enquiry with the sales tax authorities though VAT/CST no. was available. The AO did not enquire with the banker (HDFC) though the entire payment/receipt was routed through banking channels. So, therefore, this is a case of clear cut non enquiry at all and the addition was based on surmises and conjectures. 19. In order to ascertain the veracity of the statement of Shri Rajendra Jain, the department ought to have confronted, the assessee with the statement of Shri Rajendra Jain and Dharmichand Jain and given an opportunity to the assessee to cross examine them which has made the statement of all these legally fragile as held by Hon ble Supreme Court in Andaman Timber Industries (supra). As stated earlier, and even if we believe Shri Rajendra Jain s statement in totality, in order to complete the chain of events then the statements of nine persons in Box D or corroborative relevant material is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D . 21. The aforesaid is the modus operandi as suggested by Shri Rajendra Jain, which we do not accept because it is illogical and absurd on the face of it. It is like touching the nose not directly but by bringing the hand from behind the neck and touching it. If the aforesaid modus operandi is what is happening on the ground, then the nine persons named in Box D makes money without touching anything because the entire foreign suppliers are supplying the diamonds on credit to persons named in Box C (i.e. like Shri Rajendra Jain s concerns.). According to above modus operandi, the persons named in Box D collects the diamonds from Shri Rajendra Jain s concern in Box C ( It needs to be kept in mind that Shri Rajendra Jain s concern legally books the order from foreign suppliers shown in Box B and is shipped to them directly i.e concerns named in Box C) and persons in Box D after collecting diamond from Box C as stated before, gives it to persons named in Box E (i.e. people like the assessee) and collect the unaccounted money for (sale of diamonds). Thereafter, in order to regularise the transaction the persons named in Box E (like assessee) in order to get the fake b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) with foreign Belgium concerns for diamonds. The Box B concerns, (2) takes the order and ships the diamond to Box C , then (3) the concern in Box C collects the diamond sent by Box B , then (4) the diamonds are sent to concerns like assessee in Box E and the (5) the concerns in Box E purchases the diamonds and the (6) issues the cheques/RTGS in the name of the concerns shown in the invoice of sale i.e. concerns named in Box C . Thereafter (7) step, the Box C concerns after receiving the cheque/RTGS from Box E concerns (assessee), deposit it in their bank account. Thereafter (8) step concern in Box C converts the amount deposited in their accounts into foreign exchange and transfer it to Box B . (9th) step, the Belgium concern in Box B gets the sale consideration of diamonds sold to Box C concern. When the aforesaid transaction is seen in the light of the statement of assessee that in the diamond business, the Angadias bring the diamond to their show room and the assessee selects some diamonds from them, which are invoiced in the name of concerns in Box C and the cheques/RTGS are deposited in their bank accounts (Box C ) concerns means the assessee canno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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