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TMI Blog2020 (10) TMI 1088X X X X Extracts X X X X X X X X Extracts X X X X ..... -130-132/16-17 dated 12/04/2018 on following grounds: - 1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the initiation of the reassessment proceeding under section 147. 2. On the facts and circumstances of the case and in law the Ld.CIT(A) failed to consider that reassessment proceedings cannot be initiated. a. No reassessment can be made just to make an enquiry or verification. b. Reassessment proceedings cannot be initiate merely on the information received from investigation wing. c. Reassessment proceeding cannot be initiated when the Ld. CIT(A) have reason to suspect and not reason to believe. 3. On the Facts and circumstances of case and law the Ld CIT(A) erred in confirming the assessment order under section 143 sub section 3 r w s 147 of income tax Act which is passed against the principal of natural justice. 4. The Ld. CIT(A) erred in confirming and rejecting the books of accounts under section 145 of the Income Tax Act. 5. The Ld. CIT(A) erred in confirming and treating Rs. 42,05,650/- being 12.5 percent of the total purchases of Rs. 3,36,45,197/- as bogus non-genuine expenditure and thereby erred in adding the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income was assessed at Rs. 257.65 Lacs after certain additions / disallowances as against returned income of Rs. 59.64 Lacs filed by the assessee on 28/09/2011 which was offered in reassessment proceedings also. The original return of income was processed u/s 143(1). The assessee is stated to be engaged as manufacturer, importer, and exporter of rough and cut & polished diamonds. 2.2 The reassessment proceedings were triggered pursuant to receipt of certain information from DGIT (Investigation), Mumbai that a search & seizure action was carried out in the case of Bhanwarlal Jain Group on 03/10/2013 wherein it was unearthed that the said group was operating and managing 70 benami concerns to provide accommodation entries for bogus purchases / unsecured loans to various beneficiaries. It was found out that the assessee was one of such beneficiaries and therefore, the case was reopened as per due process of law by issuance of notice u/s 148 on 10/02/2015. The statutory notices u/s 143(2) & 142(1) were issued in due course of time wherein the assessee was directed to substantiate the purchase / loan transactions carried out with the aforesaid suspicious entities. The assessee has mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be made. 2.5 However, the aforesaid submissions as well as documentary evidences submitted by the assessee could not convince Ld. AO who primarily relied upon various facts unearthed during search / survey proceedings. It was noted that not even a single piece of diamond was found at the premises of various entities despite having high turnover and there was no actual delivery of goods. However, since, no sale could take place without making purchase therefore, it would be fair to conclude that the said purchase-sale transactions recorded in the books would not reflect true picture of profits earned by the assessee on these transactions and purchase rate as mentioned in the supplier's sale invoices could not be accepted. Finally, Ld. AO estimated an addition of 12.5% against suspicious purchases which worked out to be Rs. 42.05 Lacs and added the same to the income of the assessee. Regarding unsecured loans, it was concluded that the assessee did not enter into genuine loans transactions. These amounts were not utilised by the assessee in making out-of-books cash purchases but the same were brought back in the books in the form of unsecured loans which would establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original return filed by the assessee was not subjected to scrutiny assessment. It is quite discernible that Ld. AO was clinched with specific tangible information as to possible escapement of income. Nothing more, in our opinion, was required at this stage to reopen the assessment proceedings. Therefore, we do not find any substance in legal grounds raised before us. Ground Nos. 1 to 3 stand dismissed. Ground No.4 assailing rejection of books would stand dismissed in view of the fact that Ld. AO has made specific item-wise additions without disturbing the overall financial results shown in the audited financial statements. Therefore, Ground Nos. 1 to 4 stands dismissed. Bogus Purchase 5. It is quite evident that the assessee has correlated the purchases made from suspicious suppliers with the sale transactions. There could be no sale without actual purchase of goods keeping in view the fact that the assessee traded the goods which were stated to be purchased from suspicious dealers. The assessee was in possession of primary purchase documents and the payments to the suppliers were through banking channels. The assessee's accounts were duly audited wherein various stock registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Income Tax Return Acknowledgement of all entities for AY 2011-12 (iii) Audited financial Statements of all the entities (iv) Bank statements of assessee as well all the lenders evidencing movement of funds from banking channels (v) Funds flow statements of all the three entities (vi) Ledger confirmation, bank statement & copy of Income Tax Acknowledgment for AY 2013-14 i.e. the years in which the loan was repaid We find that the loan has not only been repaid in subsequent years, but the assessee has duly paid interest on these loans and deducted applicable tax at source. The loan has duly been reflected in the audited financial statement of all the lenders. All the three entities were holding valid PAN and assessed to Income Tax. The funds were routed through banking channels which were ultimately repaid in subsequent years. The account confirmation of all the lenders was placed on record. There is no allegation of immediate cash deposit before transfer of funds to the assessee. Nothing was brought on record to suggest any cash got exchanged between the assessee and the lenders. In the background of stated facts, it could very well be said that the assessee had duly di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Lacs paid against unsecured loans to the suspicious lenders has also been disallowed. The commission income has been estimated @Rs. 2 Lacs. The disallowance u/s 14A has been worked out at Rs. 2.56 Lacs In terms of Rule 8D. The appellate order is on similar lines, against which the assessee is in further appeal before us with similar grounds. Facts being pari-materia the same, our observation, conclusion as well as adjudication as in AY 2011-12 shall mutatis-mutandis apply to this year also. The legal grounds assailing reassessment proceedings stands dismissed. The additions against alleged bogus purchases stand restricted to 2% of 2,71,49,985/- which works out to be Rs. 5,43,000/-. The addition of interest as well as commission stand deleted. The Ld. AO is directed to re-work disallowance u/s 14A after considering exempt income yielding investments only. The overall disallowance u/s 14A would not exceed the exempt income earned by the assessee. The appeal stands partly allowed. ITA No.4436/Mum/2018, AY 2013-14 10.1 The assessee has similarly been assessed u/s 143(3) on 30/03/2016 wherein it has been saddled with following additions / disallowances: - (i) interest disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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