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TMI Blog2021 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome has escaped assessment cannot be examined by the Court. Therefore, in view of above discussion, we are of the view that the A.O. had specific information based on which and after recording of reasons and approval, the assessment has been reopened. Therefore, up uphold the decision on ld. CIT(A) on this ground and dismissed the ground raised by the assessee. Bogus purchases - rejection of books of accounts of the appellant by the assessing officer u/s 145(3) of the Act on account of alleged unverifiable purchases - CIT-A directing application of G.P. rate of 12% on declared turnover - HELD THAT:- The purchases made has been exported as it is and there is bill to bill tally of purchase and export. Photo copies of purchase bills has also been placed on record by the assessee. Therefore, according to us, in view of difference in the circumstances, the results of this year i.e. A.Y. 2010-11 cannot be compared to the results of earlier year as the complete nature of business is changed from this year. In view of the above facts, the allegation of reducing profit by obtaining non-genuine bogus purchase bills is wrong and not sustainable. There is increase in total gross profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 2,48,87,372/- made by the A.O. on account of disallowance of 25% of bogus purchases on the basis of corroborative information received from Investigation Wing, Mumbai is not sustainable and only a trading addition of ₹ 41,23,468/- be made by applying GP rate of 12%? 2. Without prejudice to the above, whether having upheld the applicability of section 145(3), the CIT(A) was justified in estimating the GP at 12% whereas, as per the average GP of 3 years, the GP works out at 17.35% as against 15.73% wrongly noted by Ld. CIT(A). 2. The hearing of the appeals was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. Facts in brief are that the assessee is an Individual and engaged in export of gems jewellery after purchasing it from local market. The assessee carried on business in proprietorship under the name style of M/s S. Naveen Jewellers. The assessee filed return of income declaring NIL income after claiming set of b/f losses. The return was processed u/s 143 (1) of the Income Tax Act, 1961 (in short, the Act) and no notice u/s 143 (2) of the Act was issued. Thereafter the A.O. initiated reassessment proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and made trading addition of ₹ 2,90,10,840/- in declared income. 4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of the parties as well as after perusing the material placed on record, given part relief to the assessee by observing as under: 9. I have perused the written submissions submitted by the Ld. A/R and the order of AO. I have also gone through various judgments cited by the Ld. A/R and those contained in the order of AO. I have also gone through the relevant pages in the paper book filed by the Ld. A/R. 9.2 It is seen that the AO has disallowed purchase of ₹ 2,90,10,843/- found to be unverifiable by invoking provisions of sec. 145(3) of the Act thereby rejecting books of accounts. The issue regarding unverifiable purchase has been decided by the Hon'ble ITAT, Jaipur and Hon'ble Rajasthan High Court wherein it was held that when purchases are unverifiable, income is to estimated and for estimation of income of the assessee, application of G.P. is the best course of action based on average G.P. rate on past history. 9.3 In this case the Authorized R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation conducted by others or third party statement etc. In the present case, the reasons says that assessee has suppressed its profits by taking accommodation entry of ₹ 11,60,43,373/- in the nature of bogus purchases from four companies. The A.O. has not examined the information received by him to verify whether assessee has made any purchases from these parties and whether the same is reflected in the accounts or not. The reasons recorded are vague, all consequent proceeding are also illegal and invalid. The AO mechanically and blindly acted upon the information received from the Investigation Wing, Mumbai without applying his own mind to arrive at believe that income of the assessee has escaped assessment. For this, reliance is placed on the following cases: - i. Sarthak Securities Co. (P) Ltd. Vs. ITO 329 ITR 0110 (Del.) (HC) decision dt. 18.10.2010. 2. Banke Bihari Properties Pvt. Ltd. Vs. ITO (2016) 46 CCH 0546 (Del.) (Trib.) decision dt. 22.04.2016. 3. M/s Surbhi Minchem Pvt. Ltd. Vs. ITO order dt. 16.05.2014 in ITA No. 102 103/Jodh/2014. 4. Vinayak Shyam Enterprises Pvt. Ltd. Vs. ITO order dt. 21.05.2014 in ITA No. 104/Jodh/2014 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The recording of confessional statement is not the end of the matter and no assessment can be mechanically concluded on a confessional statement being an uncorroborated testimony such a statement cannot be considered as sacrosanct as held in ACIT Vs. Agarwal (1994) 50 ITD 52. Thus, such statements cannot be considered as an information for assessing officer to form reason to believe escapement of income. The Ld. A.O. and CIT (A) has not considered properly the above facts of the case and judicial pronouncement and rejected the objections filed by assessee. It is submitted that reopening of assessment on facts of the case is wrong and bad in law. The issue of notice u/s 148 to assessee cannot be sustained in law. 7. On the contrary, the ld DR has relied on the order of the A.O. 8. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From the facts of the present case, we noticed that the case was reopened on the basis of infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the reasons recorded, it was ascertained that those entitles which were companies with no real business and are only engaged in business of providing accommodation entries of bogus nature to beneficiary concerns which was further 'confirmed by the directors/dummy directors/key persons of the said entities in their respective statements. Thus, on the basis of the material on record, Assessing Officer opined that the appellant company has received and utilized the share application money received from bogus sources lacking genuineness, creditworthiness, genuine identity, which fall within the purview of section 68. [Para 14]. It is true that the reasons recorded or the material available on record must have nexus to the subjective opinion formed by the Assessing Officer regarding the escapement of the income but then, while recording the reasons for belief formed, the Assessing Officer is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the Assessing Officer had cause or justification to know or suppose that income had escaped assessment. It is also well settled the sufficiently and adequacy of the reasons which have led to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set, the ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied upon the written submissions filed before the Bench and the same are reproduced below: The assessee s ground of appeal relates to objecting the action of Ld. CIT(A) as wrong, unjust and has grossly erred in law in confirming that purchases of ₹ 11,60,43,373/- made by the appellant is not genuine and is bogus purchases and is further wrong and has erred in law in rejecting books of accounts of the appellant u/s 145 (3) of the I. T. Act, 1961 and in confirming an addition of ₹ 41,23,468/- to the declared income of the appellant by applying G.P. rate of 12.00% on declared turnover. The Ld. A.O. on the ground that information was received from investigation Wing of the department at Mumbai that during the course of search operation carried out by Investigation Wing of the Department in case of Rajendra Jain group Mumbai on 3-10-2013 it is revealed from documents and evidences: From the documents and evidences found during the search, it has been established that the assessee Shri Sunder Das Sonkia, Prop. M/s S. Naveen Jew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e documents from party to prove genuiness of purchases it submits that it had discharged the initial burden casted upon it to prove the genuineness of purchases from the said parties as has been held by ITAT, Jaipur Bench, Jaipur in its decision in case of Sagar Mal Daga Co. Vs ITO (2004) XXXII TAX WORLD 40 and Radha Mohan Lal Agarwal Vs. I.T.O. (2003) XXX Tax World 190. The ITAT, Jaipur Bench, Jaipur in case of M/s Sambhav Gems Ltd. (2006) XXXVI T.W. 254 in case of Shri Jatin Hariyani (2007) XXXVII T.W. 116 in case of Vaibhav Gems Ltd.; Vivek Kala Vs. ACIT (2007) XXXVIII T.W. 65 S.M. Company Vs. ACIT (2007) XXXVIII T.W. 236, Euro Jewels Vs. ACIT (2008) XXXIX T.W. 105 has upheld the above legal views and purchases supported with similar documents as furnished by assessee in assessment proceedings were held as genuine and not bogus. The Ld. A.O. for making disallowance of 25% of said alleged purchases of ₹ 11,60,43,873/- relied on judgement in case of Sanjay Oil Cake Industries. The judgement of Sanjay Oil Cake Industries Vs. CIT (2008) 10 DTR 153 (Guj.) is not applicable. In this connection it is submitted that the facts of the said case are quite different from the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided vide ITA No. 504/JP/2013. The turnover and trading results of assessee for the last three years are as under:- A.Y. Turnover Gross profit G.P. rate Remarks 2008-09 (Only stones) 1,88,54,584 25,33,190 18.28% 2009-10 (i) Diamond (ii) Stones Studded jewellery 2,54,77,175/- 2,53,28,369/- 25,47,717/- 50,66,543/- 10.00% 20.00% In appeal Hon ble ITAT accepted the declared G.P. rate of 10% vide order dated 15-04-2020 in Appeal No. 1126/JP/2020 2010-11 (i) Diamond (ii) Stones Studded jewellery 14,54,88,165/- 97,94,075/- 1,29,33,991 15,26409/- 8.92% 15.59% It is further submitted that export of assessee upto A.Y. 2008-09 was only of colour stones precious or semi precious. However from A.Y. 2009-10 it started shifting to business of dia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group and obtained bogus purchase bills of ₹ 11,60,43,473/- from M/s AVI Exports, M/s Aadi Impex, M/s Sun Diam P. Ltd., M/s Kalash Enterprises the paper concern of Rajendra Jain group which were treated as bogus and non-genuine. However, in order to prove his contention, the ld AR had drawn our attention to the documents submitted during the course of assessment proceedings, which are in the shape of purchase invoice received from the party, VAT Registration No. of party under MVAT Act, permanent account No. of party under I. T. Act, payments having been made by account payee cheques which stood debited in the Bank account of assessee company and credited in Bank A/c of seller party, confirmation from party confirming the purchase transaction etc. It was submitted by the ld AR that the assessee had discharged the initial burden casted on him and relied on various judgements. The assessee further submitted that alleged statements made on behalf of alleged concerns cannot be relied and used in case of assessee and for this purpose he relied on judgement in case of S. P. Agarwalla Alias Sukhdev Prasad Agarwala Vs. ITO (1983) 140 ITR 1010 (Cal) wherein it was held that mere conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f price and not inflation of price). No such facts were brought on record in this case. In respect to these parties there is no finding that purchases declared by assessee company were not on prevalent market price. (iii) It was found that the amounts were credited on account of cheques of the assessee and they were being withdrawn by some unknown person whose address or whereabouts could not be known. No such facts were brought on record in this case. Apart from above, we noticed that the assessee has also relied upon the decision in the case of CIT Vs. Sathya Narayan P. Rathi (2013) 351 ITR 350 the Hon ble Court noticed that the assessee was not able to prove the purchases to the extent of ₹ 61.40 lakhs, the Assessing Officer disallowed the entire amount, but in first appeal it was felt that the profit element therefrom alone could be assessed, so that only 30 per cent of such purchases amounting to ₹ 18.42 lakhs was taxed. The Tribunal reduced the percentage of possible overstatement of purchases to 12.5 per cent. The Revenue came in appeal to the High Court on the plea that the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of books of accounts but the fact was established in the investigation that the assessee inflated the purchase price and accordingly the addition of 25% being inflated purchases was made and upheld by the Tribunal which was again upheld by the Hon'ble High Court. On the contrary in the case of the assessee the AO not given any finding of inflated purchases by the assessee but doubted the very transactions of purchases due to non production of these parties before the AO. The AO has not given the finding that the prices of the goods was inflated by the assessee but the AO doubted the genuineness of the purchases on the ground that the suppliers were found to be accommodation entries providers. When the AO rejected the book results u/s 145 (3) of the Act, then the AO after rejection of the books of account can proceed to make the assessment on the basis of best judgement instead of resorting make the addition to the book results. Accordingly, in the facts and circumstances of the case and in view of the decision of this Tribunal in assessee s own case for A.Y. 2006-07 we do not find any error or illegality in the orders of the Ld. CIT (A) in restricting the addition to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that after rejection of books of accounts, the past history of the assessee has to be seen for estimating the gross profit rate. At the same time, we find that the basis of estimating the gross profit rate of 19.25% as against declared GP rate 14.99% is not discernable from the order of the ld. CIT(A) where he has only stated that purchases to the tune of ₹ 2,11,15,458/- were found bogus/unverifiable which constitute 50% of total purchases. Further, he has not taken into consideration the fact that the assessee has started diamond trading business during the year under consideration wherein he has disclosed gross profit rate of 10%. Given that the assessee has disclosed gross profit rate of 10% in respect of diamond trading which is stated to be pretty robust as per industry standards and in respect of trading of semi precious stone and studded jewellery, he has disclosed a gross profit rate of 20% which is better than the average gross profit rate of last three assessment years, in the facts and circumstances of the present case, we find that even where the books of accounts have been rejected, there is no basis for making trading addition in the hands of the assessee. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head Profits and gains of business or profession or Income from other sources shall be subject to the provisions of sub-section (2) in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Thus, for the purpose of computing income on the basis of method of accounting adopted by the assessee, the same is confined to maintenance of accounts on cash basis or mercantile system of accounting, i.e., to say, on accrual basis. No other system, even if employed regularly by the assessee, is acceptable for computing the income as per the provisions of the Act. However, this provision ipso facto does not mean that rejection of books of account of an assessee must yield to different conclusion in the computation of income as returned by the assessee on the basis of accounts made by him employing any other method of accounting. 5. Be that as it may, the provision which was in force in the accounting period relevant to assessment year in question envisaged that where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that in the opinion of the Assessing Officer, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits and gains of business or profession or Income from other sources . The result would depend on the other principles of computing the income. Therefore, we hold that merely changing the basis or method of arriving at end-result of working out the computation of taxable income under the Act, necessarily does not result in devising at profits or gains from business or other sources different from one returned by the assessee, where he has returned his income, which is different from the result reached by the assessee as per method of accounting employed by him, by adopting different basis by the assessing authority. 6. In light of aforesaid discussions and respectfully following the decisions referred supra, the addition of ₹ 21,65,807/- so confirmed by the ld CIT(A) is hereby directed to be deleted and the ground of appeal so taken by the assessee is allowed. 14. After having gone through the decision of the Coordinate Bench in assessee s own case, we found that turnover and trading results of the assessee for the last three years are as under: A.Y. Turnover Gross profit G.P. rat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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