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TMI Blog2021 (10) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... brevity. With the consent of parties, the facts in Exotic jewels in ITA Nos.1162/AHD/2017 for AY 2007-08 are treated as "lead case". 2. The Revenue in ITA No.1162/AHD/2017 has raised in its follows appeal:- "1. On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the additions of Rs. 1,87,16,146/- on account of bogus purchase. 2. On the facts and in the circumstances of the case and in Law, Ld. CIT(A) has erred in estimating income @ 12.5% of bogus purchases without appreciating the fact that during the course of assessment proceedings, it was noticed that concerns like, M/s. Kothari & Co. was non-existent entity and it was used for providing bogus purchase bills to, the assessee i.e. M/s.Exotic Jewels. Therefore, CIT(A) should have treated whole amount of these purchases as income of the assessee as assessee reduced his income to this extent by inflating his purchases by this amount in his P & L account. 3. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in accepting the plea of the assessee to estimate the profit at 12.5% of the bogus purchase on the basis that proper books of accounts and stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was informed that assessee one of beneficiary of accommodation entries for Kothari & Co. of unsecured loan of Rs. 1.87 Crore, which is only accommodation entries without real transaction. On the basis of such information, the Assessing Officer had reasoned to believe that income of assessee to the extent accommodation entry of Rs. 1.87 crores on account of bogus and unsecured loan was escaped from assessment. Notice under section 148 of the Income Tax Act, 1961 (in short 'the Act') dated 26.03.2014 was served and issued upon the assessee. In response to notice u/s 148 of the Act the assessee field his letter dated 27.02.2015 requested to treat the return of income filed on 02.10.2007 as return of income in response to notice u/s 148 of the Act. The assessee also demanded the reasons recorded. The reasons recorded were provided to assessee by Assessing Officer vide alongwith his letter datred.10.02.2015. The Assessing Officer after statutory notice u/s 142(3) proceeded for assessment. During assessment, the Assessing Officer issued show cause notice dated 19.02.2015 as to why the bogus purchase entry of Rs. 1.87 crores from the entity managed by Bhanwarlal Jain should not be adde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement and ITR acknowledgment of parties were filed before AO. The assessee reiterated that he has not dealt with Bhanwarlal Jai Group and he does not know him as far as transactions of purchase of goods are concerned. The assessee is not aware in which capacity Bhanwarlal Jain is connected with Kothari & Co and not knows how he was authorised to give statement on their behalf. There was no corroborative evidence that assessee received accommodation entry. The AO solely relied upon the statement of Bhanwarlal Jain. The assessee stated that the assessee has not received back any cash against the purchase, no corroborative evidence was provided by the AO. The goods purchased from the said parties has been subsequently sold and quantitative tally thereof given in the Tax Audit report which tallies with the books of accounts. Once the sales are accepted, the purchase cannot be doubted. The assessee is maintaining purchase register, sales register, stock register, ledger, day book, bank book and no defects or irregularity was found are noted by the auditors. The statement of third party cannot be relied. The AO disregarded the evidences provided by assessee. The assessee again furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition @12%. And on further appeal before Hon'ble High Court, the disallowance was sustained at Gross Profit Rate of 5%, which is average rate of profit in industry. The ld. CIT(A) further held that in some other similar cases though he has sustain 5% of Gross Profit Rate considering the fact that where Gross Profit shown by assessee is more than 5%. However, in the present case, the assessee has merely shown Gross Profit Rate only at 0.78% of turnover, accordingly, the ld. CIT(A) was of the view that disallowance of 12.5% of impugned purchases/bogus purchases would be reasonable to meet the end of justice, hence the disallowance was restricted to 12.5% of the impugned purchase. Thus, aggrieved by the additions sustained by Ld. CIT(A) the assessee has challenged the validity of assumption of jurisdiction and part disallowance of bogus purchase. Similarly, the Revenue has challenged the partial confirmation of disallowance. 7. We have heard the submission of the Ld. Authorized Representative (AR) for the assessee and learned Senior Departmental Representative (DR) for the Revenue and have gone through the orders of authorities below. The ld. AR for assessee submits the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Bhanwarlal Jain were not provided to the assessee. The AO has not made any comment on the evidences furnished by the assessee. The AO made the unsecured loan. The assessing officer not provided cross examination of the alleged hawala dealers. The disallowances sustained by the Ld. CIT(A) @ 12.5% of the impugned purchases, without considering the facts that the assumption of jurisdiction by AO was itself illegal. To support his various submission, the ld.AR for the assessee is relied upon case laws: 1 M/s Andaman Timber industries Vs Commissioner of Central Excise, CIVIL APPEAL NO. 4228 OF 2006 (Supreme Court) 2 CIT vs. Indrajit Singh Suri [2013] 33 taxmann.com 281 (Gujarat) 3 Albers Diamonds Pvt. Ltd. Vs ITO 1(1)(1), Surat I.T.A. No.776 &1180/AHD/2017 4 The PCIT-5 vs. M/s. Shodiman Investments Pvt. Ltd. TTANO. 1297 OF 2015 (Bombay High Court) 5 Shilpi Jewellers Pvt. Ltd. vs. Union of India &Ors. WRIT PETITION NO. 3540 OF 2018 (Bombay High Court) 6 CIT in Vs. Mohmed Juned Dadani 355 ITR 172 (Gujarat) 7 Micro Inks Pvt. Ltd. Vs. ACIT [2017] 79 taxmann.com 153 (Gujarat) 8 Shakti Karnawat Vs. ITO - 2(3)(8), Surat ITA 1504/Ahd/2017 and 1381 /Ahd/2017 9 Asian Paints ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO Vs Purushttom Dass Bangur [1997} 90 Taxman 541 (SC) and * Mayank Diamond Private Limited (2014) (11) TMI 812 (Gujarat High Court). * AGR Investment Vs Additional Commissioner 197 Taxman 177 (Delhi) and * Chuharmal Vs CIT [1998] 38 Taxman 190 (SC). 12. We have considered the rival submissions of the parties. We have also deliberated on each and every case laws relied by both the parties. We have also examined the financial statement of all the assessee(s) consisting of computation of income and audit report. We have also gone through the documentary evidences furnished in all cases. Ground No.1 in assessee's appeal relates to the validity of reopening. The ld. AR for the assessee vehemently argued that the AO reopened the case of the assessee on the basis of third party information, and without making any preliminary investigation. The reasons recorded by the AO are contrary to the facts, vague about the alleged accommodation entry by Bhanwarlal Jain Group. We find that the AO while recording the reasons recorded that "the assessee is one of the beneficiary and have received accommodation entry of bogus unsecured loan from Kothari & Co." We find that the assessee right f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d made purchases worth Rs. 3.21 crores (rounded off) from such Hawala dealers during the financial year 2010-11. According to the Assessing Officer, this information 'needed deep verification'. 9. If on the basis of information made available to him and upon applying his mind to such information, the Assessing Officer had formed a belief that income chargeable to tax has escaped assessment, the Court would have readily allow him to reassess the income. In the present case however, he recorded that the information required deep verification. In plain terms therefore, the notice was being issued for such verification. His later recitation of the mandatory words that he believed that income chargeable to tax has escaped assessment, would not cure this fundamental defect. 10. Learned counsel for the Revenue however urged us to read the reasons as a whole and come to the conclusion that the Assessing Officer had independently formed a belief on the basis of information available on record that income in case of the assessee had escaped assessment. Accepting such a request would in plain terms require us to ignore an important sentence from the reasons recorded viz. 'it n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the reasons as made available to the Respondent Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. 14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a reopening notice on the basis of intimation regarding reopening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that reopening notice has to be issued by the Assessing Office on his own satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & L account. 3. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in accepting the plea of the assessee to estimate the profit at 12.5% of the bogus purchase on the basis that proper books of accounts and stock register were maintained without considering the fact that no such books of accounts and documents were produced before AO. CIT(A) did not give any opportunity to the AO to rebut the contention of the assessee raised before him and relied upon the judicial pronouncements, facts of which are different from the instant case." 18. The Assessee in its cross appeal has raised following grounds of appeal: "1. The learned CIT (A) has grossly erred in ruling out the appellant's contentions of Gross Illegality on the ground of "undue advantage", even after having reached the conclusion of the re-assessment order suffering from serious irregularities, being fatal to the proceedings. 2. The re-opening u/s 147 of the assessment completed under 143 (3) is bad in law and illegal on grounds inter-alia that :- a) There is no mention of approval, if any, obtained from higher authorities for reopening of the case and approval obtained if any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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