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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 ..... 7/AHD/2017 - - - Dated:- 28-9-2021 - Shri Pawan Singh, Judicial Member And Dr. Arjun Lal Saini, Accountant Member For the Assessee : Shri Suchek Anchaliya - C.A For the Revenue : Mrs. Anupama Singla - Sr-DR Shri Ritesh Mishra - CIT-DR ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. These Four Appeal(s)-cross appeal(s) by Revenue Assessee are directed against the separate orders of ld. Commissioner of Income tax (Appeals)-3, Surat dated 16.02.2017 and 28.02.2017 for Assessment Year (AY) 2007-08. In all appeals, the assessee as well as Revenue has raised certain common grounds of appeal except variance of amount of additions of bogus purchases and the validity of the re-opening under section 147, therefore, with the consent of parties all appeals were clubbed and heard are decided by common order for the sake of convenience and 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 er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year (AY) 2007-08 on 02.10.2007, declaring income of ₹ 30,407/-. Subsequently the case of assessee was reopened under section 147 on 26.03.2014 on the basis of information received from DIT (Inv)-II, Mumbai. The information received from DIT (Inv)-II Mumbai which was informed that a search and seizure action was carried out by investigation wing on Bhanwarlal Jain Group others in Mumbai on 03.10.2013, which resulted in collection of evidence that Bhanwarlal Jain and his son were operating certain benami concern in the name of their employee and staff for providing accommodation entries of unsecured loan, sale and purchase of different kind of goods and material. The statement of Bhanwarlal Jain was recorded under section 132(4), wherein he has admitted and disclosed that he and his family members were managing various firms proprietor concern for providing accommodation entries. On the basis of such information, it was informed that assessee one of beneficiary of accommodation entries for Kothari Co. of unsecured loan of ₹ 1.87 Crore, which is only accommodation entries without real transaction. On the basis of such information, the Assessing Officer had reasoned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion the reasons recorded is absolutely invalid. The AO acted on vague information and not applied his mind. During the original assessment, the assessee furnished all details related to the transactions of all three concern. The AO has no new material or information for reopening. The assessee disclosed true and material things and the return of income and there is no escapement of income of the assessee. The re-opening of the assessment is based on third party information, which was recorded during the search action in their places. The initiation under section 148 of the Act is bad in law being based on statement of third party. The AO has not mentioned any tangible material to prove his contention. On the additions the assessee stated that he has furnished complete evidentiary proof of purchase consisting of account information of Kothari Co. The copy of purchase bill, one to one mapping and specific sale, stock register, bank statement 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Tribunal in Bholanath Poly fab Pvt. Ltd.(supra), the ld.CIT(A) held that the assessee may have made purchases from elsewhere and obtained the bills from impugned supplier to inflate Gross Profit Rate. The ld CIT(A) after considering the overall facts, submissions of the assessee and evidences produced by assessee, concluded that the 100% disallowance of purchase is not justified. The ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. reported in [2014] 11 TMI 812 (Guj) (Tax Appeal No.200 of 2003 dated 07.11.2014). The ld.CIT(A) compared the fact of the present case, with the facts in case of Mayank Diamonds (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The AO in said case made disallowance of entire bogus purchase. The ld.CIT(A) dismissed the appeal, however, the Tribunal gave partial relief to the assessee directing and sustained the addition @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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2014 and the reply filed on 24.02.2014 and the reply dated 27.02.2014 filed in response to the show cause notice by AO. The ld AR for the assessee submits that there is no live link between the material coming to the notice and formation of belief for escapement of income. The reopening is itself bad in law. 8. On account of additions of bogus purchases, the ld.AR submits that in the original assessment, the assessee filed its complete details of purchases to prove the genuineness of expenses. During re-assessment, the assessee furnished complete details about the genuineness of purchases. The assessee filed confirmation purchases invoices, accounts of the parties, bank statement of assessee showing transaction to the banking channel. The AO has not made any comment on the documentary evidence furnished by assessee. The AO solely relied upon the statement of third party and the report of Investigation Wing. The report of wing and the statement 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... looks like genuine transaction. In bogus transaction, the fabricated evidences are always maintained perfectly. The assessee has obtained accommodation entry only to inflate the expenses and to reduce the ultimate profit. No stocks of diamonds were found at the time of search on Bhanwarlal Jain Group. The assessee has shown a very meagre gross profit (GP) @ 1.85% and not net profit (NP) at 0.7%. The ld. CIT(A) restricted the addition to the extent of 12.5% which is on the lower side. The ld. CIT-DR for the revenue prayed that disallowance made by the AO may be upheld or in alternative submitted that it may restricted at least @ 25%, keeping in view that the NP declared by the assessee is extremely on lower side. 11. To support his submissions, the ld.CIT-DR relied upon the decision; Pushpak Bullion (P) Ltd Vs DCIT [2017] 85 taxmann.com 84 (Gujarat High Court), Peass Industrial Engineers (P) Ltd Vs DCIT [2016] 73 taxmann.com 185 (Gujarat High Court), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell settled that the notice of reopening can be supported on the basis of reasons recorded by the Assessing Officer. He cannot supplement such reasons. The third principle of law which is equally well settled and which would apply in the present case is that reopening of the assessment would not be permitted for a fishing or a roving inquiry. This can as well be seen as part of the first requirement of the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment. In other words, notice of reopening which is issued barely for making fishing inquiry, would not satisfy this requirement. 8. With this background, we may revert to the reasons recorded by the Assessing Officer. Information from the Value Added Tax Department of Mumbai was placed for his consideration. This information contained list of allegedly bogus purchases made by various beneficiaries from Hawala dealers. Assessee was one of them. As per this information, he had made purchases worth ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons, must indicate the material (whatever reasons) which form the basis of reopening Assessment and its reasons which would evidence the linkage/ nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in S. Narayanappa v/s. CIT 63 ITR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in ITO v/s. Lakhmani Merwal Das 103 ITR 437 had laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitled to challenge the very act of reopening of Assessment and assuming jurisdiction on the part of the Assessing Officer. 13. In this case, 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, the appeal filed by the assessee is allowed and the appeal filed by the revenue is dismissed. Shri Sunilkumar P Jain in ITA No.1164 1297/AHD/2017(AY 2007-08): 17. The Revenue has raised following grounds of appeal: 1. On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the additions of ₹ 14,29,90,854/- 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. Mahalaxmi gems P.Ltd and M/s. Mayur Exports were non-existent entities and they were used for providing bogus purchase bills to the assessee i.e. Shri Sunil Kumar P.Jain. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that :- a) The appellant has produced the evidences like confirmation of accounts, invoice copy, bank statements, quantity tally etc. to establish the genuineness of the transaction. b) The very same goods have been resold within short time establishing beyond doubt the fact of purchase as there can t be any sale without purchases. c) Not a single evidence has been led by the Department to prove the impugned transactions to be bogus. 5. The appellant craves to leave add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to another. 19. We find that the reasons recorded in the impugned assessment order in these cross appeals are also similar, both the parties have made similar submissions, considering our above decision in para 12 to 14 (supra) in Exotic Jewels, wherein we have quashed (set-aside) the assessment order, thus, the impugned assessment order, in the present appeals passed under section 143(3) read with section 147 dated 09.03.2015 is also quashed with similar observation. 20. In the result the appeal of the assessee is allowed and the appeal fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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