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TMI Blog2022 (2) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating the facts that sanction for reopening was not obtained from appropriate authority. 3. On the facts and circumstances of the case and law, the LdCIT(A) erred in confirming the rejection of books of account without pointing out any defect in books of accounts. 4. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in disobeying the binding decision of Hon'ble Apex Court in case of Andaman Timber Mart (281 CTR 241) and Jurisdictional Gujarat High Court in case of Legal Representative of late Laxmanbhai S Patel (327 ITR 290) by not following judicial discipline even though he appreciated the fact that assessment order was framed without providing opportunity to cross examine and without furnishing the material and evidences to the assessee inspite of the assessees request, in gross violation of principal of natural justice. 5. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in sustaining addition of Rs. 13,49,440/- (being 12.5% of alleged purchase) by treating genuine purchase as suspicious purchases. 6. Assessee craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely employees of the above group and their family and that they were looking after miscellaneous office work like depositing cheques in banks, handing over parcels to clients, making data entry, etc. On being asked about various aspects of the business of this group, the dummy partners/ Directors/ proprietors of the entities of this group, they expressed their ignorance and stated that they are engaged in the business of bill shopping through all the concerns and they do not maintain any physical stock of diamonds and that they are paid lump sum salary in cash. During the course of search, blank cheque books signed by the dummy partners/ Directors/ proprietors of the entities of this group were also found, which were seized. Similarly, books of account in the name of the dummy partners/ Directors/ proprietors of the entities of this group were also found, which were also seized. 6.According to the regular books of accounts and the returns of income filed by different entities of the group, the business of these entities are disclosed to be trading of rough and finished diamonds and manufacturing of diamond jewellery. However, no stock of diamond was found from any of the premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act, 1961 was issued by Assessing Officer on 28/3/2014 which was served upon the assessee on 31.03.2014. Subsequently, notices u/s 142(1) of the Income Tax Act, 1961 was issued on 11.08.2014 along with a detailed questionnaire and duly served upon the assessee. Notice u/s 142(1) of the I.T. Act issued on 21.10.2014 and notice u/s 143(2) issued on 25/01/2015 and duly served upon the assessee.In view of the above, the Assessing Officer had reason to believe that an income of Rs. 1,07,95,527/- as stated above, has escaped assessment in the hands of the assessee for the year under consideration. Therefore, the case was reopened and Notice u/s 148 of the Act was issued on 28/03/2014. In response, vide letter dated 09.07.2014, the assessee requested to treat the return of income filed on 27/10/2007 as return filed in response to the notice u/s 148 of the Act and also requested to provide the copy of reason recorded for re-opening of the assessment. Copy of reason recorded for re-opening of the assessment was provided to the assessee. 8. Thereafter, assessing officer examined the issue on merit and noted that assessee has not submitted required documents and evidences during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith corresponding sales bills. It is seen that the impugned purchases can be traced to specific sale/export made. The assessing officer has not found any defect / irregularities in the stock tally or in the sales made. In fact, the sales have not been doubted by the AO. The ld Counsel further states that payment was made through the Bank channels. Further, he argued that AO has not doubted the sales disclosed by the assessee. Since there cannot be any sales without the purchase of the materials, the purchases cannot be disallowed. He further argued that addition cannot be made based on the statements given by a third - party that too without giving the assessee an opportunity to cross - examine them. 12. On the other hand, ld DR for the Revenue submits that reassessment proceedings were initiated as per the provisions of the Act. The reasons recorded are not defective. During the original assessment proceedings, the assessee has not submitted entire books of accounts, bills, vouchers, bank statements, and other necessary evidences to disclose fully and truly all material facts necessary for making assessment, therefore assessee cannot take the benefit of proviso to section 147 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer should have 'reason to believe' that any income chargeable to tax has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words 'reason to believe' cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence: They only mean that he forms a belief from the examination he makes or from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he has reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect expenses incurred by assessee and other necessary evidences to disclose fully and truly all material facts necessary for making original assessment, therefore, assessee cannot take the benefit of proviso to section 147 of the Act, hence, we dismiss the ground no.1 raised by the assessee. 16.So far ground no.4 raised by the assessee is concerned, we find merits in the submissions of ld DR for the Revenue that assessee is doing transactions with these benami entities of Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Dharmichand Jain Group of Mumbai, they know to each other, hence opportunity to cross examine is not necessary. We also note that during the assessment stage the assessee did not ask the assessing officer to provide an opportunity for cross examination. We note that during the assessment stage assessee did not submit required details and documents and did not assist the assessing officer in making the reassessment, (vide last para of the assessment order). The ld DR also submits that "Fraud vitiates everything", these all are associated concerns and interconnected business concerns, hence opportunity to cross examine is not necessary. Hence, we dismiss gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llion (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 VsPurushttomDassBangur [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 * ChuharmalVs CIT [1998] 38 Taxman 190 (SC). 14.On the other hand, the ld.AR of the assessee submits that he has challenged the validity of reopening as well as restricting the addition to the extent of 12.50% of the alleged bogus purchases. The ld.AR of the assessee submits during the assessment, the AO has not made any independent investigation. The AO reopened the case of the assessee on the basis of third party information without making any preliminary investigation. The AO received vague information about providing accommodation entry by Bhanwarlal Jain Group. No specific information about the accommodation entry obtained by assessee was received by AO. There is no live link between the reasons recorded qua the assessee. Therefore, the re-opening is invalid and all subsequent action is liable to be set a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Mohommad Haji Adam & Co. ITA NO. 1004 OF 2016(Bombay High Court) 12 Pankaj Kanwarlal Jain HUF Vs. ITO 2(3)(8) Surat ITA.No.269/SRT/2017 16.In the rejoinder submissions the ld. CIT-DR for the revenue submits that that rigour of the rules of evidence contained in the Evidence Act is not applicable before the tax authorities. It was submitted that the ratio of various case laws relied by the ld. AR for the assessee is not applicable on the facts of the present cases. The ratio of decision of Hon'ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. 17.We have considered the submissions of the parties and have gone through the order of the lower authorities. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nown entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified. Hence, the ground No. 1 in assessee's appeal is dismissed. 19. Ground No. 2 in assessee's appeal and the grounds of appeal raised by the revenue are interconnected, which relates to restricting the disallowance of bogus purchases to the extent of 12.5%. The AO made of 100% of purchases shown from the hawala dealers/ entry provider namely Bhanwarlal Jain. We find that the AO while making additions of 100%, of disputed purchases solely relied on the report of the investigation wing Mumbai. No independent investigation was carried by the AO. The AO has not disputed the sale of the assessee. The AO made no comment on the evidences furnished by the assessee. We further find that ld CIT(A), while considering the submissions of the assessee accepted the lapses on the part of the AO and noted that no sale is possible in absence of purchases. The Books of the assessee was not rejected by the AO. The ld CIT(A) on further examination of the facts and various legal submissions find that Ahmedabad Tribunal in Bholanath Poly Fab Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io of decision of Hon'ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. We find that in Mayank Diamonds the Hon'ble High Court restricted the additions to 5% of GP. We have seen that in Mayank Diamonds P Ltd (supra), the assessee had declared GP @ 1.03% on turnover of Rs. 1.86 Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No. 2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed. 22. In the result the appeal of revenue is dismissed and the appeal of the assessee is partly allowed." 18.As the issue is sq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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