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TMI Blog2022 (8) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... ind no reason to interfere in the said order of Co-ordinate Bench, therefore respectfully following the binding order of Co-ordinate Bench we allow Revenue s appeal partly with same direction. Addition u/s 68 on account of unverifiable purchases - mistake of quoting wrong Section - HELD THAT:- The matter discussed by the AO in the assessment order was related to bogus purchases therefore ld CIT(A) corrected unintentional mistake committed by AO that is, corrected the mistake of quoting wrong section. We note that just to quote wrong section while making an assessment order does not vitiate the findings of the entire assessment order. CIT(A) has co-terminus power as that of assessing officer and to correct the mistake of section as per the substance discussed in the assessment order does not mean enhancement of assessment without giving notice to the assessee. That is, when the substance of the transactions, as discussed in the assessment order by the assessing officer are in the nature of bogus purchases, then it would not mean enhancement of assessment, and just because ld CIT(A) made correction in the section in accordance with the substance discussed in the assessment order does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.3.92 crores. In view of the above gross disproportions between the figures of foreign exchange rate fluctuation loss and fluctuation gain vis-a-vis the corresponding export and import, the correctness of this account was required to be verified for thoroughly which was not done during the course of assessment proceedings therefore order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. It is also to be noted that ld Counsel, during the course of hearing stated that assessee is not exporter, however, on examination of Balance Sheet of the assessee, the ld PCIT noticed that assessee has shown foreign exchange gain/loss in its Balance Sheet therefore if the assessee is not exporter then wherefrom these foreign exchange gain and loss arised in the Balance Sheet. Hence, we are of the view that assessing officer failed to conduct inquiry. - Decided against assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... y (i) Vardhaman Trading, (ii) Sahil Enterprises (iii) Mahak Enterprise (iv) Sparsh Impex (v) Arihant Exports (vi) Yatin Enterprise (vii) Vatsal Enterprise. The Inspector was deputed to serve these summons to the concerned parties. Then the Inspector so appointed has reported to the assessing officer that out of the seven parties against whom summons were issued, he was able to serve only one summon to the party namely, M/s Vatsal Enterprise, Surat. Remaining summons were not served due to various reasons. Later on, assessing officer has also issued notice to these seven parties at the below given address for personal attendance on 21.12.2016. Sr No Name of the party Address 1 Vardhaman Trading Shop No 2/3,Vardhman Park, Amroli, Surat 2 Sahil Enterprises 13-14, Vardhaman park-A, New Kosad Road, Amro 3 Mahak Enterprise 9, Bagar Faliya, ModiTekra, Nana Varachha, Surat 4 Sparsh Impex Office No. 112, New DETC Building, Hath Faliya, Haripura, Surat 5 Arihant Exports Office No. 112, New DTC Building, Hath Faliya, Haripura, 6 Yatin Enterprise B-32, Gokul Building, Pipla Sheri, Mahidharpura, Surat 7 Vatsal Enterprise 13, Vujay Nagar, Bh. Harji Nagar, Udhna, Surat Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith ld Counsel`s stand, because all remaining five parties are also engaged in bogus purchases/sales, hence the issue under consideration is squarely covered by the decision of Co-ordinate Bench of this Tribunal in the case of ITO Ward3(1)(5), Surat vs. Pankaj K. Choudhary & Otrs. For A.Y. 2007-08 in ITA No.1152/SRT/2017 dated 27.09.2021, wherein the Co-ordinate Bench of this Tribunal has inter alia observed as follows: "4. Brief facts of the assessee that the assessee is proprietor of Parvati Exports and engaged in the business of diamond. The assessee filed his return of income for the A.Y. 2007-08 on 26.09.2007 declaring total income of Rs.1,81,840/-. Scrutiny assessment for this assessment year was competed under section 143(3) on 10.03.2009 determining the total income of Rs.6,50,490/-. Thereafter, the case of assessee was reopened under section 147 of the Act. Notice under section 148 of the Act was issued on 29.03.2014 served on 31.03.2014. The case was reopened on the basis of information received from DGIT(Investigation) Mumbai. In the information received from Investigation Wing, Mumbai it was informed that a search and seizure action was carried out by Investigation wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year under consideration. The assessee also referred certain case laws in its objections. The objection of assessee was dispose off by AO vide separate order dated 09.02.2015 wherein the objection of assessee was rejected. The AO after rejection of objection proceeded for assessment. 6.The AO issued show cause notice dated 13.03.2015, as to why the purchases shown from three entities should not be added to the income of assessee. The extract of notice is referred in para 5 of the assessment order. The assessee filed his reply dated 19.03.2015. The assessee along with its reply furnished confirmation of parties, purchase bill, bank statements, stock register and copy of ITR of purchased parties. The assessee claimed that all transactions were routed through banking channel and that there is no proof that assessee received cash against the cheque issued for purchase. The explanation furnished by the assessee was not accepted by the AO. The AO concluded that mere transaction routed through banking channel is not sufficient evidence. The AO by relying upon the report of Investigation Wing of Bhanwarlal Jain Group made addition of 100% of the purchases shown from all three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 all the evidences as furnished before the AO and reiterated that he is engaged in the business of import, export, trading of cut& polished and rough diamond. The statement of Bhanwarlal Jain was not provided to the assessee. 8.The assessee also relied upon certain case laws as recorded by the ld.CIT(A). The ld.CIT(A) after considering the submission of assessee on the validity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase made by the assessee. The said parties are assessed with Central Circle, Mumbai where they are treated as "entry provider" and assessed accordingly. 10.The ld.CIT(A) after referring the decision of Tribunal in Bholanath Poly Fab Private Limited in ITA No.137/AHD/2009 dated 26.07.2011 wherein the addition was sustained to the extent of 12%. The ldCIT(A) by following the observation of order of Tribunal in Bholanath Polyfab 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 ldCIT(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds were found at the time of search on Bhanwarlal Jain Group. The assessee has shown a very meagre gross profit (GP) @0.78% and not net profit (NP) at 0.02%. 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. 13. On the validity of reopening, the ld.CIT-DR for the revenue submits that the AO received credible information about the accommodation entry provided by Bhanwarlal Jain Group. The assessee is one of the beneficiaries, who had availed accommodation entries from such hawala trader. At the time of recording reasons, the mere suspicious about the accommodation entry is sufficient as held by Hon'ble jurisdictional High Court in various cases. 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 PurushttomDas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in alternative submission, the disallowance may be sustained on reasonable basis. To support his various submission, the ld.AR for the assessee is relied upon case laws: 1 M/s Andaman Timber industriesVsCommissioner 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 ShilpiJewellers 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 Ltd. Vs. DCIT, [2008] 296 ITR 90 (Bombay) 10 PCIT, Surat 1 Vs. TejuaRohitkumar Kapadia [2018] 94 taxmann.com 325 (SC) 11 The PCIT-17 vs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person who is engaged in providing accommodation entries,held that where after scrutiny assessment the assessing officer received information from the investigation wing that well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in re-opening assessment. Further similar view was taken by Hon'ble Jurisdictional High Court in Pushpak Bullion (P) Ltd Vs DCIT (supra). Therefore, respectfully following the order of Hon'ble High Court, we find that the assessing officer validly assumed the jurisdiction for making re-opening under section 147 on the basis of information of investigation wing Mumbai. So far as other submissions of the ld AR for the assessee that there is no live link of the reasons recorded, we find that the Hon'ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd clearly held that when assessing officer received information from the investigation wing that two well known 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 21. We have seen that during the financial year under consideration the assessee has shown total turnover of Rs.66,09,62,458/-. The assessee has shown Gross Profit @ .78% and net Profit @ .02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs.1,81,840/- only. We are conscious of the facts that dispute before us is only with regard of the disputed purchases of Rs, 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwarlal Jain Group. During the search action on Bhanwarlal Jain no stock of goods/ material was found to the investigation party. Bhanwarlal Jain while filing return of income has offered commission income (entry provider). Before us, the ld CIT-DR for the revenue vehemently submitted that 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. We find that in Mayank Diamonds the Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and law, the Ld. CIT(A) failed to consider that assessment order was passed without furnishing the material, evidenced and opportunity of cross-examination to the respondent. This is gross violation of principal of Audit Alteram partem rendering the order to be bad in law liable to be quashed. 5. Without prejudice to above, the Ld. CIT(A) has erred in assessing the impugned bogus purchase and without having considered the sales made to the same parties amounting to Rs.3,18,39,900/- during AY 2014-15 and Rs.5,28,43,984/- in subsequent years. Hence the addition cannot be made solely for purchases since the Ld. CIT by implication held that sales to be same parties are genuine." 12. At the outset, Ld. Counsel for the assessee contended that Assessing Officer has made the addition under wrong section of the Income Tax Act, that is, under section 68 of the Act, on account of unverifiable purchases. Therefore, the addition made u/s 68 is not sustainable in law. On appeal, CIT(A) corrected the mistake of "Section" without providing opportunity of hearing to the assessee, therefore order passed by ld CIT(A) may be quashed. On the other hand, Ld DR for the Revenue submits before us that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit is not in accordance with law. We note that all these issues are discussed in the order of Co-ordinate Bench, in the case of Pankaj K. Choudhary (supra), therefore we dismiss ground Nos. 1, 4 and 5 of Cross objections. 15. In the result, cross objection filed by the assessee is dismissed. 16. Now we shall take assessee's appeal in ITA No.313/SRT/2019, wherein grounds of appeal raised by assessee are as follows: "1. The Ld. CIT erred in passing the order under section 263 of the Act, inspite of the fact that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. 2. The appellant craves leave to add, alter, amend, modify or delete any of the aforesaid grounds of appeal." 17. By way of this appeal, the assessee appellant has called into question correctness of impugned order passed by the learned Principal Commissioner of Income Tax, under section 263 of the Income tax Act, 1961, vide order dated 22.03.2019. 18. Succinct facts qua the issue are that assessee-company was engaged in business of purchase and sale of rough and polished diamonds. During the year under consideration, assessee filed return of income declaring total income of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectness of claim of Forex gain loss after making proper enquiries on these issues. 23. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us. 24. Learned Counsel for the assessee argued before us that Ld. PCIT has exercised his jurisdiction u/s 263 of the Act, on account of loan given to related parties u/s 2(22)(e) of the Act whereas section 2(22)(e) of the Act does not apply to the loan given to the parties, rather it applies to advance given to the parties/shareholders. The Ld. Counsel for the assessee also contended that there is no Forex gain or loss in the case of assessee under consideration because sales are against 'H' form. Therefore, jurisdiction exercised u/s 263 of the Act, by Ld. PCIT is bad in law. 25. On the other hand, Ld. CIT-DR for the Revenue submitted that assessee received Forex gain because assessee is a deemed exporter. Ld. CIT-DR also pointed out that Ld. PCIT has not given a specific direction to make addition but Ld.PCIT only directed the Assessing Officer to examine the issue afresh about loan and advances given by assessee and Forex gain/loss. These issues have not been examined by the Assessing Officer. The fact that the parties to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2(22) (e) does not apply to loan. The ld PCIT observed that long term loans and advances received by the assessee-company from earlier Rs.5,85.000/- only. In contrast the long- term loans given by the assessee-company to various persons as per note 9 to the balance sheet stand at Rs.81.49 crores as on 31.03.2015. These persons appear to be related to the assessee-company. Moreover, no interest receipt in respect of these long term loans given has been shown. It is also noticed that the assesseecompany during the year under consideration has given loans to various persons/entities the assessee had not received any interest. The AO concerned should had to examine the following points to invoke the applicability of Section 2(22)(e) of the Act. We note that during assessment stage, the AO has not issued any notice under section 142(1) to conduct inquiry on the above issues raised by ld PCIT nor assessee has replied. We have gone through the assessment order passed under section 143(3) and noted that there is no any discussion or adjudication on the issue raised by the ld PCIT, hence order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, therefore AO failed to conduct necessary inquiry. 30. Further, it is also noticed that sales against H Form i.e. export sales during the year of Rs.30.47 crores. Rest of the sales is local sales. 'H' form is the certificate issued by Sales tax/VAT department as proof of export. Only register dealer who exports the goods outside Indian can get H form. Against these export sales, profit on account of fluctuation in exchange rates is shown at Rs.64.80 lakhs import of cut & polished diamonds during the year of Rs.33.71 crores. As against this import, loss in account of fluctuation in exchange rates is claimed at Rs.3.92 crores. In view of the above gross disproportions between the figures of foreign exchange rate fluctuation loss and fluctuation gain vis-a-vis the corresponding export and import, the correctness of this account was required to be verified for thoroughly which was not done during the course of assessment proceedings therefore order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. It is also to be noted that ld Counsel, during the course of hearing stated that assessee is not exporter, however, on examination of Balance Sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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