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TMI Blog2023 (1) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... deration for deciding these appeals en masse. 3. Although, these three appeals filed by the Revenue, contain multiple ground of appeals. However, at the time of hearing, we have carefully perused all the grounds raised by the Revenue. We find that most of the grounds raised by the Revenue are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the Revenue. With this background, we summarize and concise the grounds raised by the Revenue as follows: "(1) The main grievance of the Revenue is Ld. CIT(A) was erred in restricting the addition made on account of bogus purchases to only 2% and not treating the whole purchases, as bogus, considering the fact that the concerns from which the assessee has claimed to make these purchases, are just paper companies / non-existent entities as confirmed in statement on oath u/s 132(4) of the Act, by Shri Dharmichand Jain/Rajendra Jain. Ground No.1 of Revenue's appeal in ITA No.93/SRT/2019 for AY.2013-14 and Ground No.1 of Revenue's appeal in ITA No.202/SRT/2017 for AY.2008-09 and ground no.1 in ITA No.92/SRT/2019 for assessmet year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd being companies controlled by Shri Rajendra Jain. The information so received was, analysed and evaluated by Assessing Officer vis-a-vis the details of assessee's case and after due consideration of all aspects of the case, a well-reasoned belief was formed that income to the tune of the bogus entries of purchases arranged from the companies of Shri Jain has escaped assessment in the hands of the assessee. Accordingly, notice u/s 148 of the Act was issued on 31.03.2015 after taking due approval from the Additional CIT vide his office letter dated 31st March, 2015. The reasons to believe so formed were duly communicated to the assessee on 20.07.2015 and its objections thereto dated 10.08.2015 were also duly disposed of vide order dated 19.08.2015. 7. Bogus Purchases: During the course of search action on Shri Rajendra S. Jain, he had not only unequivocally admitted the fact of his involvement in operating paper concerns engaged in in providing merely accommodation entries without any actual delivery of goods but also elaborately explained the detailed modus operandi of such activities. Shri Rajendra Jain, in his statement, has specifically identified Moulimani Impex Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry value. This is not only in the fitness of things but also has legal sanction. Time and again, different judicial pronouncements have affirmed the evidentiary value of a sworn statement. For instance, in the case of Kantiial C Shah Vs. ACIT (2011) [14 taxmann.com 108], Hon'ble Ahmedabad ITAT has held that a sworn statement that is not conclusively proved to have been obtained under duress, coercion or misconception of facts, is a valid evidence in the eyes of law and can very well form the basis of making necessary additions. Similarly, in a recent decision of Hon'ble Apex Court in the case of B Kishore Kumar Vs DCIT (2015) [62 taxmann.com 215 (SC)], while dismissing assessee's SLP, it has been held that where the assessee himself states about an undisclosed income and such statement is a sworn statement, it would be a valid evidence and needs no buttress from available documents. (ii) Issue 2: Whose onus is it actually as regards the claim of purchases? 10.5 The onus of proving the validity of a claim of deduction/expenditure is on the person who makes it. The legal maxim - "Qui sentit Commodumsentire debut et Onus"- says it all, meaning 'He who derives the advanta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... metic embellishments of indirect/circumstantial evidences. As can be understood, submission of unverified Affidavits and evasive deponents cannot serve any purpose, more so in light of the fact when there already is a prima fade adverse case against a claim of the assessee. Thus, the assessee has, on facts and circumstances of the present case, failed to discharge its onus associated with direct evidences and hence his indirect/circumstantial evidences partake the character of self-serving recitals and hardly anything more. It may be noted as a pure finding of fact that the assessee has never been able to adduce any material evidence, which can show that the goods in question, ever came into the hands of the assessee from the alleged parties. (v) Issue 5: Whether disregarding sales is sine quo non for disallowing bogus purchases: It is also necessary to discuss briefly the often cited theory that 'purchases cannot be disallowed if sales are accepted'. Once a transaction of purchase is found to be bogus / unverifiable, the factum of challenging or accepting challenge should not be weighed. On this issue, Hon'ble Income Tax Appellate Tribunal, Ahmedabad in a Third Member decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Section 68 of the Act, since the source of such credits has been found to be bogus and the transaction proves to be non-genuine ..." 11. In response, the assessee has furnished its reply. The Assessing Officer has gone through the reply of assessee and observed that assessee has merely reiterated that the sales are genuine and payments have been received. The reply of the assessee is however not acceptable since mere routing of payments through banking channels is of no evidentiary value when the transaction itself has been discovered to be bogus. When credit entries in the books of account of the assessee fails on account of genuineness of the transaction, the provisions of Section 68 of the Act come into play and the entire sum is liable to be deemed to be the income of 'the assessee. It may be pertinent to borrow contextual relevance from the case of M. L. Sachdeva Vs ITO (P & H) 45 taxmann.com 224[2014] wherein the facts were that assessee claimed certain credits in his bank account to be sales of diamond jewelry. However, the said transaction was not proved as genuine. Under these circumstances, it has been held that where the assessee fails to prove the genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olished diamond as on 31.03.2007 was 6871.07carats, Which was sufficient enough for first lot of sale of 1027.67 carats to M/s.; Maulimani Impex Pvt. Ltd. on 10.05,2007. Other lot of sales to M/s. Maulimani Impex Pvt. Ltd. and M/s. Sparsh Impex Pvt. Ltd was also explained from day to day stock of polished diamond received from own factory production. These quantitative details, on the basis of audit reports of A.Y. 2007-08 and 2008-09, cannot be rejected out rightly merely because of statement of third party and non-availability of deliver challans. Search in the case of Sh. Rajendra Jain took place 01 03.10.2013 whereas the audit reports of appellant for A.Y.2007-08 2008-09 and later A.Yrs do not show any discrepancy with regard to quantitative details put forth by the appellant. Thus, appellant contention gets support from its own books of account. The question which needs to be answered is that where from the rough diamond claimed to have been purchased by the appellant came. This puzzle is solved from the modus operandi of bill shopping business explained by Sh. Rajendra Jain in statement u/s. 132(4) of the Act. Shri R.S. Jain had stated that rough diamonds imported by his co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.S. Jain i.e. Rs.2,16,802/- (2% of Rs.1,08,40,112/0 is hereby sustained out of total purchase disallowances of Rs.1,08,40,112/-. It is pertinent to mention here that the AO had not drawn any adverse inference with regard to purchases of rough diamond from M/s. Sparsh Exports Pvt. Ltd. in A.Y. 2007-08 on the basis of submissions made during re-assessment on the same set of facts. (2) As regards the bogus sales and addition as unexplained credits, the same cannot be sustained as sales are very well explained from the quantitative details evidenced from the audit reports of A.Y.2007-08 and current A.Y. 2008-09 as explained at Sr. no. (ii) hereinabove. The AO's conclusions of additions are mainly based on one sided view of statement u/s. 132(4) of the Act and cross-examination u/s. 131 of the Act, Thus, the addition of Rs.2,18,92,916/- is hereby deleted. Ground, of appeal no. 1 is partly allowed and ground of appeal no. 2 gets fully allowed. (3) As regards ground of appeal no. 3 pertaining to unexplained commission of payment of Rs.16,366/-, the appellant has 'claimed that this additions has been made merely on presumption that the assessee must have paid commission to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus to substantiate a claim is, therefore, on the assessee and this onus has to be discharged to the best of abilities to establish the claim by adducing unimpeachable evidences. In view of all the facts and circumstances of the case and the current position of law, the assessee failed in adducing evidence of actual purchase of goods and their physical movement from the alleged parties to the assessee. 15. About unexplained cash credit, Ld. DR submits that on verification of records, it was found that the assessee had claimed sales of Rs.1,97,91,196/- made to Moulimani Impex Pvt. Ltd and Rs.21,01,720/- to Sparsh Exports Pvt. Ltd. which had been discovered as bogus. It was held that when there is an entry in assessee's books, there is a reasonable presumption that such entries represent business receipts/sales of the assessee from its regular activities. However, as soon as the entities from which sales have been shown turn out to be bogus, the transaction claimed as 'sales' assumes the form of unexplained sums credited in the books of account of the assessee. This is so because the genuineness of source of such transactions fails. It is well settled that unless the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer under section 143(3) r.w.s. 147 of the Act may be quashed. 19. However, on the other hand, Ld. DR for the Revenue submits that addition made by the Assessing Officer should be confirmed as the assessee has engaged in getting the bogus purchase bills and sales bills. 20. On technical ground of reopening of assessment, the Ld. DR for the Revenue states that assessee has not made any formal application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963. Therefore, assessee cannot argue on the issue of validity of reopening of assessment. 21. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld. CIT(A) and other materials brought on record. We note that assessee has not made an application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, hence the arguments made by Ld. Counsel on the issue of validity of reopening of assessment is not considered and thus hereby rejected. 22. On merits, we note that issue of summarized ground no.1 of Revenue is squarely cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k 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 Vs 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT-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. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 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." 23. We note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed (Ground No.2 in ITA No.202/SRT/2017) ground no.2 of the Revenue is dismissed. 29. The summarized and concise ground no.3 is reproduced below for ready reference, as follows: "(3) Ground No.3 in ITA No.202/SRT/2017, Revenue's appeal, the grievance of the Revenue is that Ld. CIT(A) erred in deleting the addition of Rs.16,366/- made by AO on account of unrecorded commission." 30. We have heard both the parties. The facts of the issue has already been narrated in para nos. 6 to 10 of this order, therefore we do not repeat them for the sake of brevity. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand ld Counsel for the assessee defended the order passed by the ld CIT(A). We note that ld CIT(A) has adjudicated the said issue observing as follows: "(3) As regards ground of appeal no. 3 pertaining to unexplained commission of payment of Rs.16,366/-, the appellant has claimed that this additions has been made merely on presumption that the assessee must have paid commission to accommodation entry provider. As the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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