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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 ..... Singh, JM And Dr. A. L. Saini, AM For the Assessee : Shri Rasesh Shah, CA For the Respondent : Shri Ashok B. Koli, CIT(DR) with Shri Vinod Kumar, Sr. DR ORDER PER DR. A. L. SAINI, AM: Captioned three appeals filed by the Revenue, pertaining to Assessment Years (AYs) 2008-09, 2011-12 and 2013-14, are directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short the ld. CIT(A) ], which in turn arise out of separate assessment orders passed by Assessing Officer, under section 143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. Since the issue involved in these three appeals, are common and identical, therefore these appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The facts as well as grounds of appeal raised by the Revenue, in ITA No.202/SRT/2017 for AY.2008- 09, have been taken into consideration 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 raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6. Brief facts qua the issue are that assessee is a partnership form engaged in the business of export of diamond. The assessee filed its return of income on 25.09.2008 declaring total income of Rs.30,91,550/-. The return so filed was processed under section 143(1) without any alternation to the returned income. A search seizure operation was conducted on 03.10.2013 in the case of one Shri Rajendra Jain at his premises located at Mumbai and Surat and it was found that concerns floated and operated by Shri Jain are nothing more than mere entry providers for bogus purchases and unsecured loans to beneficiaries across the country. Further investigation of accounts revealed the names of beneficiaries and it was intimated to this office that our assessee M/s. Sahjanand Exports has also been one of the beneficiaries during FY.2007-08 for two accommodation entries of purchase worth Rs.89,45,568/- and Rs.1,97,91,196/- respectively from Moulimani Impex Pvt. Ltd and Sparsh Exports Pvt. 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 consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss-examine Shri Rajendra Jain but did not. During the course of cross-examination, it was seen that Shri Rajendra Jain cold not substantiate even the actual involvement of his concerns in the business of diamond trading, much less the contents of the Affidavit and claim of sale to the assessee. 9. After going through the reply of the assessee and statement of Shri Rajendra Jain, the Assessing Officer analysed the facts as follows: (i) Issue 1: Evidentiary value of the statement of Shri Rajendra Jain u/s 132(4) of the Act. The statement of Shri Rajendra Jain is a sworn statement. Moreover, the admission of Shri Jain is also supported by other evidences and surrounding circumstances. For instance, the factum of running merely paper concerns as admitted by Shri Jain is also supported by the finding of fact that not even a single carat of diamond was found at any of the premises covered by the search action. Statement recorded on oath, corroborated by findings, holds impeachable evidentiary 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, certain general categorizations may help in comprehending the point at hand: Direct evidences Day- To-Day Inward Receipts, Evidences As To Mode of Travel of Goods, Stock Movement Slips (Jaangad), Books of account, Bills, Stock Register, Proof Of Payment etc. Indirect evidences Challans of delivery, Confirmation from broker, if applicable Proof As To The Sales Of The Goods In Question; Registers Mandatory Under Other Applicable Statutes; Payment of Duties/Taxes etc.. What needs to be appreciated is that the assessee cannot play the entire adjudication merely on the force of indirect evidences, much less when such 'evidences' are not even completely reliable. There has to be-direct evidence first and then only, if there is any doubt left, indirect or circumstantial evidences can be assigned weightage to buttress the direct evidences. Where there is no structural strength of direct evidences, the edifice of assessee cannot survive the test of evidentiary scrutiny merely on the cosmetic embellishments of indirect/circumstantial evidences. As can be understood, submission of unverified Affidavits and evasive deponents cannot serve any purpose, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless the assessee furnishes a satisfactory explanation as to the genuineness of a transaction, the transaction cannot escape the rigours of Section 68 of the Act. It needs to be appreciated that the nature and actual source of the sums that have been credited in the books of the assessee as sales stands unexplained as soon as the parties to whom such sales are shown turn out to be bogus parties. Sums received from those are not sale proceeds since noting has actually been sold thereto. Thus, since the third pillar of Section 68 i.e. the genuineness of these transactions is not proved, such sums are liable to be treated as unexplained cash credits u/s 68 of the Act. It was on these lines that the following show-cause notice was issued to the assessee firm - ....you are also requested to please show cause as to why not the claim of sales worth Rs.1,97,91,196/- and Rs.21,01,720/- shown from the said companies, which represent credits in your books of account, be treated as unexplained cash credits in line with the scheme 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceeding. The appellant had stated that in diamond trade, deliveries are mostly in person/by hand and no delivery challan are generated. AO did not accept the appellant s contention and cross-examined Sh. Rajendra Jain u/s.131 of the Act at the time of re-assessment. The issue of retraction of statement u/s. 132(4) of the Act by Sh. R.S. Jain was discussed by the AO. AO finally concluded that the transactions with the concern of Rajendra Jain were bogus-as Rajendra Jain was not really involved In diamond trade and accordingly disallowed purchases of rough diamond worth Rs.1,08,40,112/- and added the same to the total income, AO also held the sales of polished diamond to these parties as bogus and added Rs. 2,18,92,916/- as unexplained credits u/s. 68 of the Act. As against the above findings of the AO, appellant has contended that its books of account were not rejected by the AO by pointing out any discrepancies, whatsoever. From the copy of audit-report in form 3CB for A.Y.2007-08, it was pointed out that the closing stock of polished 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 %. Thus, this data also do not support the other possible view that the appellant could have generated excess rough diamond stock by manipulating yield percentage. Thus, appellant's claim of purchase cannot be rejected merely on the statement of R.S. Jain and non-availability of delivery challans. In such a case the only possible situation can be that the appellant purchased rough diamond from third party in the cash/grey market and ended up getting bills for purchase from the concerns of R.S. Jain. In this case, there can be a case of over-Invoicing of purchases only to some extent.' Appellant has shown GP chart of A.Y. 2006-07 to 2009-10 which is in the range of 5.46% to 5.54% except current A.Y. GP which is at 3.55%. Thus, considering the statement of R.S. Jain regarding accommodation entry, a maximum of 2% disallowance out of so called bogus purchases can be sustained to take into account the over-invoicing involved in such purchases. In view of the above facts and discussion, 2% of purchases of rough diamond from the concerns of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the transaction of sale of diamonds to the assessee. Therefore, the assessee was requested to produce Shri Rajendra S. Jain as its witness for cross-examination by issuing summons u/s 131 of the Act. During the course of cross-examination, it was seen that Shri Rajendra Jain cold not substantiate even the actual involvement of his concerns in the business of diamond trading, much less the contents of the Affidavit and claim of sale to the assessee. He completely failed to furnish replies regarding the finer details of the place of business, basic traits of diamond industry and modus operandi of trading of diamonds etc. The factum of running merely paper concerns as admitted by Shri Jain was also supported by the finding of fact that not even a single carat of diamond was found at any of the premises covered by the search action. It may be noted as a pure finding of fact that the assessee had never been able to adduce any material evidence, which could show that the goods in question ever came into the hands of the assessee from the alleged parties. The primary onus to substantiate a claim is, therefore, on the assessee and this onus has to be discharged to the best of abilities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. DR prays the Bench that addition made by Assessing Officer may be sustained. 17. On the other hand, Ld. Counsel for the assessee submitted that it is not a case of bogus purchase, it is a case of sale also so. Out of the purchases, the assessee made sale also. Therefore, Purchases and Sales should be set off and addition may be made on the net amount. The ld Counsel further submitted that assessee submitted bills, vouchers, stock records and transactions were through banking channel therefore entire addition made by the assessing officer may be deleted. 18. On technical ground, on the validity of reassessment under section 147/148 of the Act, the Ld. Counsel submits that under Rule 27 of ITAT, Rules, the assessee can argue the issue relating to reopening of assessment which was there before the lower authorities. Therefore, Ld. Counsel took us through the paper book and the reasons for reopening of the assessment and stated that the reasons recorded by the Assessing Officer are not in accordance with the provision of the Act. Therefore, order passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Act may be quashed. 19. However, on the other hand, Ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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) @ 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 Eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee are genuine. In without prejudice and alternative submissions, the Ld. AR for the assessee submits 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 industries VsCommissioner 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is beneficiary of the accommodation entry operators. The accommodation entry provider admitted before investigation wing that he has given such entry to various persons; based on such report the AO has reason to believe that the income of the assessee has escaped assessment and thus the action of AO in reopening is justified. 18. We find that the Hon ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd Vs DCIT (supra) while considering the validity of similar notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a 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 reopening 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase and on first appeal before CIT(A) the disallowances were maintained. However, the Tribunal gave partial relief to the assessee directing to sustain the addition @12% of such bogus purchases. And on further appeal, the Hon'ble High Court sustained Gross Profit Rate @ 5% being average rate of profit in industry. 20. Now adverting to the facts of the present case, the ld.CIT(A) held that in some other similar cases; though he had sustain 5% of Gross Profit Rate, considering the fact that where Gross Profit shown by those assessee s are 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. 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, the grievance of the Revenue is that Ld. CIT(A) erred in deleting addition of Rs.2,18,92,916/- which was claimed by assessee as sale proceeds. 26. 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: (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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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