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TMI Blog2023 (11) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit margin are very low. Referring to instructions no. 2/2008 dated 22.02.2008 the board clarified that the profit in this business if disclosed @ 6 % is desirable. As regards the exception we note that in the case of the assessee there is no search conducted only the information shared and it is not disputed that the assessee is in receipt of the goods. In this line of business the Board has clarified that Diamond business, if an assessee declare a sum equal or to higher than 6 % of his turnover from such business. Since this being the first year there is no opening stock. Thus, the profit as worked for this business is 5.96 % [ 19,01,950/- /3,19,10,125/-= 5.96 % ]. Since, the assessee has already disclosed profit @ 5.96 % we considered deem it fit to estimate @ 6 % as against the 25 % estimated by the lower authorities. The exemption of the circular cannot be applied as the premises of the assessee is not subjected search and even the assessment is not re-opened based provision of section 153A / 153C of the Act - Appeal of the assessee is partly allowed. - Dr. S. Seethalakshmi, Jm And Shri Rathod Kamlesh Jayantbhai, Am For the Assessee : Sh. Mukesh Khandelwal (CA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beneficiaries and has obtained accommodation entries in the form of bogus purchase transaction of Rs. 35,09,770/- from the concerns operated by Mr. Jain and his group. The details of the alleged purchase are as under:- PAN of bill Provider Name of Bill Provider Nature Total value of the transaction AALFP0478J Pankaj Exports Purchase Rs. 15,58,560/- AFEPV3695M Malhar Exports Purchase Rs. 15,56,010/- AAFFA6854K Ankita Exports Purchase Rs. 3,95,200/- Total Rs. 35,09,770/- 3.1 Based on the detailed discussion in the assessment order the ld. AO observed that the assessee is engaged in the business of purchase, sale, manufacturing and trading of gold jewellery with diamond and color stones, diamond and gems stones. During the year under consideration the assessee has purchased from the above parties amounting to Rs. 35,09,770/- base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion rejected the books of account u/s 145(3) and disallowed 25% of the said purchases making an addition of Rs. 8,77,442/-. The conclusion was reached based on the following facts: (i) A search and seizure action under section 132 of the Act was carried out in case of Sh. Bhanwarlal Jain Group by Investigation Wing, Mumbai wherein it was found that this group was an entry provider indulging in providing accommodation entries pertaining to bogus purchases to various parties. Sh. Bhanwarlal Jain admitted the same in the statement recorded u/s 132(4). The alleged suppliers/parties of the group concern have also admitted that they never sold any goods were only issuing bogus sales invoices and charged commission in lieu of providing accommodation entries. The appellant M/s Khandelwal Diamonds Pvt. Ltd. was one of the beneficiaries. (ii) The assessee failed to establish the existence of the payee and the genuineness of the payment for business needs as it failed to provide the correct business addresses where these entities are carrying on their business so that the Department could contact them for independent verifications. Therefore, the appellant has failed to discharge its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries bogus purchase bills. Therefore, onus was on the appellant to satisfactorily prove that entire purchases are genuine by producing the alleged suppliers for verification. But the appellant failed to do so. 5.7 It has been held in a plethora of decisions that payment by a/c payee cheque is not sufficient to prove a transaction as bonafide. Merely because the money is transferred through the bank account does not prove that the money is explained. The appellant has submitted that Shri Bhanwar Lal Jain or any of the person whose statements were being relied upon by the Id. AO, was neither prop nor partner/director in alleged bogus concerns and all such parties had given their confirmations about selling the goods to the appellant. The contention is not accepted as during the course of Search Seizure in the case of Bhanwar Lal Jain Group it has been established that Shri Bhanwarlal Jain was providing accommodation entries through various concerns which were operated by him and his son. Filing confirmations therefore does not serve any purpose as the real nature of the transactions as established during the course of search was to provide accommodation entries to reduce tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2), 142(1) of the Act, show cause and the appellant has been directed to furnish the documents. The appellant has complied with the directions, appeared before the assessing officer and submissions have been made consequent to which the assessment has been completed. Therefore, merely by mentioning that material relied upon was not shared/opportunity for cross examination was not given can in no manner advance the case of the appellant. In State Bank of Patiala v. S.K. Sharma AIR 1996 SC 1669, the Hon'ble Supreme Court has pointed out that violation of any and every procedural provision cannot be said to automatically vitiate the domestic enquiry held against the delinquent employee or the order passed by the disciplinary authority except in cases falling under no notice, no opportunity and no hearing categories. Further it was held that if no prejudice is established to have resulted from such violation of procedural provisions no interference is called for, against the ultimate orders. The test laid down was whether the person has received a fair hearing considering all things as the ultimate test is always the test of prejudice or the test of fair hearing. Further the Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Assam Pesticides Agro Chemicals V. CIT (1997) 227 ITR 846, 851, 852 (Gauh). In the case of CIT Vis Golcha Properties (Pvt.) Ltd. 227 ITR 391 (Raj), the Hon'ble Rajasthan High Court has held that the genuineness of transaction could be decided on the basis of primary facts on records. 5.11 Further, the appellant has submitted that it has declared an NP rate of 9.15% for the assessment year under consideration and relied on the CBDT instruction 2/2008 dated 22-02-2008 wherein it is stated that for benign assessment procedure of a diamond trader if the trader declares profit @ 6% or more of turnover then the same deserves to be accepted for the AY 2008-09. I have perused the said circular. It has been explicitly mentioned in para 'D' that: D. The procedure shall not apply to an assessee for an assessment year (iv) Where assessment is being made pursuant to a i. search and seizure action under section 132; or ii. requisition made under section 132A; or iii. survey action 133A. (v) where 50 per cent or more of the income from such business of an assessee is claimed as deduction under Chapter-III or under Chapter VI-A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case :- Assessment proceedings : The appellant company was incorporated during the previous year 2011-12 and hence this was the first year of business. It has been engaged into trading of diamond, gold jewellery, coloured stones etc. For the year under consideration it had filed its ITR on 24.09.2012 declaring an income of Rs. 52,71,470. The return was processed /s 143(1) on the returned income. Thereafter on receipt of information about purchase of goods from certain concerns alleged to be belonging to Bhanwar Lal Jain group an opinion was formed that these purchases were accommodation entries only and accordingly notice u/s 148 was issued on 22.03.2017. The ld. AO received the information that the appellant had purchased goods worth Rs. 35,09,770 from three concerns of Bhanwar Lal Jain group and based thereon a show cause notice was issued for treating the said purchase as bogus. In response thereto the appellant had submitted confirmations, bank statements of the parties, their PAN cards etc. but the ld. AO by relying on the information in her possession proceeded to treat the purchases as accommodation entries and made addition of Rs. 8,77,442 being 25% of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been considered by her as adverse. - Confronting the appellant with the statements of parties recorded during the course of search and which have been relied upon by her. - Allowing any opportunity of cross examination of persons whose statements have been relied upon by her for which demand was raised by the appellant during assessment proceedings - Verifying that the assessee has maintained complete quantitative details of the items purchased and sold by it (APB 41). - Pointing out any mistake in the records of the appellant which indicate that the accounts were not reliable and she has relied merely on the information in here possession as received from investigation wing of Mumbai The above approach of the ld. AO shows that she guided herself only with the information received from investigation wing of Mumbai and she had pre decided in her mind that 25% disallowance is to be made in the case. In this way her application of provisions of section 145(3) is illegal and unjustified and deserves to be quashed. As ground no., 1 and 3 are against the same action of the ld. AO as well as ld. CIT (A) and are containing identical facts and submissions and hence both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt disallowance of 25%. She forgot to take into consideration the following facts :- - The appellant has dealt with diamond, diamond jewellery and precious and semi precious stones during the year under consideration. Out of total turnover of Rs. 5.57 Crores it has declared turnover of following items :- Diamond 3.19 Crores Coloured Stones 1.80 Crores Diamond Jewellery 0.24 Crores Gold and Gold Jewelelry 0.34 Crores In all the above sales the appellant has declared a net profit of Rs. 52,43,831 which amounts to 9.42% in the first year of business and such declared income was absolutely reasonable and there was no reason to doubt the purchases made by the appellant from 3 parties. Botht ehe lower authorities erred serioluly in not appreciating this factual position of the appellant. The purchases doubted by the ld. AO are only for purchase of diamonds for which copies of all the bills are enclosed in paper book (APB 4,13 and, 24). The appellant has already declared a GP rate of 5.96% in the diamond trade and has d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29- 39) : The assessee is into diamond trade and 148 proceedings were initiated by ld. AO (same ASO as that of the appellant) on the basis of information received from investigation wing of Mumbai. The ld. AO made addition @ 25% on purchases made from concerns of Bhanwar Lal Jain group as per their routine exercise. However the ld. CIT(A) restricted the GP rate to 8.50% (without confirming any addition made on estimated by ld. AO) and on further appeal this bench of Hon`ble ITAT deleted the whole addition. Relevant observations of the Hon`ble ITAT on the issue of GP rate are in pare 12 of the order (at Case law index APB 37-38) wherein the profit rate declared by the assessee at 7.32% and 7.80% has been considered reasonable. On the footings of GP rate the case of the present appellant is on far better footing as it has already declared overall profit of around 9.5% in the business. The appellant has declared an NP of Rs. 78,92,898 (Profit before tax as per APB 57) on a turnover of Rs. 8,98,24,315 yielding an NP rate of 8.79% which is more than reasonable in the trade of diamond. The fact of declare GP and NP rate have been completely ignored by the ld. AO as well as ld. CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 148 has been issued without satisfying the conditions stipulated therein. The reasons for initiating this action is enclosed herewith for your kind verification (APB 1). As per these reasons it is apparent that the ld. AO had received information from DGIT (Inv.), Mumbai about search in the case of Bhanwar Lal Jain group of cases. After receiving the information the ld. AO did not take any step further and issued notice u/s 148 of the Income Tax Act, 1961. Such reason do not contain any statement about any efforts made by the ld. AO to reckon the truthfulness of the information received by her. In this way she had initiated the action on the basis of borrowed satisfaction of some other authority. She has also mentioned that Therefore based on the above information, I have reason to believe that the assessee company has failed to disclose fully and truly all material facts necessary for his assessment for the AY 2012-13 and therefore an income of Rs. 35,09,770/- has escaped assessment within the meaning of section 147 of the Act of the Act. Hence it is fit case for issue of notice u/s 148 of the Act which also evidence in clear terms that she merely relied on the information s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself and not of a borrowed opinion of the DVO. The principle cannot be accepted in abstract inasmuch as though the DVO s opinion in respect of cost investment may not be final, but prima facie in some cases circumstances if otherwise relevant can provide some material, like an audit report on the basis of which Assessing Officer could have framed his own opinion. It is, however, true that opinion about escapement of income from tax must be of Assessing Officer alone and of none else. It is also trite to say that sufficiency or adequacy of material on the basis of which such opinion is formed cannot be a ground for formation of reason to believe. At the same time, it is equally true that the material on the basis of which such opinion is framed must have some relevant nexus with the formation of opinion about escapement of income from tax. Opinion cannot be formed (on) non-existent material or wholly irrelevant and extraneous material. To that extent exercise of jurisdiction by the Assessing Officer is justiciable, apart from the question of limitation within which such jurisdiction can be exercised by the Assessing Officer. Further reliance is also made on the recent case d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. . The facts of the present case are exactly similar to above cited four cases and hence it is sincerely requested that the whole proceedings u/s 147 may kindly be declared void ab initio and the order so passed may be annulled. You are sincerely requested to allow the appeal of the appellant and oblige. 5.1. To support the contentions so raised and in addition to the written submission the ld. AR of the assessee has also submitted a paper book containing following documents which reads as under:- S. No. Description Page No. 1 Reasons for reopening of the case as recorded by Ld. AO 1 2 Details of Purchases made during the year under consideration 2-3 3 Bill, Confirmation, PAN Card, ITR, Bank Statement, Final Account of Pankaj Export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age for the various decision relied upon hereinabove. Therefore there is no requirement to reject the books result declared by the assessee. The ld. AR of the assessee in support of the additional ground so raised in this appeal as ground No. 3 that while rejecting the books of accounts, the ld. AO has not pointed out any single defect in the book result and has simply relied upon the material or the information received from the search which was carried out in Bhanwar Lal Jain Group in Mumbai. The ld. AR of the assessee also submitted that relied upon the material or the statement is not enough, and he has not ever said with the name of the assessee and without sharing that the information and without pointing out any single defects in the books of accounts, the rejection of books of account are not in accordance with law. The ld. AR of the assessee further submitted that even the books of account is to be rejected, the ld. AO bound to issue the show cause notice and should also demonstrate as to why he wanted to apply the GP rate and thereby intend to estimate the income of the assessee. As it is seen that there is no such show cause notice of estimation has ever been given to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amonds dealers whereas in this case for the year under consideration the assessee has disclosed GP @ 5.96%. The findings of the ld. CIT(A) that this instruction is not applicable is against the facts on record. Therefore on these issues, the ld. CIT(A) has erred in holding that the case of the assessee falls in the exception criteria. Based on these arguments, the ld. AR of the assessee submitted that the appeal of the assessee should be decided on technical grounds. Even on merits there is sufficient material on record by the lower authorities and thereby he has supported his arguments. 6. Per contra, the ld. DR relied on the case laws cited here in below and submitted that the assessee is involved in bogus purchase for which the findings of the lower authorities were relied upon by the ld. DR. The ld. DR submitted that there is specific information that the assessee has made purchases from three concerns of Shri Bhanwarlal Jain Group. The issue of notice u/s. 148 is not from the borrowed satisfaction but based on the sufficient information so ground of assessee challenging the reopening is not maintainable. The ld. AO has considering the aspect of the matter and considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55-56 9. [2022] 139 taxmann.com 352 (Calcutta) HIGH COURT OF CALCUTTA Principal Commissioner of Income-tax v. SwatiBajaj 57-116 10 [1995] 82 TAXMAN 31 (CAL.) HIGH COURT OF CALCUTTA Commissioner of Income-tax v. Precision Finance (P.) Ltd. 117-121 11 [1997] 92 TAXMAN 356 (RAJ.) HIGH COURT OF RAJASTHAN, JAIPUR BENCH Commissioner of Income-tax v. Golcha Properties (P.) Ltd. 122- 126 12 [2001] 117 Taxman 628 (Delhi)/[2001] 250 ITR 575 (Delhi)/[20... [2001] 117 Taxman 628 (Delhi) HIGH COURT OF DELHI Commissioner of Income-tax v. La Medica 127-130 13 [2000] 111 TAXMAN 46 (KER.) HIGH COURT OF KERALA Beena Metals v. Commissioner of Income-tax 131-132 14 [2009] 316 ITR 274 (Gujarat)[04-03-2008] [2009] 316 ITR 274 (Gujarat) HIGH COURT OF GUJARAT SanjayOilcakeIndustries v. Commissioner of Income-tax 133-138 15 [2002] 125 TAXMAN 763 (RAJ.) HI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be decided by bench based on the arguments and material advanced in this appeal. 8. We have heard the rival contention, perused the material available on record and gone through the judgment relied upon by both the parties to drive home to their respective contentions advance before us. Brief facts of the case are that the assessee is engaged in the business of the purchase, sale manufacturing and trading of gold jewellery with diamond and color stones, diamond and gems stones. The case of the assessee was reopened based on the information received pursuant to the search and seizure action u/s. 132 of the Act in the case of Bhanwarlal Jain Group. In that search it was gathered that group provides accommodation entries of bogus purchases through various benami concerns operated and managed by Bhanwarlal Jain and his son. A search revealed various incriminating documentary evidence were seized. In addition, statements of various persons ( who assist Bhanwarlal Jain in providing bogus purchases through benami concerns to the beneficiaries) were recorded. Mr. Bhanwarlal Jain in his statement accepted to the fact that he was engaged in providing bills and his reply relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the foreign parties from whom import has been made. The parties who have been given payment for such bogus purchase through RTGS want their cash back. In the meantime, the real importer on whose behalf import has been made, makes the payment for the said import through Aangaria( Cash Transaction). The cash thus received from the real importer is used to pay back the party from whom RTGS has been received against bogus accommodation entry. 8.1 Thus, the ld. AO noted that the assessee had shown purchases from the three concerns managed and operated as per evidence provided by the Investigation wing that the purchase of the assessee was bogus. Mr. Jain has agreed that he imports and delivers the goods without a bill. Whereas the parties who take the bill does not take the goods. Even the ld. AO has accepted the fact the assessee has purchased the goods in cash and taken the bill from the alleged firm of Mr. Bhanwarlal Jain to the extent of Rs. 35,09,770/- and has added lumpsum amount of 25 % calculated on these purchases as income of the assessee. Thus, bench noted that the ld. AO has not disputed the fact that the assessee has received the goods from supplier who did not giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account of such business. ( ii ) Acceptance of profit at 6 per cent or above as per para (B) for a particular assessment year will not be a precedent for that assessee or for any other assessee. D. The procedure shall not apply to an assessee for an assessment year ( iv ) where assessment is being made pursuant to a ( i ) search and seizure action under section 132; or ( ii ) requisition made under section 132A; or ( iii ) survey action 133A ( v ) where 50 per cent or more of the income from such business of an assessee is claimed as deduction under Chapter III or under Chapter VI-A of the Income-tax Act; ( vi ) where there is information regarding escapement of income. E. The rate of profit as a percentage of turnover would be reviewed annually on the basis of revenue generation and results of scrutiny assessments, searches and surveys made during the year. 2. The above instruction is issued under section 119(1) of the Income-tax Act, 1961 and would be applicable for assessments made during financial year 2008-09. The instruction may be brought to the notice of all concerned in your Region. __ 8.2 With the above instructions the board clar ..... 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