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TMI Blog2023 (1) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... ) TMI 653 - ITAT SURAT] we direct the Assessing Officer to make the addition at the rate of 6% of bogus purchases / unverifiable purchases. Hence, we allow the appeal of Revenue partly. - SHRI PAWAN SINGH, HON'BLE JUDICIAL MEMBER AND DR. A. L. SAINI, HON'BLE ACCOUNTNAT MEMBER For the Appellant : Shri Rohit Vijayvargiya, CA For the Respondent : Shri Ashok B. Koli, CIT(DR) with Shri Vinod Kumar, Sr. DR. ORDER PER DR. A. L. SAINI, AM: Captioned five appeals filed by the Revenue, pertaining to the different assessees and different assessment years (AYs). 2007-08 to 2009-10, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals), Surat [in short the ld. CIT(A) ], which in turn arise out of separate assessment orders passed by the Assessing Officer u/s 144/143(3) r.w.s 147 of the Income Tax Act, 1961 [hereinafter referred to as the Act ]. 2. Since, the issues involved in all the appeals of Revenue are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee reduced his income to this extent by inflating his purchases to this amount in his P L account. (vi) On the facts and circumstances of the case and in Law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A)-1, Surat may be set-aside and that of the Assessing Officer s order may be restored. (vii) On the facts and circumstances of the case and in law, the appellant craves its right to add, alter, amend, deleted, any of the ground of grounds of appeal. 4. Brief facts qua the issue are that assessee has filed original return of income for AY. 2008-09, declaring total income at Rs. 1,34,560/- on 21.08.2008. In assessee s case, an information was received from the DIT(Inv), Mumbai that assessee was one of the beneficiaries of bogus purchase bills provided by Gautam Jain Group during the previous year relevant to assessment year under consideration. Accordingly, it was construed that the income to the extent of purchase from such parties has escaped assessment within the meaning of section 147 of the Act, which lead into invoking of provisions of section 147 followed by issuance of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e concerns actively involved in providing non-genuine purchase bills and also unsecured loan accommodation entries to various interested parties. As a result of the search and seizure action, it was conclusively proved that these diamond concerns are only on paper base with no real business activities. Findings of the search action on Shri Gautam Jain others reveals that Shri Gautam Jain and associates manage, control and operate numerous concerns in the name of various persons who are shown as name-sake directors, partners and proprietors through which they provide accommodation entries of loans and advances, purchase and sale and unsecured loans to various parties / beneficiaries. The name-sake /dummy Directors/ proprietors / partner of all these concerns admitted on oath that they were merely employees of Gautam Jain and others and were looking after miscellaneous office work like depositing cheques in banks, handling over parcels to clients, making data entry etc. 6. Since these persons were employees and were associated with the office work, they do have perfunctory knowledge about the nature of business activity of the concerns in which they are shown as Directors, partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r last many years. The imported diamonds were also getting cleared by the CHAs. It prima facie gives an impression that all the group benami concerns were indeed in the business of import of diamond and its subsequent exports (which is a miniscule amount) and local sale. However, many evidences were found during the course of search which proved that these concerns were not into any genuine business. Such findings are enumerated below: No stock of diamond found: During the course of search, all the registered offices, business premises, business and residential premises of various dummy directors, partners and proprietors including that of Gautam Jain, and were covered. At none of these premises, any stock of diamond trade, at a given point of time would at least have some stock of diamond available. However, the fact that none of the group concerns had any stock of diamonds as on 03.10.2013 i.e the day when search commenced raises a suspicion with regard to genuiness of business activity of these group concerns. Books of accounts not maintained at the respective registered offices: The registered offices and residential premises of the said group concerns and the Gauta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment proceedings, as requested by the assessee, reasons for reopening were provided. After receiving the same, the assessee had filed his objections for reopening, which were duly settled by passing a Speaking Order. 9. Further, a show cause notice was issued by Assessing Officer on 07.03.2016, the same is reproduced below: 10. In response to the show cause notice of the assessing officer, the assessee has furnished the reply, which is reproduced below: 11. However, the Assessing rejected the contention of the assessee, held as follows: (i) The Income Tax Department has conducted search seizure action in the case of group concerns of Shri Gautam Jain and conclusively proved that these parties are engaged in the business of providing accommodation entries only, as can be clearly seen from the discussions in the above paragraphs. The parties are issuing bills without delivering any goods and services: (ii) Evidently, the assessee had adopted a modus operandi to reduce its true profits by inflating its expenses including purchase expenses by taking accommodation entries from such parties. (iii) Thus, in the books of accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings in the sense in which the phrase judicial proceedings is ordinarily reduced. Therefore, the AO is not feted or bound by technical rules about the evidence as contained in the Indian Evidence Act. The assessment can be made on the basis of inference on evidence which in criminal or civil justice may be insufficient. In this context, reference is invited to Hon Supreme Court s decision in the case of D. Dhoormal (AIR 1974, Supreme Court 859) the Department is not required to prove its case with mathematical, a demonstrable degree for in all human affairs, absolute certainly is a myth and as proof all exactness is a fake. The absolute proof being unattainable the law accepts for its probability as a substitute in this work-a-day world the law does not require the department to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may form on the basis of existence of fact. Moreover, as per section 114 of Indian Evidence Act, the court may presume the existence of any fact which it thinks likely to have happened regarding being to the common courts of natural events, human conduct and public and private business in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning to the suppliers were not available with the ld. AO. So there is no question of providing copy to appellant. It is also seen that opportunity to cross - examine was not provided to the appellant. It is farther seen that the ld. AO has not made any independent enquiries of his own. He has just relied on the report of Investigation Wing, Mumbai. The Hon'ble Supreme Court in the case of Andaman Timber Mart (281 CTR 241) has categorically held that not furnishing the copy of material proposed to be relied upon, to the assessee invalidates the assessment proceedings. The Hon'ble Gujarat High Court in the case of Legal Representatives of late Laxmanbhai S Patel (327 ITR 290) also emphasizes the same ratio. Furnishing of copies of material collected by the Id. AO to the assessee is a statutory requirement as provided in Section 142(3). This requirement is emphasized by the various decisions quoted by AR in this submission (supra). 7.1.3 Requirement of giving materials proposed to be relied by the ld. AO t0 the appellant is a statutory requirement , failure to do it is fatal to the assessment as held in many judicial pronouncements such as; (Gangaram v/s CIT 5 ITR 464 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It can be seen that almost equal quantum of sales is made by assessee to the impugned parties. It is seen from above details that the sales made to impugned parties is higher than the alleged unverified purchased made. This shows assessee is a commission agent and not a trader indulging in purchases and sale of diamonds. I have examined the issue at length and I find that the disallowance if any has to be made out of net unverifiable purchases from the said parties. However, in this case net purchases are negative, so no purpose is served from disallowance of purchase. The AR further furnished order of my Ld. Predecessor in assessee's case for earlier year i.e. A.Y. 2007-08 CAS1/35/2015-16 dated 12.06.2017, where in on identical facts the Ld. CIT(A) has given a finding that assessee is commission agent and restricted the addition to 0.50% being estimated commission earned on the impugned purchases. 7.2.3 The Operative part of order Ld. CIT(A) dated 12.06.2017 (supra) for A.Y. 2007-08 is reproduced below; Another bone of contention between assessee and department is relating to the true nature of business activity carried out by the assessee during the year. As per Writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Commission agents dealing in diamonds (PB Pg. 12). I have also seen that the assessee has not prepared trading A/c to reflect purchase sale of goods but instead Income Expenditure A/c has been prepared wherein only gross receipts (by way of commission ) has been reflected at Rs. 6,67,276/- (PB Pg.22). Likewise, on PB pg. 24 in Notes on Accounts [Part of 3CD Report], Auditor has put the following note [Sr.No2]- 2. As explained to us assessee is commission agent but to record the movement of goods it has maintained sales and purchases register. Commission/gross receipts denotes to excess of sales overpurchases. 7.5 On the basis of above evidences material, it is crystal clear that appellant was not trader but worked as commission agent (Pucca Araditya) which is evident by the fact that no purchases shown in Income Expenditure A/C Return filed. In fact no Trading A/c was prepared to reflect purchases Sales and fact of his being Commission agent is apparent from 3CD Report ,Return of Income Books of Accounts .The Auditor has clarified that Purchase sales Registers were made just to record the movement of stock. The assessee has maintained daily stock tall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their given address, so purchases made from bogus parties but purchases themselves were not bogus as entire quantity of stock was sold by the assessee and at best only profit margin embedded in such purchases would be subjected to tax (disallowances) not the entire purchases. The appellant has also vehemently contended that assesse has maintained regular books of accounts which were subjected to Tax Audit that too without any qualification. Payments were made by account payee cheques and entire stock was sold out which has not been doubted by the Ld. AO. I have given my thoughtful consideration to all the facts evidences/material on record. Apparently, AO has treated the purchases from M/s. Mihir Diamonds M/s Krishna Diam Pvt. Ltd. (actually it is M/s Krishna Diam (mistake in name) and M/s. Karishma Diamonds Pvt. Ltd. (by mistake, mentioned as Krishna Diamonds Pvt. Ltd.) as 'bogus' only for the reason of statement of Shri Gautam Jain who later on retracted his earlier statement by filing affidavit (copy filed by assessee). There have been serious allegations about accommodation transaction through alleged parties. The assessee did not furnish any evidence to establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,534/- and Rough Diamond of Rs. 28,59,03,595/-and the assessee has earned commission of Rs. 6,67,276/- which works out to approx. 0.10%. In similar type of cases, during search Rajendra Jain Group Bhanwarlal Jain Group have admitted charging of commission @ 0.50% on such accommodation/spurious transactions. Ld. CIT(A) in the case of Shri Jitendra Kumar Jain has sustained profit @ 0.50% transactions (although deleted by ITAT on the ground that provision of Sec. 145(3) was not invoked). As discussed herein above, on such type of transactions, normal market rate of commission is 0.50% over above what is shown in books i.e. 0.10% by the assessee. Hence, I estimate the suppressed commission income at Rs. 1,00,808/- on the total purchases from three parties amounting to Rs. 2,01,61,565/- which is sustained as addition. The assessee will get a relief of Rs. 2,00,60,757/- (Rs.2,01,61,565 - Rs. 1,00,808). Ground of appeal is partly. 7.2.4 Since facts are identical for the current year too and also involves same parties and since by the details of purchase and sales filed the AR has made out a case that sales made to impugned parties is higher than so alleged unverified purchases fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the rate of 100% of bogus purchases. 16. The Ld. DR for the Revenue submitted before us the interpretation of Circular No. 452 of CBDT which is reproduced below: 405-406. Compulsory Audit - Whether the provision is applicable TO commission agents, arahtias, etc. 1. Section 44AB, as inserted by the Finance Act, 1984, casts an obligation on every person carrying on business to get his accounts audited, if his total sales, turnover or gross receipt, as the case may be, exceed Rs. 40 lakhs in any previous year relevant to the assessment year commencing on 1-4-1985 or any subsequent assessment year. 2. The Board have received representations from various person, trade associations etc., to clarify whether in cases where an agent effects Miles turnover on behalf of his principal, such sales turnover have to be treated as the sales / turnover of the agent for the purpose of section 44 Mi. 3. The matter was examined in consultation with the Ministry of Law, There are various trade practices prevalent in the country in regard to age-no business and no uniform pattern is followed by the commission agents, consignment agents, brokers, kaehha arahtias and pacca arahtias ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction. (7) In the event of any loss, the kaccha arahtia is entiled to be indemnified by his principle as is not the case with paccka arahtia. The above distinction between a kaccha arahtia and paccka arahatia may also be relevant for determining the applicability of section 44AB in cases of other types of agents. In the case of agents whose position is similar to that of kaccha arahtia, the turnover is only the commission and does not include the sales on behalf of the principles. In the case of agents of the type of pacca arahatia, on the other hand, the total sales/turnover of the business should be taken into consideration for determining the applicability of the provisions of section 44AB. 17. With help of the above circular and interpretation, Ld DR pointed out that pucca Arahita should maintained books of accounts and it should deduct the TDS, however no TDS has been deducted by the assessee under consideration. The assessee has not demonstrated any features like a pucca Arahita, even if the assessee is a pucca arahita ( for the sake of argument), it should be treated as a trader and benefit on account of commission agent should not be allowed, merely because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R for the Revenue and the ld. Authorised Representative (AR) of the assessee. We have also gone through the various documentary evidences furnished by assessee. The ld. CIT-DR for the Revenue supported the order of AO. The ld. CIT-DR submits that Investigation Wing, Mumbai made a search on Bhanwarlal Jain Group. During the search and after search, the Investigation Wing made a thorough investigation and concluded that Bhanwarlal Jain Group and his associates including his sons were indulging in managing about 70 benami concerns. The benami concerns were engaged in providing accommodation entries. The assessee is one of the beneficiaries of such accommodation entries. In the transaction of accommodation entries, the documentary evidences are created in such a way, so that the bogus transaction is looks like genuine transaction. In bogus transaction, the fabricated evidences are always maintained perfectly. The assessee has obtained accommodation entry 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished complete details about the genuineness of purchases. The assessee filed confirmation purchases invoices, accounts of the parties, bank statement of assessee showing transaction to the banking channel. The AO has not made any comment on the documentary evidence furnished by assessee. The AO solely relied upon the statement of third party and the report of Investigation Wing. The report of wing and the statement of Bhanwarlal Jain were not provided to the assessee. The AO has not disputed the sales of assessee. No sale is possible in absence of purchase. The books of accounts were not rejected. The AO made the disallowance of entire purchases. The assessing officer not provided cross examination of the alleged hawala dealers. The disallowances sustained by the Ld. CIT(A) @ 12.5% of the impugned purchases, is on higher side and deserve to be deleted in total. The ld.AR of the assessee submits that entire purchases shown by assessee 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find that the assessee has raised objection against the validity of the reopening before the AO. The objections of the assessee was duly disposed by AO in his order dated 09.02.2015. The assessee raised ground of appeal before ld CIT(A) while assailing the order of AO on reopening. The ld CIT(A) while considering the ground of appeal against the reopening held that the AO has received report from investigation wing Mumbai, which indicate that the 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 informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the 100% disallowance of purchase is not justified. We also find that the ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. (supra) and compared the fact of the present case with the facts in Mayank Diamonds Pvt Ltd (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The ld CIT(A) noted that in that case the AO made disallowance of entire bogus 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 impug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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