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TMI Blog2024 (3) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded are specific in nature and reliable in character. AO has applied his mind properly and has given his independent finding which fact is manifest from the bare reading of the reasons recorded. We thus see no substance in the arguments propped up on behalf of the assessee to assail the validity of assumption of jurisdiction. The challenge to assumption of jurisdiction thus fails. Estimation of income - bogus purchases - CIT(A) has erred in restricting the addition to the extent additional gross profit at 5% of addition made u/s 69C - Where the parties to whom the purchase of diamonds in question have been sold, is not known, one cannot say that the onus which lay upon the assessee has been fully discharged. The bona fides of the supplier Kriya Impex Pvt. Ltd. has been put under serious question by the Investigation Wing. The corresponding purchases of the so called supply made by Kriya Impex Pvt. Ltd. is also not known. Therefore, the action of the CIT(A) in resorting to some reasonable estimation based on the value of diamond stated to have been purchased from Kriya Impex Pvt. Ltd. is quite justified. Without reiteration of reasonings of CIT(A), we see no error in the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst declared turnover of Rs. 13.34 crore and profit at Rs. 3,03,05,000/- as against Rs. 92,52,710/- declared by the assessee and addition of Rs. 65,20,152/- made u/s 69C of I. T. Act ,1961 at point 1. 4. As per its Cross Objections, the assessee has challenged the jurisdiction assumed by the Assessing Officer under Section 147 r.w. Section 148 of the Act. The grounds of the Cross Objections read as under: 1. That there is no valid assumption of jurisdictions u/s. 147/148 of the Income Tax Act by the assessing officer and consequently the Reassessment order passed is invalid and bad in law. 2. That there was no valid material available with the assessing officer and accordingly the Reason to believe as made by the AO is based on suspicion and therefore the Re- assessment order, as passed in furtherance thereof is arbitrary, unjust and bad in law. 3. That the alleged reason to believe, as made by the AO is without application of mind and are in the nature of suspicion and also based on borrowed satisfaction and accordingly the Re-assessment so framed in furtherance thereof is arbitrary and bad in law. 4. That without prejudice to grounds above, the alleged purchases from M/s Kriya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanjay Choudhary Gr./2015-16 dated 30/11/2015. The said information was forwarded by the office of the Pr. CIT-18, New Delhi to the Joint CIT, Range-52, New Delhi vide letter F.No. Pr. CIT-18/ Rajendra Jain, Dharmichand Jain, Sanjay Choudhary Gr./2015-16/1252 dated 28/12/2015. The Joint CIT, Range-52, New Delhi further forwarded said information to all concerned charged including Ward 52(3), Delhi. Lists of all such beneficiaries who had obtained bogus accommodation entries from these concerns have also been received by this office. The name of the assessee is also mentioned in the list of beneficiaries who have obtained bogus acconmodation entries from these concerns. The details of entries obtained by the assessee during F.Y. 2010-11 relevant to AY 2011-12 are as under. PAN of bill provider Name of bill provider A.Y. Nature of transaction Pan of beneficiary Name of beneficiary Total Value of transaction Real value of transaction AADCK1926B KRIYA 201112 SALE AAAFJ5263A JAGAN NATH HEMCHA ND 2512590 6520152 Total 2512590 6520152 Sh Rajindra Jain and Sh. Surendra Jain in the statement recorded before the DDIT (Inv.), Mumbai admitted that all the concern controlled and managed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g names of our various concerns to the real importer of diamonds who takes the actual deliver of diamonds. 4. I have independently examined the statement of oath by sh. Rajinder Jain, the managing person of the alleged seller party le. Kriya Impex Pvt. Ltd. and after duly considering the same, the relevant facts including modus operandi and conclusions arrived at are being summarized as under. (i) Not a single piece of diamond was found at any of the premises covered under search and seizure action which also included the premises from where Kriya Impex Pvt. Ltd was operated. The concern was merely doing paper transactions instead of carrying out any real business of diamonds trading. (ii) The concern and other associated concerns actually were doing business of maintaining books of accounts only and were not doing any actual trading of physical commodity i.e, diamonds, (iii) The actual importers of rough diamonds approached these concerns to import their diamond through their group companies/concerns and on receipt of the consignment, the real importer gets the delivery of diamond after clearance form CHA. (iv) The book stocks of rough diamonds have been converted by these concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation evidencing that these purchases from the above party is bogus purchase just to claim higher expenditure and to reduce profit has appeared subsequently which was not available at the time of original assessment proceedings. These facts have emerged only as a result of action by the Revenue. Clearly, in this case there was failure on the part of the assessee to disclose fully and truly all material facts for his assessment. 4.3 After considering and examining the facts of the case independently and due application of mind, I have reasons to believe that an income of more than Rs. 1,00,000/- in the case of the assessee that was chargeable to tax under the provisions of Income Tax Act, 1961 has escaped assessment during the A.Y. 2011-12 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment which has come to the notice subsequently. Hence, it is a fit case for Initiation of proceedings, in terms of section 147 of the I.T. Act, 1961. 5. Further, it is pertinent to mention what Hon ble Gujarat High Court in special civil Application No.2119 of 2016 in the case of Choksi Vachharaj Makanji Co. Vs. ACIT, wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had not fully and truly disclosed particulars of his income and hence there was escapement of income. Held that the reopening of the case was valid. Also, in the case of Raymond Woollen Mills Ltd. 236 ITR 34 (SC), the Hon'ble Apex Court has held that: - Assessee did not include certain direct manufacturing costs and fiscal duties in the valuation of closing stock. This came to light in the subsequent years assessment proceedings. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at the stage of issue of notice u/s. 148. Furthermore, in the case of Jyoti Goyal vs. ITO (ITA NO. 1259/Del/2010), the Hon'ble ITAT Delhi held that: As regards the other contention of the assessee that the reopening was done a mechanical manner without application of mind, we find there is nothing on record to support such a contention. There is a live link between the information which was available with the Assessing Officer and his formation of belief that income has escaped assessment. Sufficiency of such information cannot be done into wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer of the Assessee is the genesis of the assumption of jurisdiction under Section 147 in question. In this context, the ld. counsel submits that where search has been conducted on the premises of third party and any material is discovered which pertains to the assessee hereunder, the available course of action for assessment would be, as provided under Section 153C of the Act. In such a situation, the recourse to Section 147 as wrongly adopted by the Assessing Officer is foreclosed and no longer available in law. The jurisdiction of the Assessing Officer under Section 147 stands ousted due to material stated to have been discovered in the course of search which tends to incriminate the transactions carried out by the assessee with the searched person. 6.2 Per contra, the ld. DR pointed out that the Scheme of the Act does not so provide as canvassed on behalf of the assessee. The ld. DR points out that the jurisdiction under Section 147 stands ousted only where jurisdiction under Section 153C has been validly assumed which, in turn, depends on fulfilling the pre-conditions for invocation of jurisdictional parameters of Section 153C of the Act. In the instant case, in the abse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary of the bogus purchase transactions from Kriya controlled by Jain Choudhary Group. These parties have in unequivocal terms admitted in the course of search that they were not doing any real business and were only providing false accommodation entries. These parties/suppliers have also admitted that no physical goods were handed over by them to the parties to whom sales have been shown in their books of accounts. The Assessing Officer has narrated detailed account of the facts and circumstances discernible from the information received and formed a bona fide belief which only needs to be prima facie at the time of reopening the assessment. The belief emanates from the relevant material. The ld. DR thus contends that the onus upon Revenue at the time of invoking Section 147 was duly discharged in the present case in view of the information which is specific in nature and reliable in character. The ld. DR also pointed out that there is no question of borrowed satisfaction as alleged, in the light of paragraph 4 of the reasons recorded. 7. We have dispassionately considered the rival submissions on the validity of assumption of jurisdiction assumed by the Assessing Officer under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. It is the case of the assessee that where specific jurisdiction is provided under section 153C of the Act, the recourse to section 147 for reassessment of the concluded assessment is impermissible in law. The identical issue raised has been dealt with by the Co-ordinate Bench in the case of Shailesh S. Patel vs. ITO (2018) 97 taxmann.com 570 (AHD). The Coordinate Bench has analysed the scheme of Act and answered the controversy against the assessee in following terms. 14. We shall now address ourselves to the second legal objection. On behalf of the assessee, it is contended that in view of over-riding provisions of Section 153C of the Act in the case of search assessment, the assessment proceedings in the hands of the assessee are not amenable to jurisdiction under s.147/148 of the Act and therefore, entire assessment proceedings itself is a nullity in the eyes of law. 14.1 Before we proceed for determination of issue, it would be pertinent to refer to the provisions of S. 153C and also S. 147 of the Act, as appearing in the statue at the relevant time, to the extent as may be relevant in the context. Assessment of income of any other person. - 153C. [(1) Notwithstanding any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessment year: [Provided further ------ 14.2 On a bare reading of S. 153C noted above, it is self evident that this provision governs assessment of income of a person other than a person in whose case search was initiated. 14.2.1 Also, this provision along with other provisions of S. 153A to 153D exerts an overriding effect over the provisions of sections 139, 147, 148, 149, 151 and 153 of the Act since these provisions contain non obstante clause. Secondly, the assessment proceedings under S. 153C are far more onerous qua S. 147 in the sense that proceedings are initiated for six assessment years immediately preceding the year in which search u/s. 132 is initiated or requisition is made u/s.132A. Thirdly, the provisions of section 153C are analogous to section 158BD of the Act. Therefore, decision of the Apex Court in the case of Manish Maheshwari 289 ITR 341 SC would also apply where assessment is to be made u/s. 153C. As per the aforesaid decision, the precondition for invoking jurisdiction for issue of notice u/s. 153C is that the AO must record satisfaction as to the seized material belongs to the third person i.e. assessee. 14.2.2 Under S. 153C as applicable to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said to belong to the petitioner. 14.2.4 We also notice that the legislature apparently took note of the restricted scope of expression 'belong to' employed in S. 153C which, to some extent, curtailed the power of the deptt. to invoke S. 153C of the Act. Thus, suitable legislative changes were brought with effect from 16-2015 to relax the impediment for implementation of the Section 153C. As noted earlier, as per existing provisions, section 153C could be invoked against such other person only when books of account, etc., belonged to him and not otherwise. However, to address the point, section 153C has been amended to widen the powers of the Assessing Officer of the searched person to hand over the books of account or documents to the jurisdictional Assessing Officer even if these merely pertains or pertain to , or any information contained therein merely relates to the other person. Thus, after the legislative a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notwithstanding the ultimate effect of redetermination of true income under both provisions. A conjoint reading of S. 153C S. 147 would show that the nature of power of reopening assessment under section 147 is materially different from that of the power conferred under S.153C. Section 153 A / S.153C are special provisions dealing exclusively search cases while S. 147 is applicable to all types of escapement including income unearthed in search proceedings. The power available under S. 153C does not render provision of S. 147 repugnant per se. The remedy available under S. 153C and S. 147 are also not inconsistent. Relevant here to note the observation of the Hon'ble Bombay High Court in the case of Shirish Madhukar Dalvi 287 ITR 242 (Bom.); Section 148 is a substantive provision whereas section 158BC is a procedural section. Both sections definitely stand on different footings. Section 158BC and S. 153C are analogous. The key variances are firstly, non obstante clause in S. 153C grants nearly sweeping powers to revenue with a liberty to summarily reopen the assessment of 6 years without observing stringent and valuable safeguard of 'reason to believe' set out in S. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee (person other than searched person) cannot be compelled to pursue remedy necessarily under s.153C of the Act in exclusion to remedy available to the AO under s.147 of the Act. Thus, on this count also, the action of the AO under s.147 of the Act is within the four corners of law and not be faulted. 14.5 The decisions cited on behalf of the assessee are clearly distinguishable and do not raise any conflict with position of law narrated above. The decision rendered by the Gujarat High Court in the case of Cargo Clearing Agency vs. JCIT [2008] 307 ITR 1 (Guj) has been rendered under a different scheme for assessment of search cases i.e. with reference to block period regime. The Hon ble Gujarat High Court also echoes that in case of conflict between the operation of erstwhile Section 158BC of the Act (pertaining to erstwhile assessment procedure in the case of third person under old scheme) and Section 147/148 of the Act under normal provisions, provisions of erstwhile Section 158BC will prevail. The Hon ble Gujarat High Court has also opined that proceedings under s.147/148 of the Act will not lie where it is repugnant to the procedure laid down under erstwhile Chapter XIV-B r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al are relevant and is capable of giving prima facie belief to a person instructed in law. This proposition has been laid down by the Hon ble Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO (1999) 236 ITR 34 (SC). We further observe that Assessing Officer has applied his mind properly and has given his independent finding which fact is manifest from the bare reading of the reasons recorded. We thus see no substance in the arguments propped up on behalf of the assessee to assail the validity of assumption of jurisdiction. The challenge to assumption of jurisdiction thus fails. 13. We now turn to the aspects of merits of disallowance towards bogus purchase under challenge by the Revenue. As noted in the preceding paragraphs, a search and seizure operation under section 132 of the Act was conducted on 03.10.2013 on Rajender Jain Group and Dharmichand Jain Group who are stated to be entry operators stationed at Mumbai and indulging in providing accommodation entries in the nature of bogus sales and unsecured loans etc. to various beneficiaries. During the course of search, the statement of various persons were recorded including Shri Rajendra Jain, Shri Sanjay Choudhary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and taxable income declared at Rs. 93.61 lacs. 14. In first appeal, the CIT(A) granted partial relief and restricted the addition at Rs. 3,26,008/- being 5% of the disputed purchases amounting to Rs. 65,20,152/-. The relevant operative para of the order of CIT(A) granting relief is reproduced hereunder: 5. Ground no. 2 of the appeal is related to the addition made u/s 69C of the Act on account of bogus purchases. 5.1 The brief facts of the case are that the appellant is engaged in the business of manufacturing and sale of jewellery. As stated above, the AO had received information from the investigation wing of the Department, as per which the appellant has received accommodation entry of Rs. 65,20,150/- from a party namely M/s Kriya Impex Pvt. Ltd. which is a concern of the entry operator group of Sh. Rajendra Jain, in whose case a search action u/s 132 of the Act was carried out by the Department. The AO called for the details of these purchases and the appellant submitted that the purchases from this concern were genuine and furnished the stock statement, purchase bills and corresponding sale bills. It was also submitted that the appellant had made payments to the said concern t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without gathering any corroborative evidence to support the information provided by the investigation wing. The AO also failed to provide natural justice to the appellant by not giving the opportunity to cross examine the persons whose statements have been used by the AO for making the addition. It is an established law that any statement recorded behind the back of the assessee cannot be used against it without confronting the assessee with that statement. The appellant has relied upon a number of case laws which are relevant to the case and are in favour of the appellant. In the case of Tristar Jewellary Exports Pvt. Ltd. vs. DCIT in ITA No. 7593/M/11, vide order dated 31.08.2015, the Hon'ble Mumbai ITAT has held as under: 9 It remains undisputed that the assessee was never provided any opportunity to cross examine Sh. Hitesn L Rawal, though he specifically asked for such cross examination. On the other hand, the burden was sought to be shifted on the assessee by the AO, by asking him to produce Sh. Rawal, even though it was the AO who had relied on the statement of Sh Rawal, without either confronting this statement to the assessee, or providing opportunity to the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of books of account by the AO u/s 145(3) of the Act and estimating the turnover and net profit of the business. 6.1 The AO has also rejected the books of account of the appellant and has estimated the total turnover at Rs. 14.50 crores as against the turnover of Rs. 13,34,33,025/- shown by the appellant. The AO has also estimated the net profit at Rs. 3,03,05,000/- as against the net profit of Rs. 92,52,710/- shown by the appellant. The reasons stated by the AO for rejecting the books of account are as under: 16. Reasons for rejecting books of account 1 Statements of entry operators and other circumstantial information received amply prove that the purchases made by the assessee are bogus in nature. 2 Bogus purchases shows that the books of account do not represent the true and correct picture of financials or state of affairs of the business earned on by the assessee. 3 From the bogus purchase balls the following observations are made: a. the number of diamonds are not specified clearly in the bills b. There are no details regarding size, carat (weight) of the diamonds purchased c. There are no details regarding Quality and specifications Such as cut, colour, polish, clarity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts are inaccurate and co not present the true and particularly as books of account are hereby rejected. h. The addition made in respect of bogus purchases above is deemed to be telescoped here before arriving at the net profits after rejecting books. 6.2 A perusal of the assessment order shows that the AO has rejected the books of account by holding that the same are not reliable and the purchase bills do not reflect the complete details of the diamonds purchased. By rejecting the books of account, the AO has estimated the turnover and the net profit without giving any reason or basis of the estimate made by him. The AR has contended that the appellant has maintained the consistent method of accounting for the past many years and the same has been accepted by the Department but the AO has rejected the books of account during this year on flimsy grounds. It is observed that the AO has taken this decision by stating that the purchase bills do not contain specific details like the number of diamonds, size, carat, quality, color, polish, inclusions etc. In this regard, it is pointed out that the appellant is maintaining proper stock register and the diamonds are purchased in bulk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts are not complete or correct. Each case has to be considered on its own peculiar facts, having regard to the nature of business. The ld. DR pointed that introduction of false purchase bills in its books of accounts makes the assessee culpable and book results cannot be correctly ascertained in such circumstances. The rejection of books were thus warranted as rightly done by Assessing Officer. The ld. counsel also pointed out that in the present case, the bill from Kriya shows a supply of cut and polished diamonds of heavy weight (102.19 CTS and 132.74 CTS), the correct value of which was found to be Rs. 65,20,152/- by Investigation team. The Learned DR contended that the bill prepared is very non-descript and cursory and the diamond weight is of very premium quality. It is not known as to how and to whom the diamonds have been sold by the assessee. The corresponding party to whom such diamonds have been sold which were allegedly acquired from Kriya is not identifiable. The ld. DR also pointed out that keeping in mind the size of the diamonds, it is very easy to manipulate information on the mode of supply except for the payment through banking channel which too was made after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onding sale in the stock register and mere entry in the computerized stock register will not validate the arguments of the assessee. The CIT(A) has only found fault with the action of the AO without initiating any enquiry thereafter on his own or causing such enquiry through AO. The relief granted by the CIT(A) thus is without any legal foundation. 18. On being enquired by the Bench, about the correctness of figure of Rs. 65,20,152/- as against the purchase value as per bills at Rs. 25,12,590/-, the ld. DR submitted that Rs. 65,20,152/- represents the real value of the diamonds specified in purchase bill, which has been adopted in place of underpriced value of Rs. 25,12,590/- shown by the assessee. On being further asked by the Bench, the ld. DR drew blank on the reason for adopting a different turnover at 14.50 crores as against Rs. 13.34 crores declared by the assessee. The ld. DR also failed to explain the purport of assessment of Rs. 3,03,05,000/- as taxable income instead of Rs. 93,61,190/- declared by the assessee followed with increase on account of additions proposed thereon by the AO himself at Rs. 65,20,152/-. The assessed income thus could possibly be Rs. 1,58,81,342/- o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces and estimated 5% of the disputed purchases amounting to Rs. 65,20,152/- which worked out to Rs. 3,26,008/- as estimated addition on account of bogus purchases. The CIT(A) observed that in the absence of cogent details pertaining to the sale transaction and consideration amount by the assessee on sale of items, the additional gross profit earned by the assessee requires to be estimated at 5% of the disputed purchase value amounting to Rs. 65,20,152/-. The addition made by the AO was thus restricted to Rs. 3,26,008/-. 24. In the facts and circumstances of the case, where the parties to whom the purchase of diamonds in question have been sold, is not known, one cannot say that the onus which lay upon the assessee has been fully discharged. The bona fides of the supplier Kriya Impex Pvt. Ltd. has been put under serious question by the Investigation Wing. The corresponding purchases of the so called supply made by Kriya Impex Pvt. Ltd. is also not known. Therefore, the action of the CIT(A) in resorting to some reasonable estimation based on the value of diamond stated to have been purchased from Kriya Impex Pvt. Ltd. is quite justified. Without reiteration of reasonings of CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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