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TMI Blog2019 (7) TMI 2026X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment could not be held unjustified. AO has in his possession a credible information that income chargeable to tax has escaped assessment hence proceedings u/s. 147 r.w.s.148 has been correctly initiated. Therefore, the contention and arguments raised by the learned counsel for the assessee are not sustainable in law. Accordingly, the validity of reopening of assessment is held to be sustainable in law, and therefore, upheld. Consequently, Ground No. 1 of the appeal is therefore, dismissed. Estimation of income - bogus purchases - HELD THAT:- We observe that the assessee has failed to substantiate the purchases by not producing the parties in question and admission of the party that they have indulged in providing bogus accommodation entries - In the light of above facts and circumstances and considering the net profit of 5% as the average rate of the industry as observed as in the case of Mayank Diamonds Pvt. Ltd. [ 2014 (11) TMI 812 - GUJARAT HIGH COURT ] we deem it fit to restrict the addition to 5% of total bogus purchases. Accordingly, addition @ 5% is sustained as against the addition sustained by the Ld. CIT(A) and balance is deleted. Accordingly, Ground No. 2 to 4 of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee. Therefore, CIT(A) should have treated whole amount of these purchases as income of the assessee as assessee reduced his income to this extent by inflating his purchases by this amount in his P & L account. 3. On the facts and in the circumstances of the case and in Law, Ld. CIT(A) has erred in accepting the plea of the assessee to estimate the profit at 5% of the total turnover proper books of accounts and stock register were maintained without considering the facts that no such books of accounts and document (other than purchase bills) were produced before the AO. CIT(A) did not give any opportunity to the AO to rebut the contention of the assessee raised before him. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the plea of the assessee to estimate the profit at 5% of the bogus purchase on the basis that proper books of accounts and stock register were maintained without considering the fact that no such books of accounts and documents (other than purchase bills) were produced before AO. CIT(A) did not give any opportunity to the AO to rebut the contention of the assessee raised before him." Now we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the assessee for the year under consideration. Therefore, the AO was satisfied that the case of the assessee is a fit case for action u/s. 147 of the Act. Hence, the assessment was reopened u/s. 147 of the Act. Notice under section 148 of the Act was issued on 27.03.2014 after recording reason for initiation of proceedings under section 147 of the Act. 6. The assessee has carried the matter before CIT(A). Wherein the assessee has submitted that the original assessment was passed u/s. 143(3) of the Act. The reopening of the case was made after completing of 4 years from the end of relevant assessment order. In this situation, the Ld. AO has duty bound to demonstrate that there was failure on the part of assessee to disclose all materials facts of the case in original assessment proceedings. The AO has never brought any such facts in reason recorded for reopening even in his assessment order; hence, the reopening of the case is bad in law. It was submitted that the Ld. AO has not brought any evidence on records in forming reason to believe. It is well settled principle that just information from investigation wing or statement of one person cannot became reason to believe for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DCIT [2015] 376 ITR 419 (Guj) and General Motors India Pvt. Ltd. vs. DCIT (2014) 360 ITR 527 (Guj.). It was submitted that reopening of assessment is bad in law. The learned counsel for the assessee also relied for this proposition in the case of decision of Co-ordinate Bench of ITAT, Surat in the case of Jitendra Kumar Pukhraj Ranka vs. ITO [ITA No. 790/Ahd/2017/SRT dated 21.02.2018] Surat Bench of Tribunal in support this contention on behalf of the appellant. The ld. Counsel contended that the AO has not applied his mind and he has merely acted and initiated reassessment proceedings and issued notice u/s. 148 of the Act on the basis of report of DGIT (Inv.), Mumbai which was received by him along with in respect of alleged accommodation entries of bogus bills of purchases alleged to be taken by the assessee. The learned counsel for the assessee also relying on some decision submitted that the conclusion that the AO has reason to believe that income chargeable to tax as escaped assessment within the meaning of s. 147 of the Act, is not tenable in law. 8. Per contra, the Ld. CIT (DR) supporting the order of Ld. CIT(A) drew our attention towards para 7.1.3 of the order of CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment could not be held unjustified. Similarly in the case of Aradhna Estate (P) Ltd. v. DCIT [2018] 91 taxmann.com 409 (Gujarat) the Hon'ble Gujarat High Court held that where reassessment proceedings were initiated on the basis of information received from Investigation Wing that the assessee had received certain amount from shell companies working as an accommodation entry provider, merely because these transaction were scrutinized by Assessing Officer during original assessment, reassessment could not be held unjustified. Therefore, contended reopening of assessment based on receipt of information from Investigation Wing was held to be valid. 9. We have heard the rival submissions and perused the relevant material on record. The plain language employed in section 147 makes it clear that two conditions have to be satisfied before an Assessing Officer acquires jurisdiction to issue a notice under section 148 in respect of an assessment. These are: (1) the AO must have reason to believe that income chargeable to tax has escaped assessment; and (2) he must have reason to believe that such escapement was occasioned by reason of omission or failure on the part of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at such stage. The transactions of the assessee are required to be verified in detail on the basis of the material/evidence collected during the inquiry conducted by the ADIT (Inv). This view is further supported by the judgement in the case of Phoolchand Bajranglal v. ITO [1993] 203 ITR 456 (SC) wherein the Hon'ble Supreme Court was considering the question of reassessment beyond four years in the case of an assessee firm, and had held that in the case of acquiring fresh information specific in nature and reliable relating to the concluded assessment which went to falsify the statement made by the assessee at the time of original assessment and, therefore, he would be permitted under the law fresh inference from such facts and material. In this case, there was specific information in possession of the AO. Therefore, the decisions relied by the learned counsel for the assessee are distinguishable on facts. The reason for reopening of assessment are as under: "A letter bearing no. SRT/CIT-II/ITO(Tech)/Inf./PKJ/2013-14, dtd. 20.03.2014 is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company, viz. Kunai Gems, M/s. Mohit International, M/s. Natasha Enterprises and M/s. Newplanet. Trading Co. P. Ltd., are run and controlled by the said Shri. Praveen Kumar Jain. It is seen from the evidences received from the DGIT (Inv.), Mumbai, that the said entities have given accommodation entries as under, during F.Y. 2006-07 to M/s. Maniprabh Exports, a proprietary concern of the assessee, Shri, Yogendraraj Uttamraj Singhvi of 103, Floor, H. No. 6/1946-B, Dalgiya Street, Mahidharpura, Surat; SHRI. YOGENDRARAJ UTTAMRAJ SINGHVI [PAN: ANJPS9745G] ALY. 2007-08 Name of the entry provider Amount (Rs.) M/s. Kunal Gems 5,60, 00,020/- M/s. Mohit International 30, 00,000/- M/s. Natasha Enterprises 50, 00,000/ M/s, Newplanet Tradign Co. P, Ltd, 75, 00,032; - TOTAL 7,15,00,052/ 4. On verification of the office records, it is seen that the assessee had filed his return of income for the year under consideration on 29.10.2007, disclosing a total income of Rs. 2,73,940/-. Assessment in the case was completed u/s. 143(3) of the Act on 09.12.2009, determining the total income of the assessee at Rs. 3,44,720/-. The assessee has disclosed purchase of Rs. 60,19,35,397/- in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions was sufficient material for the AO to legitimately form a reasonable belief for initiating the assessment proceedings. Further, the Hon'ble Gujarat High Court in the case of Aaspas Multimedia Ltd. v. DCIT-Circle 1(1) [2017] 83 taxmann.com 82 (Gujarat) has held as "the information received from PDIT(Investigation) regarding bogus transaction was sufficient tangible material to form an opinion for reopening of assessment proceedings and that income chargeable to tax has escaped assessment. The sufficiency reason cannot be examined by the Court. Thus, in the light of foregoing ruling of Hon'ble Supreme Court, and Hon'ble jurisdictional High Court, the sufficiency of material at this stage in determining whether commencement of proceedings u/s. 147(a) was valid, what was to be seen was only the prima facie material; the sufficiency or correctness of the material was not a thing to be considered at that stage. The Hon'ble Supreme Court in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) held that One of the purposes of section 147 is to ensure that a party cannot get away by willfully making a false or untrue statement at the time of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the addition made against bogus purchases to Rs. 2,98,97,701/- by estimating net profit at 5% of total purchases without any material on record. Similarly, Ground No. 1 to 4 of Revenue appeal are against the deletion of addition by estimating income @ 5% of total purchases by the CIT(A). 13. Succinctly, facts are that the search and seizure action carried out on 01.10.2013 in the case of Shri Pravin Kumar Jain Group, revealed that the said Group had provided accommodation entries to various parties in respect of bogus unsecured loan and bogus purchases through benami web concerns. It was noticed from the report of DGIT (Inv) Mumbai that the assessee-firm has received accommodation entries of Rs. 5,60,00,020/- from M/s. Kunal Gems, Rs. 30,00,000/- from M/s. Mohit International, Rs. 50,00,000/- from M/s. Natasha Enterprises and Rs. 75,00,032/- from M/s. New Planet Trading Co (P) Ltd. aggregating to Rs. 7.15 crores during the assessment year under consideration. The assessee has filed original return of income declaring total income of Rs. 2,73,940/- which was assessed vide order dated 09.12.2009 under section 143(3) of the Act at Rs. 3,44,720/-. Accordingly, the case of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o stated that they are not carrying on any business and merely providing accommodation entries. Pen drive were found from Shri Pravin Kumar Jain showing parallel books of accounts. The assessee has totally avoided the production of books of accounts including production of stock register, supporting bills and vouchers in appeal. The assessee has been maintaining silver and gold jewellery together in stock, which does not give true picture and affairs of the business. The CIT(A) further observed that there are so many corroborating evidences including statement of brokers, record of brokers and finding of all records of concern at a single place. Shri Pravin Kumar Jain has chosen to retract after 7 months and does not co-operate with Department in subsequent enquiries. The CIT(A) observed that Hon'ble High Court in the case of Mayank Diamonds Pvt. Ltd. V. ITO [Tax Appeal No. 200 of 2003], dated 17.11.2014 (Gujarat) has observed the net profit in diamond trade between 3% to 7%. The AO made addition of Rs. 7,15,00,052/- and the total income has been assessed at Rs. 7,18,44,722/- which would give net profit at 11.88%. Therefore, Ld. CIT(A) has considered net profit of 5% in the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [I.T.A. No. 1855/Ahd/2010/SRT] wherein the Tribunal has restricted the estimation of 5% of bogus purchases and not of entire purchases disclosed in books of accounts by the assessee. Therefore, the CIT(A) should have considered 5% of disputed purchases and not the entire purchases turnover made by the assessee. 16. Per contra, the Ld. CIT (DR) vehemently supported the order of the AO for making addition of entire bogus purchases and relied on the order of the Ld. CIT(A) for estimation of income @5% of purchases and submitted that the contention of the assessee that no information was supplied but the assessment was reopen on the basis of information received from DGIT(Inv), hence, the contention is not acceptable. The AO has examined the matter in details as discussed in the assessment order. The Ld. CIT (DR) submitted that seller parties are not traceable, hence, entire purchases needs to be held as bogus against which the Department is in appeal. Therefore, the order of the AO is upheld. 17. We have heard the rival submissions and perused the relevant material on record. We find that the assessee has made purchases of Rs. 7.15 crores from above mentioned parties. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in our opinion, is on higher side. Learned advocate for the appellant has fairly conceded that excess 7% is on higher side and that at the most 3% may be applied. In that view of the matter, going by the peculiar facts of the present case, we are of the view that ends of justice will be met by taking mean of maxim and minimum of the profit rate which comes to 5%. Therefore, we think it fit to direct the Assessing Officer to apply 5% G.P. rate as the rate of 12.5% is drastically higher and 1.03% is drastically lower. Gross profit rate of 5% is the average rate of the industry and we think it fit to make addition on account of 5% gross profit rate. The addition be made accordingly. We therefore, answer the question raised in the negative i.e. against the revenue and in favour of the assessee." 18. We observe that the assessee has failed to substantiate the purchases by not producing the parties in question and admission of the party that they have indulged in providing bogus accommodation entries. The learned counsel for the assessee further placed reliance on the decisions in the case of Deluxe Diamonds v. ITO [I.T.A. No. 1396/Ahd/2017 dated 11.04.2018- Surat-Trib], and DCI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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