FALGUNI SAMIR MEHTA,MUMBAI vs. ACIT-19(1), MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 24.02.2023 passed by the Ld. Commissioner of Income-tax – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, raising following grounds:

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a) The Id CIT(A) erred in confirming addition made u/s 69C by the id A0 a) The Id CIT(A) erred in confirming addition made u/s 69C by the id A0 a) The Id CIT(A) erred in confirming addition made u/s 69C by the id A0 although the appellan although the appellant had treated diamonds and emeralds purchased by t had treated diamonds and emeralds purchased by her as investment in her balance sheet and not as expenditure in her profit her as investment in her balance sheet and not as expenditure in her profit her as investment in her balance sheet and not as expenditure in her profit and loss account. and loss account. b) Without prejudice to the foregoing, he failed to appreciate that, within b) Without prejudice to the foregoing, he failed to appreciate that, within b) Without prejudice to the foregoing, he failed to appreciate that, within the meaning of sec.69C, question of the meaning of sec.69C, question of failure by appellant to offer failure by appellant to offer explanation or that explanation offered by her being not satisfactory, also explanation or that explanation offered by her being not satisfactory, also explanation or that explanation offered by her being not satisfactory, also could not arise: could not arise:  for payment made by her during the financial year of Rs.9,60,400, for payment made by her during the financial year of Rs.9,60,400, for payment made by her during the financial year of Rs.9,60,400, as it was paid by different cheques all of which were duly reflecte as it was paid by different cheques all of which were duly reflecte as it was paid by different cheques all of which were duly reflected in appellant's bank account, or in appellant's bank account, or  for unpaid amount of Rs.27,60,500, as the same cannot be treated for unpaid amount of Rs.27,60,500, as the same cannot be treated for unpaid amount of Rs.27,60,500, as the same cannot be treated as expenditure at all. as expenditure at all. 3. Reopening without application of mind 3. Reopening without application of mind The Id CIT(A) erred in confirming reopening of assessment by the Id AO on The Id CIT(A) erred in confirming reopening of assessment by the Id AO on The Id CIT(A) erred in confirming reopening of assessment by the Id AO on the ground that app the ground that appellant understated her income by inflating purchases ellant understated her income by inflating purchases by taking accommodation entry in the form of bogus purchases, which is by taking accommodation entry in the form of bogus purchases, which is by taking accommodation entry in the form of bogus purchases, which is without application of his mind, as factually the appellant had not claimed without application of his mind, as factually the appellant had not claimed without application of his mind, as factually the appellant had not claimed any expenses on account of purchase as per the return of any expenses on account of purchase as per the return of income filed by her and available on record. her and available on record. 4. Failure of conditions precedent to reopening 4. Failure of conditions precedent to reopening a) The Id CIT(A) erred in confirming reopening of assessment and passing a) The Id CIT(A) erred in confirming reopening of assessment and passing a) The Id CIT(A) erred in confirming reopening of assessment and passing of reassessment order by the Id A in spite of his failure to bring on record of reassessment order by the Id A in spite of his failure to bring on record of reassessment order by the Id A in spite of his failure to bring on record documentary evidence showing that factually: evidence showing that factually:  reasons were recorded by him prior to issue of notice u/s 148, and reasons were recorded by him prior to issue of notice u/s 148, and reasons were recorded by him prior to issue of notice u/s 148, and  satisfaction as required u/s 151(1) was obtained by him prior to satisfaction as required u/s 151(1) was obtained by him prior to satisfaction as required u/s 151(1) was obtained by him prior to issue of notice u/s 148 issue of notice u/s 148 both which are conditions precedent to reopening. both which are conditions precedent to reopening. 2. Briefly stated, facts of the case are that the assessee stated, facts of the case are that the assessee, an stated, facts of the case are that the assessee individual filed return of income declaring total income of individual filed return of income declaring total income of individual filed return of income declaring total income of Rs.22,78,631/- on 30.08.2012 on 30.08.2012. In the return of income filed n the return of income filed, the assessee shown income from various sources including profit from assessee shown income from various sources including profit from assessee shown income from various sources including profit from partnership firm namely M/s Essar Traders. Subsequently, a irm namely M/s Essar Traders. Subsequently, a irm namely M/s Essar Traders. Subsequently, a search action u/s 132 of the Income search action u/s 132 of the Income-tax Act, 1961 (in short ‘the tax Act, 1961 (in short ‘the Act’) was carried out by the Investigation Wing, Mumbai on Act’) was carried out by the Investigation Wing, Mumbai on Act’) was carried out by the Investigation Wing, Mumbai on

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03.10.2013 at the premises of Shri Gautam Jain Group. During 03.10.2013 at the premises of Shri Gautam Jain Group. During 03.10.2013 at the premises of Shri Gautam Jain Group. During search it was observed th search it was observed that Shri Gautam Jain along with his other at Shri Gautam Jain along with his other family members and family members and employees, though various concerns floated by employees, though various concerns floated by him, was engaged in issuing accommodation entry bills to the was engaged in issuing accommodation entry bills to the was engaged in issuing accommodation entry bills to the beneficiaries. The Investigation Wing found that Shri Gautam Jain beneficiaries. The Investigation Wing found that Shri Gautam Jain beneficiaries. The Investigation Wing found that Shri Gautam Jain has issued two bills has issued two bills through concerns namely M/s M/s Rajan Gems amounting to Rs.17,67,500/ amounting to Rs.17,67,500/- and M/s Shree Ganesh Gems Shree Ganesh Gems amounting to Rs.19,53,400/ amounting to Rs.19,53,400/- respectively to the assessee. The to the assessee. The Investigation Wing forwarded this information Investigation Wing forwarded this information to the Assessing to the Assessing Officer and thus, the Assessing Officer the Assessing Officer accordingly recorded the gly recorded the reasons to believe that income that income of assessee to the extent of Rs. of assessee to the extent of Rs. 37,20,900/-( = Rs.17,67,500+ Rs.19,53,400) ( = Rs.17,67,500+ Rs.19,53,400) escaped assessment escaped assessment and issued notice u/s 148 of the Act on 28.03.2019, which was and issued notice u/s 148 of the Act on 28.03.2019 and issued notice u/s 148 of the Act on 28.03.2019 duly served upon the assessee. In response the assessee. In response, the assessee filed the assessee filed return of income electronically on 03.04.2019 declaring the same return of income electronically on 03.04.2019 declaring the same return of income electronically on 03.04.2019 declaring the same amount of income which was declared in the original return of amount of income which was declared in the original return of amount of income which was declared in the original return of income filed on 30.08.2012 i.e. Rs.22,78,630/ income filed on 30.08.2012 i.e. Rs.22,78,630/-. The Assessing . The Assessing Officer provided copies of the reasons recorde copies of the reasons recorded to the assessee and d to the assessee and thereafter providing due opportunity of being heard, he completed thereafter providing due opportunity of being heard thereafter providing due opportunity of being heard the assessment u/s 147 of the Act , u/s 147 of the Act , wherein he made addition for wherein he made addition for unexplained expenditure u/s 69C of the Act amounting to unexplained expenditure u/s 69C of the Act amounting to unexplained expenditure u/s 69C of the Act amounting to Rs.37,20,900/-.

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vide letter dated 16.04.2019. In view of this letter vide letter dated 16.04.2019. In view of this letter, the Ld. Counsel the Ld. Counsel of the assessee submitted that reasons have been recorded on of the assessee submitted that reasons have been recorded on of the assessee submitted that reasons have been recorded on 16.04.2019, whereas notice u/s 148 of the whereas notice u/s 148 of the Act has been issued on Act has been issued on 28.03.2019 , therefore, notice issued therefore, notice issued being prior to recording of the prior to recording of the reasons ,hence same is invalid. In this regard, the ld. DR filed a same is invalid. In this regard, the ld. DR filed a same is invalid. In this regard, the ld. DR filed a copy of reasons recorded along with copy of reasons recorded along with proforma of reasons of reasons to believe approved by the appropriate a the appropriate authority u/s 151 of the Act uthority u/s 151 of the Act. A copy of such proforma was also provided to the ld counsel of assessee. was also provided to the ld counsel of assessee. This was also provided to the ld counsel of assessee. proforma was forwarded by the Assessing Officer was forwarded by the Assessing Officer on 22.03.2019 to on 22.03.2019 to the Range Officer, who the Range Officer, who in turn further forwarded to the Pr. CIT further forwarded to the Pr. CIT-19, Mumbai on 25.03.2019. A scan copy of the relevant 2019. A scan copy of the relevant proforma is 2019. A scan copy of the relevant reproduced as under: reproduced as under:

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6.1 After obtaining approval of the appropriate authority After obtaining approval of the appropriate authority After obtaining approval of the appropriate authority in prescribed proforma, the Assessing Officer issued notice u/s 148 of , the Assessing Officer issued notice u/s 148 of , the Assessing Officer issued notice u/s 148 of the Act. In view of the above factual information the Act. In view of the above factual information, it is evident that it is evident that reasons have been recorded by the Assessing Officer on or before reasons have been recorded by the Assessing Officer reasons have been recorded by the Assessing Officer 22/3/2019 i.e. prior to issue of the notice u/s 148 of the Act prior to issue of the notice u/s 148 of the Act prior to issue of the notice u/s 148 of the Act dated 28/03/2019. This fact was duly accepted by the Ld Counsel of This fact was duly accepted by the Ld Counsel of This fact was duly accepted by the Ld Counsel of assessee during the hearing. assessee during the hearing.

6.2 Regarding the challenge of approval ing the challenge of approval granted for reasons granted for reasons recorded, we find from the from the Performa reproduced above reproduced above shows that Pr. CIT-19, Mumbai has approved the reasons recorded 19, Mumbai has approved the reasons recorded 19, Mumbai has approved the reasons recorded on 25/03/2019, which is which is prior to issue of notice u/s 148 of the Act u/s 148 of the Act on 28/03/2019, therefore ore, the objection raised by the Ld. Counsel of , the objection raised by the Ld. Counsel of the assessee on this co on this count also failed.

6.3 The objections of the assessee for issue of notice u/s 148 of The objections of the assessee for issue of notice u/s 148 of The objections of the assessee for issue of notice u/s 148 of the Act are without any basis and proper verification of the facts. are without any basis and proper verification of the facts. are without any basis and proper verification of the facts. Since, the notice u/s 148 of the Since, the notice u/s 148 of the Act has been issued after recording Act has been issued after recording reasons to belief and reasons to belief and after obtaining due sanctions/approval of the due sanctions/approval of the appropriate authority, therefore authority, therefore, we do not find any , we do not find any irregularity or illegality in issuing notice u/s 148 of the Act. The ground No. 4 of in issuing notice u/s 148 of the Act. The ground No. 4 of in issuing notice u/s 148 of the Act. The ground No. 4 of the appeal of the assessee is accordingly dismissed. the assessee is accordingly dismissed.

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submitted that the AO submitted that the AO has recorded that assessee has recorded that assessee taken accommodation entry of bogus accommodation entry of bogus purchase, whereas the assessee has whereas the assessee has not claimed any expense on account of purchase as per the return not claimed any expense on account of purchase as not claimed any expense on account of purchase as of income filed, which was , which was available on record. The Ld. Counsel of available on record. The Ld. Counsel of the assessee referred to Paper Book page 40 to 42 which is the the assessee referred to Paper Book page 40 to 42 which is the the assessee referred to Paper Book page 40 to 42 which is the relevant part of the return of income containing details of the profit relevant part of the return of income containing details of the profit relevant part of the return of income containing details of the profit and loss account. The Ld. Counsel submitted that in the return of and loss account. The Ld. Counsel submitted that in the return of and loss account. The Ld. Counsel submitted that in the return of income no purchases have been recorded and therefore the reason ses have been recorded and therefore the reason ses have been recorded and therefore the reason to believe that income escaped that income escaped assessment is based on the wrong based on the wrong factual understanding and factual understanding and thus, those reasons recorded those reasons recorded are result of non-application of the mind application of the mind by the Assessing Officer by the Assessing Officer. According to the ld Counsel, the entire reassessment proceedings vitiates he entire reassessment proceedings vitiates he entire reassessment proceedings vitiates due to non application of mind by the to non application of mind by the Assessing officer. I ssessing officer. In support of contention, the Ld. Counsel of the assessee relied on the decision in contention, the Ld. Counsel of the assessee relied on the decision in contention, the Ld. Counsel of the assessee relied on the decision in the case of Mumtaz Haji Mohmad Memon v. ITO (2018) 408 ITR Mumtaz Haji Mohmad Memon v. ITO (2018) 408 ITR Mumtaz Haji Mohmad Memon v. ITO (2018) 408 ITR 268 (Guj.). He further relied on the decision of the Hon’ble Gujarat e further relied on the decision of the Hon’ble Gujarat e further relied on the decision of the Hon’ble Gujarat High Court in the case of Sagar Enterprises v. ACIT (2002) 257 Sagar Enterprises v. ACIT (2002) 257 High Court in the case of ITR 335 (Guj.) , wherein it is held that wherein it is held that where incorrect facts incorrect facts being one of the reasons for reopening one of the reasons for reopening, it cannot be said that i it cannot be said that initiated reassessment proceedings cannot survive. The Ld. Counsel also reassessment proceedings cannot survive. The Ld. Counsel also reassessment proceedings cannot survive. The Ld. Counsel also relied on the decision of the Hon’ble Bombay High Court in the case relied on the decision of the Hon’ble Bombay High Court in the case relied on the decision of the Hon’ble Bombay High Court in the case of PCIT v. Shodiman Investment (P) Ltd. (2018) 167 DTR (Bom) PCIT v. Shodiman Investment (P) Ltd. (2018) 167 DTR (Bom) PCIT v. Shodiman Investment (P) Ltd. (2018) 167 DTR (Bom) 290, wherein it is held that it is held that reopening on borrowed borrowed satisfaction is not mandate of the law. not mandate of the law.

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7.1 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The reasons recorded by the Assessing relevant material on record. The reasons recorded by the Assessing relevant material on record. The reasons recorded by the Assessing Officer are placed on paper book page on paper book page-3. A legible copy of the . A legible copy of the reasons recorded has reasons recorded has also been provided by the Ld. DR o been provided by the Ld. DR. For ready reference said reasons are reference said reasons are extracted as under:

“ANNEXURE

Name of the Assessee Name of the Assessee Falguni Samir Mehta Status Individual PAN ABEPS6347K A.Y. 2012-13

Reasons for re Reasons for re-opening of the assessment u/s. 147 of the Income opening of the assessment u/s. 147 of the Income Tax, Act. The assessee, Falguni Samir Mehta (PAN: ABEPS6347K) had filed the The assessee, Falguni Samir Mehta (PAN: ABEPS6347K) had filed the The assessee, Falguni Samir Mehta (PAN: ABEPS6347K) had filed the return of income for A.Y. return of income for A.Y. 2012-13 on 30.08.2012 declaring total income 13 on 30.08.2012 declaring total income of Rs. 22,78,631/ of Rs. 22,78,631/- which was processed u/s. 143(1) of the which was processed u/s. 143(1) of the I.T. Act, 1961. Information has been received in this case from the Office of the Information has been received in this case from the Office of the Information has been received in this case from the Office of the DGIT(In.), Mumbai, which has been gathered during search operation DGIT(In.), Mumbai, which has been gathered during search operation DGIT(In.), Mumbai, which has been gathered during search operation u/s.132 of the Income Tax Act, 1961, on certain persons belonging to u/s.132 of the Income Tax Act, 1961, on certain persons belonging to u/s.132 of the Income Tax Act, 1961, on certain persons belonging to Shri Gautam Jain and his group that the assessee has t Shri Gautam Jain and his group that the assessee has t Shri Gautam Jain and his group that the assessee has taken accommodation entries of bogus purchase from certain parties accommodation entries of bogus purchase from certain parties accommodation entries of bogus purchase from certain parties belonging to Shri Gautam Jain and his group. Shri Gautam Jain in his belonging to Shri Gautam Jain and his group. Shri Gautam Jain in his belonging to Shri Gautam Jain and his group. Shri Gautam Jain in his statement on oath u/s 132(4) has admitted that all the concerns statement on oath u/s 132(4) has admitted that all the concerns statement on oath u/s 132(4) has admitted that all the concerns belonging to his group were engaged in giving accommodati belonging to his group were engaged in giving accommodati belonging to his group were engaged in giving accommodation entries to the parties of the nature of loans and purchases. M/s Rajan Gems and the parties of the nature of loans and purchases. M/s Rajan Gems and the parties of the nature of loans and purchases. M/s Rajan Gems and M/s Shree Ganesh Gems are the parties belonging to Shri Gautam Jain M/s Shree Ganesh Gems are the parties belonging to Shri Gautam Jain M/s Shree Ganesh Gems are the parties belonging to Shri Gautam Jain and is controlled by him and he has in his statement on oath admitted and is controlled by him and he has in his statement on oath admitted and is controlled by him and he has in his statement on oath admitted that the concern M/s Rajan Gems and that the concern M/s Rajan Gems and M/s Shree Ganesh Gems belong M/s Shree Ganesh Gems belong to his group. The details of party/parties belonging to Gautam Jain to his group. The details of party/parties belonging to Gautam Jain to his group. The details of party/parties belonging to Gautam Jain group from whom the assessee had taken accommodation entries in group from whom the assessee had taken accommodation entries in group from whom the assessee had taken accommodation entries in F.Y. 2011-12 relevant to A.Y. 2012 12 relevant to A.Y. 2012-13 is/are as follows:- Sr. Name of the entry Name of the entry Amount of bogus sales made to Amount of bogus sales made to No provider Concern provider Co assesses 1. Rajan Gems Rajan Gems 17,67,500/- 2. Shree Ganesh Gems Shree Ganesh Gems 19,53,400/- Total 37,20,900/-

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The above chart shows that the assessee had taken accommodation The above chart shows that the assessee had taken accommodation The above chart shows that the assessee had taken accommodation entries to the tune of Rs. 37,20,900/ entries to the tune of Rs. 37,20,900/- from the above parties in from the above parties in F.Y. 2011-12 relevant to the A.Y. 2012 12 relevant to the A.Y. 2012-13. I have perused the information 13. I have perused the information received from the DIT (In) and after due application of mind to the same, received from the DIT (In) and after due application of mind to the same, received from the DIT (In) and after due application of mind to the same, it appears that the assessee has understated its income by Rs it appears that the assessee has understated its income by Rs it appears that the assessee has understated its income by Rs 37,20,900/- by inflating its purchase by taki by inflating its purchase by taking accommodation entry in ng accommodation entry in the form of bogus purchase. Accordingly, on application of mind to this the form of bogus purchase. Accordingly, on application of mind to this the form of bogus purchase. Accordingly, on application of mind to this tangible material on record, I have reason to believe that an amount of tangible material on record, I have reason to believe that an amount of tangible material on record, I have reason to believe that an amount of Rs 37,20,900/ Rs 37,20,900/- has escaped assessment in the hands of the assessee has escaped assessment in the hands of the assessee for AY 2012-13 by v 13 by virtue of reflecting this bogus transaction as a irtue of reflecting this bogus transaction as a genuine purchase transaction, the assessee has failed to disclose fully genuine purchase transaction, the assessee has failed to disclose fully genuine purchase transaction, the assessee has failed to disclose fully and truly all material facts necessary for his assessment for the and truly all material facts necessary for his assessment for the and truly all material facts necessary for his assessment for the assessment year under consideration, coming within the meaning of the assessment year under consideration, coming within the meaning of the assessment year under consideration, coming within the meaning of the provisions of section 147 of the Income provisions of section 147 of the Income-tax Act 1961.” 7.2 On perusal of the reasons recorded, it is evident that the On perusal of the reasons recorded, it is evident that the On perusal of the reasons recorded, it is evident that the Assessing Officer has mentioned the sales bills issued by the firms Assessing Officer has mentioned the sales bills issued by the firms Assessing Officer has mentioned the sales bills issued by the firms controlled by Shri Gautam Jain. The Assessing Officer has properly controlled by Shri Gautam Jain. The Assessing Officer has properly controlled by Shri Gautam Jain. The Assessing Officer has properly referred the name of the concern erred the name of the concerns, who has issued sales bills to the sales bills to the assessee. This fact has not has not been disputed. Further, the Assessing disputed. Further, the Assessing Officer has recorded that sales issued by those firms were in the Officer has recorded that sales issued by those firms Officer has recorded that sales issued by those firms nature of the purchase nature of the purchase in the hands of the assessee, in the hands of the assessee, which in view of information received of information received, was in the nature of accommodation entry. in the nature of accommodation entry. Thus, we do not find any factual error in the reasons recorded by e do not find any factual error in the reasons recorded by e do not find any factual error in the reasons recorded by the Ld. Assessing Officer the Ld. Assessing Officer. The ld counsel has submitted that the . The ld counsel has submitted that the said purchase was not part of profit and loss acc said purchase was not part of profit and loss account and it was ount and it was reported as item of personal asset in the return of income filed. But reported as item of personal asset in the return of income filed. But reported as item of personal asset in the return of income filed. But , we find that the AO has nowhere stated that that said purchase , we find that the AO has nowhere stated that that said purchase , we find that the AO has nowhere stated that that said purchase had been entered by the assessee in profit and loss account. had been entered by the assessee in profit and loss account. had been entered by the assessee in profit and loss account. Therefore, allegations of non herefore, allegations of non-application of the mind by the the mind by the Assessing Officer are without any basis. Accordingly, the ratio of the Assessing Officer are without any basis. Accordingly, the ratio of the Assessing Officer are without any basis. Accordingly, the ratio of the decisions relied upon by the assessee are not applicable over the decisions relied upon by the assessee are not applicable over the decisions relied upon by the assessee are not applicable over the facts of the instant case. Further, the Hon’ble Supreme Court in the facts of the instant case. Further, the Hon’ble Supreme Court in the facts of the instant case. Further, the Hon’ble Supreme Court in the

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case of Raymond Woollen Mills Ltd Raymond Woollen Mills Ltd. Vs. Income Tax Officer and . Vs. Income Tax Officer and Ors, [1999] 236 ITR ITR 34(SC), (2008) 14 SCC 218 34(SC), (2008) 14 SCC 218 has held that correctness or sufficiency of the reasons recorded correctness or sufficiency of the reasons recorded is is not to be seen at the stage of initiation of reassessment proceedings. In view of the the stage of initiation of reassessment proceedings. In view of the the stage of initiation of reassessment proceedings. In view of the above, the ground No. 3 of above, the ground No. 3 of the appeal of the assessee is dismissed. the appeal of the assessee is dismissed.

8.1 The briefly stated facts qua issue in dispute The briefly stated facts qua issue in dispute The briefly stated facts qua issue in dispute are that in the course of search at the premises of course of search at the premises of “Sh Gautam Jain Sh Gautam Jain” group, on 03/10/2013 ,the Investigation wing of the I 03/10/2013 ,the Investigation wing of the Income- -tax Department Mumbai noticed noticed that that he he was was engaged engaged in in issuing issuing bogus bogus accommodation entry bills. The investigation wing informed the accommodation entry bills. The investigation wing informed the accommodation entry bills. The investigation wing informed the Assessing Officer that assessee had taken two such accommodation Assessing Officer that assessee had taken two such accommodation Assessing Officer that assessee had taken two such accommodation entries of purchase from concerns controlled by purchase from concerns controlled by Sh Sh Gautam Jain, namely “M/s Rajan Gems Rajan Gems” amounting to ₹17,67,50 500/- and M/s “Shri Ganesh Gems” ” amounting to Rs.19,53,400/- -. The Assessing Officer in the assessment order has recorded various facts observed Officer in the assessment order has recorded various facts observed Officer in the assessment order has recorded various facts observed during during during the the the course course course of of of the the the search. search. search. He He He has has has noted noted noted that that that directors/partners/proprietors of various concerns operated by Sh. directors/partners/proprietors of various concerns operated by Sh. directors/partners/proprietors of various concerns operated by Sh. Gautam Jain were either Gautam Jain were either his family friends or known to him or known to him personally and all those persons in their respective statements personally and all those persons in their respective statements personally and all those persons in their respective statements admitted to be dummy/ namesake admitted to be dummy/ namesake directors/partner/ directors/partner/proprietors. Most of those persons were eng those persons were engaged either in depositing cheques aged either in depositing cheques in

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the bank, handing over handing over parcels/letter to clients, making data entry s, making data entry etc. Those persons were not having any genuine knowledge of the . Those persons were not having any genuine knowledge of the . Those persons were not having any genuine knowledge of the business activity recorded in those concerns. All those persons were business activity recorded in those concerns. All those persons were business activity recorded in those concerns. All those persons were in receipt of salary from Sri Gautam Jain. Further the Assessing in receipt of salary from Sri Gautam Jain. Further the Assessing in receipt of salary from Sri Gautam Jain. Further the Assessing Officer has noted that all those empl Officer has noted that all those employee(s) were residing in the were residing in the house/flat owned by the Sh Gautam Jain house/flat owned by the Sh Gautam Jain and the office addres the office addres(s) of those concerns were also in the premises belonging to Sh Gautam also in the premises belonging to Sh Gautam Jain and his family members. During the course of the search at Jain and his family members. During the course of the search at Jain and his family members. During the course of the search at none of those premises any stock none of those premises any stock of rough or cut and polished rough or cut and polished diamond was found. Further, during the course of search diamond was found. Further, during the course of diamond was found. Further, during the course of proceeding, Sh Gautam Jain himself admitted to be engaged in the Sh Gautam Jain himself admitted to be engaged in the Sh Gautam Jain himself admitted to be engaged in the business of providing accommodation entry of bogus sales through business of providing accommodation entry of bogus sales through business of providing accommodation entry of bogus sales through concerns managed by him. In view of the concerns managed by him. In view of the observations, the observations, the Ld. Assessing Officer ask Assessing Officer asked the assessee to justify genuineness of the assessee to justify genuineness of those two purchases i.e. Rajan Gems amounting to two purchases i.e. Rajan Gems amounting to ₹17,67, 17,67,500/-and M/s Shree Ganesh Gems amounting to Rs. ee Ganesh Gems amounting to Rs.19,53,400/-. The Assessing . The Assessing Officer rejected the contention of the Officer rejected the contention of the assessee observing as under: assessee observing as under:

“12. The assessee tried to substantiate his claim as to The assessee tried to substantiate his claim as to The assessee tried to substantiate his claim as to genuineness of the impugned purchases with the help of book genuineness of the impugned purchases with the help of book genuineness of the impugned purchases with the help of book entries and documents prepared by itself. Making of entries in his entries and documents prepared by itself. Making of entries in his entries and documents prepared by itself. Making of entries in his books of accounts and related documentation books of accounts and related documentation are only unilateral are only unilateral acts of the assessee, which cannot be taken as conclusive acts of the assessee, which cannot be taken as conclusive acts of the assessee, which cannot be taken as conclusive evidence especially when contrary evidences are on records in the evidence especially when contrary evidences are on records in the evidence especially when contrary evidences are on records in the form of findings of investigation wing showing the sellers as the form of findings of investigation wing showing the sellers as the form of findings of investigation wing showing the sellers as the bogus entities. Considering the detail investi bogus entities. Considering the detail investigation and outcome of gation and outcome of search, it is held that the seller entities were bogus ones. It is search, it is held that the seller entities were bogus ones. It is search, it is held that the seller entities were bogus ones. It is settled principle that mere documentation, either in form of bank settled principle that mere documentation, either in form of bank settled principle that mere documentation, either in form of bank account entries or otherwise, of a claimed transaction cannot account entries or otherwise, of a claimed transaction cannot account entries or otherwise, of a claimed transaction cannot make a fictitious transaction a real on make a fictitious transaction a real one. The onus is on the e. The onus is on the assessee to prove her claim. In the assessee to prove her claim. In the instant case as the assessee instant case as the assessee failed to do so, the preponderance of probability entirely goes failed to do so, the preponderance of probability entirely goes failed to do so, the preponderance of probability entirely goes against the assessee. against the assessee.

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8.3 Before us, the learned counsel of the assessee referred to the us, the learned counsel of the assessee referred to the us, the learned counsel of the assessee referred to the paper book containing pages 1 to 81 filed by the assessee and containing pages 1 to 81 filed by the assessee and containing pages 1 to 81 filed by the assessee and submitted that firstly firstly the purchase of diamonds and emerald diamonds and emerald in

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dispute was for personal u for personal use for making jewelry and debited to for making jewelry and debited to jewelry account and not for trading (PB jewelry account and not for trading (PB-27). He submitted that 27). He submitted that balance of jewelry account of balance of jewelry account of ₹46,35,145.33 was appearing in the 145.33 was appearing in the balance sheet available on paperbook page balance sheet available on paperbook page-13. Further 13. Further, he referred to paper book pages- -31 and 32 and submitted that jewelry was duly jewelry was duly included in the wealth tax return included in the wealth tax return for the year under consideration for the year under consideration on the basis of registered value on the basis of registered valuer certificate. 8.4 Secondly, he referred to he referred to bills issued by Rajan Gems issued by Rajan Gems and Ganesh Gems available in paper book h Gems available in paper book and submitted that there is submitted that there is no finding by the lower lower authorities that cash having been returned authorities that cash having been returned by any of those suppliers to the assessee. He also submitted that no by any of those suppliers to the assessee. He also submitted that no by any of those suppliers to the assessee. He also submitted that no adverse inference has been drawn by the VAT authorities in respect adverse inference has been drawn by the VAT authorities adverse inference has been drawn by the VAT authorities of either of those parti either of those parties. In support of the proposition that when es. In support of the proposition that when expenditure is accounted in regular books of accounts, it cannot be expenditure is accounted in regular books of accounts, it cannot be expenditure is accounted in regular books of accounts, it cannot be said that its source is not explained, relied on the decision in the s not explained, relied on the decision in the case of CIT Vs Radhika creations Radhika creations (2010) 47 DTR 60 (Del) (2010) 47 DTR 60 (Del).

8.5 The learned counsel of the submitted The learned counsel of the submitted that there were that there were contradiction in the finding of the Assessing Officer, firstly that he contradiction in the finding of the Assessing Officer contradiction in the finding of the Assessing Officer has recorded as all concern of Gautam Jain group operated only has recorded as all concern of Gautam Jain group operated only has recorded as all concern of Gautam Jain group operated only from three specified premises, whereas Rajan Gems and Shri from three specified premises, whereas Rajan Gems and Shri from three specified premises, whereas Rajan Gems and Shri Ganesh Gems did not operate from those places as can be seen s did not operate from those places as can be seen s did not operate from those places as can be seen from the respective bills (PB 15 &21). He also referred to the from the respective bills (PB 15 &21). He also referred to the from the respective bills (PB 15 &21). He also referred to the observation of the Assessing Officer observation of the Assessing Officer that Gautam Jain Group was that Gautam Jain Group was engaged in importing of diamond and submitted that and submitted that in such a case engaged in importing of diamond

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purchases from those concerns those concerns cannot be presumed to be bogus. cannot be presumed to be bogus. The learned counsel also doubted the finding of the Assessing The learned counsel also doubted the finding of the Assessing The learned counsel also doubted the finding of the Assessing Officer that there was no stock a fficer that there was no stock as on the date in those two s on the date in those two concerns. He also submitted that transaction took place prior to 2 concerns. He also submitted that transaction took place prior to 2 concerns. He also submitted that transaction took place prior to 2 years from the search and therefore it is not relevant that there was arch and therefore it is not relevant that there was arch and therefore it is not relevant that there was no stock as on the date of the search. In support of the proposition no stock as on the date of the search. In support of the proposition no stock as on the date of the search. In support of the proposition that addition under section that addition under section 69C of the Act cannot be made merely ct cannot be made merely on the basis of investigation report on the basis of investigation report, the learned counsel relied on , the learned counsel relied on he decision of Hon’ble Bombay High Court in the case of PCIT Vs the decision of Hon’ble Bombay High Court in the case of he decision of Hon’ble Bombay High Court in the case of Vaman International P Ltd (2020) 422 ITR 520 (Bom). Vaman International P Ltd (2020) 422 ITR 520 (Bom). Vaman International P Ltd (2020) 422 ITR 520 (Bom).

8.6 Alternatively, Alternatively, without without prejudice. prejudice the the learned learned counsel counsel submitted that addition under section submitted that addition under section 69 should be restricted to should be restricted to ₹9,60,400/- as that is the only payment made during the financial hat is the only payment made during the financial hat is the only payment made during the financial year to Sh Ganesh Gems and no payment was made to Rajan Gems year to Sh Ganesh Gems and no payment was made to Rajan Gems year to Sh Ganesh Gems and no payment was made to Rajan Gems ( PB 16 & 22).

8.7 The Learned Departmental Representative Learned Departmental Representative on the other han on the other hand referred to paperbook page referred to paperbook page-15, which is a copy of bill issued in the , which is a copy of bill issued in the name of Rajan Gems and submitted that in the said bill green name of Rajan Gems and submitted that in the said bill green name of Rajan Gems and submitted that in the said bill green emerald has been sold by way of g merald has been sold by way of grams and rate has also been rams and rate has also been computed per grams, whereas emerald are never sold in grams. He grams, whereas emerald are never sold in grams. He grams, whereas emerald are never sold in grams. He referred to the page 16 which referred to the page 16 which is ledger account of said party in the is ledger account of said party in the books of assessee and submitted that total sale value in the bill books of assessee and submitted that total sale value in the bill books of assessee and submitted that total sale value in the bill dated 16/09/2011 is of dated 16/09/2011 is of ₹17,67,500/-, which has been claimed to , which has been claimed to have been paid as have been paid as ₹17,500/- on 26/09/2013, Rs.5, on 26/09/2013, Rs.5,50,000/- on

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14/03/2014 and balance 14/03/2014 and balance ₹12,00,000/- on 20/05/2014. The DR on 20/05/2014. The DR pointed out that no party will keep the payment outstanding unless pointed out that no party will keep the payment outstanding unless pointed out that no party will keep the payment outstanding unless the buyer is known, but had the party known to assessee, she the buyer is known, but had the party known to assessee, she the buyer is known, but had the party known to assessee, she would have produced him for verification before the Assessing would have produced him for verification before the Assessing would have produced him for verification before the Assessing Officer. Since he failed to produce Officer. Since he failed to produce said party for verification, it goes said party for verification, it goes to establish that said purchase is not genuine. The learned DR to establish that said purchase is not genuine. The learned DR to establish that said purchase is not genuine. The learned DR referred to page 21 of the paperbook, which is a c referred to page 21 of the paperbook, which is a copy of bill issued opy of bill issued in the name of Shri Ganesh Gems. In the bill in the name of Shri Ganesh Gems. In the bill, cut and polished cut and polished diamonds are shown to ha shown to have been sold at different rates at different rates without any justification. The learned DR referred that payment of any justification. The learned DR referred that any justification. The learned DR referred that ₹9,60,400/- in the year under consideration in the year under consideration has only only been shown to said party and balance has been shown to have been paid on and balance has been shown to have been paid on and balance has been shown to have been paid on 01/08/2013, which is not possib 01/08/2013, which is not possible unless the party le unless the party was known to the assessee. But the assessee failed to produce the said party for the assessee. But the assessee failed to produce the said party for the assessee. But the assessee failed to produce the said party for verification before the Assessing Officer. Regarding the entry in the verification before the Assessing Officer. Regarding the entry in the verification before the Assessing Officer. Regarding the entry in the books of accounts of the assessee as investment and entry in the books of accounts of the assessee as investment and entry in the books of accounts of the assessee as investment and entry in the wealth tax return filed, the learned DR submitted that led, the learned DR submitted that in view of led, the learned DR submitted that registered valuer certificate issued by sh Karan K Gandhi filed registered valuer certificate issued by sh Karan K Gandhi filed registered valuer certificate issued by sh Karan K Gandhi filed alongwith wealth tax return ( PB alongwith wealth tax return ( PB-35) establish that jewellary 35) establish that jewellary containing said ‘diamond and emerald’ was in existence but the containing said ‘diamond and emerald’ was in existence but the containing said ‘diamond and emerald’ was in existence but the bills showing the pur bills showing the purchase of diamond and emerald not being chase of diamond and emerald not being genuine, only inference which could be drawn is that those items genuine, only inference which could be drawn is that those items genuine, only inference which could be drawn is that those items had been purchased in cash from grey market and source of that had been purchased in cash from grey market and source of that had been purchased in cash from grey market and source of that cash has not been explained by the assessee , thus, addition by the cash has not been explained by the assessee , thus, addition by the cash has not been explained by the assessee , thus, addition by the AO is justified.

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8.8 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee dispute and perused the relevant material on record. dispute and perused the relevant material on record. has shown to have made purchase of emerald has shown to have made purchase of emerald i.e. precious stones, i.e. precious stones, of Rs.17,67,500/- from M/s Rajan Gems and diamonds of Rajan Gems and diamonds of Rs.19,53,400/- from M/s Shri Ganesh Gems. The Assessing Officer from M/s Shri Ganesh Gems. The Assessing Officer from M/s Shri Ganesh Gems. The Assessing Officer asked the assessee to justify genuineness of the said purchases, asked the assessee to justify genuineness of the said purchases, asked the assessee to justify genuineness of the said purchases, but the assessee filed only documents available with her i.e. copy of but the assessee filed only documents available with her i.e. copy of but the assessee filed only documents available with her i.e. copy of purchase bills, copy of ledger account of those parties in the books purchase bills, copy of ledger account of those parties in t purchase bills, copy of ledger account of those parties in t of account. No other documents including confirmation from those of account. No other documents including confirmation from those of account. No other documents including confirmation from those parties were filed by the assessee before the parties were filed by the assessee before the lower authorities. The authorities. The Assessing Officer on the other hand Assessing Officer on the other hand, in view of the information in in view of the information in his possession brought to the notice of the as possession brought to the notice of the assessee that those bills sessee that those bills issued were not genuine. He referred to various observations made issued were not genuine. He referred to various observation issued were not genuine. He referred to various observation during the course of the search at the during the course of the search at the premises of Sh Gautam Jain of Sh Gautam Jain including admission by Sh Gautam Jain that approximately 70 including admission by Sh Gautam Jain that approximately 70 including admission by Sh Gautam Jain that approximately 70 dummy dummy concerns concerns were operated operated by by him him for for providing accommodation entry for purchase accommodation entry for purchases to various parties. The to various parties. The parties namely Rajan Gems and Shri Ganesh Gems are namely Rajan Gems and Shri Ganesh Gems are part of those 70 part of those 70 concerns of shri Gautam Jain of shri Gautam Jain. The directors/ partners/proprietors The directors/ partners/proprietors of those concerns also of those concerns also admited to be for namesake with to be for namesake without doing any actual business activity. From the ledger account of Rajan any actual business activity. From the ledger account of Rajan any actual business activity. From the ledger account of Rajan Gems in the books of accounts of the assessee, available on page 16 Gems in the books of accounts of the assessee, available on page 16 Gems in the books of accounts of the assessee, available on page 16 of the paperbook, it is seen that payment of of the paperbook, it is seen that payment of ₹12 lakh 12 lakh to said party has been shown to have been made on 24/05/2014. In normal has been shown to have been made on 24/05/2014. has been shown to have been made on 24/05/2014. course, no unknown party will course, no unknown party will keep the payments pending and it is pending and it is

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possible only if buyer and seller are known to each other. But in the possible only if buyer and seller are known to each other. But in the possible only if buyer and seller are known to each other. But in the case, assessee has not produced any evidence that said party was case, assessee has not produced any evidence that said party was case, assessee has not produced any evidence that said party was known to the assessee. The assessee known to the assessee. The assessee has neither furnished any her furnished any confirmation from the said party confirmation from the said party nor produced that party for verification before the Assessing Officer. The facts in respect of verification before the Assessing Officer. The facts in respect of verification before the Assessing Officer. The facts in respect of another party are also similar. Further, in the copy of bill issued by another party are also similar. Further, in the copy of bill issued by another party are also similar. Further, in the copy of bill issued by Rajan Gems available on paperbook page Rajan Gems available on paperbook page 15, ‘green e een emerald’ has been shown to have been sold in the unit of grams, whereas been shown to have been sold in the unit of grams, whereas been shown to have been sold in the unit of grams, whereas precious stones are sold in the unit of Carats. precious stones are sold in the unit of Carats. The assessee has The assessee has filed a copy of the valuation report as on 31/03/2012 and the said filed a copy of the valuation report as on 31/03/2012 and the said filed a copy of the valuation report as on 31/03/2012 and the said valuation report the unit of the green e n report the unit of the green emerald has been reported in erald has been reported in Carat. In our opinion, a real businessmen dealing in emerald will Carat. In our opinion, a real businessmen dealing in emerald will Carat. In our opinion, a real businessmen dealing in emerald will never such mistake of such mistake of recording unit of said precious stone as gms. unit of said precious stone as gms. Thus, there are obvious discrepancies or contradictions in the there are obvious discrepancies or contradictions in the there are obvious discrepancies or contradictions in the documents produced by the asses documents produced by the assessee and therefore it was onus of see and therefore it was onus of the assessee to produce both parties for verification before the the assessee to produce both parties for verification before the the assessee to produce both parties for verification before the Assessing Officer. In the circumstances, the purchases shown to Assessing Officer. In the circumstances, the purchases shown to Assessing Officer. In the circumstances, the purchases shown to have been made through th have been made through the bills issued by those to parties e bills issued by those to parties cannot be said to be genuine purch be said to be genuine purchases. In the valuation certificate issued . In the valuation certificate issued by registered valuer (PB (PB-35) , the quantity of diamond and emerald 35) , the quantity of diamond and emerald stated in bills issued by Rajan Gems and Ganesh Gems is stated in bills issued by Rajan Gems and Ganesh Gems is stated in bills issued by Rajan Gems and Ganesh Gems is appearing , thus, it is believed that he must have personally verified appearing , thus, it is believed that he must have personally verified appearing , thus, it is believed that he must have personally verified existence of jewellary containing those diamond and emerald ary containing those diamond and emerald , then ary containing those diamond and emerald logical inference is that the assessee had logical inference is that the assessee had purchased those goods purchased those goods

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from grey market in cash and source of which has not been grey market in cash and source of which has not been grey market in cash and source of which has not been explained by the assessee. explained by the assessee.

8.8.1 The learned counsel of the assessee submitted that said The learned counsel of the assessee submitted The learned counsel of the assessee submitted purchases have been entered in the books of accounts of the purchases have been entered in the books of accounts of the purchases have been entered in the books of accounts of the assessee as investment and therefore no addition could have been assessee as investment and therefore no addition could have been assessee as investment and therefore no addition could have been made under section 69C of the A made under section 69C of the Act. The learned counsel of the The learned counsel of the assessee referred to paperbook page 13 to paperbook page 13, which is balance sh , which is balance sheet of the assessee as on 31/03/2 the assessee as on 31/03/2012. In the said balance sheet . In the said balance sheet, amount of jewelry amounting to of jewelry amounting to ₹46,35,145.33 is appearing . The assessee .33 is appearing . The assessee has provided detailed ledger account of iled ledger account of jewellary, which is available , which is available on paperbook page 27 on paperbook page 27. The said ledger account is reproduced for ready reference:

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8.8.2 In our opinion, the assessee can make entry of the In our opinion, the assessee can make entry of the In our opinion, the assessee can make entry of the purchases either as stock in trade purchases either as stock in trade of trading or investment. Thus by investment. Thus by way of making entry of investment and personal asset, the assessee way of making entry of investment and personal asset, the assessee way of making entry of investment and personal asset, the assessee cannot escape from explaini cannot escape from explaining source of investment. ng source of investment. Further there is obvious contradiction in the documents filed by the assessee. On is obvious contradiction in the documents filed by the assessee. On is obvious contradiction in the documents filed by the assessee. On one hand, the assessee is claimed jewelry available with her as on one hand, the assessee is claimed jewelry available with her as on one hand, the assessee is claimed jewelry available with her as on 31/03/2012 amounting to 31/03/2012 amounting to ₹46,35,145/- which includes the so which includes the so called purchases made of called purchases made of ₹ 19, 53, 400/-and ₹17,67,500/ 17,67,500/- whereas in the wealth tax return the assessee has shown jewelry as on in the wealth tax return the assessee has shown jewelry as on in the wealth tax return the assessee has shown jewelry as on 31/03/2012 amounting to 31/03/2012 amounting to ₹55, 90, 292/-. When the purchases When the purchases shown to have made from those two pa shown to have made from those two parties are not genuine, then rties are not genuine, then all the way, it is onus on the assessee to explain the source of the all the way, it is onus on the assessee to explain the source of the all the way, it is onus on the assessee to explain the source of the investment of Rs.17,65,500/ 17,65,500/- and Rs.19,53,400/- appearing in her appearing in her balance sheet. We have already held that in view of physical We have already held that in view of physical We have already held that in view of physical verification of goods by the verification of goods by the registered valuer vis-a vis bogus bills of a vis bogus bills of those items, a logical inference is that the assessee had purchased , a logical inference is that the assessee had purchased , a logical inference is that the assessee had purchased those goods from grey market in cash and source of which has not those goods from grey market in cash and source of which has not those goods from grey market in cash and source of which has not been explained by the assessee. been explained by the assessee. In absence of explaining source of In absence of explaining source of purchase in cash, the Assessing Officer is justified in making , the Assessing Officer is justified in making , the Assessing Officer is justified in making addition under section 69C the A addition under section 69C the Act.

In the case of CIT Vs Radhika Creation (supra), CIT Vs Radhika Creation (supra), the 8.8.3 In the case of Hon’ble High Court held that section 6 High Court held that section 69C refers to source of 9C refers to source of expenditure and not to the expenditure itself. But in the instant expenditure and not to the expenditure itself. But expenditure and not to the expenditure itself. But case, the assessee has recorded those purchases as investment , case, the assessee has recorded those purchases as investment , case, the assessee has recorded those purchases as investment ,

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but the bills issued by the seller parties are not found to be genuine but the bills issued by the seller parties are not found to be genuine but the bills issued by the seller parties are not found to be genuine and therefore it is infered infered that those purchases were made in cash that those purchases were made in cash by the assessee and the assessee has not explained source of the t explained source of the cash . Thus, facts of the instant case are facts of the instant case are distinguishable. In the distinguishable. In the case of PCIT Vs Vaman International Private Limited (supra), PCIT Vs Vaman International Private Limited (supra), PCIT Vs Vaman International Private Limited (supra), the assessee substantiated purchases by way of confirmation and other assessee substantiated purchases by way of confirmation and other assessee substantiated purchases by way of confirmation and other evidences but in the case assessee has not filed any such evidences but in the case assessee has not filed any such evidences but in the case assessee has not filed any such documents to support the genuineness of the purchases, and thus documents to support the genuineness of the purchases, and thus documents to support the genuineness of the purchases, and thus the facts of the instant case are distinguishable. the facts of the instant case are distinguishable.

8.8.4 In view of about discussion, we uphold the order of the iew of about discussion, we uphold the order of the iew of about discussion, we uphold the order of the Ld. CIT(A) on the issue in dispute. The ground Nos. one and two of Ld. CIT(A) on the issue in dispute. The ground Nos. one and two of Ld. CIT(A) on the issue in dispute. The ground Nos. one and two of the appeal of the assessee the appeal of the assessee are accordingly dismissed. accordingly dismissed.

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai