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Assessee by ShriPrakash G.Jhunjhunwala, CA Revenue by Shri Ritesh Mishra, CIT-DR Date of hearing 17.09.2021 Date of pronouncement 09.11.2021 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals)-1Suratdated 14.03.2019for assessment year (AY) 2008-09. The Revenue has raised the following grounds of appeal:- “1. On the facts and circumstances of the case in law, CIT(A) has erred in restricted the addition made by the AO of Rs.3,33,13,089/- on account of bogus purchases to 5%.
2. On the facts and circumstances of the case in law, CIT(A) has failed to appreciate the fact that the entire purchase from alleged concerns were bogus and was only to suppress the profit of the beneficiaries which is substantiated by the statement on oath given by the entry provider.”
A.Y.08-09 Sh. Yogendraraj U Singhvi 2. Brief facts of the case are that assessee is proprietor of Maniprabh Exports, engaged in business of import and export of all kinds of trading diamonds. The assessee has filed his return of income for assessment year 2008-09 on 30.09.2008 declaring total nil income. Initially the return of income was processed under section 143(1) of the Income Tax Act, 1961 (in short ‘the Act’). Subsequently, the case was re-opened under section147 of the Act. Notice under section 148 was issued to the assessee on 19.03.2015.The case was re-opened on the basis of information that a search action under section 132 of the Act conducted at the premises of Shri Praveen Jain & other group cases of Mumbai on 01.10.2013. In the search it was proved that Praveen Kumar Jain (PK Jain) was engaged in providing accommodation bills without relating. The statement of PK Jainwas also recorded wherein he has admitted of providing accommodation entries. The Assessing Officer received information from DIT(Investment) Mumbai that assessee was one of the beneficiary who has received accommodation entry from the various entity / parties managed by PK Jainof aggregating of Rs.3.33 crores. On the 2 A.Y.08-09 Sh. Yogendraraj U Singhvi basis of such information, the Assessing Officer formed his belief of re-opening that the income of the assessee escaped from assessment. The Assessing Officer also recording the reasons of re-opening served on the assessee. The assessee in response to notice under section 148 of the Act filed his return of income on 22.07.2015 declaring loss of Rs.5.41 lakh. The Assessing Officer recorded that the assessee filed his objection, which was disposed of by speaking order on 31.12.2015.The Assessing Officer thereafter proceeded for re-assessment. The Assessing Officer issued show caused notice that assessee is one of the beneficiary of the accommodation entry from six foreign bogus parties managed by PK Jain. The assessee filed his reply on 05.02.2016. In the reply assessee stated that entire purchase and sale are genuine and verifiable. The assessee has sufficient evidence to prove the purchase and sale. Transactions were made through banking channel. The assessee has sold the material purchases. No sale is possible without purchase. The books of account of assessee are duly audited. There is no validity of statement of third party, which has been detracted. The reply of assessee was not accepted by 3 A.Y.08-09 Sh. Yogendraraj U Singhvi Assessing Officer. The Assessing Officer on the basis of such report of Investigation agency made the disallowance of entire purchase shown as such disputed/ bogus/ hawala parties thereby making addition of Rs.3.33 crores.
On appeal before Ld. Commissioner of Income-Tax (Appeals) [CIT(A)], the assessee filed detailed written submission. The submission of assessee are duly recorded in para-7 at pages 5 to 13 of the order of Ld. CIT(A). Before Ld. CIT(A), the assessee in sum and substance contended that the addition on account of disallowances of purchases of Rs.3.33 crores from six parties, is erroneous and unjustified. The assessee further stated that to substantiate of genuineness of purchase, the assessee has filed/ furnished name, address, PAN of the disputed parties, confirmation of accounts, purchase bill, sale bill bank statement, purchase register, sale register and stock register. The assessee discharged his primary onus and no fault is found in the entry recorded in the books of account of assessee. The assessee filed the documentary evidence about the genuineness of the entire purchases. All purchases are entered in the books of account and no investigation is carried 4 A.Y.08-09 Sh. Yogendraraj U Singhvi out by the Assessing Officer. The Assessing Officer is not justified in making the 100% disallowance. The assessee without prejudice submission submitted that only profit embedded in the disputed purchase can only be brought on record to tax and not the entire transaction. The assessee relied on the number of case laws.
The Ld. CIT(A) after considering the submission of assessee held that in various decision the Tribunal disallowed @ 5% of disputed purchase being profit element embedded in such purchased. The Ld. CIT(A) by referring various decisions and held that in other various cases, he has disallowed @ 5% of purchases, which has been affirmed by the Tribunal. Thus, Ld. CIT(A) sustained the disallowance to the extent of 5% of the disputed purchases. Further, aggrieved the Revenue has filed present appeal before us.
We have heard Ld. Commissioner of income tax -Departmental Representative (CIT-DR) for the Revenue and the Ld. Authorized Representative (AR) for the assessee and have gone through the orders of authorities below. We have also deliberated on various case law referred and relied by Ld. 5 A.Y.08-09 Sh. Yogendraraj U Singhvi CIT(A). The d. CIT-DR submits that assessee is a beneficiary of bogus purchases. The Investigation Wing of the department made a full-fledged investigation about the modus operandi and entry provider, namely PK Jain, during the search action he had admitted that he was indulging and providing accommodation entry without actual delivery of goods. The assessee is one of the beneficiary of such purchases. The assessee made submission before Ld. CIT(A) that his purchases are genuine. The ld. CIT-DR submits that the documentary evidence in case of dummy are created in such manner so that entire transaction is looks like a genuine transaction. The Ld. CIT-DR for the Revenue submitted that disallowance restricted by Ld. CIT(A) on lower side and keeping in view the volume of transaction either matter may be restored back to the file of Assessing Officer for making full-fledged investigation or reasonable disallowance not less than 25% may be made by modifying the order of Ld. CIT(A). The assessee has shown turnover of Rs. 62 crore and shown loss of Rs. 5.41 lakhs.
On the other hand, Ld. AR of the assessee supported the order of Ld. CIT(A). The Ld. AR of the assessee submits that during 6 A.Y.08-09 Sh. Yogendraraj U Singhvi the assessment, the assessee furnished complete details of purchase made from six parties. The assessee furnished the complete details of purchase invoice, addresses of the parties confirm of parties, bank statement and acknowledgement of return of the seller parties. The assessee is maintaining complete records of the day-to-day stock the material purchased by assessee was sole business purpose. The statement of accounts was not rejected by the Assessing Officer. The sales of goods / material is not possible in absence of purchases. The Ld. AR of the assessee submits that Ld. CIT(A) has took a very reasonable approach by making the disallowance@ 5% though the entire disallowance was liable to be deleted.
We have considered the rival submission of both the parties and have gone through the order of authorities below. We find that during the assessment, the Assessing Officer disallowed the entire purchases from the six parties though the assessee filed various documents to substantiate the genuineness of purchases. No comments on such documentary evidence was made by the Assessing Officer and no independent 7