MADHUR GEMS PVT. LTD,MUMBAI vs. ACIT CC-1(3), MUMBAI

“1. On the facts and in the circumstances of the case and in law the Ld. CIT (A) erred in not considering that the assumption of jurisdiction by the Ld. Assessing Officer is bad in law as the conditions laid down under the Act for initiating reassessment proceeding u/s 147 of the Act have not been fulfilled.

3. On the facts and circumstances of the case and in law the Ld CIT(A) erred in confirming addition of Rs. 34,02,256/- (being 9 23% of Rs. 1,51,92,378/-), on estimation basis, by treating genuine turnover of the appellant as bogus sales:

4. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the addition of alleged commission income arising out of alleged bogus unsecured loans, bogus sales and bogus purchases and also confirming the addition of gross profit, on estimation basis, of a percentage of the total turnover, without appreciating the fact that both such additions cannot co- exist together.

5. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming addition of alleged commission income arising out of alleged bogus unsecured loans, bogus sales and bogus purchases, without appreciating the fact that for the very same assessee for previous assessment years, being A.Y. 2008-09 to A.Y. 2014-15, the Ld. CIT(A) has deleted the protective addition of alleged commission Income, thereby not following the principal of consistency.

8. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming the addition made by Id. AO, without providing any opportunity of cross examination, without any corroborative evidence and without providing copy of statements relied upon.

9. The appellant craves to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to one another”

ii. Assessee is stated to be engaged in business of import and export and trading of cut and polished and roughed diamonds. iii. The return of income was not selected for scrutiny.

Subsequently, a search took place on 30th October, 2013, in case of iv. Mr. Bhanwarlal Jain Group. v. Mr. Bhanwarlal jain in his statement he has categorically admitted that he is issuing bogus bills through 70 concerns and operated and managed by him through dummy directors, partners, etc. Assessee is one of them. vi. During the year, assessee has purchased of ₹16.17 crores, sales of ₹15 crores and loans etc. of ₹8 crores which are alleged to be an accommodation entries. Thus, case of assessee was reopened by issuing notice u/s 148 of the Act. viii. The learned Assessing Officer categorically held that Mr. Bhanwarlal Jain has admitted accommodation entries through web of several concerns. The learned Assessing Officer made detail description of the accommodation entries given by Mr Bhanwarlal jain using this company as a conduit. ix. The learned Assessing Officer thereafter determined that on this accommodation entries of unsecured loan, bogus purchases and bogus sales, total commission income of the assessee is ₹21,06,501/-. Deduction of 10% was granted for expenses and undisclosed commission income of ₹18,95,851/- was made. x. The learned Assessing Officer categorically noted that addition in the case of Shri Bhanwarlal Jain of the above amount is made on substantive basis and in the case of the assessee; it is made on protective basis. xi. The learned Assessing Officer further noted that no transactions of the assessee are supported by proper evidence and further summons issued under Section 131 of the Act are not complied. He found that the gross profit shown by the assessee is very less. Therefore, he compared the gross profit of four different entities and then estimated the gross profit of the assessee at 11.5%, where assessee has disclosed gross profit of 2.27%, made the addition of ₹34,02,256/- of the balance gross profit. xii. Accordingly, assessment order under Section 143(3) read with section 147 of the Act was passed on 27th November, 2019, determining the total income of the assessee at ₹31,68,843/-.

i. Confirmed the addition of accommodation entry commission of bogus unsecured loans and bogus purchase on protective basis. iii. With respect to the addition on the gross profit he confirmed the addition holding that the other group concerns Mr. Bhanwarlal Jain has shown gross profit, the gross profit disclosed by the assessee is very low and therefore, the addition is properly made. iv. Thus, part of the addition of accommodation entry is made on protective basis and part of the addition of accommodation entry on substantive basis was confirmed by the learned CIT (A) over and above addition on account of lower gross profit.

6. The learned Authorized Representative submitted that the learned CIT (A) has confirmed protective addition in the hands of the assessee without confirming where substantive addition is made. It was the claim that the appellate authorities cannot confirm the addition on protective basis. With respect to the gross profit, it was submitted that it amounts to double addition as no defects in the books of accounts are pointed out. With respect to the substantive addition made by the learned CIT (A) it was submitted that the learned CIT (A) has not considered that ITAT in case of Mr. Bhanwarlal Jain has confirmed the commission income on the sale and further the learned CIT (A) while making the variation in the addition has not issued any notice under Section 251(2) of the Income-tax Act, 1961 (the Act). It was stated that when the notice under Section 251(2) of the Act is not issued, the addition is not sustainable.

Order pronounced in the open court on 17.04.2023.