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Income Tax Appellate Tribunal, -SURAT-BENCH-SURAT
Before: SHRI SANDEEP GOSAIN & SHRI O.P.MEENA, ACCOUTANT MEMBER
Shri Rasesh Shah, CA िनधा�रती क� ओर से /Assessee by Mrs. Anupama Singla, Sr.D.R. राज�व क� ओर से /Revenue by 04.02.2020 सुनवाई क� तारीख/ Date of hearing: 06.02.2020 उ�ोषणा क� तारीख/Pronouncement on आदेश /O R D E R
PER O. P. MEENA, AM:
This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-2, Surat(in short “the CIT (A)”) dated 20.09.2016 pertaining to Assessment Year 2007-08, which in turn has arisen from the assessment order passed under section 143 (3) r.w.s.147 dated 24.03.2015 of Income Tax Act, 1961 (in short ‘the Act’) by the Deputy Commissioner of Income-Tax, Circle – 2(1)(2), Surat(in short “the AO”).
Ground No.1 & 2 relating to challenging validity of reopening of assessment and non passing speaking order has been withdrawn Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 2 of 16 before us by the Learned Counsel, hence, same is treated as withdrawn and Ex-consequenti, these grounds of appeal
are dismissed.
3. Ground No. 3 to 5 are relates to confirming addition of Rs. 37,52,890 treating as bogus purchases under section 68 of the Act, by relying on third party statement without rejecting books of accounts and without pointing out of any defects in maintenance of books of accounts and ignoring the bills submitted .
4. Succinct facts are that a search and seizure operation carried out on 03.10.2013 in the case of Bhanwarlal Jain Group revealed that this group was involved in providing bogus accommodation entries. During the year under consideration, the assessee has taken accommodation entries of Rs.16,45,630 from Rajan Diamond and Rs. 21,07,260 from Navakar Diamond aggregating to Rs.37,52,630 in the form of purchase who are being controlled by the Shri Bhanwarlal M. Jain. Accordingly, notice under section 148 of the Act was issued on 28.03.2014 after recording reasons. In response to which, return of income was filed on 03.06.2014. During the course of assessment proceedings, the AO had issued a summon under section 131 of the Act on 25.02.2015, by speed post to both parties, which did not return un-served. The AO also sent Inspector(ITI) for personal service, who Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 3 of 16 visited the premises and serve summon by affixture. The ITI has reported that business premises of both party was found locked and neighbors also stated that premises were locked since a long time. The assessee has challenged the ITI report that it was concocted story and rebutted the same point wise. The assessee was asked to produce the suppliers but failed to produce. The copy of statement of Shri Bhanwarlal M. Jain, Lunkaran Kothari and Shri Ritesh Siroya were given to the assessee. Therefore, the AO observed that in the light of ITI`s report and fact that summons were served by affixture on Shri Vivek Rajan, proprietor of Rajan Diamond and Shri Shreyans Jain proprietor of Navkar Diamond and non appearance by them, the purchases amounting to Rs.37,52,890 were treated as unexplained cash credit under section 68 of the Act.
5. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). It was submitted before CIT (A) that copies of purchase invoices of Rs. 21,07,260 dated 18.01.2007 from Navkar Diamond and purchase invoice of Rs.16,45,630 dated 15.02.2007 from Rajan Diamond were filed before the AO. Confirmation accounts of both parties were filed for the year under consideration and subsequent assessment year in which payments made by account payee cheques from the appellant were filed, along with copies of bank statement Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 4 of 16 and bank book from two suppliers. Further the day to day stock register of cut & polished diamonds maintained regularly identifying therein the inward quantity of diamond purchased for above two parties were filed along with copy of purchase register. However, the entire assessment is silent on this point. The AO has not rejected any documentary evidence nor the books of accounts and made addition under section 68 of the Act. The AO has ignored the notice under section 133(6) on 06.02.2015 to both parties and filing by them confirmatory letters, which are on record. The assessee has also requested the cross examination of Shri Bhanwarlal M. Jain right from beginning, but same was not allowed, on the contrary pressurized the assessee to produce the suppliers. Therefore, non-production of suppliers after 9 years cannot be viewed adversely. However, the CIT (A) vide order sheet entry dated 25.07.2016 directed the assessee to provide current addresses of suppliers for verification purpose as the AO was not able to locate the sellers during the assessment proceedings. The appellant wide his submissions dated 26. 08. 2016 submitted that it is not possible to provide the current addresses of the sellers for verification, nor it is possible to produce these parties. Thus, the appellant has failed to prove the very existence/identity of the 2 parties, in spite of allowing several opportunities. The evidence Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 5 of 16 found by the Investigation Wing duly revealed the modus operandi of providing accommodation entries by Bhanwarlal Jain Group. The examination and analysis of the statement on oath revealed that the actual importers of rough diamonds import part of the diamonds from the benami concerns operated by Shri Bhanwarlal M. Jain, with the view to suppress their turnover, profits and capital requirement. The contention of the appellant that apart from the said statement no other evidence was found but this argument has no force as also not legal support because that is statement recorded under section 132 (4) is an evidence by itself. The retraction by Shri Bhanwarlal M. Jain from the statement on oath is an afterthought to escape the tax liability. Shri Bhanwarlal M. Jain, while retracting from the statement on oath could not bring on record any facts or evidence that an admission was taken in the circumstances, where threat, coercion, undue pressure etc. existed. The contention of the appellant that he should have given the opportunity of cross-examination is also misplaced in law and on facts. It is not imperative in each case to provide for cross-examination. The evidences found during the search, of Navkar and Rajan Diamonds itself prove that the parties under consideration were a paper concern without no actual business activity and for transaction were a make-believe arrangement and Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 6 of 16 the appellant has expressed his inability to provide current address of the two sellers for verification or produce them for examinations/verification. In view of these facts and after citing number of case laws, the learned CIT (A) has confirmed the addition made by the AO.
6. Being dissatisfied, with the order of Ld. CIT(A), the assessee has filed this appeal before this Tribunal. Counsel for the assessee submitted that the notices issued under section 133 (6) of the Act dated 06.02.2015 , copies of which are placed at Paper Book Page No. 183 and 184, by the AO were duly served on the suppliers of goods, and in turn the suppliers have filed their confirmations, giving details of the purchase invoice, copy of ledger account and copy of acknowledgement of return filed by them before the AO, copies of which are placed at Paper Book Page No. 185 to 192. It was further contended that the report of the Inspector was defective. Hence, not valid against which the assessee has filed his objections before the AO, which are placed at paper book page No.215 to 217. It was pointed out that the Inspector has not mention any date on which he had visited the premises of the concern suppliers. He did not mention the names of neighbors with form he has enquired. A statement of neighbors have not been taken, and if taken not provided to the Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 7 of 16 assessee. Oral communication has no meaning. The learned Counsel further contended that the statement on oath, recorded from Shri Bhanwarlal M. Jain has not been supplied, and only excerpts of which have been supplied. The learned Counsel contended that the learned Counsel contended that the AO was specifically requested vide letter dated 05. 03. 2015, (copy of letter is placed at Paper Book Page No. 195) to produce Shri Bhanwarlal M. Jain before him and provide cross- examination to the assessee. However, the AO has not provided any opportunity for cross-examination and rebuttable of the evidences which were against the assessee. Thus, this is a clear violation of the rule of natural Justice. Therefore, the learned Counsel placing reliance on the decision of Honourable Supreme Court of India in the case of Commissioner of Income-Tax -7 New Delhi vs. M/s. Odeon Builders Pvt. Ltd. in Review Petition(C) Diary No. 22394 of 2019 dated 21.08.2019 (Case laws Paper Book Page No. 23 to 25) wherein the Hon`ble Supreme Court observed as follows : However, on going through the judgements of the CIT, ITAT and the High Court, we find that on merits he disallowance of Rs. 19, 39, 60, 866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the Ld. CIT(Appeals) allowed the appeal of the assessee is stating: “Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 8 of 16
Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying the opportunity of cross examination to the appellant, who has prima-facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques & VAT Registration of the sellers & their Income Tax Return. In view of above discussion in totality, the purchases made by the appellant forms M/s. Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs.19, 39, 60, 866/-, is directed to be deleted.”
Thus, ITAT by its judgement dated 16th May,2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgement dated 55th July, 2017, affirmed the judgements of the CIT and ITAT as concurrent findings, which have not been shown to be perverse and , therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of ITAT. In these circumstances, The Review Petition are dismissed.
In view of above, the learned counsel for the assessee submitted addition made by the AO is not sustainable in law.
Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 9 of 16
Per contra, the ld. Sr. D.R. submitted that the AO has made due inquiry from the office of suppliers but the same were found locked and the assessee was not able to produced the suppliers. Therefore, decision of Hon`ble Supreme Court is distinguishable on facts, as in that case no further enquiry were made and sole reliance was placed on third party information. The ld. Sr. D.R. further supported her view by placing reliance in the case of CIT v. Youth Construction (P) Ltd. [2014] 357 ITR 197 (Delhi) wherein it was held that filing of the confirmation letters and copies of their income-tax returns is not sufficient for purpose of discharging creditworthiness of share applicants and genuineness of transaction. She further relied in the case of Ridhi Promoters v. CIT [2015] 58 taxmann.com 367 (Delhi) , and CIT v. Ultra Modern Exports (P) Ltd. [2013] 40 taxmann.com 458 (Delhi) and other case laws asper the case laws compilation. The ld. Sr. D.R. submitted that seller parties are were not found nor traceable, hence, purchases needs to be held as bogus and entire addition be upheld as sustained by the CIT (A).
We have heard the rival submissions and perused the relevant material on record. We find that the assessee submitted that copies of purchase invoices of Rs. 21,07,260 dated 18.01.2007 from Navkar Diamond and purchase invoice of Rs.16,45,630 dated 15.02.2007 Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 10 of 16 from Rajan Diamond were filed before the AO. The confirmation accounts of both parties were filed for the year under consideration and subsequent assessment year in which payments made by account payee cheques from the appellant were filed, along with copies of bank statement and bank book from two suppliers. Further the day to day stock register of cut & polished diamonds maintained regularly identifying the inward quantity of diamond purchased for above two parties were filed along with copy of purchase register. The assessee has also requested to cross examination of Shri Bhanwarlal M. Jain right from beginning but same was not allowed, on the contrary pressurized the assessee to produce the suppliers. Therefore, non- production of suppliers after gap of 9 years cannot be viewed adversely. We find that the CIT (A) vide order sheet entry dated 25.07.2016 has directed the assessee to provide current addresses of suppliers for verification purpose as the AO was not able to locate the sellers during the assessment proceedings. But the assessee vide his submissions dated 26. 08. 2016 submitted that it is not possible to provide the current addresses of the sellers for verification, nor it is possible to produce these parties. Thus, the assessee has failed to prove the very existence/identity of these parties, in spite after allowing number of opportunities. Thus, genuineness of transaction Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 11 of 16 is not established. The evidence found by the Investigation Wing also established the modus operandi of providing accommodation entries by the concerns controlled by Shri Bhanwarlal Jain Group. The examination and analysis of the statement on oath revealed that the actual importers of rough diamonds import part of the diamonds from the benami concerns operated by Shri Bhanwarlal M. Jain, with the view to suppress their turnover, profits and capital requirement. The contention of the appellant that apart from the said statement no other evidence was found but this argument has no force as also have no legal support because the statement recorded under section 132 (4) was an evidence by itself. The retraction by Shri Bhanwarlal M. Jain from the statement on oath is an after thought to escape the tax liability. Shri Bhanwarlal M. Jain, while retracting from the statement on oath could not bring on record any facts or evidence that an admission was taken in the circumstances, where threat, coercion, undue pressure etc. existed. The contention of the assessee that he should have given the opportunity to cross examine, is also misplaced in law and on facts. It is the not imperative in each case to provide for cross-examination. The evidences found during the search and non traceable of Navkar and Rajan Diamonds itself proved that the parties under consideration were a paper concern without any actual Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 12 of 16 business activity and the transaction were a make-believe arrangement. The assessee has also expressed his inability to provide current address of the two sellers for verification or produce them for examinations/verification. We find that the assessee has failed to produce the said party for verification which lead to prove that the genuineness of purchases as required by the CIT (A) remained as unsubstantiated. Therefore, reliance placed in the case of CIT V. Odeon Builders Pvt. Ltd. ( Review Petition (C) Diary No 22394 of 2019 (supra) is not applicable in this case as in that case the addition was made solely on third party information which was not subjected to further scrutiny, whereas in the present case, the AO has carried out further inquiry through Inspector who did not find the parties on the addresses supplied by the assessee. The assessee has failed to produce the parties before CIT (A) where specifically required and also failed to provide current address of the parties. Further, the parties concerned have not made any compliance of summons issued under section 131 by the AO. Further, Shri Bhanwarlal M. Jain has admitted in his statement recorded under section 132(4) of the Act during the course of search and seizure operation conducted in their case have admitted that they used to provide bogus accommodation bills. However, we note that the AO treated the whole amount of Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 13 of 16 Rs.37,52,890 as bogus purchases. The assessee has duly produced the copies of bills, invoices and payments is made by account payee cheques. This shows that purchases have been made, but may be not from the party from whom purchases bills have been obtained. The only possibility is therefore, is that the assessee might have inflated the purchases, as sale has not been doubted by the AO. In view of this matter, it is not just or reasonable to treat entire purchases when corresponding sales has not been doubted by the AO. There cannot be any sales without making purchases. We are, therefore, of the view that it is a simple logic that when the AO has not questioned the sales /stock then there is no logic to disallow the 100% bogus purchases. It is obvious that there cannot be any sales without purchases. We find that the quantity records are maintained. We further notice that the Hon`ble Jurisdictional High Court in the case of Mayank Diamonds Pvt. Ltd. v. ITO [Tax Appeal No. 200 of 2003] dated 17.11.2014 wherein the Hon`ble High Court has observed as under: “5. We have heard learned advocates for both sides and perused the orders passed by the CIT as well as the Tribunal. As a result of hearing and perusal of records, it is borne out of that the average profit which has been considered for this industry is around 3 to 7%. The Tribunal in the instant case has directed addition at the rate 12.5%, Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 14 of 16
which 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.”
We further observe that it is also a fact 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 Co-ordinate Bench of the Tribunals in their decisions in the case of Deluxe Diamonds v. ITO [I.T.A.No. 1396/Ahd/2017 dated 11.04.2018- Surat-Trib] , DCIT v. J. B. Brothers [ I.T.A.No. 3661/Ahd/2015 dated of Surat bench, ITAT] and DCIT v. Opulent Jewels Pvt. Ltd. [I.T.A.No. 1855/Ahd/2010/SRT] wherein the Tribunal has restricted the estimation of 5% of bogus phases and not of entire purchases disclosed in books of accounts by Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 15 of 16 the assessee by following decision of Hon’ble Gujarat High Court in the case of Mayank Diamonds Pvt. Ltd. v. ITO [Tax Appeal No. 200 of 2003] dated 17.11.2014 [2014] 11 (TMI) 812 (Gujarat). Therefore, in the light of above facts and circumstances and considering the net profit of 5% as the average rate of the industry as observed by the Hon`ble Jurisdictional High Court and following the judicial pronouncements by the Co-ordinate Bench of Tribunals and the decision of Hon`ble Jurisdictional High Court in the case of Mayank Diamonds Pvt. Ltd. v. ITO [Tax Appeal No. 200 of 2003] dated 17.11.2014; we deem it fit to restrict the addition to 5% of total bogus purchases of Rs.37,52,890. Accordingly, addition of Rs.1,87,645 [5% of Rs.37,52,890] is sustained as against addition of Rs. 37,52 890. In view of this, the addition of Rs.35,65,245 is deleted. Accordingly, Ground No. 3 to 5 of appeal of the assessee are partly allowed.
Ground No. 6: Relating to charging of interest under section 234A,234B, 234C and 234D is concerned, we are of the view that charging of interest is mandatory as held by the Hon`ble Supreme Court in the case of CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1 (SC), therefore, we upheld the same. However, we held that the assessee is entitled to consequential relief if any as arise out on giving effect to this order if any. This ground is therefore, disposed-off accordingly. 12. Ground No.7: relates to initiation of penalty proceedings under section 271(1) (c) of the Act.
Shashvat Jewels Pvt. Ltd. v. DCIT- Circle 2(1)(2)Surat/I.T.A.No. 3364/AHD/2016 A.Y. 07-08 Page 16 of 16