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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
ORDER
PER OM PRAKASH KANT, AM:
This appeal has been preferred by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-47, Mumbai, (in short ‘the ld. CIT’) for A.Y.2015-16 raising the following grounds: “
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.
2. On the fact and circumstances of the case and in law the Ld. CIT (A) erred in estimating an addition of Rs.2,71,98,014/- (being 10.31% of Rs. 2 Rose Impex Vs. ACIT, CC-1(3) 26,38,02,270/-) by allegedly treating genuine turnover made by the appellant, as bogus sales.
3. On the fact and circumstances of the case and in law the Ld. CIT (A) erred in making an addition of Rs. 2,71,98,014/- without appreciating the fact that the appellant is a trader and the quantity tally of goods, submitted in the Tax Audit Report u/s 44AB of the Act and also to the Ld. A.O. in the course of reassessment proceedings, completely tallies.
4. On the fact and circumstances of the case and in law and without prejudice to the above, the Ld. A.O. has erred in making an addition on estimation basis of commission income arising out of alleged bogus unsecured loans, bogus purchases and bogus sales and also making an addition on estimation basis of the total turnover, without appreciating the fact that both such additions cannot exist together.
5. 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.
6. 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.”
2. Briefly stated, the facts of the case are that the assessee filed its original return of income on 24.09.2015 declaring total income of Rs.30,410/-. Subsequently, the Assessing Officer received information from the Investigation wing of the Income Tax Department, Mumbai, that the assessee is one of the concern controlled and managed by “Shri Bhanwarlal Jain” who used this firm for providing accommodation entries of purchase/sale of diamonds, unsecured loans and advances etc. The A.O reopened the assessment by way of issue of notice u/s 148 of the Act on 05.09.2018 after recording reasons for reopening of the assessment. The reassessment u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 (in short ‘the Act’) was completed on 27.11.2019, wherein the A.O made two additions to the returned income. The first addition is in respect of the commission income amounting to Rs.14,94,462/- on protective basis. Accordingly to the assessing officer “Shri Bhanwarlal 3 Rose Impex Vs. ACIT, CC-1(3) Jain” has used this concern for providing accommodation entry transaction and therefore, substantive addition of earning commission from accommodation entries was made in the case of Shri Bhanwarlal Jain and only protective addition has been made in the case of the assessee. The second addition made by the A.O is in respect of gross profit amounting to Rs.2,71,98,014/- on the ground that gross profit rate declared by the assessee in the year under consideration (i.e 1.19%) being too low as compared other concerns managed by Shri Bhanwarlal Jain. On further appeal, the ld. CIT(A) deleted the additions made by the A.O on protective basis, however, he sustained the additions made by the A.O to compensate low gross profit rate.
3. Aggrieved, the assessee carried the matter in appeal before the Tribunal raising the grounds as reproduced above.
Before us, the ld. Counsel of the assessee appeared in physical hearings and filed a paper book containing pages 1 to 63.
Before us, the parties argued the ground on merit first, therefore, we have taken up the ground Nos. 2 to 5 of the appeal for adjudication.
We have heard the rival submission of the parties on the issue in dispute and perused the relevant material on record. From the reasons recorded it is undisputed that issue has been reopened on the ground that assessee was not carrying genuine business of trading in diamonds and was engaged only in providing accommodation entries. The relevant part of the reasons recorded is reproduced as under:
Thus, based on the above mentioned percentages, the undisclosed cash commission income has been worked out in the case of the assessee for A.Y. 2015-16. It has been proved beyond doubt that the above entity is not carrying out any genuine business of trading in diamond but is solely used for giving accommodation entries by Bhanwarlal Jain and family and the above entity is 4 Rose Impex Vs. ACIT, CC-1(3) only an associate. Hence, the commission income earned by the entity mentioned above has to be added in A.Y. 2015-16 and has thus escaped assessment within the meaning of section 147 of the Income Tax Act, 1961, which is attributable to failure on the part of the assessee to make full and true disclosure in the return of Income.
6.1 Further, the A.O in his detailed finding from para 6 to 12 also had the assessee concern as managed and controlled by Shri Bhanwarlal Jain for giving accommodation entry of bogus unsecured loan, bogus purchase business sales etc. and following the finding in the case Shri Bhanwarlal Jain, the A.O made addition of the undisclosed commision income of Rs.14,94,462/- on protective basis. The relevant finding of the A.O in para 12 is reproduced as under:
12. Working of Commission on various accommodation entries:- As, it has been proved beyond doubt that the assessecis not carrying out any genuine business of trading in diamonds but is solely used for giving accommodation entries by Bhanwarlal Jain and Family and assessee is only an associate. It may be pertinent to mention here that there is no denying the fact that assessee has to incur some day to day expenses like stationery, conveyance, office expenses and rent etc. for earning the above commission income. As such, it would be just and proper, if a certain percentage of commission income on estimated basis is allowed to the assessee. Accordingly, 10% of the commission income is considered as reasonable towards expenses for earning the said undisclosed commission income which would meet the ends of justice. Sr. Nature of accommodation entry Amount of commission No. earned discussed above 1. Accommodation of Bogus unsecured loan Rs.11,27,509/- (On proportionate basis on Rs.4,69,79,544/ 2 2.4% p.a) 2. Accommodation of Bogus Purchases Rs.3,35,152/- (0.075% of Rs.44,68,70,476/-) 3. Accommodation of Bogus Sales Rs.1,97,851/- (0.075% of Rs.26,38,02,270/-) 4. Total commission Rs.l6,60,513/- 5. Less: 10% of total commission as discussed Rs.1,66,051/- above 6. Undisclosed Commission income Rs.14,94,462/- In the instant case, the total undisclosed commission which is required to be added is Rs.14,94,462/-. However, it is observed that the undisclosed 5 Rose Impex Vs. ACIT, CC-1(3) commission of Rs.14,94,462/-is added on substantive basis in the case of Shri Bhanwarlal Jain for AY 2015-16. Hence, to protect the interests of Revenue and following principles of Natural justice. Rs.14,94,462/-is hereby added in the hands of the assessee on protective basis. Penalty proceedings u/s 271(l)(b) & 27l(l)(c) of the I.T Act are initiated separately for filing of inaccurate particulars of income.
We find that this addition made by the A.O has been deleted by the ld. CIT(A) and revenue is not in appeal against the said deletion.
However, the A.O has made another addition on the ground that gross profit rate declared by the assessee in the year under consideration is too low i.e 1.19% as compared to the gross profit percentage declared by other such concern of the Shri Bhanwarlal Jain group. The A.O adopted average gross profit rate of 11.5% and made addition for the difference in gross profit rate of 10.31% [11.5 (-) 1.19] and computed addition of rs.2,71,98,014/-. Before us, the ld. Counsel of the assessee has submitted that on one side, on the basis of evidences found during the course of survey/search in the case of Shri Bhanwarlal Jain, the A.O has treated the assessee as not engaged in genuine business of the trading of diamond and held to be accommodation entry provider and assessed on protective basis. Whereas on the other hand, the A.O is making addition treating the business of trading of diamond recorded in books of account as genuine and making addition for low gross profit rate. The ld. CIT(A) has also confirmed this addition to compensate low gross profit rate. The ld. Counsel of the assessee submitted that the Income-Tax authorities cannot blow hot and cold in the same breath. According to him if Income Tax Department has accepted the assessee as controlled and managed by Shri Bhanwarlal Jain for providing accommodation entries, then addition to compensate gross profit rate is not justified. The ld. D.R also could not controvert the fact that the assessee has been held a concern controlled by Shri Bhanwarlal Jain 6 Rose Impex Vs. ACIT, CC-1(3) engaged only for providing accommodation entry bills. In our opinion such circumstances, the lower authorities are not justified in sustaining the addition to cover the low gross profit rate on the basis of books of account of the assessee which has not been accepted by the department and percentage commission has been assessed treating the purchase and sales recorded in books of accounts. Similarly commission income has also been estimated on the unsecured loan advanced by the assessee also. We have noted that in the case of Bhanwarlal Jain, the department has taken stand that accommodation entries have been provided through the assessee concern. The revenue has to take one stand and cannot treat the assessee simultaneously as accommodation entry provider as well as genuine concern engaged in trading of the diamond. In view of the above discussion, we set aside the finding of the ld. CIT(A) on the merit of the addition and direct the A.O to delete the addition of Rs.2,71,98,014/-.
Since, we have already allowed the appeal of the assessee on merit the Ground No. 1 raised by the assessee challenging the legality/validity of reassessment proceedings has been rendered only academic, and therefore we are not adjudicating upon the same. The Ground is rendered infructous and therefore is dismissed.