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Facts
The assessee, engaged in diamond trading, is appealing an order of the NFAC/CIT(A) which upheld the reassessment order passed by the AO. The AO had information suggesting bogus purchase and sales transactions, leading to the reopening of the assessment under section 147 of the Income Tax Act.
Held
The Tribunal noted that the AO rejected the assessee's books of account and estimated income at 10% of the total turnover based on a Verification Unit report, without providing it to the assessee or allowing cross-examination. The Tribunal found that the addition was not justified and the AO erred in rejecting the books of account and making the estimation.
Key Issues
Whether the reassessment proceedings were valid, and whether the rejection of books of account and estimation of income by the AO were justified.
Sections Cited
147, 144B, 151A, 148A, 148, 145(3), 28, 133(6)
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िनधा�रती की ओर से /Assessee by Shri Prakash Jhunjhunwala & Pawan Jagetia, CAs राज� की ओर से /Revenue by Shri Mukesh Jain– Sr-DR सुनवाई की तारीख/Date of hearing 09.01.2025 उद्घोषणा की तारीख/Date of 05.03.2025 pronouncement Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi/Commissioner of Income tax (Appeals) [for short to as “NFAC/Ld.CIT(A)] dated 30.08.2024 for assessment year (AY) 2018-19, which in turn arises out of assessment order passed by Assessing Officer under section 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) 24.03.2023. The assessee has raised the following grounds of appeal:- “The appellant prefers an appeal against an order passed by Ld. Commissioner of Income-tax (Appeals), National Faceless Assessment Centre, Delhi dated 30.08.2024 on following amongst other grounds, each of which are without prejudice to any other:-
(A.Y.18-19) Vivek Khabia 1.0 On facts and circumstances of the case and in law, the re-assessment order passed u/s 147 is bad in law, since the order u/s 148A(d) and notice u/s 148 had been issued by jurisdictional Assessing Officer (JAO) and had not been issued by the Faceless Assessing Officer (FAO), thereby violating the provision of Sec. 151A of the Act. 2.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the validity of notice u/s 148, though issued without following the procedure prescribed u/s 148A and in absence of information that suggests the income chargeable to tax has escaped assessment. 3.0 On facts and circumstances of the case and in law, Ld.CIT(A), without any justification and speaking order, erred in confirming the rejection of appellant’s books of account u/s 145(3) of the Act. 4.0 On facts and circumstances of the case and in law, Ld.CIT(A) erred in confirming the estimation of income of Rs.3,15,32,571/- @ 10% of entire purchase and sales turnover disclosed in audited P&L a/c of Rs.31.53 crores (purchases of 15.43 crores + sales of Rs.16.09 crores). 5.0 The Ld.CIT(A) before confirming the addition u/s 28 of business income of Rs.3,15,32,571/- ought to have considered understated vital facts, being: a) The exhaustive documentary evidences such as ledgers, confirmations, purchase bills, corresponding sale bills, bank statements, quantity tally, stock register, GST returns and other documents are duly filed before Ld. AO and Ld. CIT(A). b) The entire payments towards purchase and sales of goods had been made/received only through banking channel by way of a/c payee cheques/RTGS. c) The normal profits corresponding to disputed purchase and sales had been offered to tax in P&L a/c and there does not exist any contrary material/evidence to establish the non-genuine purchase and sales; d) The copies of contrary material, statements of 3rd parties and opportunity of cross-examination has not been provided to the appellant. e) The mere non-compliance of noticed u/s 133(6) cannot be a reason to treat the bona fide purchase and sales as non-genuine.
(A.Y.18-19) Vivek Khabia 6.0 Without prejudice to grounds no.1 to 5, Ld. CIT(A) ought to have estimated the profit @1.00 % on disputed purchase and sales, since only the real profit embedded on disputed transactions could be brought to tax. 7.0 Without prejudice to grounds No.1 to 5, Ld. AO having held the appellants transactions as accommodative in nature, ought to have estimated the commission income @ 0.05% on accommodation turnover. The appellant craves leave to add, amend, alter and/or withdraw any of the grounds of appeal at the time of hearing.
2. The assessee vide application dated 09.01.2025 has raised additional grounds of appeal: “The appellant prefers an additional ground of appeal against an order passed by Ld. Commissioner of Income Tax (Appeal), National Faceless Assessment Centre, Delhi dated 30/08/2024 on following ground: - 1.0 On facts and circumstances of the case and in law, the order passed u/s 148A(d) is bad-in-law, since the reply filed by assessee has not been considered by the AO and resultantly, the consequential notice u/s 148 and reassessment order passed u/s 147 in violation of Sec.148A(c) are bad in law. The appellant craves leave to add, amend, alter and/or withdraw the above ground of appeal at the time of hearing.”
3. Brief facts of the case are that assessee is an individual and engaged in the business of trading of rough, cut and polished diamond in the name and style of “Savi International”. The Assessing Officer (AO) was having information that assessee entered into bogus sales and purchase transaction during financial year i.e., 2019-20. Thus, AO issued show cause notice under section 148A(b) of the Act vide notice issued on 15.03.2022. The AO in para-2 of the assessment order recorded that notice under section 148 of the Act dated 29.03.2022 was issued to file return of income within 30 days. The assessee filed his return of income in response to notice under section 148 on (A.Y.18-19) Vivek Khabia 28.04.2022. Notice under section 143(2) dated 28.09.2022 was issued and served on the assessee. The AO recorded that notice under section 142(1) dated 22.10.2022 was also issued to the assessee for making compliance on 25.10.2022, the assessee sought adjournment and part reply was given and remaining details were furnished on 23.11.2022. Show cause notice, dated 22.03.2023 was again issued for making compliance on 28.02.2023. The assessee filed his response on 28.02.20023. The AO further recorded that as per information with him the assessee entered into bogus sales and transaction with eight parties/entities, details thereof is recorded in para-4.6 in assessment order. The AO recorded nature and transaction against such parties either in the form of sale or purchase. The AO on page-9 in para-6 of assessment order recorded that the assessee has not filed requisites details. The AO made reference to Verification Unit for verification of parties with whom the assessee made such transactions. The AO recorded that verification unit furnished its report, contents of their report in recorded in tabulated form on page no. 14 to 17 in his order. The AO noted that all eight parties at their given address was either not available or left the addresses. The AO issued notice under section 133(6) to all such parties, out of which six parties sent their reply, such fact is recorded at page No. 26 of assessment order. The AO rejected books of accounts of assessee under section 145(3) of the Act. The AO recorded that the persons who are engaged in providing accommodation generally charged 10 to 30% of commission on each transaction depending upon the nature of transactions. The AO prepared summery of entire sales and purchase of Rs. 31.53 Crore made by assessee at page no. 30 of (A.Y.18-19) Vivek Khabia assessment order and disallowed 10% total turnover. The AO worked out disallowance/ addition of Rs.3.15 crores while passing assessment order on 24.03.2023.
4. Aggrieved by the addition made in the assessment order, the assessee filed appeal before Ld. CIT(A). Before Ld.CIT(A) assessee filed detailed written submission and also furnished details statement of fact. In the statement of fact, assessee stated that he is a proprietor of ‘Savi International’ and engaged in the business of trading of diamond. During impugned assessment year, assessee filed originally returned of income dated 05.10.2011 declaring income of Rs.5,03,560/-. The AO on the basis of information from DDIT(Inv)- 3 Surat, issued show cause notice under section 148A(b) on 15.03.2022 alleging that assessee is a beneficiary of transaction of purchase and sale made from ten parties aggregating of Rs.11.86 crores. In response to assessee filed objection vide objection dated 24.03.2022. However, AO held that assessee has made non-genuine purchase and sales of goods (diamond) from ten parties of Rs.11.86 crores. The AO reopened the completed assessment under section 148 on 29.03.2022. The assessee contested the validity of order under section 148A(d) and notice under section 148. The assessee filed his return of income on 28.04.2022. During assessment the assessee filed various documentary evidence to justify the genuineness of purchase and sales of goods (diamond) and profit earned thereon. The assessee furnished copies of purchase bills, sale bills, ledger, confirmation, bank statements regarding purchase and sale registers, quantitative tally, stock register, GST report and other documents to justify the genuineness of (A.Y.18-19) Vivek Khabia purchase and sales of goods and profit earned thereon. The assessee also submitted copy of PAN, ITR, bank statement of disputed parties. The assessee submitted that there are corresponding sales against disputed purchase of goods, once sale is accepted as genuine then addition on entire purchase cannot be made and only a reasonable profit on disputed purchases could be brought to tax. In similar manner, there is corresponding purchase against disputed sales of goods and once the purchase is accepted as genuine then addition of entire sale cannot be made and only reasonable profit on disputed sales could be brought to tax. The assessee also submitted that entire payments made or received through banking channel or account payee cheques or through RTGS. All transactions are recorded in audited books of account. The assessee demanded the contrary material and the statement of third party and to allow their cross-examination. The AO not provided any piece of contrary evidence or statement to the appellant nor allow opportunity to cross-examine. The AO issued show cause notice dated 22.02.2023 and proposed to reject assessee’s books of account and to estimate the income @ 10% of total purchase and sales in turnover of Rs.31.53 crores. The AO made addition of Rs.3.15 crores, being 10% of total purchase and sales turnover. The assessee filed his reply on 28.02.2023 in response to show cause notice dated 22.02.2023 along with reply, the assessee furnished complete documentary evidence to justify the genuineness of purchases and sales. The AO made addition on the basis of non-compliance of notice under section 133(6) of the Act by the parties and treated entire sale and purchase as non- (A.Y.18-19) Vivek Khabia genuine. The AO has not pointed out any defect in the books of account of assessee and estimated @ 10% addition of total purchase and sales.
The Ld.CIT(A) after considering the submission of assessee upheld the validity of show cause notice under section 148A(b) and validity of notice under section 148 of the Act by taking view that AO was having information that assessee entered into bogus purchase and sales transaction. The assessee has not declared sales and purchase transactions correctly in the return of income and that not comply with show cause notice under section 148A(b). As notice under section 148A(b) was not complied. The case of assessee was reopened under section 147 of the Act. The Ld. CIT(A) concluded that AO has rightly issued notice under section 147 of the Act as per the procedure laid down in the Income Tax Act.
On the validity of addition in the assessment order, the assessee filed detailed written submissions. The submissions of assessee are recorded in para-6.2.2 pages 15 to 21 of the order of Ld. CIT(A). The assessee in his submission, submitted that to justify the genuineness of purchase of traded goods and corresponding sales, assessee filed party-wise details of purchase and sales along with name, address and PAN details of suppliers and customers were submitted, confirmation of account, purchase bills with GST, invoice and corresponding sales bills, purchase of sale register bank statement quantitative details of traded goods and stock register were filed. The AO has not disproved the correctness of such documents and has not pointed out any single defects in such documents. The AO except raising doubt has not brought any contrary material on record to disbelieve the bona fide transaction (A.Y.18-19) Vivek Khabia of the assessee. The AO erred in rejecting the books of account under section 145(3) of the Act and in making estimation @10% profit as business income on purchase as well as sales turnover. The assessee furnished complete evidence to substantiate the purchase and sales which includes purchase bills, sale bills, ledger, confirmations, bank statements, quantitative tally, stock register, GST returns and other documents during assessment and discharged onus to establish the genuineness in purchase and sale. The assessee also filed copy with GST returns filed periodically. The GST Department had not disputed the correctness of purchase and sales on which CGST, SGST & IGST were paid, all transactions were made through banking channel and no opportunity of cross-examination was provided nor any contrary material available with the AO was provided to assessee. To support such contention, assessee relied upon the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries vs. Comm. Of Central Excise (Civil Appeal No.4288/2006); Hon’ble Bombay High Court in case of H.R. Mehta vs. ACIT and other case law. The assessee further stated that he has disclosed net profit @ 0.29% on sales which is in excess of net profit disclosed in earlier year @ 0.23% on sales and the industry standard. Thus, estimation of business income on purchase as well as sales @ 10% is unjustified. The transaction of disputed parties in respect of eight parties for purchases were only of Rs.50,37,413/- and sales of Rs.9,85,00,210/-. As per AO, he directed Verification Unit to conduct enquiry. As per report of Verification Unit, which is referred at page No.14 to 18 of assessment order, there are 8 total purchase and sales parties, from whom assessee made purchase and sales aggregating (A.Y.18-19) Vivek Khabia of Rs.10.85 crores, which were not found at their respective addresses, such report of Verification Unit, is the only basis to disbelieve the entire business of assessee. Mere non-availability of a few purchases party and sales parties, at their respective places of business would not disprove genuineness of transaction. When transactions are supported with documentary evidence as furnished by assessee. The assessee submitted before AO to estimate reasonable profit on disputed purchase and sale only, and not on the entire purchase and sale turnover of assessee. As per profit and loss account, total purchase of assessee is at Rs.15.43 crores and sales is at Rs.16.09 crores, thus, aggregating total purchase and sale turnover of Rs.31.53 crores. In other alternative submission, assessee submitted that in various case law, wherein assessee entered into a non-genuine purchase in sale transaction, Tribunal has estimated business income from 0.05% to 0.10% of sale turnover. Thus, estimation made by AO is extremely on higher side. Further without prejudiced submission, assessee stated that only estimation be made by considering the concept of real income and may be estimated income @1.00 % of disputed transaction reported by Verification Unit which is only of Rs.10.85 crores.
The Ld. CIT(A) on considering the submission of assessee noted that assessee has furnished party-wise purchase details of polished diamond and rough diamond from 01.04.2017 to 31.03.2018, which scanned on page No.21 to 23 of impugned order. Similarly, name, address and PAN of disputed suppliers and customers were also furnished which is scanned on pages 24 of the impugned order. The Ld. CIT(A) held that on the sheet of sales and purchase (A.Y.18-19) Vivek Khabia there is no signature of assessee, further confirmations of parties were not filed. The Ld. CIT(A) further noted that supplier replied to the notice under section 133(6) and confirmation of the transaction with supporting evidence was not filed. The AO made reference to Verification Unit, report of Verification Unit was also scanned by Ld. CIT(A) in his order. The Ld. CIT(A) ultimately held that during appellate proceedings, assessee has not filed any confirmation nor submitted any ledger to justify such transaction. Case relied upon by assess is not similar to the facts and circumstances of the case of assessee and confirmed the action of AO. Further, aggrieved the assessee has filed present appeal before Tribunal.
We have heard the rival submissions of both the parties and have gone through order of lower authorities carefully. First, we are considering the plea of admission of additional grounds of appeal
. The Ld Authorized Representative (Ld. AR) for the assessee submits that he is not pressing ground No.1 raised originally as he has now raised additional ground of appeal. No new facts are to be brought on record for adjudication of additional grounds of appeal. The facts relating to adjudicate additional grounds of appeal are emanating from the order of lower authorities, itself. The additional ground of appeal may be admitted and adjudicated accordingly.
9. On the other hand, Ld. Commissioner of Income-Tax-Departmental Representative (Ld. CIT-DR) for the Revenue submits that assessee has raised additional grounds of appeal for the first time before Tribunal and no such legal objection was raised either before AO or before First Appellate Authority and additional grounds of appeal is not pure question of fact and is mix (A.Y.18-19) Vivek Khabia question of fact and law. Such additional ground of appeal may not be admitted.
10. We have considered the rival submissions of the parties on the additional grounds of appeal. We find that Ld. AR of the assesse basically urged that no knew fact to be brought on record for adjudicating additional grounds of appeal. On careful consideration of additional grounds of appeal and the orders of lower authorities, we find that no new fact is required to be brought or record. The facts for adjudication of additional grounds are emanating from the orders of lower authorities. Therefore, additional ground of appeal is admitted for adjudication.
11. In support of additional grounds of appeal
, Ld. AR of the assessee after referring the provisions of section 148A would submits that as per language of this section, the AO is required to decide on the basis of material available on record including the reply of the assessee, whether it is fit case to issue notice under section 148 or not. There is no such satisfaction recorded by the AO, thus, the order passed under section 148A(d) and the notice under section 148 is required to be quashed. The ld AR of the assessee submits that notice under section 148A(b) dated 15.03.2022 was issued to the assessee, copy of which is filed on record. In this notice, the assessee was asked to file reply on or before 22.03.2022. The assessee filed/ uploaded his reply on ITBA portal on 22.03.2022, copy of screen shot is also filed on record. However, while passing order under section 148A(d), the AO has neither considered such reply nor referred it in his order, rather recorded that no reply is filed by the assessee. Copy of order under section 148A(d) is also filed on record. The ld (A.Y.18-19) Vivek Khabia AR of the assessee submits that the AO has not followed the mandate of procedure for issuing notice under section 148, thus, order under section 148A(d) as well as notice under section 148 is liable to be quashed. Once notice under section 148 is quashed entire proceedings will become void-ab- initio. To support his submissions, the ld AR of the assessee relied on the following case laws; Kanishka Prints Pvt Limited Vs ACIT (2024) 163 taxmann.com 178 (Guj), Shell Gas BV Vs ACIT (2024) 164 taxmann.com 555 (Guj), Hardev Singh Vs ITO (2022) 140 taxmann.com
67. (Delhi), Anu Gupta Vs ITO (2023) 153 taxmann.com
99. (Delhi), Meenu Chaufla Vs ITO (2022) 139 taxmann.com 170 (Delhi).
On the other hand, Ld. CIT-DR for the Revenue supported the order of lower authorities. Against the submissions on additional ground of appeal
, the ld Sr DR for the revenue submits that before passing order under section 148A(d), the AO had given sufficient opportunity to the assessee. As per order under section 148A(d) no reply was given by the assessee, thus, the AO has no option except to pass order within the time frame prescribed in the statue. The case laws relied by the ld AR of the assessee are not helpful to him as facts in all the cases are at variance. In Kanishka Paints (P) Ltd (supra), the matter was restored back to the AO to pass order under section 148A(d) afresh. In Shell BV (supra), the AO has not given reasons in order under section 148A(d), however in the present case the AO has clearly explained the detailed reasons for escarpment of income. In other remaining case laws, the Delhi High Court has also restored the matter back to the file of AO.
13. We have considered the rival submissions of both the parties and have gone through order of lower authorities carefully. We have also deliberated the case 12 (A.Y.18-19) Vivek Khabia law relied upon by Ld. AR of the assessee. The main contention of ld AR of the assessee is that order under section 148A(d) is not in consonance with the statutory provision and that his reply is not considered before passing such order. We find that neither such objection was raised during assessment proceeding nor such ground of appeal was raised before CIT(A). No doubt that in response to notice under section 148A(b) dated 15.03.2022, the assessee filed reply dated 22.03.2022. In fact, such reply was filed only on 24.03.2022 as reflected in the acknowledgement No.418090311240322. It is a common known fact that in e-proceeding, last six digits in acknowledgement number represent the date of submissions. Thus, the Assessing Officer has given sufficient time of seven days in his notice dated 15.03.2022. From the facts narrated above, we find that assessee filed his reply beyond the statutory period of seven (7) days. Thus, we do not find any convincing force in the objection, which is raised by additional ground of appeal. In the result, additional ground of appeal raised by assessee is dismissed. Now, adverting to adjudication of original grounds of appeal.
14. Ground No.1 relates to validity of re-assessment order and issuance of notice under section 148 of the Act. During hearing, the ld. AR of the assessee submits that he is not pressing ground No.1 of appeal. Thus, considering the submission of ld. AR of the assessee, the ground no. 1 is dismissed.
15. Ground No.2 of the appeal relates to validity of notice by not following the procedure under section 148A. we find that this ground of appeal is indirectly and substantially the same as additional ground of appeal, which we have already dismissed. Therefore, this ground of appeal is also dismissed.
(A.Y.18-19) Vivek Khabia 16. Ground No.3 relates to rejection of books of account, Ground No.4 and 5 relates to estimation of income @ 10% of entire purchases and sales. The ld. AR of the assessee submits that case of assessee was re-opened after passing assessment order under section 148A(d) on 28.03.2022. The AO at the time of re-opening of the case, recorded that assessee is beneficiary of sales and purchases from 10 parties aggregating of Rs.11.86 crore. However, at the time of passing assessment order, the AO considered entire sales and purchases for making disallowance, which was not the case of AO at the time of re-opening. The AO has not disputed the sales or purchases. The book profit of assessee was not doubted. The AO simply rejected the books of account without recording any satisfaction as to how the books result is not correct. The AO acted on the basis of report of Verification Unit. By referring the contents of report of Verification Unit, the ld. AR of the assessee submits that for Paradise Gems Pvt. Ltd. and Namo Diamonds Pvt. Ltd., the Verification Unit reported that their shops are closed. For Ronak Jain and Secure Exis Pvt. Ltd., it was reported that there was no name plate in the companies. For Komal Exim Pvt. Ltd., it was reported that they were earlier staying at the address and for Binaca Gems Pvt. Ltd., it was reported that there were no name plates in the said companies. The report of Verification Unit is vague. No such report was provided to the assessee for making his comment. Such report cannot be made basis for making addition unless it is confronted to the assessee. In response to notice under section 133(6), six parties responded and filed their reply, which clearly proved that parties are available on their address. The addition @ 10% of entire sales and purchase are without any basis. The assessee has (A.Y.18-19) Vivek Khabia shown all purchases and sales in his books of account. All the sales and purchase identified by Assessing Officer were through banking channel. The assessee furnished complete details of purchases from Paradise Gems and aggregating Rs.50,37,413/- and filed confirmation of account, purchase bills, bank statements and ITR. The assessee has shown sales to Namo Diamonds Pvt. Ltd., Binaca Gems Pvt. Ltd., Riddhi Gems, Shamita Trading Pvt. Ltd., Secure Exim Pvt. Ltd. and Komal Exim Pvt. Ltd., total aggregate sales were only of Rs.10.85 crore. The assessee furnished complete details which consist of sales bill, confirmation of account and bank statement. No adverse finding was given on such evidences. Thus, in absence of contrary evidence, no addition on account of disallowance of purchases of sales was to be made. The AO at the worst could disallowed a reasonable percentage of profit either on impugned sale or on impugned purchases only and not on the entire turnover. Even, in cases of the assessee who were identified by revenue authorities as entry provider, in their assessment orders, the revenue / department has made addition @ 0.20% of the alleged entry and further allowed 25% deduction of expenses. However, in case of assessee, the AO made addition @ 10% of total turnover which is not justified. The profit in the business of is very marginal, thus, the addition made by AO is on extremely high. To support his contention, the ld. AR of the assessee relied upon the decisions in cases of Rajendra Sohanlal Jain vs. DCIT, to 299 & 1577/Ahd/2017, Sanjay Kumar Choudhary (HUF) vs. ACIT, and Saffron Gems Pvt. Ltd. vs. ACIT, ITA No.445/SRT/2023. In alternative and without prejudice, the ld. AR of the assessee submits that assessee has shown net profit @ net profit @ (A.Y.18-19) Vivek Khabia 0.29% on sales which is in excess of net profit disclosed in earlier year @ 0.23% on sales and the industry standard, so to avoid the litigation with the Revenue, disallowance @ 0.29% either on the disputed sales or on the disputed purchases may be made.
On the other hand, the ld. CIT-DR for the revenue supported the order of lower authorities. The ld. CIT-DR for the revenue submits that Assessing Officer before making the addition rejected the books of accounts. No specific finding is required before rejecting the books of accounts. It is the satisfaction of the Assessing Officer about the correctness of books result. On the addition of sales and purchase, the ld. CIT-DR submits that Assessing Officer has made a reasonable disallowance, therefore, the disallowance made by Assessing Officer may be sustained.
We have considered the rival submission of both parties and gone through the orders of lower authorities. We have also deliberated on the case laws relied by ld. AR of the assessee. we find that at the time of re-opening of the case, the AO recorded that assessee is beneficiary of sales and purchases from 10 parties aggregating of Rs.11.86 crore. The details of parties and their respective sales or purchases are mentioned in order under section 148A(d) dated 28.03.2022 in the following manner; Sr No. Name of parties Nature of Amount transaction sales/ Rs.000/- purchase Paradise Gems Pvt Ltd Sales or Purchase 50,27,413/- 1 Namo Diamonds Pvt Ltd Purchase 99,7524/- 2 Paradise Gems Pvt Ltd Sale 50,27,413/- 3 Binaca Gems Pvt Ltd Purchase 2,19,45,138/- 4 Ronak Gems Purchase 9,47,125/- 5 Shamita Trading Pvt Ltd Purchase 22,58,548/- 6 Green Velly Gems Pvt Ltd Sales 50,37,413/- 7 Paradise Gems Pvt Ltd Sales 50,27,413/- 8 Secure Exims Pvt Ltd Sales 2,27,92,967/- 9 Komal Exims Pvt Ltd Sales 2,92,36,908/- 10 total Rs. 9,82,97,862/- 19. However, at the time of passing assessment order, the AO considered entire sales and purchases for making disallowance, which was not the case of AO at the time of re-opening. On careful perusal of details in the above table, we find that there is duplicate entry at serial number one and three of same amount of same party. We further find that during assessment, the AO has not disputed the sales or purchases. The book profit of assessee was not doubted. The AO simply rejected the books of account without recording any satisfaction as to how the books result is not correct. The assessee is his submissions categorically submitted that purchases from Paradise Gems is of Rs.50,37,413/- and filed confirmation of account, purchase bills, bank statements and ITR. Further from remaining parties namely Namo Diamonds Pvt. Ltd., Binaca Gems Pvt. Ltd., Riddhi Gems (Ronak Jain), Shamita Trading Pvt. Ltd., Secure Exim Pvt. Ltd. and Komal Exim Pvt. Ltd., total aggregate sales were only of Rs.10.85 crore. The assessee furnished complete details which consist of sales bill, confirmation of account and bank statement. No adverse finding was given on such evidences. Once, sales or purchases are accepted, corresponding purchases or sales cannot be doubted. The case of AO is that certain companies were found paper companies and were identified as 17 (A.Y.18-19) Vivek Khabia beneficiary who have taken accommodation entry and that Vevek Khabiya is one of the beneficiary who have obtained accommodation entry. Once the assessee is considered as beneficiary of accommodation entry, the addition should have been made to the extent of profit element embedded in availing such entry, that to only on the amount of alleged/ impugned/ bogus entry and not on the substantial part of transaction. We find that the AO while making additions/ disallowance taken all the transactions of sales and purchases, which is not justified. Such addition is made without making further investigation in respect of other sales and purchases bills. The AO solely relied on the report of Verification Unit without providing copy of such report to the assessee. It is settled law under Income Tax that only real income or profit after allowing set off of expenditure, can be brought to tax and not the substantial part of transaction. Thus, the addition made by AO @ 10% of total sales and purchases are not justified.
Now adverting to the quantum of the disallowance. We find that assessee is engaged in the business of diamonds, the assessee in his own reply has accepted that he has shown purchase of Rs.3,11,75,748/- and sales of Rs. 6,20,94,701/-, which is not disputed by the lower authorities. Thus, considering the nature of transaction and keeping in view of the facts that Surat Bench of Tribunal in cases of purchases from entry provider (beneficiary) has estimated addition @ 6.00% of the purchases, therefore, 6.00% of purchase amount Rs. 3,11,75,748/- is added (restricted) to the income.
So far as additions on the sales are concerned, we find that the AOs of various well known entry provider namely Rajendra Sohan Lal Jain (PAN: ABIPJ 5587 (A.Y.18-19) Vivek Khabia A) and in Sanjay Chaudhary (PAN: AA QHS 5732 R) made addition @0.20% of amount of entry and allowed deduction of expenses @25%. On appeal before this Tribunal the addition made by AO were sustained vide IT(SS)A No. 294 to 299/Ahd/2017 and in respectively. Thus, considering overall facts and circumstances of the present case and keeping in view of possibility of revenue leakage 0.50% of Rs. 6,20,94,701/-, of sales is restricted/added to the income of assessee. In the result, ground No. 3 is allowed and ground No. 4 & 5 are partly allowed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 05/03/2025.
Sd/- Sd/- (BIJAYANANDA PRUSETH) (PAWAN SINGH) लेखा सद�/Accountant Member �ाियक सद�/Judicial Member सूरत / Surat Dated: 05/03/2025 Dkp Outsourcing Sr.P.S* आदेश की �ितिलिप अ�ेिषत/ Copy of the order forwarded to : अपीलाथ�/ The Appellant ��थ�/ The Respondent आयकर आयु�/ CIT िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, सूरत/ DR, ITAT, SURAT गाड� फाईल/ Guard File // True Copy // By order/आदेश से,
सहायक पंजीकार आयकर अपीलीय अिधकरण, सूरत