ADDL.CIT, SPECIAL RANGE-18, NEW DELHI vs. JAGANANTH HEMCHAND JAIN, NEW DELHI

PER PRADIP KUMAR KEDIA, A.M.: The captioned appeals in the instant case have been directed by the Revenue against the respective first appellate orders for Assessment Years 2010-11 and 2011-12. The assessee has also filed Cross Objection in the respective appeals of the Revenue. The captioned appeals are

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tabulated hereunder:

Sr. ITA/CO Nos. CIT(A) Order Assessment Remarks Nos dated Order dated 1. ITA No.7754/Del/2018 CIT(A)-18, New AO Order Assessment order under Delhi order dated dated Section 143(3)/147 of 28.09.2018 31.12.2017 the I.T. Act, 1961 2. CO No.15/Del/2023 -do- -NA- -NA- (in ITA No.7754/Del/2018) 3. ITA No.7755/Del/2018 -do- AO Order Assessment order under dated Section 143(3)/147 of 31.12.2017 the I.T. Act, 1961 4. CO No.16/Del/2023 -do- -NA- -NA- (in ITA No.7755/Del/2018)

ITA No.7755/Del/2018 & CO No.16/Del/2023 - (A.Y. 2011-12)

“On the facts and circumstances of the case: 3. The CIT(A) has erred in restricting the addition to the extent additional gross profit at 5% of addition made u/s 69C on account of bogus accommodation purchase bills from M/s Kriya Impex Pvt. Ltd. at Rs.69,20,152/- thereby allowing relief of Rs.61,94,144/- when the purchase from such party was acknowledged to be an accommodation entry. 4. The CIT(A) erred in deleting addition of Rs.1,45,32,138/- which was made to the net profit by rejecting the books of accounts u/s 145(3) as the transaction recorded in the books are partly accommodation entry which challenged the reliability of the entries/ transactions recorded in the books of accounts leading AO to estimate the total turnover at Rs. 14.50 crore as against declared turnover of Rs. 13.34 crore and profit at Rs. 3,03,05,000/- as against Rs. 92,52,710/- declared by the assessee and addition of Rs.65,20,152/- made u/s 69C of I. T. Act ,1961 at point 1.” 4. As per its Cross Objections, the assessee has challenged the jurisdiction assumed by the Assessing Officer under Section 147 r.w.

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Section 148 of the Act. The grounds of the Cross Objections read as under:

“1. That there is no valid assumption of jurisdictions u/s. 147/148 of the Income Tax Act by the assessing officer and consequently the Reassessment order passed is invalid and bad in law. 2. That there was no valid material available with the assessing officer and accordingly the Reason to believe as made by the AO is based on suspicion and therefore the Re- assessment order, as passed in furtherance thereof is arbitrary, unjust and bad in law. 3. That the alleged reason to believe, as made by the AO is without application of mind and are in the nature of suspicion and also based on borrowed satisfaction and accordingly the Re-assessment so framed in furtherance thereof is arbitrary and bad in law. 4. That without prejudice to grounds above, the alleged purchases from M/s Kriya Impex are only Rs 25,12,590/- hence the adoption of figure of alleged bogus purchase in the reason to believe as well as in the assessment order is arbitrary, unjust and at any rate very excessive. 5. That the assessing officer and CIT(A) ought not to have made any addition on account of such alleged bogus purchase when there is no dispute about sale and at any rate the addition sustained by CIT(A) is very excessive.” 5. To address the validity of jurisdiction under Section 148 r.w. Section 147 raised in Cross Objections, the reasons recorded by Assessing Officer under Section 148(2) of the Act are reproduced hereunder for ready reference:

Reasons to believe recorded for issue of notice u/s. 148 of the Income Tax Act, 1961 Name & Address of the M/s. Jagan Nath Hemchand Assessee 7, Sunder Nagar Market, New Delhi 110003 PAN AAGFB5833Q Status Firm Assessment Year 2011-12 The assessee M/s Jagan Nath Hemchand filed return of income for the AY 2011-12 on 29.09.2011 declaring total income of Rs. 93,61,190/- for the year under consideration. The said return of income filed by assessee was not selected for scrutiny assessment. 2. Search & seizure operation u/s. 132 of the I.T. Act was conducted on 03-10-2013 on Rajendra Jain Group, Sanjay Choudary Group & Dharmichand Jain, Group by the DDIT(Inv), Unit 1(3), Mumbai. The Rajendra Jain Group, Sanjay Choudary Group & Dharmichand Jain

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Group, were Known entry operators of Mumbai indulging in providing accommodation entries in the nature of bogus sales and unsecured loans,

2.1 During the course of search operation, statements of various persons were recorded including Sh. Rajendra Jain, Sanjay Choudhary & Dharmichand Jain. In the statement recorded, it was admitted by them that they were providing accommodation entries through several companies/ concerns in the garb of Sales/ unsecured loan to various parties. They also admitted that they were not doing any real business and only providing accommodation entries. They further admitted that no physical goods were handed over by them to the parties to which sales had been shown in their books of accounts. A list of companies / concerns belonging to these entry operators through which bogus entries given to various beneficiaries has been forwarded to the office of Pr.CIT, Delhi- 18, New Delhi by Dy.CIT, Central Circle-4, Surat vide letter F.No. SRT/DCIT/CC-4/Rajendra Jain, Dharmichand Jain, Sanjay Choudhary Gr./2015-16 dated 30/11/2015. The said information was forwarded by the office of the Pr. CIT-18, New Delhi to the Joint CIT, Range-52, New Delhi vide letter F.No. Pr. CIT-18/ Rajendra Jain, Dharmichand Jain, Sanjay Choudhary Gr./2015-16/1252 dated 28/12/2015. The Joint CIT, Range-52, New Delhi further forwarded said information to all concerned charged including Ward 52(3), Delhi. Lists of all such beneficiaries who had obtained bogus accommodation entries from these concerns have also been received by this office. The name of the assessee is also mentioned in the list of beneficiaries who have obtained bogus acconmodation entries from these concerns. The details of entries obtained by the assessee during F.Y. 2010-11 relevant to AY 2011-12 are as under.

PAN of bill Name A.Y. Natur Pan of Name of Total Real provider of bill e of beneficiary beneficiar Value of value of provid transa y transacti transacti er ction on on

AADCK1926B KRIYA 2011- SALE AAAFJ5263A JAGAN 2512590 6520152 12 NATH HEMCHA ND

Total 2512590 6520152

Sh Rajindra Jain and Sh. Surendra Jain in the statement recorded before the DDIT (Inv.), Mumbai admitted that all the concern controlled and managed by them were not doing any real trading in Diamond but indulged in paper transactions only, sh. Rajendra Jain provided details of proprietor director/partner who were controlling the concerns from which accommodation entries were provided. He stated that in Kriya Impex Pvt. Ltd. And Manish S Jain was director who is name sake director and the concern was controlled and managed by Sh Rajendra Jain. The relevant portion of the statement of sh Rajinder Jain is reproduced for reference.

“Q.12. It has come to the notice that your employees are also running their independent proprietorship concerns of her own. Do you know? If

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yes, Please explain as to how they do justice with the roles and responsibilities assigned to them by you? Ans: Sir, in fact the proprietory concerns in the names of our employees are not independent business activity of their own. When I was working for Shri Ratantal Jain, besides other concerns, he had been also operating through M/s Minar Gems, a proprietor concern in my name. So, after quitting the job, I took the idea of operating through various concerns including several proprietorship concerns in the names of our employees. In such a case, the effective control of business remains with us and the business income of such proprietorship concern get adjusted against the overall salary payable to such employee on annual basis. Q:13 Please furnish details of all the business concerns which are directly or indirectly controlled by you alongwith Shri Surendra Jain. Ans. Sir, we are operating through a no. of business concerns of all the three nature i.e. proprietorship firm, partnership firm as well as companies in the name of various persons including our employees. But for all practical purposes, myself and Sh. Surendra Jain are handling the entire business network on profit sharing basis. Q.14 During the survey action undertaken at various office premises of yours not a single piece of diamond has been found by respective, survey teams though there is substantial turnover shown by various concerns controlled by you. Please state as to where do you keep hour stock in trade. Ans. Sir, in this regard, I want to admit that we are engaged in business of bill shopping through all the concerns due to which we do not have any physical stock of diamond with us at any of our place at any point of time. I would like to further add that we are merely lending names of our various concerns to the real importer of diamonds who takes the actual deliver of diamonds.” 4. I have independently examined the statement of oath by sh. Rajinder Jain, the managing person of the alleged seller party le. Kriya Impex Pvt. Ltd. and after duly considering the same, the relevant facts including modus operandi and conclusions arrived at are being summarized as under. (i) Not a single piece of diamond was found at any of the premises covered under search and seizure action which also included the premises from where Kriya Impex Pvt. Ltd was operated. The concern was merely doing paper transactions instead of carrying out any real business of diamonds trading. (ii) The concern and other associated concerns actually were doing business of maintaining books of accounts only and were not doing any actual trading of physical commodity i.e, diamonds, (iii) The actual importers of rough diamonds approached these concerns to import their diamond through their group companies/concerns and on receipt of the consignment, the real importer gets the delivery of diamond

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after clearance form CHA. (iv) The book stocks of rough diamonds have been converted by these concerns to cut and polished diamonds through their commission companies or sometimes these name lending concerns issue bills of rough diamonds to local purchasers and show purchase of polish diamonds from them to square up the transaction. (v) On receipt of such cut and polished diamonds, they issue sale bills to various parties at the request of the actual importers. The actual importer arranges the sale proceeds from parties to whom sale bills were issued. Once the sale proceeds are received, these name lending concerns make import remittance to the request of importer. (vi) As regards the loans and advances, these name lending concerns import goods on credit basis for longer period and sale the goods on immediate payment basis. Therefore, they receive cheque immediately and use the same for giving loans. These name lending parties receives cash from loan parties against the cheque given to them. The cash is used to settle the accounts to whom they have sold the goods through angadia. In this process these name lending concerns receive interest on such loan which they return back in cash after deducting their commission. 4.1 Further on analysis of the data provided by the Investigation Wing assessee firm M/s. Jagan Nath Hemchand was found to be enlisted in the name of the beneficiaries of accommodation entry from Kriya Impex Pvt Ltd. and the value of transactions was Rs.65,20,452/-, which is managed by Sh. Rajendra Jain and as brought out above he was found to be an entry provider indulged in providing accommodation entries the nature of Bogus sales/purchases. Sh. Rajendra Jain has himself confessed on oath that he is not doing any real trading but indulged in paper transaction only and he provides accommodation entries by issuing, accommodation bill without affecting any real trading to the assessed with modus operandi as discussed above. This therefore is a sham transaction in the nature of accommodation entries and it is evident that the assessee had reduced its income by obtaining bogus purchase bill from the above party. In view of these facts, the inevitable conclusion is that an income of Rs.65,20,152/- has escaped assessment in the case of the assessee for A.Y. 2011-12 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. 4.2 Further, it is pertinent to mention that fresh information evidencing that these purchases from the above party is bogus purchase just to claim higher expenditure and to reduce profit has appeared subsequently which was not available at the time of original assessment proceedings. These facts have emerged only as a result of action by the Revenue. Clearly, in this case there was failure on the part of the assessee to disclose fully and truly all material facts for his assessment. 4.3 After considering and examining the facts of the case independently and due application of mind, I have reasons to believe that an income of more than Rs. 1,00,000/- in the case of the assessee that was chargeable to tax under the provisions of Income Tax Act, 1961 has escaped

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assessment during the A.Y. 2011-12 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment which has come to the notice subsequently. Hence, it is a fit case for Initiation of proceedings, in terms of section 147 of the I.T. Act, 1961. 5. Further, it is pertinent to mention what Hon’ble Gujarat High Court in special civil Application No.2119 of 2016 in the case of Choksi Vachharaj Makanji Co. Vs. ACIT, wherein the paper concerns involved were same as in the instant case, has held that: “On the basis of the information available at the command of the Assessing Officer, he noted that Rajendra Jain and Surendra Jain merely provided accommodation entries without actual sale of diamonds. The assessee had thereby claimed higher expenditure and reduced the profit it cannot be stated that the Assessing Officer did not have tangible materials to form a belief that the income chargeable to tax had escaped assessment. Such information was not available during the original assessment. Obviously the assessee would not make such disclosures. The requirement for reopening of the assessment even beyond a period of four years are therefore satisfied. Merely because such information was supplied to the Assessing Officer by the investigation wing of the department would not mean that the Assessing Officer cannot reply upon it after of course, perusing the same and form his own opinion on the basis of the same.” Also, in the case of CIT v Nova Promoters & Finlease (P) Ltd (ITA No. 342 of 2011) dated 15.02.2012 the Hon’ble Delhi High Court, which is the jurisdictional High Court held that as long as there is a ‘live link’ between the material which was placed before the Assessing Officer at the time when reasons for reopening were recorded. proceedings u/s. 147 would be valid. The Court also held- “We are aware of the legal position that at the stage of issuing the notice u/s. 148, the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment" Here it would be worthwhile to mention that in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. v. ACIT (2007) 291 ITR 500/161 Taxman 316 (Supreme Court). The Hon'ble Apex Court has held that:- "All that is required for the Revenue to assume valid jurisdiction u/s. 148 is the existence of cogent material that would lead a person of normal prudence, acting reasonably to an honest belief as to the escapement of income from assessment." Also, in the case of Phoolchand Bajrang Lal v. ITO 203 ITR 456 (SC), the Hon'ble Apex Court has held that:- “An assessment completed u/s. 143(3) but later on information received which was indefinite, specific, and reliable and the AO duly recorded the reasons for his belief that the assessee had not fully and truly disclosed particulars of his income and hence there was escapement of income.

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Held that the reopening of the case was valid." Also, in the case of Raymond Woollen Mills Ltd. 236 ITR 34 (SC), the Hon'ble Apex Court has held that: - "Assessee did not include certain direct manufacturing costs and fiscal duties in the valuation of closing stock. This came to light in the subsequent years assessment proceedings. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at the stage of issue of notice u/s. 148." Furthermore, in the case of Jyoti Goyal vs. ITO (ITA NO. 1259/Del/2010), the Hon'ble ITAT Delhi held that: “As regards the other contention of the assessee that the reopening was done a mechanical manner without application of mind, we find there is nothing on record to support such a contention. There is a live link between the information which was available with the Assessing Officer and his formation of belief that income has escaped assessment. Sufficiency of such information cannot be done into while deciding the issue of validity of reopening. The Assessing Officer can also not make enquiries as view of the matter, we are in agreement with the finding of the Ld. CIT(A) that the reopening of assessment under section 147 of the Act was valid.” In the present case, the live ling between the material available on record and the reasons for belief that income has escaped assessment has also been sufficiently demonstrated. To conclude, I have examined the entire gamut of facts and circumstances surrounding the case as also the material available on record and after due application of mind on the same as brought out above. I, therefore, reasons to believe, that an income of Rs.65,20,152/-, in the case of the assesse that was chargeable to tax, under the provisions of Income Tax Act 1961 has escaped assessment during the AY 2011-12 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment which has come to the notice subsequently and hence la notice u/s. 148 is required to be issued in the case of the assessee for A.Y. 2011-12. Therefore, this is a fit case for issue of notice u/s. 148 of the IT Act, 1961. Accordingly, a proposal, in the prescribed proforma, is put up for your kind perusal, consideration and necessary approval u/s. 15(1) of the IT Act, 1961 for issue of notice u/s. 148 of the Act in the case of the assessee for the year under consideration.” 6. When the matter was called for hearing, the ld. counsel for the assessee in support of its Cross Objections, submitted that the reasons recorded under Section 148(2) do not meet the pre-requisites of Section 147 of the Act and hence the jurisdiction assumed in consequence of such

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invalid reasons are without the sanction of law.

6.1 The ld. counsel firstly contends that the jurisdiction assumed under Section 147 itself is incorrect and contrary to the scheme of the Act. In the instant case, the case was reopened on the premise that search and seizure operation under Section 132 of the Act was conducted on 03.10.2023 on Rajendra Jain, Sanjay Choudhary and Dharmichand Jain Group by Investigation Unit Mumbai. As alleged in the reasons, the statements of various persons were recorded and a report was prepared based on the material gathered and other observations in the course of search. The said investigation report supplied to Assessing Officer of the Assessee is the genesis of the assumption of jurisdiction under Section 147 in question. In this context, the ld. counsel submits that where search has been conducted on the premises of third party and any material is discovered which pertains to the assessee hereunder, the available course of action for assessment would be, as provided under Section 153C of the Act. In such a situation, the recourse to Section 147 as wrongly adopted by the Assessing Officer is foreclosed and no longer available in law. The jurisdiction of the Assessing Officer under Section 147 stands ousted due to material stated to have been discovered in the course of search which tends to incriminate the transactions carried out by the assessee with the searched person.

6.2. Per contra, the ld. DR pointed out that the Scheme of the Act does not so provide as canvassed on behalf of the assessee. The ld. DR points out that the jurisdiction under Section 147 stands ousted only where jurisdiction under Section 153C has been validly assumed which, in turn, depends on fulfilling the pre-conditions for invocation of jurisdictional parameters of Section 153C of the Act. In the instant case, in the absence of any ‘satisfaction note’ from the Assessing Officer of the search person, the Assessing Officer could not have assumed jurisdiction under Section 153C of the Act. The parameters for assumption of jurisdiction under Section 153C were not available to the Assessing Officer. The Assessing Officer however independently met the prerequisites for

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assumption of jurisdiction under Section 147. Therefore, at the time of issuance of notice under Section 147, there was no statutory embargo for assumption of jurisdiction under Section 147 of the Act.

6.3 The ld. counsel for the assessee next contends that the reasons have been recorded solely on the basis of some investigation report communicated to the Assessing Officer herein. The Assessing Officer however has failed to apply his mind to the contents of the investigation report independently. The statement of Rajendra Jain as quoted in the reasons recorded has been taken as a gospel truth without any preliminary inquiry on the propriety of depositions made by him. The Assessing Officer has further failed to apply his mind to the assertions made in paragraph 4 sub paragraphs (iii) and (iv) of the reasons whereby, it would give an impression that the supplier Kriya Impex Pvt. Ltd. (Kriya) was, in real, involved in diamond trading in his own right. The ld. counsel further points out that the Assessing Officer has failed to apply his mind to the two different figures, i.e., Rs.25,12,590/- and Rs.65,20,152/- cropped up in the Investigation Report for the same invoice. The assessee had purchased diamonds in the present case as per invoice dated 09.11.2010 of different weights ranging between 102.19 cts to 132.34 cts for which purchase value of Rs.25,12,590/- was quantified in the invoice issued by Kriya. It is not known as to how another value of Rs.65,20,152/- has been derived in the Investigation Report. The Assessing Officer has failed to apply his mind to such facts and on this premise also the reasons recorded are vitiated by the non application of mind.

6.4 Joining the point in issue, the ld. DR strongly raised its objection to such line of contention and pointed out the reasons recorded is as elaborate as it could be. The Assessing Officer has taken into account the nature of information received from the Investigation Wing. The report of the Investigation Wing has clearly implicated the assessee as a beneficiary of the bogus purchase transactions from Kriya controlled by Jain & Choudhary Group. These parties have in unequivocal terms

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admitted in the course of search that they were not doing any real business and were only providing false accommodation entries. These parties/suppliers have also admitted that no physical goods were handed over by them to the parties to whom sales have been shown in their books of accounts. The Assessing Officer has narrated detailed account of the facts and circumstances discernible from the information received and formed a bona fide belief which only needs to be prima facie at the time of reopening the assessment. The belief emanates from the relevant material. The ld. DR thus contends that the onus upon Revenue at the time of invoking Section 147 was duly discharged in the present case in view of the information which is specific in nature and reliable in character. The ld. DR also pointed out that there is no question of borrowed satisfaction as alleged, in the light of paragraph 4 of the reasons recorded.

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has perused the observations of the investigation team and formed his own opinion that the purchase transactions shown by the assessee with Kriya are sham transactions in the nature of accommodation entries. In the circumstances, it cannot be said that Assessing Officer did not have tangible material to form belief that income chargeable to tax has escaped assessment. The assessment in the instant case was earlier concluded under Section 143(1) of the Act and there was no occasion for the Assessing Officer to look into such facts. The case of the assessee is squarely covered against the assessee as reported in Chokshi Vachharaj Makanji and Co. vs. ACIT, (2016) 243 taxmann.com 465 (Guj). The Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (SC) has observed that the Revenue need not to prove the escapement conclusively and reopening is justified where the material referred for formation of belief are relevant.

The identical issue raised has been dealt with by the Co-ordinate Bench in the case of Shailesh S. Patel vs. ITO (2018) 97 taxmann.com 570 (AHD). The Co- ordinate Bench has analysed the scheme of Act and answered the controversy against the assessee in following terms.

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14.1 Before we proceed for determination of issue, it would be pertinent to refer to the provisions of S. 153C and also S. 147 of the Act, as appearing in the statue at the relevant time, to the extent as may be relevant in the context.

"Assessment of income of any other person.

- 153C. [(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :]

[Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to [sub- section (1) of] section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.] " ***********

" [Income escaping assessment.

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after

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the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

[Provided further ------"

14.2 On a bare reading of S. 153C noted above, it is self evident that this provision governs assessment of income of a person other than a person in whose case search was initiated.

14.2.1 Also, this provision along with other provisions of S. 153A to 153D exerts an overriding effect over the provisions of sections 139, 147, 148, 149, 151 and 153 of the Act since these provisions contain non obstante clause. Secondly, the assessment proceedings under S. 153C are far more onerous qua S. 147 in the sense that proceedings are initiated for six assessment years immediately preceding the year in which search u/s. 132 is initiated or requisition is made u/s.132A. Thirdly, the provisions of section 153C are analogous to section 158BD of the Act. Therefore, decision of the Apex Court in the case of Manish Maheshwari 289 ITR 341 SC would also apply where assessment is to be made u/s. 153C. As per the aforesaid decision, the precondition for invoking jurisdiction for issue of notice u/s. 153C is that the AO must "record satisfaction" as to the seized material ‘belongs to’ the third person i.e. assessee.

14.2.2 Under S. 153C as applicable to the relevant assessment year in appeal, where the Assessing Officer of the searched person is satisfied that any books of account, or documents seized or requisitioned 'belong to' or belongs to any person, other than the person referred to in section 153 A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person for such jurisdictional Assessing Officer to complete the assessment. This position has been confirmed by the Hon’ble Supreme Court in the case of CIT vs. Calcutta Knitwears 338 ITR 239 (SC).

14.2.3 Therefore, question posed whether, in view of the phraseology employed in the section, if the books of account belong to the person searched but entry in such books reflect the undisclosed income of the third party then, whether the AO can assume jurisdiction under s.153C to assess such undisclosed income or not. The expression ‘belongs to’ was a subject matter of debate. The point in issue was examined by

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Hon’ble Delhi High Court in Pepsico Holdings Pvt. Ltd. vs. ACIT 370 ITR 295 (Del.). It observed in essence that expression belonging to assessee implies something more than idea of casual association. It was observed by the Hon'ble Delhi High Court that S. 153C cannot be invoked unless the AO is satisfied for cogent reasons that the seized documents do not belong to the searched person. It was observed that finding of photocopies with the searched person does not necessarily mean and imply that they "belong" to the person holding the originals. The distinction between "belongs to" and "relates to" or "refers to" must be borne in mind by the AO. The Assessing Officers should not confuse the expression "belongs to" with the expressions "relates to" or "refers to". The Hon'ble Court went on the explain the purport of the expression by giving illustration that a registered sale deed, for example, "belongs to" the purchaser of the property although it obviously "relates to" or "refers to" the vendor. In this example if the purchaser's premises are searched and the registered sale deed is seized, it cannot be said that it "belongs to" the vendor just because his name is mentioned in the document. In the converse case if the vendor's premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy "belongs to" the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said to "belong to" the petitioner.

14.2.4 We also notice that the legislature apparently took note of the restricted scope of expression 'belong to' employed in S. 153C which, to some extent, curtailed the power of the deptt. to invoke S. 153C of the Act. Thus, suitable legislative changes were brought with effect from 1- 6-2015 to relax the impediment for implementation of the Section 153C. As noted earlier, as per existing provisions, section 153C could be invoked against such other person only when books of account, etc., belonged to him and not otherwise. However, to address the point, section 153C has been amended to widen the powers of the Assessing Officer of the searched person to hand over the books of account or documents to the jurisdictional Assessing Officer even if these merely ‘pertains or pertain to’, or any information contained therein merely relates to the other person. Thus, after the legislative amendment, now the deppt. is well equipped to exercise jurisdiction under S. 153C even if the document seized merely pertains or pertain to or any information contained therein relates to the other person without the necessity of these documents etc. to be belonging to such other persons. Thus, in the light of the judicial precedent of the Hon'ble Delhi High Court and further in view of the subsequent legislative amendment, the difference between the expression 'belong to' and 'pertain to' / 'relate to' are

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visibly clear. Similar legal position has been enunciated by the Hon’ble Gujarat High Court in the case of Kamleshbhai Dharamshibhai Patel vs. CIT 263 ITR 362 (Guj). Hence, in the light of above discussion, we are of the view that the loose paper and other documents and diaries etc. found from the possession of the searched person cannot be said to be belonging to the assessee or other third parties merely because transaction noted therein relate to or pertain to assessee and/or such other persons. This view is also fortified by express provision of S. 132(4A) of the Act whereby the presumption of documents etc. found in course of search weighs towards searched person.

14.3 As noted, post the legislative amendment, any books of accounts or documents seized or requisitioned requires to be merely pertain to or relate to the assessee in contrast to the earlier position where such books/documents seized etc. must necessarily belong to the third person i.e. assessee herein. Thus, for the assessment year 2012-13 in question, which is governed by pre-amended law of Section 153C of the Act, the provisions of Section 153C of the Act could not be invoked unless document seized etc. ‘belongs to’ a person (assessee herein) other than the person searched. Thus, while the case of the assessee can be reopened where the document seized in the case of searched person gives rise to reasonable interference of escapement of income in the hands of third person i.e. assessee, same is not true for invoking Section 153C of the Act in the hands of the assessee unless the document seized or requisitioned actually belong to the assessee. Thus, the independent power available to AO of the third person under s.147 of the Act cannot be artificially curtailed in such a situation.

14.4 Provisions of Section 153C and Section 147 carry many distinguishing features notwithstanding the ultimate effect of redetermination of true income under both provisions. A conjoint reading of S. 153C & S. 147 would show that the nature of power of reopening assessment under section 147 is materially different from that of the power conferred under S.153C. Section 153 A / S.153C are special provisions dealing exclusively search cases while S. 147 is applicable to all types of escapement including income unearthed in search proceedings. The power available under S. 153C does not render provision of S. 147 repugnant per se. The remedy available under S. 153C and S. 147 are also not inconsistent. Relevant here to note the observation of the Hon'ble Bombay High Court in the case of Shirish Madhukar Dalvi 287 ITR 242 (Bom.); Section 148 is a substantive provision whereas section 158BC is a procedural section. Both sections definitely stand on different footings. Section 158BC and S. 153C are analogous. The key variances are firstly, non obstante clause in S. 153C grants nearly sweeping powers to revenue with a liberty to summarily reopen the assessment of 6 years without observing stringent and

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valuable safeguard of 'reason to believe' set out in S. 147 of the Act. Provisions of S. 153C thus somewhat tones down the rigors of S. 147 in favour of the Revenue. Secondly, for usurping jurisdiction under S. 147, the documents / papers found in the course of search need not ‘belong to’ the person other than person searched. Mere-demonstrable connection or live link to such third person revealing escapement of income is adequate to invoke remedy under S. 147. Thirdly and significantly, operation of Section 153C is dependent on the 'satisfaction' arrived by the AO of the searched person at the first instance and not that of AO of the person whose income is found to have escaped assessment. In the absence of such 'satisfaction' arrived by the AO of the searched person, the AO of the third party/Assessee herein would be rendered powerless to assess true income under S. 153C. In contrast, Section 147 can be invoked by the AO of the Assessee independently on arriving at satisfaction of escapement of income for a given assessment year regardless of ‘satisfaction’ of AO of searched person. Thus, it is self-evident that two sections operate quite differently. The effect of non obstante clause under S. 153C is that pending assessment or reassessment proceedings shall abate. Hence, S. 147 will be rendered inoperative and will give way to Section 153C once power under S. 153C are exercised validly. This however is not the same thing to say that there is any statutory compulsion to resort only to mode prescribed under S. 153A / S.153C in the event of search. The scheme of Act does not suggest that mere search action revealing incrementing material against the person other than searched person would automatically oust the power of the AO over the assessee concerned under S. 147 of the Act. The overriding provisions of S. 153C merely enables the AO to set aside the pending reassessment proceedings and grants primacy to Section 153C of the Act. As noted earlier, exercise of power under S. 153C is governed without any stringent fetters of holding 'reason to believe' contemplated under S. 147. Therefore, while exercise of overriding power under S. 153C will render S. 147 otiose, the converse case of clipping the powers available under S. 147 in search cases per se is not found to be reconcilable to the scheme of the Act. In the light of scheme of the Act narrated above, we are of the view that the AO of the assessee (person other than searched person) cannot be compelled to pursue remedy necessarily under s.153C of the Act in exclusion to remedy available to the AO under s.147 of the Act. Thus, on this count also, the action of the AO under s.147 of the Act is within the four corners of law and not be faulted.

14.5 The decisions cited on behalf of the assessee are clearly distinguishable and do not raise any conflict with position of law narrated above. The decision rendered by the Gujarat High Court in the case of Cargo Clearing Agency vs. JCIT [2008] 307 ITR 1 (Guj) has

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been rendered under a different scheme for assessment of search cases i.e. with reference to block period regime. The Hon’ble Gujarat High Court also echoes that in case of conflict between the operation of erstwhile Section 158BC of the Act (pertaining to erstwhile assessment procedure in the case of third person under old scheme) and Section 147/148 of the Act under normal provisions, provisions of erstwhile Section 158BC will prevail. The Hon’ble Gujarat High Court has also opined that proceedings under s.147/148 of the Act will not lie where it is repugnant to the procedure laid down under erstwhile Chapter XIV-B relating to search cases. In the instant case, where the onerous proceedings under s. 153C of the Act has not been invoked and could not possibly be invoked, there was no impediment for initiating proceedings under s.147 of the Act by the AO as discussed in elaboration above. Therefore, in Cargo Clearing Agency and other decisions of the co-ordinate bench cited on behalf of the assessee rendered on similar lines do not give rise to any conflict and are of no assistance to the assessee.

14.6 Consequently, the second additional ground is also dismissed.

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incriminating facts have emerged in the reasons recorded. Therefore, the reasons recorded are specific in nature and reliable in character. It is trite that at the stage of issuance of notice, the Assessing Officer under section 147 is only required to hold a prima facie belief on the material available before him as long as such material is relevant. The Assessing Officer is entitled to invoke the jurisdiction under section 147 of the Act as long as the material are relevant and is capable of giving prima facie belief to a person instructed in law. This proposition has been laid down by the Hon’ble Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO (1999) 236 ITR 34 (SC). We further observe that Assessing Officer has applied his mind properly and has given his independent finding which fact is manifest from the bare reading of the reasons recorded. We thus see no substance in the arguments propped up on behalf of the assessee to assail the validity of assumption of jurisdiction. The challenge to assumption of jurisdiction thus fails.

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for providing bogus accommodation entries. In such backdrop, the Assessing Officer reopened the assessment and made an addition of Rs.65,20,152/- on account of supply by one M/s. Kriya Impex Pvt. Ltd. which is found to be associate concern of the searched group. The matter was confronted to the assessee in the course of scrutiny assessment. On considering all the evidences furnished such as invoice, payment through banking channels, copy of stock register etc., the AO observed that mere reflection of transactions in the ledger books and payment through banking channel does not satisfy the claim. The statement of the Director of concerns were recorded on oath under the provisions of the Act which proves the true nature of the transactions to be an accommodation entry. A reference was made to the Judgement delivered by the Hon’ble Delhi High Court in the case of CIT vs. La Medica (2001) 250 ITR 575 and section 37 of the Act was invoked to disallow the purchases valued at Rs.65,20,152/- after rejecting the books of accounts. Concurrently, the AO also invoked provisions of section 69C of the Act as the purchase to the extent of the aforesaid amount remains unverifiable. Eventually, the total turnover of the assessee was substituted by the Assessing Officer at Rs.14.5 crores and net profit was taken at Rs.3.0305 crores as against the turnover declared as per profit and loss accounts at Rs.13.34 crores and taxable income declared at Rs.93.61 lacs.

“5. Ground no. 2 of the appeal is related to the addition made u/s 69C of the Act on account of bogus purchases.

5.1 The brief facts of the case are that the appellant is engaged in the business of manufacturing and sale of jewellery. As stated above, the AO had received information from the investigation wing of the Department, as per which the appellant has received accommodation entry of Rs. 65,20,150/- from a party namely M/s Kriya Impex Pvt. Ltd. which is a concern of the entry operator group of Sh. Rajendra Jain, in whose case a search action u/s 132 of the Act was carried out by the Department. The AO called for the details of these purchases and the appellant submitted that the purchases from this concern were genuine and furnished the stock statement, purchase bills and corresponding sale bills. It was also submitted that the appellant had made payments to the said concern through banking channels. The appellant also furnished affidavits from the parties in which the sale & delivery of goods to the appellant was confirmed.

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However, the AO relied upon the information provided by the Investigation Wing and considered that the appellant has shown bogus purchases of Rs. 65,20,152/- and has made the addition.

5.2 I have gone through the complete facts of the case and the submission made by the AR. It is noticed that the main contentions of the appellant are as under:

i. During the course of assessment proceedings, the appellant had denied the fact that it had made bogus purchases and had produced the invoice vouchers and the copy of the bank account from which the payments were made through banking channels to the parties.

ii. The appellant had also stated that it is engaged in the business of manufacture & trading of jewellery. The items purchased from the concern were either consumed or were reflected in the closing stock declared by the appellant.

iii. The appellant had also stated that it is maintaining proper stock register and the entry of purchase and sale of items has been duly recorded in this register.

iv. In addition, the appellant has contended that the request of the appellant made vide letter dated 22.09.2017 filed on 26.09.2017 before the AO, to provide an opportunity to cross examine the persons whose statements were being used against it, was not adhered to by the AO.

v. The appellant has further submitted that it has produced confirmations from the supplier parties which shows that the appellant has made genuine purchases.

vi. The appellant has also submitted that the total sales as well as the quantitative stock tally furnished to the AO have not been disputed by the AO.

vii. The AO has not furnished the copies of the documents/evidence seized from third party and the same was used against the appellant without confronting it with the same.

viii. The AO had made independent enquiry u/s 133(6) of the Act and no adverse finding has been brought on record by the AO.

ix. It is also submitted that on similar grounds and reasons, the case of the appellant was reopened u/s 147 of the Act for AYS 2008-09 & 2009-10 and under similar circumstances, the AO had made the addition on account of suppressed GP @ 4.38% and 4.18% respectively.

5.2.1 From the above discussion and facts, it is observed that the AO finalized the assessment without gathering any corroborative evidence to support the information provided by the investigation wing. The AO also failed to provide natural justice to the appellant by not giving the opportunity to cross examine the persons whose statements have been used by the AO for making the addition. It is an established law that any

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statement recorded behind the back of the assessee cannot be used against it without confronting the assessee with that statement. The appellant has relied upon a number of case laws which are relevant to the case and are in favour of the appellant.

In the case of Tristar Jewellary Exports Pvt. Ltd. vs. DCIT in ITA No. 7593/M/11, vide order dated 31.08.2015, the Hon'ble Mumbai ITAT has held as under:

"9 It remains undisputed that the assessee was never provided any opportunity to cross examine Sh. Hitesn L Rawal, though he specifically asked for such cross examination. On the other hand, the burden was sought to be shifted on the assessee by the AO, by asking him to produce Sh. Rawal, even though it was the AO who had relied on the statement of Sh Rawal, without either confronting this statement to the assessee, or providing opportunity to the assessee to cross examine Sh. Rawal. Therefore, the reassessment order is as a result of violation of the natural principle of audi alterm partem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. Hence, on this score alone, the reassessment order is unsustainable in the eye of law and we hereby cancel the same. As a consequence, the order of the Id. CITYA) is also cancelled in toto,"

In this case, the AO has not furnished the copies of the documents/evidence seized from third party and the same was used against the appellant without confronting her with the same. Also, no opportunity has been provided to cross- examine the persons whose statements have been relied against the appellant by the AO. Reference is made to the decision of Delhi High Court in the case of CIT vs. Anil Khandelwal (ITA Appeal No. 247/2015 & ITA 248/2015), in which it has been held that addition made merely on the basis of statement of the third party without any corroborative evidence is not tenable and the presumption u/s 132(4A)/292C is available only in the case of the person from whose possession and control the documents are found and it is not available in respect of a third party.

5.2.2 Even otherwise, the appellant has been able to prove the genuineness of the purchases under consideration and the AO has not been able to corroborate the information received from investigation wing with any evidence to rebut the contentions of the appellant made at the time of assessment.

5.3 In view of the above facts and in consistence with the stand taken by the AO for the AYS 2008-09 & 2009-10, I am of the view that the addition made needs to be restricted to the additional gross profit earned by the appellant in respect of the purchases shown to have been made from M/s Kriya Impex Pvt. Ltd. In the absence of the details pertaining to the sale consideration received by the appellant on sale of items manufactured by use of the disputed items of purchase and the actual profit earned from the same, the additional gross profit earned by the appellant is estimated at 5% of the disputed purchases amounting to Rs. 65,20,152/- which works out to Rs. 3,26,008/-. Thus, the addition made by the AO is restricted to Rs 3,26,008/ As a result, the ground of appeal is partly allowed.

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6.1 The AO has also rejected the books of account of the appellant and has estimated the total turnover at Rs. 14.50 crores as against the turnover of Rs. 13,34,33,025/- shown by the appellant. The AO has also estimated the net profit at Rs. 3,03,05,000/- as against the net profit of Rs. 92,52,710/- shown by the appellant. The reasons stated by the AO for rejecting the books of account are as under:

“16. Reasons for rejecting books of account 1 Statements of entry operators and other circumstantial information received amply prove that the purchases made by the assessee are bogus in nature.

2 Bogus purchases shows that the books of account do not represent the true and correct picture of financials or state of affairs of the business earned on by the assessee.

3 From the bogus purchase balls the following observations are made: a. the number of diamonds are not specified clearly in the bills

b. There are no details regarding size, carat (weight) of the diamonds purchased

c. There are no details regarding Quality and specifications Such as cut, colour, polish, clarity inclusions etc.

d. The bills have only gross weight m carats and a particular weight has been applied for all the diamonds which are shown in carat. Such a situation cannot be accepted as the assesses has claimed the very high carat of 102. 19 and 132.74 carat, which is not claimed to be a single diamond, but are claimed to be several diamonds and hence if there was any genuineness in the purchase the specific details of each of the various diamonds would have been given along with the specific rates, However, the bill does not give proper details and it is apparent that the bills have been drawn up merely to claim bogus purchase of diamonds.

e. The assesses has claimed that the diamond so purchased from M/s Kriya sold/included transaction manufacturing jewellery and were further However, once It is the assesses and clear that that it no had genuine taken view of the nature of the claimed by accommodation entries and further in purchase and invoice, it is dear that no genuine purchase of diamond was made by the assesses in respect of the above transaction with M/s Kriya Impex Put. Ltd. From this clear that the is making non-existing diamonds, for which only bogus purchase bills the assessee, were used in this sock manufacturing of jewellery and safe by the assessee of the a claim were or where taken by in transactions claimed by the assesses and books of account of the assessee are not reliable and hence are liable to be rejected. the proves that the was made in the stock.

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f. Once the diamonds were actually not purchased and were non-existent then the claim of the that these diamonds were manufacturing of Jewellery, stocking and subsequent sales are us'd in not reliable being a wrong claim. In view of the bogus purchases claimed by the assesses, which is clear from the statement of Sh. Rajendra Jain as discussed in preceding paras, and also based on discussion regarding the purchase bills, are it is clear that the purchases made and claimed by the unreliable and deserves to be rejected. Even though the assesses is engaged in the business of selling jewellery and earning profits there from, the profits disclosed for the impugned year are (suppressed due to bogus/inflated billing] in comparison very low the profits to prevalent in this line of business.

g. As the sales, purchases and stocks of the assesses cannot be relied upon, particularly as books of accounts are inaccurate and co not present the true and particularly as books of account are hereby rejected. h. The addition made in respect of bogus purchases above is deemed to be telescoped here before arriving at the net profits after rejecting books."

6.2 A perusal of the assessment order shows that the AO has rejected the books of account by holding that the same are not reliable and the purchase bills do not reflect the complete details of the diamonds purchased. By rejecting the books of account, the AO has estimated the turnover and the net profit without giving any reason or basis of the estimate made by him. The AR has contended that the appellant has maintained the consistent method of accounting for the past many years and the same has been accepted by the Department but the AO has rejected the books of account during this year on flimsy grounds. It is observed that the AO has taken this decision by stating that the purchase bills do not contain specific details like the number of diamonds, size, carat, quality, color, polish, inclusions etc. In this regard, it is pointed out that the appellant is maintaining proper stock register and the diamonds are purchased in bulk lot wise) and as per the trade practice, all these details are not mentioned by the supplier in the invoices. If books are to be rejected based on this reason, it will result in rejection of books in almost all the cases be it related to purchase of fabric, spare parts, machine tools, jewellery, hosiery, scrap, metals, etc. In my view, books of account can be treated as reliable if the books along with the other supporting documents give the true picture of the statement of affairs of the business. In this case, the ledger accounts, stock statement, invoices, VAT Returns, confirmation from the party, bank statement etc. are sufficient to establish the reliability of the books of account. The AO has neither given proper reasons for rejecting the books of account nor has given any rationale for estimating the turnover and the net profit. In view of these facts, I am constrained to delete the addition made by the AO by rejecting the books of account. Accordingly, the grounds of appeal are allowed.”

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in mind such gross circumstances existing in such cases. The ld. DR thus submitted that there was no justification for CIT(A) to casually restrict the addition to the extent of 5% of such bogus purchases and brushing aside the findings of such large scale search and investigation operation.

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submitted that Rs.65,20,152/- represents the real value of the diamonds specified in purchase bill, which has been adopted in place of underpriced value of Rs.25,12,590/- shown by the assessee. On being further asked by the Bench, the ld. DR drew blank on the reason for adopting a different turnover at 14.50 crores as against Rs.13.34 crores declared by the assessee. The ld. DR also failed to explain the purport of assessment of Rs.3,03,05,000/- as taxable income instead of Rs.93,61,190/- declared by the assessee followed with increase on account of additions proposed thereon by the AO himself at Rs.65,20,152/-. The assessed income thus could possibly be Rs.1,58,81,342/- only instead of Rs.3,03,05,000/-

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question alleged that the assessee has procured bogus bills from alleged supplier M/s. Kriya Impex Pvt. Ltd. in order to inflate the purchase costs and reduce taxable income. The total value of transaction as per so called bogus purchase bills raised stands at Rs.25,12,590/- whereas the AO has alleged that the real value of purchase transaction is Rs.65,20,152/- based on report from Investigation Wing. The AO alleged that the transaction towards diamond trade has been inserted in the books without any delivery and transactions are essentially paper transactions. The addition of Rs.65,20,152/- was thus made by the AO on account of bogus purchases.

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Order pronounced in the open Court on 29/02/2024

Sd/- Sd/- [YOGESH KUMAR US] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /02/2024 Prabhat