Loading judgment…
Facts
The assessee filed its return of income for AY 2012-13. The Assessing Officer (AO) reopened the assessment based on information from the Investigation Wing regarding bogus accommodation entry purchase bills from entities controlled by Gautam Bhanwarlal Jain and Rajendra Kumar Jain. The AO disallowed the entire purchases amounting to Rs. 2,41,77,979/-, treating them as unexplained expenditure under Section 69C of the Income Tax Act, 1961. The CIT(A) upheld the reopening but restricted the disallowance to 25% of the purchases.
Held
The Tribunal held that the reopening of assessment was justified as the AO had analyzed the information received and formed his own belief. Regarding the disallowance of bogus purchases, the Tribunal noted that the assessee failed to produce the parties for verification and substantiate the genuineness of the transactions. The Tribunal restored the matter to the file of the Assessing Officer for a fresh determination, considering the outcome of related proceedings and the assessee's ability to prove the genuineness of purchases and the export of goods.
Key Issues
Whether the reopening of assessment was valid and whether the disallowance of purchases on account of being bogus was justified, and if so, to what extent.
Sections Cited
147, 148, 143(3), 69C, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
These cross appeals by the assessee and Revenue are directed These cross appeals by the assessee and Revenue are directed These cross appeals by the assessee and Revenue are directed against order dated 26.07.2023 passed by the Ld. Commissioner of against order dated 26.07.2023 passed by the Ld. Commissioner of against order dated 26.07.2023 passed by the Ld. Commissioner of Income-tax (Appeals) tax (Appeals) – National Faceless Appeal Centre, Delhi [in National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012 short ‘the Ld. CIT(A)’] for assessment year 2012-13.
The grounds raised by the assessee unds raised by the assessee in its appeal in its appeal are reproduced as under: reproduced as under:
I: Reopening of Assessment I: Reopening of Assessment a) On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the reopening proceeding initiated by issuance of notice u/s. 148 of the reopening proceeding initiated by issuance of notice u/s. 148 of the reopening proceeding initiated by issuance of notice u/s. 148 of the act invalid and bad in act invalid and bad in law. b) On the facts and in the circumstances of the case and in law, the b) On the facts and in the circumstances of the case and in law, the b) On the facts and in the circumstances of the case and in law, the assessment order passed u/s. 143(3) r.w.s. 147 of the axt is invalid assessment order passed u/s. 143(3) r.w.s. 147 of the axt is invalid assessment order passed u/s. 143(3) r.w.s. 147 of the axt is invalid and bad in law. and bad in law. c) On the facts and in the circumstances of the case and in law, The c) On the facts and in the circumstances of the case and in law, The c) On the facts and in the circumstances of the case and in law, The learned CIT(A) erred in allo learned CIT(A) erred in allowing reopening assessment merely based wing reopening assessment merely based on information received from DGIT (Investigation), without forming on information received from DGIT (Investigation), without forming on information received from DGIT (Investigation), without forming independent belief by AO with regard to escapement of income. independent belief by AO with regard to escapement of income. independent belief by AO with regard to escapement of income. II: DISALLOWANCES OF BOGUS PURCHASES II: DISALLOWANCES OF BOGUS PURCHASES a) On the facts and in the circumstances of the cas a) On the facts and in the circumstances of the case and in law the e and in law the Learned CIT(A) has erred by upholding/continuing an addition by Learned CIT(A) has erred by upholding/continuing an addition by Learned CIT(A) has erred by upholding/continuing an addition by taking GPM @ 25% of non taking GPM @ 25% of non-genuine purchases from parties declared as genuine purchases from parties declared as hawala by DGIT hawala by DGIT (Inv), Mumbai amounting to Rs.60,44,495/- - . b) The learned CIT(A) erred in making addition of b) The learned CIT(A) erred in making addition of Rs.60,44,495/ Rs.60,44,495/- towards purchases made from Shri Gautam Bhanwarlal Jain and Shri towards purchases made from Shri Gautam Bhanwarlal Jain and Shri towards purchases made from Shri Gautam Bhanwarlal Jain and Shri Rajendra Kumar Jain and associated units treating this as Rajendra Kumar Jain and associated units treating this as Rajendra Kumar Jain and associated units treating this as unexplained expenditure u/s. 69C of the Income Tax Act, 1961 in spite unexplained expenditure u/s. 69C of the Income Tax Act, 1961 in spite unexplained expenditure u/s. 69C of the Income Tax Act, 1961 in spite of the fact that the transaction of purchase an of the fact that the transaction of purchase and payment to supplier d payment to supplier are recorded in the books of account and source of expenditure is are recorded in the books of account and source of expenditure is are recorded in the books of account and source of expenditure is explained.
Kalpsaru Diamonds 3 & 3400/M/2023 ITA Nos. c) The learned CIT(A) ought to have considered the subsequent sale of c) The learned CIT(A) ought to have considered the subsequent sale of c) The learned CIT(A) ought to have considered the subsequent sale of goods to customers along with the evidence of sale/export submitted goods to customers along with the evidence of sale/export submitted goods to customers along with the evidence of sale/export submitted to him. d) The learned CIT(A) ought to have considered the order passed in ned CIT(A) ought to have considered the order passed in ned CIT(A) ought to have considered the order passed in assessee's own case on similar grounds for AY:2010 assessee's own case on similar grounds for AY:2010-11 wherein 11 wherein addition is restricted at 3% of hawala /bogus purchase. addition is restricted at 3% of hawala /bogus purchase. e) The learned CIT(A) erred by upholding the action of AO by not giving e) The learned CIT(A) erred by upholding the action of AO by not giving e) The learned CIT(A) erred by upholding the action of AO by not giving for rebuttal the statement / document / information received from Shri al the statement / document / information received from Shri al the statement / document / information received from Shri Gautam Bhanwarlal Jain and Shri Rajendra Kumar Jain and relied Bhanwarlal Jain and Shri Rajendra Kumar Jain and relied Bhanwarlal Jain and Shri Rajendra Kumar Jain and relied upon by him for making addition. upon by him for making addition. f) The learned CIT(A) erred by upholding the action of AO by not The learned CIT(A) erred by upholding the action of AO by not The learned CIT(A) erred by upholding the action of AO by not allowing cross examination of the allowing cross examination of the Shri Gautam Bhanwarlal Jain and Shri Gautam Bhanwarlal Jain and Shri Rajendra Kumar Jain, whose statement taken during search Shri Rajendra Kumar Jain, whose statement taken during search Shri Rajendra Kumar Jain, whose statement taken during search action, was relied upon action, was relied upon for making addition. g) The learned CIT(A) erred by not considering GPM made in hawala g) The learned CIT(A) erred by not considering GPM made in hawala g) The learned CIT(A) erred by not considering GPM made in hawala transaction vis a vis overall GPM of the firm transaction vis a vis overall GPM of the firm 2.1 The grounds raised by the Revenue he grounds raised by the Revenue in its appeal in its appeal are reproduced as under: reproduced as under:
Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting to addition made on law, the Ld. CIT(A) has erred in restricting to addition made on law, the Ld. CIT(A) has erred in restricting to addition made on account of bogus purchases to 25% of total bogus pu account of bogus purchases to 25% of total bogus purchases of Rs. rchases of Rs. 2,41,77,979/-, ignoring the fact that the additions were made by , ignoring the fact that the additions were made by , ignoring the fact that the additions were made by relying on the information from the DGIT( Inv.), Mumbai which is a relying on the information from the DGIT( Inv.), Mumbai which is a relying on the information from the DGIT( Inv.), Mumbai which is a creditable agency of the Income creditable agency of the Income-Tax Department?"
2. Whether on the facts and in the circumstances of the case Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case law, the Ld. CIT(A) has erred in applying gross profit @ 25% as against law, the Ld. CIT(A) has erred in applying gross profit @ 25% as against law, the Ld. CIT(A) has erred in applying gross profit @ 25% as against the 100% of total bogus purchases of Rs.2,41,77,979/ the 100% of total bogus purchases of Rs.2,41,77,979/- by ignoring the by ignoring the fact that the assessee could neither produce the details of Importers, fact that the assessee could neither produce the details of Importers, fact that the assessee could neither produce the details of Importers, quantity tally of day to day purcha quantity tally of day to day purchases, Sales, Stocks and ses, Sales, Stocks and corresponding values nor could produce the parties for verification, in corresponding values nor could produce the parties for verification, in corresponding values nor could produce the parties for verification, in spite of opportunity provided by spite of opportunity provided by the Assessing Officer ?" 3 Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in app law, the Ld. CIT(A) has erred in applying gross profit @ 25% as against lying gross profit @ 25% as against the 100% of total bogus purchases of Rs.2,41,77,979/ the 100% of total bogus purchases of Rs.2,41,77,979/ the 100% of total bogus purchases of Rs.2,41,77,979/-without appreciating the ratio of the decision of the Hon'ble Supreme Court in appreciating the ratio of the decision of the Hon'ble Supreme Court in appreciating the ratio of the decision of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd., wherein the Court has hold that when the case of N.K. Proteins Ltd., wherein the Court has hold that when the case of N.K. Proteins Ltd., wherein the Court has hold that when the purchases are f the purchases are from bogus suppliers, the entire purchases are rom bogus suppliers, the entire purchases are liable to disallowed ?" liable to disallowed ?" 4 Whether on the facts and circumstances of the case and in law, the Whether on the facts and circumstances of the case and in law, the Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in applying gross profit @25% as against the 100% of Ld. CIT(A) erred in applying gross profit @25% as against the 100% of Ld. CIT(A) erred in applying gross profit @25% as against the 100% of total bogus. purchases of Rs.2,41,77,979/ total bogus. purchases of Rs.2,41,77,979/-, by ignoring the fact that ignoring the fact that Kalpsaru Diamonds 4 & 3400/M/2023 ITA Nos.
Gautam Jain in his statement recorded u/s Gautam Jain in his statement recorded u/s 132(4) of the Act, has 132(4) of the Act, has categorically categorically categorically stated stated stated that that that he he he has has has involved involved involved in in in providing providing providing of of of Accommodation entries without supplying of any goods & services?" Accommodation entries without supplying of any goods & services?" Accommodation entries without supplying of any goods & services?"
Whether on the facts and circumstances of Whether on the facts and circumstances of the case and in law, the the case and in law, the Ld. CIT(A) erred in applying gross profit @ 25% as against the 100% of Ld. CIT(A) erred in applying gross profit @ 25% as against the 100% of Ld. CIT(A) erred in applying gross profit @ 25% as against the 100% of total bogus purchases of Rs.2,41,77,979/, ignoring the fact that total bogus purchases of Rs.2,41,77,979/, ignoring the fact that total bogus purchases of Rs.2,41,77,979/, ignoring the fact that Gautam Jain in his statement recorded u/s 132(4) of the Act, has Gautam Jain in his statement recorded u/s 132(4) of the Act, has Gautam Jain in his statement recorded u/s 132(4) of the Act, has categorically stated that all categorically stated that all the employees of M/s. Gautam B. Jain & the employees of M/s. Gautam B. Jain & Rajendra Jain and his 70 alleged associates concerns were Rajendra Jain and his 70 alleged associates concerns were Rajendra Jain and his 70 alleged associates concerns were shown/designated as company's directors/partners or proprietors shown/designated as company's directors/partners or proprietors shown/designated as company's directors/partners or proprietors who have not possessed any knowledge of diamond business and all who have not possessed any knowledge of diamond business and all who have not possessed any knowledge of diamond business and all were worked on Salary Basis?" were worked on Salary Basis?" 6. "Whether on the facts and circumstances of the case and in law, the "Whether on the facts and circumstances of the case and in law, the "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in applying gross profit @ 25% as against the 100% of Ld. CIT(A) erred in applying gross profit @ 25% as against the 100% of Ld. CIT(A) erred in applying gross profit @ 25% as against the 100% of total bogus purchases of Rs.2,41,77,979/ total bogus purchases of Rs.2,41,77,979/-, ignoring the fact during the , ignoring the fact during the search no stock of diamond was found in t search no stock of diamond was found in the premises of the Gautam he premises of the Gautam Jain & Associates/group entities to whom the assessee claimed to Jain & Associates/group entities to whom the assessee claimed to Jain & Associates/group entities to whom the assessee claimed to have made alleged purchases?" have made alleged purchases?"
Whether on the facts and circumstances of the case and in law, the Whether on the facts and circumstances of the case and in law, the Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating the action taken by the A.O. Ld.CIT(A) erred in not appreciating the action taken by the A.O. Ld.CIT(A) erred in not appreciating the action taken by the A.O. for corroborating the circumstantial evidences collected through the corroborating the circumstantial evidences collected through the corroborating the circumstantial evidences collected through the various facts and the corroborative evidence in form of statements of various facts and the corroborative evidence in form of statements of various facts and the corroborative evidence in form of statements of the commission agents through which bogus bills were collected it is the commission agents through which bogus bills were collected it is the commission agents through which bogus bills were collected it is clear that the assessee alleged Firm Gautam Jain clear that the assessee alleged Firm Gautam Jain & Associates is & Associates is indulged in inflating the purchases through bogus bills?." indulged in inflating the purchases through bogus bills?."
Briefly stated, facts of the case are that the assessee filed its Briefly stated, facts of the case are that the assessee filed its Briefly stated, facts of the case are that the assessee filed its return of income for the year under consideration on 26.09.2012 return of income for the year under consideration on 26.09.2012 return of income for the year under consideration on 26.09.2012 declaring total income at Rs.20,80,130/ declaring total income at Rs.20,80,130/-. The return of income filed eturn of income filed by the assessee was processed u/s 143(1) of the Income-tax Act, by the assessee was processed u/s 143(1) of the Income by the assessee was processed u/s 143(1) of the Income 1961 (in short ‘the Act’) on 10.05.2013. Subsequently, The 1961 (in short ‘the Act’) on 10.05.2013. Subsequently, 1961 (in short ‘the Act’) on 10.05.2013. Subsequently, assessing officer received assessing officer received information from the Investigation Wing, information from the Investigation Wing, Mumbai that during search and seizure actio during search and seizure action in the cases of sh n in the cases of sh Gautam Bhanwarlal Jain and Rajendra Kumar Jain, it was revealed Gautam Bhanwarlal Jain and Rajendra Kumar Jain, it was revealed Gautam Bhanwarlal Jain and Rajendra Kumar Jain, it was revealed that the assessee firms obtained bogus accommodation entry assessee firms obtained bogus accommodation entry assessee firms obtained bogus accommodation entry purchase bills from purchase bills from entities controlled and managed by them. On entities controlled and managed by them. On analysis of the information, t analysis of the information, the Assessing Officer recorded reasons er recorded reasons
Kalpsaru Diamonds 5 & 3400/M/2023 ITA Nos. to believe that income escaped assessment and issued notice u/s to believe that income escaped assessment and issued notice u/s to believe that income escaped assessment and issued notice u/s 148 of the Act on 28.03.2019 for reopening the assessment 148 of the Act on 28.03.2019 for reopening the assessment 148 of the Act on 28.03.2019 for reopening the assessment proceedings. In response, the assessee filed return of income on proceedings. In response, the assessee filed return of income on proceedings. In response, the assessee filed return of income on 26.11.2019 and thereafter statutory notices were issued and 26.11.2019 and thereafter statutory notices were 26.11.2019 and thereafter statutory notices were complied with. In the course of the complied with. In the course of the re-assessment proceedings, the assessment proceedings, the in view of observation made by the search team in the case of Shri in view of observation made by the search team in the case of Shri in view of observation made by the search team in the case of Shri Gautam Bhanwarlal Jain and Rajendra Kumar Jain , the Assessing Gautam Bhanwarlal Jain and Rajendra Kumar Jain Gautam Bhanwarlal Jain and Rajendra Kumar Jain Officer opined that the purchases from the two p opined that the purchases from the two parties namely M/s arties namely M/s Nayan Gems ( in short the ‘Nayan’) Gems ( in short the ‘Nayan’) amounting to Rs.1`,22,23,204/ amounting to Rs.1`,22,23,204/- and Nazar Impex P ltd ( in short the ‘Nazar’) Impex P ltd ( in short the ‘Nazar’) Impex P ltd ( in short the ‘Nazar’) amounting to Rs.1,19,54,775/- totaling to Rs.2,41,77,979/ totaling to Rs.2,41,77,979/- was in the nature of was in the nature of accommodation entry and therefore, the asses accommodation entry and therefore, the assessee was asked to see was asked to substantiate the purchase transaction with purchase transaction with documentary evidence documentary evidences. In absence of any satisfactory reply, the Assessing Officer invoked ence of any satisfactory reply, the Assessing Officer invoked ence of any satisfactory reply, the Assessing Officer invoked the decision of the Hon’ble Supreme Court in the case of N.K. the decision of the Hon’ble Supreme Court in the case of N.K. the decision of the Hon’ble Supreme Court in the case of N.K. Proteins Ltd. (supra) Proteins Ltd. (supra) and disallowed entire purchases e purchases under dispute amounting to Rs.2,41,77,979/ amounting to Rs.2,41,77,979/-. The relevant finding of the . The relevant finding of the Assessing Officer is reproduced as under: Assessing Officer is reproduced as under:
“10. From the circumstantial evidences collected through the various 10. From the circumstantial evidences collected through the various 10. From the circumstantial evidences collected through the various facts and the corroborative evidence in form of statements facts and the corroborative evidence in form of statements facts and the corroborative evidence in form of statements of the commission agents through which bogus bills were collected it is clear commission agents through which bogus bills were collected it is clear commission agents through which bogus bills were collected it is clear that the assessee Firm is indulged in inflating the purchases through that the assessee Firm is indulged in inflating the purchases through that the assessee Firm is indulged in inflating the purchases through bogus bills. This issue has been in bogus bills. This issue has been in the fray for long and has seen the the fray for long and has seen the face of Hon. Apex Court also. The obs face of Hon. Apex Court also. The observation of the Hon able ervation of the Hon able Supreme Court of India in the case of N.K. Supreme Court of India in the case of N.K. Proteins Ltd v. Dy. CIT2017 Proteins Ltd v. Dy. CIT2017 Tax Pub(DT) 1860 (SC) : (2017) 250 TAXMAN 0022 is very relevant Tax Pub(DT) 1860 (SC) : (2017) 250 TAXMAN 0022 is very relevant Tax Pub(DT) 1860 (SC) : (2017) 250 TAXMAN 0022 is very relevant here--Where assessee filed SLP to appeal against the judgment of the Where assessee filed SLP to appeal against the judgment of the Where assessee filed SLP to appeal against the judgment of the Gujarat High Court in N.K. Gujarat High Court in N.K. Industries Ltd. v. Dy. CIT (2016) 292 CTR Industries Ltd. v. Dy. CIT (2016) 292 CTR (Guj) 354, whereby it was held that addition on basis of undisclosed (Guj) 354, whereby it was held that addition on basis of undisclosed (Guj) 354, whereby it was held that addition on basis of undisclosed income could not be restricted to certain percentage when the entire income could not be restricted to certain percentage when the entire income could not be restricted to certain percentage when the entire
Kalpsaru Diamonds 6 & 3400/M/2023 ITA Nos. transaction was found as bogus. The Hon'ble Supreme Court transaction was found as bogus. The Hon'ble Supreme Court transaction was found as bogus. The Hon'ble Supreme Court dismissed the SLP. dismissed the SLP.
In view of the above facts and circumstances and following the 11. In view of the above facts and circumstances and following the 11. In view of the above facts and circumstances and following the spirit of the judgment of the Hon'ble High Court, Gujarat which was spirit of the judgment of the Hon'ble High Court, Gujarat which was spirit of the judgment of the Hon'ble High Court, Gujarat which was later confirmed by the Hon'ble Apex Court, the bogus purchases later confirmed by the Hon'ble Apex Court, the bogus purchases later confirmed by the Hon'ble Apex Court, the bogus purchases amounting to Rs.2,41,77,979/ amounting to Rs.2,41,77,979/ - is treated as assessee's u is treated as assessee's unexplained expenditure u/s 69C of the Act and added to the total income of the expenditure u/s 69C of the Act and added to the total income of the expenditure u/s 69C of the Act and added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the Income Tax Act, assessee. Penalty proceedings u/s. 271(1)(c) of the Income Tax Act, assessee. Penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961 is initiated for concealment of income. 1961 is initiated for concealment of income.”
On further appeal, the Ld. CIT(A) justified the reopening On further appeal, the Ld. CIT(A) justified the reopening On further appeal, the Ld. CIT(A) justified the reopening proceedings, however however restricted the disallowance the disallowance upto 25% of relevant purchases from two parties , relevant purchases from two parties , observing as under: observing as under:
“9.9 In view of the above, considering the totality of facts and 9.9 In view of the above, considering the totality of facts and 9.9 In view of the above, considering the totality of facts and circumstances of the case, I am of the opinion that the ratio of the circumstances of the case, I am of the opinion that the ratio of the circumstances of the case, I am of the opinion that the ratio of the decisions of the Hon'ble High Court of Gujarat in the cases of (i) CIT vs. ions of the Hon'ble High Court of Gujarat in the cases of (i) CIT vs. ions of the Hon'ble High Court of Gujarat in the cases of (i) CIT vs. Bholanath Poly Fab Pvt. Ltd. (ii) Sanjay Oilcake Industries vs. CIT (iii) Bholanath Poly Fab Pvt. Ltd. (ii) Sanjay Oilcake Industries vs. CIT (iii) Bholanath Poly Fab Pvt. Ltd. (ii) Sanjay Oilcake Industries vs. CIT (iii) Vijay Proteins Ltd. vs. CIT; and (iv) N. K. Proteins Ltd. vs. DCIT (supra), Vijay Proteins Ltd. vs. CIT; and (iv) N. K. Proteins Ltd. vs. DCIT (supra), Vijay Proteins Ltd. vs. CIT; and (iv) N. K. Proteins Ltd. vs. DCIT (supra), as upheld by Hon'ble Supreme Court i as upheld by Hon'ble Supreme Court in N. K. Proteins Ltd. vs. DCIT n N. K. Proteins Ltd. vs. DCIT (2017) 84 taxmann.com 195 (SC) is squarely applicable mutatis (2017) 84 taxmann.com 195 (SC) is squarely applicable mutatis (2017) 84 taxmann.com 195 (SC) is squarely applicable mutatis mutandis to the instant case. Accordingly, the AO is directed to reduce mutandis to the instant case. Accordingly, the AO is directed to reduce mutandis to the instant case. Accordingly, the AO is directed to reduce the quantum of disallowance of bogus purchases to 25% in place of the quantum of disallowance of bogus purchases to 25% in place of the quantum of disallowance of bogus purchases to 25% in place of 100% applied in the asses 100% applied in the assessment order. Thus, the grounds of appeal sment order. Thus, the grounds of appeal raised by the assessee on this issue are treated as partly allowed. raised by the assessee on this issue are treated as partly allowed. raised by the assessee on this issue are treated as partly allowed.”
5. As far as ground No. 1 of the appeal of the assessee As far as ground No. 1 of the appeal of the assessee As far as ground No. 1 of the appeal of the assessee challenging reopening challenging reopening of the assessment is concerned, w of the assessment is concerned, we find that the Ld. CIT(A) has reje the Ld. CIT(A) has rejected the contention of the assessee that cted the contention of the assessee that reassessment proceedings are invalid due to no failure on the part reassessment proceedings are invalid due to no failure on the part reassessment proceedings are invalid due to no failure on the part of the assessee in making full and true disclosure. The Ld. CIT(A) of the assessee in making full and true disclosure. The Ld. CIT(A) of the assessee in making full and true disclosure. The Ld. CIT(A) has held that the return of income filed by the assessee u/s 139(1) has held that the return of income filed by the assessee u/s 139(1) has held that the return of income filed by the assessee u/s 139(1) of the Act was processed s processed without carrying out any regular without carrying out any regular scrutiny u/s 143(3) of the Act, so the proviso to section 147 is not attracted. u/s 143(3) of the Act, so the proviso to section 147 is not attracted. u/s 143(3) of the Act, so the proviso to section 147 is not attracted. The Ld. CIT(A) also rejected the challenge of the reassessment The Ld. CIT(A) also rejected the challenge of the reassessment The Ld. CIT(A) also rejected the challenge of the reassessment proceedings on the ground that notice u/s 148 of the Act was proceedings on the ground that notice u/s 148 of the Act was proceedings on the ground that notice u/s 148 of the Act was Kalpsaru Diamonds 7 & 3400/M/2023 ITA Nos. served beyond expiry of the four years beyond expiry of the four years from the end the relevant end the relevant assessment year. The Ld. CIT(A) has concluded that the Assessing assessment year. The Ld. CIT(A) has concluded that the Assessing assessment year. The Ld. CIT(A) has concluded that the Assessing Officer was required to issue notice prior to the expiry of the Officer was required to issue notice prior to the expiry of the Officer was required to issue notice prior to the expiry of the limitation and which he had already limitation and which he had already complied as notice was issued as notice was issued on 30.03.2019. The Ld. CIT(A) also rejected the contention of the 30.03.2019. The Ld. CIT(A) also rejected the contention of the 30.03.2019. The Ld. CIT(A) also rejected the contention of the assessee of ‘change of opinion change of opinion’ by the Assessing Officer on the the Assessing Officer on the ground that no scrutiny was carried out ground that no scrutiny was carried out prior to reassessment prior to reassessment proceedings , therefore, no opinion was framed by the Assessing therefore, no opinion was framed by the Assessing therefore, no opinion was framed by the Assessing Officer on the issue in dispute prior to reassessment. The Ld. CIT(A) ficer on the issue in dispute prior to reassessment. The Ld. CIT(A) ficer on the issue in dispute prior to reassessment. The Ld. CIT(A) also rejected the contention of the assessee that assessment was also rejected the contention of the assessee that assessment was also rejected the contention of the assessee that assessment was reopened based on the information received from the Investigation reopened based on the information received from the Investigation reopened based on the information received from the Investigation Wing without conducting any investigation by the AO. The conducting any investigation by the AO. The finding conducting any investigation by the AO. The of the Ld. CIT(A) is reproduced as under: of the Ld. CIT(A) is reproduced as under:
“7.14 Coming to the issue of reopening of the assessment based on Coming to the issue of reopening of the assessment based on Coming to the issue of reopening of the assessment based on information received from DGIT (Inv.), but without conducting information received from DGIT (Inv.), but without conducting information received from DGIT (Inv.), but without conducting investigation on his own by the AO, it is observed that the AO had in investigation on his own by the AO, it is observed that the AO had in investigation on his own by the AO, it is observed that the AO had in fact analyzed the information and reports received from the DGIT analyzed the information and reports received from the DGIT analyzed the information and reports received from the DGIT (Inv.), which were prepared on the basis of search & seizure action (Inv.), which were prepared on the basis of search & seizure action (Inv.), which were prepared on the basis of search & seizure action u/s. 132 of the Act conducted in the cases of Shri Gautam Bhanwarlal u/s. 132 of the Act conducted in the cases of Shri Gautam Bhanwarlal u/s. 132 of the Act conducted in the cases of Shri Gautam Bhanwarlal Jain and Shri Rajendra Kumar Jain and their group concerns Jain and Shri Rajendra Kumar Jain and their group concerns Jain and Shri Rajendra Kumar Jain and their group concerns on 03.10.2013 and, based on the same, recorded his findings keeping in 03.10.2013 and, based on the same, recorded his findings keeping in 03.10.2013 and, based on the same, recorded his findings keeping in view the material available on record such as return of income, view the material available on record such as return of income, view the material available on record such as return of income, financial statements, etc. that the assessee had indulged in bogus financial statements, etc. that the assessee had indulged in bogus financial statements, etc. that the assessee had indulged in bogus purchases. 7.15 As such, it is clearly evident that th As such, it is clearly evident that the AO had not merely e AO had not merely copied the findings of DGIT (Inv.), Mumbai, to formulate his belief that income the findings of DGIT (Inv.), Mumbai, to formulate his belief that income the findings of DGIT (Inv.), Mumbai, to formulate his belief that income chargeable to tax had escaped assessment within the meaning of chargeable to tax had escaped assessment within the meaning of chargeable to tax had escaped assessment within the meaning of section 147 of the Act, but recorded his own satisfaction after applying section 147 of the Act, but recorded his own satisfaction after applying section 147 of the Act, but recorded his own satisfaction after applying his mind and analyzi his mind and analyzing the facts came to his knowledge. 7.16 At this juncture, it may not be out of place to highlight the At this juncture, it may not be out of place to highlight the At this juncture, it may not be out of place to highlight the fact that it is trite law that at the time of initiation of proceedings u/s.147 that it is trite law that at the time of initiation of proceedings u/s.147 that it is trite law that at the time of initiation of proceedings u/s.147 of the Act, the condition precedent is reason to believe that income had of the Act, the condition precedent is reason to believe that income had of the Act, the condition precedent is reason to believe that income had escaped assessment but not establishment of the fact of actual escaped assessment but not establishment of the fact of actual escaped assessment but not establishment of the fact of actual escapement of income. Accordingly, while issuing notice u/s.148 of escapement of income. Accordingly, while issuing notice u/s.148 of escapement of income. Accordingly, while issuing notice u/s.148 of the Act, there should be evidence on record or specific information the Act, there should be evidence on record or specific information the Act, there should be evidence on record or specific information
Kalpsaru Diamonds 8 & 3400/M/2023 ITA Nos. received from outside agencies or gathered by the AO to de received from outside agencies or gathered by the AO to de received from outside agencies or gathered by the AO to demonstrate that there is a prima facie case of escapement of income. that there is a prima facie case of escapement of income. 7.17 In the instant case, it is an admitted fact that the AO In the instant case, it is an admitted fact that the AO In the instant case, it is an admitted fact that the AO received specific information from DGIT (Inv.), Mumbai, establishing information from DGIT (Inv.), Mumbai, establishing prima facie prima facie case of escapement of income f escapement of income. Under the circumstances, I stances, I don't find any merit in the assessee's contention that the AO recorded reasons any merit in the assessee's contention that the AO recorded reasons any merit in the assessee's contention that the AO recorded reasons for reopening based on information received from outside agencies for reopening based on information received from outside agencies for reopening based on information received from outside agencies without proper application of mind. without proper application of mind. 7.18 In this regard, I have perused the case laws relied upon by In this regard, I have perused the case laws relied upon by In this regard, I have perused the case laws relied upon by the assessee and found that the same are not applicable to the facts of assessee and found that the same are not applicable to the facts of assessee and found that the same are not applicable to the facts of the instant case and, also, on account of the fact that the said the instant case and, also, on account of the fact that the said the instant case and, also, on account of the fact that the said decisions have been impliedly overruled by the latest judgments of the decisions have been impliedly overruled by the latest judgments of the decisions have been impliedly overruled by the latest judgments of the Hon'ble Supreme Court in plethora of cases. In Hon'ble Supreme Court in plethora of cases. In view of this, I would view of this, I would like to place reliance on the latest decisions of the Hon'ble Supreme like to place reliance on the latest decisions of the Hon'ble Supreme like to place reliance on the latest decisions of the Hon'ble Supreme Court, apart from the judgments of other High Courts, on the issue of Court, apart from the judgments of other High Courts, on the issue of Court, apart from the judgments of other High Courts, on the issue of reopening of the assessment involving bogus purchases based on reopening of the assessment involving bogus purchases based on reopening of the assessment involving bogus purchases based on information received from Sales information received from Sales Tax Department of Maharashtra Govt. Tax Department of Maharashtra Govt. and Investigation Wing of the Income Tax Department, as discussed and Investigation Wing of the Income Tax Department, as discussed and Investigation Wing of the Income Tax Department, as discussed below.”
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. Before us, the Ld. relevant material on record. Before us, the Ld. Counsel Counsel for the assessee only pressed that reopening has been made merely on the essed that reopening has been made merely on the essed that reopening has been made merely on the basis of the information received from the DGIT Investigation Wing basis of the information received from the DGIT Investigation Wing basis of the information received from the DGIT Investigation Wing without any application of mind or carrying out any enquiry by the any application of mind or carrying out any enquiry by the any application of mind or carrying out any enquiry by the Assessing Officer regarding escapement of income. We are of view Assessing Officer regarding escapement of income. Assessing Officer regarding escapement of income. Hon’ble Supreme Court in the case of ACIT vs ACIT vs Rajesh that the Hon’ble Supreme Court in the case of Jhaveri Stock Brokers Pvt. Ltd. Jhaveri Stock Brokers Pvt. Ltd. (2007)( 291 ITR 500) (2007)( 291 ITR 500) has held that at the stage of issue of notice that at the stage of issue of notice, the only question to be seen is the only question to be seen is whether there was relevant material , whether there was relevant material , on which a which a reasonable person could have formed a requisite believe. Further, the Hon’ble person could have formed a requisite believe. Further, the Hon’ble person could have formed a requisite believe. Further, the Hon’ble Supreme Court in the case of Raymond Woolen Mills v. ITO Raymond Woolen Mills v. ITO Supreme Court in the case of [1999] 236 ITR 34 (SC) [1999] 236 ITR 34 (SC) held that for determining whether initiation for determining whether initiation of reassessment was valid, it has only to be seen whether there was of reassessment was valid, it has only to be seen whe of reassessment was valid, it has only to be seen whe
Kalpsaru Diamonds 9 & 3400/M/2023 ITA Nos. prima facie some material on the basis of which Department could prima facie some material on the basis of which Department could prima facie some material on the basis of which Department could reopen the case. It is further held that sufficiency or correctness of reopen the case. It is further held that sufficiency or correctness of reopen the case. It is further held that sufficiency or correctness of the material is not to be the material is not to be seen at the stage of recording reasons. In the stage of recording reasons. In view of the above ratio of the Hon’b view of the above ratio of the Hon’ble Supreme Court, we find that le Supreme Court, we find that the Assessing Officer has issued notice u/s 148 of the Act after the Assessing Officer has issued notice u/s 148 of the Act after the Assessing Officer has issued notice u/s 148 of the Act after verification of the material available before him and therefore, we do verification of the material available before him and therefore, we do verification of the material available before him and therefore, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in not find any infirmity in the order of the Ld. CIT(A) on the issue in not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute. The grounds challenging reopening of the assessment are s challenging reopening of the assessment are s challenging reopening of the assessment are accordingly dismissed. accordingly dismissed.
7. The ground No. 2 of the appeal of the assessee relate to The ground No. 2 of the appeal of the assessee relate to The ground No. 2 of the appeal of the assessee relate to disallowance sustained by the Ld. CIT(A) on merit, whereas the disallowance sustained by the Ld. CIT(A) on merit disallowance sustained by the Ld. CIT(A) on merit grounds of the appeal of the Revenue relate to relief granted to grounds of the appeal of the Revenue relate to relief granted t grounds of the appeal of the Revenue relate to relief granted t assessee by the Ld. CIT(A). assessee by the Ld. CIT(A). The facts qua the issue in dispute are The facts qua the issue in dispute are that the Assessing Officer has disallowed entire amount of that the Assessing Officer has disallowed entire amount of that the Assessing Officer has disallowed entire amount of Rs.2,41,77,979/- from two parties namely from two parties namely ‘Nayan Nayan’ and ‘Nazar’, whereas the ld CIT(A) ld CIT(A) has sustained disallowance to the extent of has sustained disallowance to the extent of 25% of those purchases amounting to Rs.16,44,495/- only. Thus 25% of those purchases amounting to Rs.16,44,495/ 25% of those purchases amounting to Rs.16,44,495/ the assessee is aggrieve the assessee is aggrieved with the addition sustained of d with the addition sustained of Rs.60,44,495/- whereas the Revenue is aggrieved with the relief whereas the Revenue is aggrieved with the relief whereas the Revenue is aggrieved with the relief granted by the Ld. CIT(A) ranted by the Ld. CIT(A) of Rs. 1,81,33,484/-. In the case In the case, the assessee has shown to have purchased goods from the entities has shown to have purchased goods from the entities has shown to have purchased goods from the entities controlled and operated by Gautam controlled and operated by Gautam Bhanwarlal Bhanwarlal Jain and Shri Rajendra Jain. The Assessing Officer has noticed in respect of Rajendra Jain. The Assessing Officer has noticed in respect of Rajendra Jain. The Assessing Officer has noticed in respect of parties as under:
Kalpsaru Diamonds 10 & 3400/M/2023 ITA Nos.
(i) The directors/ s/ partners/ proprietor in the entities entities controlled by sh Gautam Gautam BhanwarLal Jain and Rajendra Jain were Jain and Rajendra Jain were having dummy directors having dummy directors/ partners/proprietor only. only.
(ii) The directors/ partners/ proprietor (ii) The directors/ partners/ proprietor of those firms were of those firms were associated/connected with the Gautam associated/connected with the Gautam Bhanwarlal Bhanwarlal Jain & family.
(iii) Those dummy (iii) Those dummy directors/ partners/ proprietor directors/ partners/ proprietor of the company/firms controlled by Shri Gautam company/firms controlled by Shri Gautam Bhanwarlal Bhanwarlal Jain and Rajendra Jain were looking after miscellaneous office work like Rajendra Jain were looking after miscellaneous office work like Rajendra Jain were looking after miscellaneous office work like depositing cheques in bank and handing over parcels to clients, depositing cheques in bank and handing over parcels to clients, depositing cheques in bank and handing over parcels to clients, making data entry etc. Those making data entry etc. Those persons were were not having any genuine knowledge of the diamond business and they used to genuine knowledge of the diamond business and they used to genuine knowledge of the diamond business and they used to receive salary as employees. receive salary as employees.
(iv) Those directors/ partners/ proprietor directors/ partners/ proprietor used to used to reside in flats owned/provided /provided by Shri Gautam Bhanwarlal Bhanwarlal Jain and Shri Rajendra Jain & f Rajendra Jain & family.
(v) The so called business so called business recorded in the books of account the books of account of those entities was those entities was shown to the operated from premises to the operated from premises owned by sh Gautam Bhanwarlal Bhanwarlal Jain and family.
(vi) Those name (vi) Those name sake directors/ partners/ proprietor sake directors/ partners/ proprietor were not having any contact or whereabouts of the having any contact or whereabouts of the importers. importers.
Kalpsaru Diamonds 11 & 3400/M/2023 ITA Nos.
(vii) Shri Gautam (vii) Shri Gautam Bhanwarlal Jain and Shri Rajen Jain and Shri Rajendra Jain duly admitted u/s 132(4) of the Act that those companies/firms were u/s 132(4) of the Act that those companies/firms were u/s 132(4) of the Act that those companies/firms were controlled by them and were engaged in issuing accommodation controlled by them and were engaged in issuing accommodation controlled by them and were engaged in issuing accommodation entry bills.
(viii) During the course of the search no stock of the diamond (viii) During the course of the search no stock of the diamond (viii) During the course of the search no stock of the diamond was found at the premises of business controlled by Ra at the premises of business controlled by Rajendra at the premises of business controlled by Ra Bhanwarlal Jain. anwarlal Jain.
7.1 Before the Assessing Officer, the assessee submitted bank Before the Assessing Officer, the assessee submitted bank Before the Assessing Officer, the assessee submitted bank statement of assessee showing payment to parties, invoice copy statement of assessee showing payment to parties, invoice copy statement of assessee showing payment to parties, invoice copy issued by those parties, ledger account of those parties in books of issued by those parties, ledger account of those parties in books of issued by those parties, ledger account of those parties in books of assessee, party wise sales and purchase assessee, party wise sales and purchase – correlation between elation between purchase and sales. purchase and sales. The assessee was asked to produce The assessee was asked to produce, delivery challans, weighing slips, transportation bills etc, those parties for challans, weighing slips, transportation bills etc, those parties for challans, weighing slips, transportation bills etc, those parties for verification, but failure in doing so, the AO issued a show cause but failure in doing so, the AO issued a show cause but failure in doing so, the AO issued a show cause notice dated 6/12/2009 as why the purc notice dated 6/12/2009 as why the purchases might be treated as hases might be treated as non genuine. The submission of the assessee were rejected and The submission of the assessee were rejected and The submission of the assessee were rejected and the AO disallowed entire amount of purchases shown from them AO disallowed entire amount of purchases shown from them AO disallowed entire amount of purchases shown from them holding that those parties were controlled by Sh Gautam holding that those parties were controlled by Sh holding that those parties were controlled by Sh Bhanwarlal Jain for providing accommodation entries without any Bhanwarlal Jain for providing accommodation entries without any Bhanwarlal Jain for providing accommodation entries without any delivery of goods.
7.2 Before us , the ld AR contended that purchase from above Before us , the ld AR contended that purchase from above Before us , the ld AR contended that purchase from above parties were genuine for the reason that firstly firstly, goods were parties were genuine for the reason that received and same were ultimately exported , secondly, condly, purchase received and same were ultimately exported ,
Kalpsaru Diamonds 12 & 3400/M/2023 ITA Nos. invoice and corresponding sales invoice were given along with invoice and corresponding sales invoice were given along with invoice and corresponding sales invoice were given along with statement of quantity and value of purchase and sale, thirdly, statement of quantity and value of purchase and sale, statement of quantity and value of purchase and sale, detailed statement of quantity purchased from above suppliers and detailed statement of quantity purchased from above suppliers and detailed statement of quantity purchased from above suppliers and quantity sold, fourthly fourthly, all payments were made though account though account payee cheque, fifthly fifthly, the suppliers were registered with VAT , the suppliers were registered with VAT department and PAN were allotted to them, sixthly, the statements department and PAN were allotted to them, , the statements relied upon by the AO were never confronted for cross examination. relied upon by the AO were never confronted for cross examination. relied upon by the AO were never confronted for cross examination.
7.3 We have heard rival submission of partie We have heard rival submission of parties on the issue in s on the issue in dispute. The Assessing officer has held that two supplier parties The Assessing officer has held that two supplier parties The Assessing officer has held that two supplier parties were controlled by sh Gautam Bhanwar lal Jain. were controlled by sh Gautam Bhanwar lal Jain. We note that in We note that in the case of Shri Gautam Gautam Bhanwarlal Jain through legal heir smt through legal heir smt Pooja Jain, the Coordinate Bench of Coordinate Bench of Tribunal in No. 885 to 891/Mum/2019 for AY 2008 891/Mum/2019 for AY 2008-09 to AY 2014-15 has has restored the matter of determination whether matter of determination whether he was engaged in providing he was engaged in providing accommodation entry bills accommodation entry bills through entities controlled by him controlled by him without any actual sales of without any actual sales of goods i.e. diamonds. The relev The relevant part of finding of the Tribunal he Tribunal in the case of sh Gautam Bhanwarlal Jain Bhanwarlal Jain (supra) is reproduced as under: uced as under:
We have carefully considered the rival contention and 030. We have carefully considered the rival contention and 030. We have carefully considered the rival contention and perused the orders of the lower authorities. In this case, perused the orders of the lower authorities. In this case, perused the orders of the lower authorities. In this case, when the search took place, there was no material found at when the search took place, t here was no material found at the premises where the business of the assessee was stated the premises where the business of the assessee was stated the premises where the business of the assessee was stated to be carried on supporting the books of accounts of the to be carried on supporting the books of accounts of the to be carried on supporting the books of accounts of the assessee. No evidences, except the books of accounts, assessee. No evidences, except the books of accounts, assessee. No evidences, except the books of accounts,
Kalpsaru Diamonds 13 & 3400/M/2023 ITA Nos. purchase and sales invoices and Page | 22 bank statement purchase and sales invoices and Page | 22 bank statement purchase and sales invoices and Page | 22 bank statement was produced before the learned that lower authorities. was produced before the learned that lower authorities. was produced before the learned that lower authorities. Merely producing documentary evidences without actually Merely producing documentary evidences without actually Merely producing documentary evidences without actually supporting that in fact such transactions have taken place in supporting that in fact such transactions have taken place in supporting that in fact such transactions have taken place in ordinary course of business, the books of accounts of the ordinary course of business, the books of accounts of the ordinary course of business, the books of accounts of the assessee cannot be stated to be showing the correct picture. assessee cannot be stat ed to be showing the correct picture. It is the duty of the assessee to substantiate the transactions It is the duty of the assessee to substantiate the transactions It is the duty of the assessee to substantiate the transactions of purchases and sales of diamond with proving the chain of of purchases and sales of diamond with proving the chain of of purchases and sales of diamond with proving the chain of the business transaction with proper evidences. The learned the business transaction with proper evidences. The learned the business transaction with proper evidences. The learned AO has also rejected the books of accounts merely on the AO has also rejected the books of accounts merely on the basis of the statement as well as absence of evidence of basis of the statement as well as absence of evidence of basis of the statement as well as absence of evidence of carrying on of the business actually by the assessee at the carrying on of the business actually by the assessee at the carrying on of the business actually by the assessee at the time of search. In view of this facts, we set-aside the issue of time of search. In view of this facts, we set aside the issue of determination of the fact of actually carrying on o determination of the fact of actually carrying on of business determination of the fact of actually carrying on o by the assessee of purchase and sale of diamonds to the file by the assessee of purchase and sale of diamonds to the file by the assessee of purchase and sale of diamonds to the file of the learned assessing officer with direction to the of the learned assessing officer with direction to the of the learned assessing officer with direction to the assessee to substantiate that in fact assessee is carrying on assessee to substantiate that in fact assessee is carrying on assessee to substantiate that in fact assessee is carrying on the business and not merely an accommodation entry the business and not merely an accommodation entry the business and not merely an accommodation entry provider. The learned assessing officer is directed to examine arned assessing officer is directed to examine arned assessing officer is directed to examine the purchase and sales invoices as well as other evidences the purchase and sales invoices as well as other evidences the purchase and sales invoices as well as other evidences of each part of the chain of the trading and then decide of each part of the chain of the trading and then decide of each part of the chain of the trading and then decide whether the assessee is engaged in the business or is whether the assessee is engaged in the business or is whether the assessee is engaged in the business or is merely an accommodation entry provider. If the learned merely an accommodation entry provider. If the learned assessing officer reaches at the conclusion that assessee is assessing officer reaches at the conclusion that assessee is assessing officer reaches at the conclusion that assessee is an accommodation entry provider, then necessary action an accommodation entry provider, then necessary action an accommodation entry provider, then necessary action
Kalpsaru Diamonds 14 & 3400/M/2023 ITA Nos. may also be intimated in case of the beneficiaries of the may also be intimated in case of the beneficiaries of the may also be intimated in case of the beneficiaries of the transaction and determined the commission income in the transaction and determined the commission income in the transaction and determined the commission income in the hands of the assessee. Such action may also be explored in he assessee. Such action may also be explored in he assessee. Such action may also be explored in the hence of the beneficiaries even in case of a concluded the hence of the beneficiaries even in case of a concluded the hence of the beneficiaries even in case of a concluded assessment in case of this assessee. Therefore, the appeal of assessment in case of this assessee. Therefore, the appeal of assessment in case of this assessee. Therefore, the appeal of the assessee is for assessment year 2014 - 15 is set the assessee is for assessment year 2014 15 is set-aside to the file of the learned assessing officer to determine the the file of the learned assessing officer to determine the income of the assessee afresh. income of the assessee afresh.
7.4 Thus, the contention of the assessee that relevant purchases Thus, the contention of the assessee that relevant purchases Thus, the contention of the assessee that relevant purchases are genuine for the reason that sale has been confirmed in the hand for the reason that sale has been confirmed in the hand for the reason that sale has been confirmed in the hand of sh Gautam Bhanwarlal, of sh Gautam Bhanwarlal, is not acceptable as the issue acceptable as the issue has yet not determined. We have also noted that the assessee failed before the We have also noted that the assessee failed before the We have also noted that the assessee failed before the lower authorities in lower authorities in verifying the purchase parties except filing parties except filing paper trails of purchase bill paper trails of purchase bill, bank statement, ledger , bank statement, ledger account etc. The relevant finding of ld CIT(A) is reprodu The relevant finding of ld CIT(A) is reproduced as under: ced as under:
“8.16 Coming to the assessment proceedings, though the assessee 8.16 Coming to the assessment proceedings, though the assessee 8.16 Coming to the assessment proceedings, though the assessee furnished all legal documentation in the form of purchase invoices, sales furnished all legal documentation in the form of purchase invoices, sales furnished all legal documentation in the form of purchase invoices, sales invoices, stock summary, bank statements highlighting the payment invoices, stock summary, bank statements highlighting the payment invoices, stock summary, bank statements highlighting the payment made through banking channels, ledger made through banking channels, ledger accounts of the suppliers, etc., accounts of the suppliers, etc., but failed to prove the genuineness of transactions by rebutting the but failed to prove the genuineness of transactions by rebutting the but failed to prove the genuineness of transactions by rebutting the finds of Investigation Wing and the AO. To be precise, it is important to finds of Investigation Wing and the AO. To be precise, it is important to finds of Investigation Wing and the AO. To be precise, it is important to note that, during the course of assessment proceedings, the assessee note that, during the course of assessment proceedings, the assessee note that, during the course of assessment proceedings, the assessee did not produce the above mentioned two parties in person for the duce the above mentioned two parties in person for the duce the above mentioned two parties in person for the purpose of examination and recording statement on purpose of examination and recording statement on oath regarding the regarding the genuineness of transactions they had with the assessee. Also, the genuineness of transactions they had with the assessee. Also, the genuineness of transactions they had with the assessee. Also, the assessee has not produced any retraction statement of the kingpins assessee has not produced any retraction statement of the kingpins assessee has not produced any retraction statement of the kingpins i.e., Shri Gautam Bhanwarlal Jain and Shri Rajendra Kumar Jain. Shri Gautam Bhanwarlal Jain and Shri Rajendra Kumar Jain. Shri Gautam Bhanwarlal Jain and Shri Rajendra Kumar Jain. 8.17 As such, it is amply clear that the assessee has failed to such, it is amply clear that the assessee has failed to such, it is amply clear that the assessee has failed to discharge the onus cast on it to prove the genuineness of the transactions by the onus cast on it to prove the genuineness of the transactions by the onus cast on it to prove the genuineness of the transactions by producing the parties concerned in person. Simila producing the parties concerned in person. Similarly, the assessee has rly, the assessee has failed to adduce any other credible evidence to demonstrate the failed to adduce any other credible evidence to demonstrate the failed to adduce any other credible evidence to demonstrate the genuineness of the transactions, except harping on fabricated genuineness of the transactions, except harping on fabricated genuineness of the transactions, except harping on fabricated
Kalpsaru Diamonds 15 & 3400/M/2023 ITA Nos. documentary evidence such as purchase bills, sales invoices, ledger documentary evidence such as purchase bills, sales invoices, ledger documentary evidence such as purchase bills, sales invoices, ledger accounts, etc. Also, the assessee placed accounts, etc. Also, the assessee placed undue emphasis on payment undue emphasis on payment made to the parties through banking channels and contended that the made to the parties through banking channels and contended that the made to the parties through banking channels and contended that the genuineness of the transactions cannot be doubted. genuineness of the transactions cannot be doubted.” 7.5 The ld CIT(A) also held that merely because transaction was The ld CIT(A) also held that merely because transaction was The ld CIT(A) also held that merely because transaction was routed through banking channels, it couldn’t routed through banking channels, it couldn’t be constructed as be constructed as genuine transaction. In support of finding, the ld CIT(A) relied on genuine transaction. In support of finding, the ld CIT(A) relied on genuine transaction. In support of finding, the ld CIT(A) relied on following judicial decisions: following judicial decisions:
(i) CIT Vs P Mohan Kala & Other others (2007) 291 ITR CIT Vs P Mohan Kala & Other others (2007) 291 ITR CIT Vs P Mohan Kala & Other others (2007) 291 ITR 278(SC) (ii) Nemichand Kothari vs CIT(2003)264 ITR 254(Gugrat) Nemichand Kothari vs CIT(2003)264 ITR 254(Gugrat) Nemichand Kothari vs CIT(2003)264 ITR 254(Gugrat) (iii) CIT Vs Precision Finance p L CIT Vs Precision Finance p Ltd (1995) 82 Taxman 31(Cal.) td (1995) 82 Taxman 31(Cal.)
7.6 The ld CIT(A) also also rejected the copy of invoices issued by the invoices issued by the ‘hawala’ dealers/operator dealers/operator dealers/operator to to to support support support genuineness genuineness genuineness of of of the the the transaction. After applying theory of human probability and transaction. After applying theory of human probability and transaction. After applying theory of human probability and substance over form, the ld CIT(A) held that claim of the assessee substance over form, the ld CIT(A) held that claim of the assessee substance over form, the ld CIT(A) held that claim of the assessee that he made genuine purchase lacked bonafide. that he made genuine purchase lacked bonafide.
7.7 Before us the ld Counsel Before us the ld Counsel could not controvert the the fact that the assessee failed in producing those parties for verification by the assessee failed in producing those parties for verification by the assessee failed in producing those parties for verification by the Assessing Officer or the Ld CIT(A) Assessing Officer or the Ld CIT(A). In such circumstances, the In such circumstances, the assessee has not discharged its onus of substantiating the assessee has not discharged its onus of substantiating the assessee has not discharged its onus of substantiating the purchases from those parties. purchases from those parties. Therefore the contention of the herefore the contention of the assessee that no disallowance should be made in the case of the assessee that no disallowance should be made in the ca assessee that no disallowance should be made in the ca assessee is rejected and we concur with the ld CIT(A) that purchase assessee is rejected and we concur with the ld CIT(A) that purchase assessee is rejected and we concur with the ld CIT(A) that purchase
Kalpsaru Diamonds 16 & 3400/M/2023 ITA Nos. shown from two parties are not substantiated by way of proper shown from two parties are not substantiated by way of proper shown from two parties are not substantiated by way of proper documents.
7.8 As far as disall far as disallowance in respect of bogus purchase is owance in respect of bogus purchase is concerned, in our considered pinion, n our considered pinion, where the assessee is able to the assessee is able to justify with the help of inventory of goods maintained on day to day with the help of inventory of goods maintained on day to day with the help of inventory of goods maintained on day to day basis that goods corresponding to the bogus that goods corresponding to the bogus purchase purchase bills have been sold and sales have been confirmed by way of evidence in sales have been confirmed by way of evidence in sales have been confirmed by way of evidence in support of consumption support of consumption or export outside India outside India etc, the only presumption is that the assessee might have purchased goods from presumption is that the assessee might have purchased goods from presumption is that the assessee might have purchased goods from grey market at lower rate and therefore, grey market at lower rate and therefore, the benefit the benefit to the assessee for purchase from from grey market at reduced price prices could be disallowed by way of part disallowance out of bogus bills. But, disallowed by way of part disallowance out of bogus bills. disallowed by way of part disallowance out of bogus bills. where the sales corresponding to the bogus purchase bills esponding to the bogus purchase bills esponding to the bogus purchase bills are not linked or reconciled to corresponding sales with the help day to day to corresponding sales with the help day to day to corresponding sales with the help day to day inventory of goods, in such cases it cannot be presumed that in such cases it cannot be presumed that assessee purchased goods from the grey market therefore, in such assessee purchased goods from the grey market therefore, in such assessee purchased goods from the grey market therefore, in such cases entire bogus purchases are liable to be disallowed. cases entire bogus purchases are liable to be disallowed. cases entire bogus purchases are liable to be disallowed.
7.9 In the case, the assessee has filed a Paper Book containing In the case, the assessee has filed a Paper Book containing In the case, the assessee has filed a Paper Book containing copy of the purchase opy of the purchase bills from 2 parties and corresponding sales. 2 parties and corresponding sales. The assessee has filed a reconciliation The assessee has filed a reconciliation of purchase and sales, of purchase and sales, which is available on Paper Book page 99. The relevant reconciliation is is available on Paper Book page 99. The relevant reconciliation is is available on Paper Book page 99. The relevant reconciliation is reproduced as under: reproduced as under:
Kalpsaru Diamonds 17 & 3400/M/2023 ITA Nos.
Statement Giving details of G Statement Giving details of Gross profit margin (G ross profit margin (GPM) on Hawala Purchase & Its Corresponding sales Hawala Purchase & Its Corresponding sales Purchase Sales Name Carat Value Value Name Inv Carat Value Profit Carat Proportionate Nazar Impex Pvt. Ltd. 230.85 34,49,645.00 34,49,645.00 Leo 710.35 356.13 93,04,383.68 Schachter Diamonds India Pvt. Ltd. Inv#NIPLS/PD/APR/15/11- Inv Inv # # dt. dt. 12 dt. 11.04.2011 18.04.2011 18.04.2011 Nayan Gems 125.28 31,06,944.00 31,06,944.00 Inv#NIPLS/PD/APR/02/11- 356.13 65,56,589.00 65,56,589.00 93,04,383.68 27,47,795 12 dt. 13.04.2011 Nayan Gems 85.49 29,92,150.00 29,92,150.00 Arjav 875.25 224.11 73,60,486.79 Diamonds Inv # Arjav NIPLS/PD/JUL/08/11-12 Diamonds dt. 19.07.2011 Nazar Impex Pvt. Ltd. 138.62 40,89,290.00 40,89,290.00 Inv # NIPLS/PD/JUL/16/11-12 dt. 20.07.2011 224.11 70,81,440.00 70,81,440.00 73,60,486.79 2,79,047 Nayan Gems 457.81 61,24,110.00 61,24,110.00 Tache 437.45 61,22,560.00 Jewellery Pvt. Ltd. Inv # Inv # 30 NIPLS/PD/DEC/07/11-12 dt. dt. 20.12.2011 27.12.2011 457.81 61,24,110.00 61,24,110.00 61,22,560.00 -1,550 Nazar Impex Pvt. Ltd. 162.88 44,15,840.00 44,15,840.00 Di Moksh 381.55 162.88 30,54,400.21 -13,61,440 Inv # Inv # 28 NIPLS/PD/SEP/18/11-12 dt. dt. 21.09.2011 20.12.2011 162.88 44,15,840.00 44,15,840.00 30,54,400.21 1,97,62,139.00 1,97,62,139.00 2,58,41,830.68 16,63,852 GMP 6.44 Overall GMP 4.52% 7.10 On further verification of the On further verification of the sale bills issued bills issued to M/s Leo Schachter Diamonds India Pvt. Ltd, Schachter Diamonds India Pvt. Ltd, corresponding to the purchase corresponding to the purchase from Nazar Impex Pvt. Ltd. and Nayan Gems Nazar Impex Pvt. Ltd. and Nayan Gems, which are available on which are available on page 60 to 62 of the Paper Book, w age 60 to 62 of the Paper Book, we find that there is no mention e find that there is no mention of Kalpsaru Diamonds 18 & 3400/M/2023 ITA Nos. quantity of pieces purchased and sold. There is no mention of the pieces purchased and sold. There is no mention of the pieces purchased and sold. There is no mention of the variety of goods i.e. diamonds of goods i.e. diamonds. The assessee has also not enclosed . The assessee has also not enclosed the packing list for the purpose of export of goods list for the purpose of export of goods. Whereas Whereas, we find that in the invoice issued to M/s DI that in the invoice issued to M/s DI-Moksh Diamon Moksh Diamond available on page 73 there is a complete detail of items exported. In absence of page 73 there is a complete detail of items exported page 73 there is a complete detail of items exported any such co-relation relation of goods bought corresponding to bogus bills of goods bought corresponding to bogus bills and coresponding sales, sales, it may not be possible to establish whether it may not be possible to establish whether the assessee has exported the goods cor the assessee has exported the goods corresponding to the goods responding to the goods mentioned in the bogus bills. We find that before us, the Ld. mentioned in the bogus bills. We find that before us, the Ld. mentioned in the bogus bills. We find that before us, the Ld. Counsel for the assessee has relied on the various decisions for the assessee has relied on the various decisions for the assessee has relied on the various decisions wherein it is held that 3% addition is sufficient to cover up the wherein it is held that 3% addition is sufficient to cover up the wherein it is held that 3% addition is sufficient to cover up the benefit obtained by th benefit obtained by the assessee in purchase of goods from the grey goods from the grey market against the bogus bills. In view of the non market against the bogus bills. In view of the non-reconciliation of reconciliation of the goods exported co the goods exported corresponding to the bogus bills, w rresponding to the bogus bills, we feel it appropriate to restore this matter back to the file of the Assessing appropriate to restore this matter back to the file of the Assessing appropriate to restore this matter back to the file of the Assessing Officer. The Assessing Office The Assessing Officer, after the decision by the concerned by the concerned Assessing officer in the case of in the case of Late Sh. Gautam Bhanwarlal Jain Sh. Gautam Bhanwarlal Jain through L/H Smt. Pooja Jain, may decide in the case of the through L/H Smt. Pooja Jain, may decide in the case of the through L/H Smt. Pooja Jain, may decide in the case of the assessee whether the purchases are genuine or not and thereafter, assessee whether the purchases are genuine or not and assessee whether the purchases are genuine or not and if he finds that purchase bills are not genuine, then he may if he finds that purchase bills are not genuine, then he may if he finds that purchase bills are not genuine, then he may examine and verify that and verify that inventory details as to whether the goods details as to whether the goods purchased corresponding to bogus bills had been exported. If purchased corresponding to bogus bills had been exported. purchased corresponding to bogus bills had been exported. assessee succeed in establishing reconciliation of the goods assessee succeed in establishing reconciliation of the goods assessee succeed in establishing reconciliation of the goods purchased with the goods exported by the assessee, then goods exported by the assessee, then it shall be goods exported by the assessee, then presumed that assessee had assessee had obtained only benefit of obtained only benefit of purchasing
Kalpsaru Diamonds 19 & 3400/M/2023 ITA Nos. from the grey market. In such situation, from the grey market. In such situation, then following finding of then following finding of Coordinate Bench of Tribunal in assessee’s own case ( Coordinate Bench of Tribunal in assessee’s own case ( ITA No Coordinate Bench of Tribunal in assessee’s own case ( ITA No /Mum/2018 for AY 2010 /Mum/2018 for AY 2010-11 ) and other cases cited as under ) and other cases cited as under disallowance might be restricted disallowance might be restricted to percentage of profit to percentage of profit accordingly : i. Pr. CIT, Vs. Vaman International Pvt. Ltd. [ITXA No. 1940 Pr. CIT, Vs. Vaman International Pvt. Ltd. [ITXA No. 1940 Pr. CIT, Vs. Vaman International Pvt. Ltd. [ITXA No. 1940 Of 2017, dated 29/01/2020, (Bom Of 2017, dated 29/01/2020, (Bom-HC)] ii. M/s. Polar Jewellery Vs. ITO M/s. Polar Jewellery Vs. ITO [ITA No. 6845/M/2019, dated [ITA No. 6845/M/2019, dated 16/12/2021, (Mum 16/12/2021, (Mum-Trib)] iii. ITO Vs. M/s Dinal Diamonds dated ITO Vs. M/s Dinal Diamonds ITA No. 6102/M/2017, dated ITO Vs. M/s Dinal Diamonds ITA No. 6102/M/2017, dated 05/03/2019, (Mum 05/03/2019, (Mum-Trib) iv. M/s Star Brillian Vs. ITO ITA No. 1551 & 1552/M/2020, M/s Star Brillian Vs. ITO ITA No. 1551 & 1552/M/2020, M/s Star Brillian Vs. ITO ITA No. 1551 & 1552/M/2020, dated 12/07/2022, (Mum dated 12/07/2022, (Mum-Trib). v. M/s Oopal Diamond Vs. ACIT M/s Oopal Diamond Vs. ACIT - 19(2) ITA No. 19(2) ITA No. 1500 & 1501/M/2020, dated 26/10/2022, (Mum 1501/M/2020, dated 26/10/2022, (Mum-Trib). vi. Hitesh Hitesh Kantilal Kantilal Gandhi Vs. Gandhi Vs. ACIT ACIT - 30(1) 30(1) ITA No. ITA No. 6734/M/2016, dated 16/08/2017, (Mum 6734/M/2016, dated 16/08/2017, (Mum-Trib). 7.11 In the result, the grounds raised by the assessee as well as In the result, the grounds raised by the assessee as well as In the result, the grounds raised by the assessee as well as Revenue are allowed for statistical purposes. Revenue are allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for In the result, the appeal of the assessee is partly allowed for In the result, the appeal of the assessee is partly allowed for statistical purposes whereas appeal of the Revenue is allowed for statistical purposes whereas appeal of the Revenue is allowed for statistical purposes whereas appeal of the Revenue is allowed for statistical purposes.
Order pronounced in the open Court on nced in the open Court on 28/0 /03/2024.