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Income Tax Appellate Tribunal, JAIPUR BENCHES,’A’ JAIPUR
Before: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 910/JP/2019
PER BENCH
Both the appeals are arising out of an order of ld. CIT(A), Ajmer for Assessment Year 2009-10 passed on 05.03.2019.
2 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 2. The hearing of the appeal was concluded through audio-visual medium on account of Government guidelines on account of prevalent situation of Covid-19 Pandemic, both the parties have placed their written as well as oral arguments during this online hearing process.
The appeal filed by the assessee is delayed by 11 days. The assessee has filed an application for condonation of delay in filling this appeal. The reasons behind delay as it is contended in the assessee’s application are as under: Hon'ble Sirs,
Order u/s 147 r.w.s 143(3) of Income Tax Act, 1961 for the A.Y. 2009- 10 was passed vide order dated 22.12.2016. The first appeal was preferred before Id. CIT(A), Ajmer which was partly allowed vide order dated 05.03.2019. The assessee appel received the said order on 16.04.2019, accordingly, the appeal was to be filed on or before 15.06.2019. The appeal was filed on 26.06.2019 i.e. with a delay of 11 days. Humble prayer is made for condonation of delay.
It is submitted that assessee after closing his diamond business in Surat permanently shifted to Bijainnagar and started a small saree shop.
On receipt of assessment order and appellate order whereby a huge demand was created against him he went into depression. He, thus, could not make decision whether to file appeal before Hon'ble Bench or not.
By the time his family and friends could make him realize the necessity of filing of appeal time limit of 60 days expired.
The assesse then took immediate steps and filed appeal on 71st day.
Due to above the appeal filing is delayed. Delay was not deliberate. The assessee humbly pray for condoning the delay on account of the above reason.
3 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar Affidavit in this regard has been already filed along with appeal as an annexure with Form 36.
Reliance is placed on the following judicial pronouncement of the Hon'ble Supreme Court: Collector, Land Acquisition vs. Mst. Katiji [1987] 167 ITR 471
"The legislature has conferred the power to condone delay by enacting S.5 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on "merits". The expression "sufficient cause" employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the end of justice that being the life-purpose of the existence of the institution of courts."
In view of above, a very humble prayer is made for condoning the delay.
Submitted most respectfully,
3.1 Thus, it is submitted that the delay in filling the appeal is absolutely inadvertent and bonafide has occurred due to circumstances stated in the petition for condonation filed by the assessee. It was further submitted that the assessee has always acted bondfide and the delay is of only 11 days. Based on this fact the assessee prayed that the delay may be condone in the interest of justice relying on the Hon’ble Apex Court decision in the matter of Collector, Land Acquisition vs. Mst. Katiji [1987] 167 ITR 471.
3.2 We have heard the ld. counsel for the assessee as well as the ld. DR. The Ld. DR has not objected to the facts placed on record and left the decision to the bench considering the interest of justice.
3.3 It is beyond doubt that there was sufficient cause for not bringing the appeal in time by the assessee as it evident from the petition filed by the assessee. Considering the rival submission, and the decision of
4 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar the supreme court relied upon by the assessee we are of the view that there is no intention to file this appeal belatedly but the delay in filing the appeal was due to a reasonable cause and beyond the control of the assessee. Accordingly, we condone the delay in filing this appeal and decided to take the appeal on its merits.
Both these appeals are cross appeals filed by the assessee and revenue for the same assessment year. The Grounds of appeal raised by each party are as under:-
ITA No. 910/JP/2019 (Grounds of appeal taken by the assessee):
“1. The Ld. CIT(A) and Ld AO has erred in rejecting the books of accounts by invoking section 145(3) of the Income Tax Act, 1961. 2. The Ld. CIT(A) has erred in not considering the notice u/s 148 of the Income Tax Act 1961, for reopening of appellant’s case as void ab initio. The Ld. CIT(A) has erred in confirming the notice u/s 148 as valid. 3. The Ld. CIT(A) has erred in making addition of Rs. 28,71,891/- being commission at the rate of 0.5% of total purchases.”
ITA No. 819/JP/2019 (Grounds of appeal taken by the department): “In view of the facts and circumstances of the case, the ld. CIT(A), Ajmer has erred in:- “1. The Ld. CIT(A) Ajmer erred in deleting the addition of Rs. 3,33,26,754/- being disallowance of purchase @ 15% out of total purchases of Rs. 22,21,78,361/- treated as bogus purchases and addition of Rs. 22,21,783/- being commission @ 1% for purchasing of accommodation entries of Rs. 22,21,78,361/-, ignoring the fact that additions were made by the AO on the basis of confessional statements
5 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar w.r.t Search & Seizure operation and Report of Directorate of investigation, Mumbai. 2. The Ld. CIT (A) failed to appreciate the difference between admitted bogus accommodation entry turnover of Rs. 22,21,78,361/- and balance turnover of Rs. 38,05,15,820/- (60,26,94,181 – 22,21,78,361): 3. The Ld. CIT(A) thus incorrectly computed the addition @ 0.50 on total turnover of Rs. 60,26,94,181/- that included accommodation turnover of Rs. 22,21,78,361/-. 4. The appellant craves to add, amend, alter, delete or modify the above ground of appeal before or at the time of hearing.”
Since we heard both these appeals related to same assessee and same assessment year disposed of by this common order.
Briefly stated the facts are that the assessee is an individual assessed to tax and doing business in the name of M/s Mangal Deep Exports engaged in the business of commission agent (Pacca Arahtia) services to the Diamond Traders in Surat for rough and polished diamonds. The assessee’s income was thus being commission income derived from the purchase amount and markup sale amount in respect of the transaction done by the assessee.
6.1 There was an information which was received from the office of DCIT Circle -8 (3), Mumbai vide letter dated 14.03.2016 search and seizure action was carried out in Surat based non-genuine diamond concerns on 03.10.2013. These group of cases referred to ‘Gautam Jain and other’ were found to be actively involved in providing non-genuine purchase bills and also unsecured loan accommodation entries to
6 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar various interested parties. This information connected to this case was said by the DCIT, Circle- 8(3), Mumbai and sent a detailed report, modus operandi enclosing the statement of Sh. Gautam B Jain, Sh. Gyan Chand Bhanwar Lal Jain recorded by ADIT (Inv.) Unit-VIII, Mumbai. In this case a notice u/s 148 of Income Tax Act, 1961 was issued to the assessee by ITO, Ward-2, Beawar on 30.03.2016 after recording the reasons and obtaining prior approval from the Pr. CIT, Ajmer and the assessee was issued the notice accordingly. In response to the said notice, the assessee filed a letter stating that the return originally filed on 24.08.2009 vide acknowledgement No. 0006307424 may be treated as return filed in response to the notice u/s 148.
6.2 Subsequently, the assessment records have been transferred to the office of ITO, Ward-01, Beawar as territorial jurisdiction rest with him. The assessee was also supplied copies of statement of following persons along with all material received from the investigation unit related to the assessee in soft copy/CD and as well as in hard copy.
“1. Statement of Shri Gyanchand Bhanwarlal Jain recorded by ADIT (Inv.) Unit-VIII 1), Mumbai on 21.10.2013 u/s 132 (4) of I.T.Act, 1961. 2. Statement of Shri Gautam Bhanwarlal Jain recorded by ADIT (Inv.) Unit VIII (1), Mumbai on 06.10.2013 u/s 131 of I.T.Act, 1961. 3. Statement of Shri Gautam Bhanwarlal Jain recorded by ADIT (Inv.) Unit VIII (1), Mumbai on 11.10.2013 u/s 132 (4) of I.T. Act, 1961.”
6.3 The assessee has shown purchase of cut & polished diamonds & rough diamonds from the following parties whose director/proprietor were found indulged in racket of providing accommodation entries:-
7 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar
6.4 The findings of Investigation Wing, Mumbai on Gautam Jain & others (Surat based Diamond concerns) are as under: “1. The directors/proprietors of all these concerns admitted on oath that the Concerns are nothing but paper companies with no genuine business; 2. It was established that the concerns import rough diamonds/diamonds in their hands at the behest of third person/interested parties. 3. The diamonds once cleared from Customs are immediately taken away by the interested parties (third parties); 4. The assessee concerns are thus left with no physical stock however the Stock reflected in their books against which bogus bills of sale are issued to interested parties. 5. Accommodation entries (unsecured loans) are also given to other Interested parties against cash from time to time.”
In response to the observations of the Assessing Officer in respect of the above purchase made by the assessee he sought a clarification from the assessee. The AR of the assessee submitted his reply vide letter dated 28.11.2016 and dated 07.12.2016 stating that the assessee was a consignment agent and dealing in rough and
8 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar polished diamonds and carried over business in the name of Mangaldeep Export from his premises at 6/1172, rd Floor, Vaniyasheri, Mahidharpura, Surat. It was further submitted by the A/R that the assessee acts as consignment agents and carry out the transaction of sale & purchase of diamonds on behalf of their customers. It was submitted that assessee margin represents excess of sales over purchases i.e Commission for carrying out such transaction. During the year the assessee has earned commission of Rs. 5,99,726/- being excess of sales over purchases. The assessee acting as Commission agents but to record movements of goods. It has to maintain consignment sale and purchase stock register.
The ld. AO further stated that the submission filed by the AR of the assessee has been considered but the same is not found acceptable. The AR stated that assessee’s acts as consignment agent but the same is not found correct because the concerns are only paper concerns having no actual business. They have clearly admitted that they have provided accommodation entries in lieu of cash. Hence, it cannot be said that the assessee is a commission agent. Further, as per bank accounts of the assessee, the submission is not acceptable at all.
During the course of assessment proceedings, the A/R of the assessee filed copy of affidavit dated 23.10.2013 of Shri Gyan Chand Jain and copy of Affidavit dated 03.12.2013 of Shri Gautam Chand Jain. Shri Gyan Chand Jain has retracted from the facts admitted in the statement recorded by the ADIT (Inv.) Unit-VIII (I), Mumbai on 21.10.2013 and Shri Gautam Chand Jain has retracted from the facts admitted in statement recorded by the ADIT (Inv.) 'Unit VIII (1),
9 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar Mumbai on 06.10.2013 & 11.10.2013 respectively. Filing of copies of affidavits of above 2 persons to the ld. AO during assessment proceedings not accepted as reliable and true. Further, the retraction made affidavits are dated 07.10.2013 and it is not found place that before which authority same affidavits were filed. It is also mentioned that the DCIT, Central Circle has sent information to the AO vide letter no 14.03.2016, but in which no such retraction has been discussed. Hence, the retraction statement is not acceptable by AO at his stage. In order to verify submission, put forth by the A/R and to examine the affidavits of retraction, the AR was requested to produce both parties Sh. Gyan Chand Jain and Sh. Gautam B Jain for examination. Further, summon under section 131 of IT Act was issued to Sh Gautam Bhanwar lal Jain, Mumbai and Sh. Gyan Chand Bhanwar Lal Jain, Thane on 28.11.2016 for 05,12.2016, But none attended in response to summon u/s 131 nor filed any written submission. So, assessee failed to produce the parties. The AR of the assessee has submitted reply dated 05.12.2016 in the matter which reads as under:-
"Sh. Gautam Bhanwarlal was died in a road accident on 03.04.2015, hence. It is not possible to produce him. His death certificate is enclosed. 2. Sh. Gyan Chand Bhanwar Lal jain resides in Mumbai. Since, assessee have shifted to Rajasthan since long, he is not in touch with our client. 3. However, in our previous submission, we have submitted all the documents substantiate that the alleged bogus purchase transactions, which are in fact are consignment purchase, are genuine business transactions, on which our client had earned only commission @ 0.10% to 0.15%."
10 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 10. On going through the submission of the assessee, AO was of the view that the assessee failed to produce Sh. Gyan Chand Bhanwar Lal Jain. Therefore, the retraction affidavit filed by the assessee could not examined.
The ld. AO further observed that since the photocopies of affidavits were submitted by the assessee it could not be treated as genuine, legal and real evidence. As statement of Sh. Gautam Bhanwarlal and Sh. Gyan Chand Bhanwar Lal Jain were recorded u/s 132(4) and 131 of the I.T. Act. Hence, on these observation ld. AO stated that the assessee has failed to discharge onus in respect of contentions raised by them based on these findings. The Assessing Officer has issued a show cause notice to the assessee asking him to show cause as to why 15% of total bogus purchase of Rs. 2,97,89,438/- from M/s Simran Gems Surat, which comes to Rs. 44,68,416/- may not be added in the total income of the assessee considering the bogus purchase of the assessee vide order sheet dated 05.12.2016. In response, the assessee filed ledger account of the following parties as appearing in his books of accounts.
Copy of ledger a/c of M/s Simran Gems, Surat Prop. Shri Gyan Chand Jain 2. Copy of ledger a/c of !Ws Karishma Diamonds Pvt. Ltd. Surat Gautam Jain -- Director) 3. Copy of ledger a/c of Ms Parshwanath Gems Pvt. Ltd. Surat (Gautam Jain (Director) 4. Copy of ledger a/c of M/s Mihir Diamonds, Surat (Gautam Jain Prop.) 5. Copy of ledger/c of M/s Krishana Diam
11 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 12. The A/R has filed copies of ledger a/c of his sales and purchases recorded in the year. Perusal of the ledger accounts filed by the AR it is found that the assessee had shown purchases of cut & polished diamonds/rough diamonds from M/s Simran Gems, Surat, Mis Karishma Diamonds Pvt. Ltd, Surat, M/s Parshwanath Gems Pvt. Ltd., M/s Mihir Diamonds, Surat and M/s Krishna Diam, Surat. All these concerns were controlled and managed by Shri Gyan Chand Bhanwar lal Jain and Gautam B. Jain who were indulged in providing accommodation entries of bogus purchases, loans and advances as admitted by them in their statement recorded u/s 131 (1) and 132 (4) of IT Act, 1961 as discussed above. Thus, assessee has also shown purchases from the following parities:-
a) M/s Krishna Diam, Surat Rs. 3,06,39,156/- b) M/s Paraswanath Gems Pvt Ltd Rs. 10,20,82,989/- c) M/s Karishma Diamond Pvt Ltd Rs. 3,20,76,319/- d) M/s Mihir Diamonds Rs. 2,75,90,459/-.
Although the information was passed on by the DCIT Central Circle-3 Mumbai in the case of M/s Simran Gems but looking to the same facts that these persons have admitted that the above discussed for concerns/companies are also paper concerns without any real business and indulged in providing accommodation entries. Therefore, the AR of the assessee was further asked to show cause as to why purchases from the above concerns may also not be disallowed @ 15% on the same issue as in M/s Simran Gems treating as bogus purchase and same may not be added in the total income of the assessee.
12 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 13. The assessee has also filed his reply on 07.12.2016 which is as under:-
“The AR of the assessee filed his reply on 07.12.2016 which is as under :-
"During the course of hearing on 05.12.2016 your goodself has show caused "why purchases of Rs.29789438/- from Simran Gems be treated as bogus purchases and Gross Profit ofRs.15% be applied."
In this regard, we would like to submit as informed by our client that :
It is mentioned earlier that assessee was acting a commission agent (Pacca Aartiya) of rough and polished diamond in Surat making sales and purchases on behalf of some diamond traders on commission agent basis. The relationship between assessee and those traders was of agent and principal. 2. As submitted earlier, assessee acts as commission agent. Assessee's accounts were subject to audit u/s 44AB of the Act by virtue Circular: No.452[F.N6.201/3/85-IT(A-11] dated 17.319 in case of assessee engaged as consignment agent (pucca artiya). 3. The assessee has maintained daily stock register, product wise and quality wise for memorandum purposes. Stock of the assessee is tallied and there is no shortfall of stock to suggest that bogus purchases were made. The goods purchased from the alleged bogus parties are sold subsequently and sales are recorded in stock registers and purchases registers and confirmed by the contra confirmation of these parties. All the payments were made by account payee cheques/drafts. It is submitted that the stock register is maintained for inventory purposed and no trading account is made for that. Assessee has just earned commission0.10% to 0.15% on the trade transactions. In view of the above facts and submission we once again submit that purchase from M/s Simran Gems amounting Rs.2,97,89,438/- are made for on behalf of other traders and assessee has just earned commission on such transaction hence the should not be treated as bogus purchases and any no addition on account of estimation of Profit on the said purchase be made." The AR of the assessee further filed his reply on 15.12.2016 which is as under
13 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar "In the above said matter, during the course of assessment proceedings, we have furnished the details, accounts confirmation and explanation in compliance to the query raised from time to time.”
" During the course of last hearing your goodself has further show caused - why purchases of Rs. 30639.156/:- from Krishna Diam, Rs. 10,20,82,989/- from Parshwanath Gems Pvt. Ltd., Rs. 20,75,90489/- .from Mihir Diamonds, Rs,32,07,6319/- from Karishma Diamonds Pvt. Ltd. be treated as bogus purchases and disallowance (iii 15% he made'. In this regard, we would like to submit as informed by our client that:
It is mentioned earlier that assessee was acting as Commission Agent (Pacca Aartiya) of rough and polished diamond in Surat making sales ad purchase on behalf of some diamond traders on Commission agent basis. The relationship between assessee and those traders was of agent and principal.
"As submitted earlier, assessee acts as commission agent, assessee's accounts were subject to audit u/s 44 AR of the Act by virtue circular No. (F.N6.452 (FNo. 201/3/85-1T (A-II) dated 17.03.201.9 in case of assessee engaged as consignment agent (pucca artiya).
The assessee has maintain daily stock register, product wise and quantity wise for memorandum purposes. Stock of the assessee is tallied and there is no shortfall of stock to suggest that bogus purchases were made. The goods purchased from the alleged bogus parties are sold subsequently and sales are recorded in stock registers and purchase registers and confirmed by the contra confirmation of these parties. All the payments were made by account payee cheque/drafts. It is submitted that the stock register is maintained for inventory purposes and no trading account is made for that. Assessee has just earned commission 0.10% to 0.15% on the trade transactions'.
In view of the above facts and submission, we once again submit that purchase from the above parties are made for on behalf of other trades and assessee has just earned commission on such transaction hence the should not be treated as bogus purchases and any no addition on account of estimation of profit on the said purchases be made"
14 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 14. Based of the above submission, the Assessing Officer was of the view that the reply of the assessee is neither correct nor acceptable on account of the assessee on following reasons.
“14A. During the course of search and seizure operation, statement of Shri Gyan Chand Bhanwar Lai Jain R/o Flat No. 1402, Span Heights, Near Salasar Business Park, Bhayander (W), Thane were recorded u/s 132 (4) of IT Act, 1961 by the ADIT (Inv.), Unit III (1), Mumbai. The relevant portion of statement is reproduced below:- Question No. 23, In reply to question No. 12, you have stated that you are not A Director of any concern, however, your name is appearing as Director I the return of Income filed by M/s Karishma Diamond Pvt. Ltd. and Mis Parshwanath Gems Pvt. Ltd., please explain this discrepancy. Ans : Sir, I was director in M/s Karishma Diamond Pvt. Ltd.., & M/s Parshwanath Gems Pvt. Ltd. from the year 2008-09 till 2011-12, however, as on date I am not the Director in any concern. I was also partner in M/s Krishna Diam for the period 2004-05 till 2010-11 when I resigned. Q.No. 24 In the statement of Shri Gautam Bhanwar Lal fain recorded u/s 131 (1A) of IT Act, 1961 on 06.10.2013 as well as u/s 132 (4) on 11.10.2013, it has been stated and accepted that the concerns namely Karishma Diamonds Pvt. Ltd. and M/s Parshwanath Gems Pvt. Ltd., and M's Krishna Diam are all paper concerns with no actual business of diamond trading. He has also accepted in the said statements that all the bills issued for-sales are nothing but bogus bills issued to interested parties and that all
15 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar loans and advances to interested parties is nothing but "accommodation entries" given against cash. Please confirm the same in the light that you were associated wills these concerns as a Director/Partner before resigning I the year 2011-12. Ans: Sir, I totally agree with what has been stated by Shri Gautam Bhanwar La! Jain regarding the above mentioned concerns and I confirm that the business in all these concerns namely M/s Karishma Diamond Pvt. Ltd., Mls Parshwanath Gems Pvt. Ltd. and ICs Krishna Diam are all nothing but paper concerns with no actual business of any kind in diamond trading. All the bills issued for sales since the inception of these concerns are nothing but bogus bills issued to interested parties are nothing but "accommodation entries" given against cash. B- So far books of accounts and stock register is concerned, when the transactions are not genuine then books of accounts cannot be treated reliable and true. C- The AR further submitted that the assessee has made transaction on behalf of other traders and he has earned only commission, is also not acceptable because same is not verifiable from the records. 15:- Further, the reply furnished by the assessee is not acceptable because on examination of copy of ledger a/cs of transactions made by the assessee with the companies controlled by Shri Gyan Chand Bhanwar Lal Jain and Shri Gautam B. Jain, I find that the assessee had shown bogus purchases cut and polished diamonds/rough diamond to the tune of Rs. 22,21,78,361/- from the following parties.
16 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar
17 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar
18 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar
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The Assessing Officer further observed that all statement and material which is relied and used against the assessee has been supplied to the AR of the assessee firm. It is clear that transaction of the assessee in diamond business in not found genuine transaction. The assessee has made purchases as well as sales from and to these parties. These parties have clearly admitted that they have provided only accommodation entries and no real transactions were made by them. They issued sales bills and payment received by cheque from the parties. Later on, these cheques were given to other beneficiaries as loan or as capital and ultimately cash was routed for purpose of these accommodation entries. The assessee has failed to establish that the purchases and sales made with these parties are genuine. The Assessing Officer also of the view in light of the fact stated herein above that the books of accounts of the assessee are not reliable and do not reflect true picture of trading results, therefore, proviso of section 145(3) of I.T. Act, 1961 are clearly applicable in this case of the books of accounts of the assessee was rejected. Considering these facts and reply furnished by the AR of the assessee, the Assessing Officer has made disallowance of purchase @ 15% out of total purchase of
20 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar Rs.22,21,78,361/- treated as bogus purchase which comes to Rs.3,33,26,754/-. The Assessing Officer has further observed that as the assessee paid commission for purchasing of these accommodation entries 1% of 22,21,78,361/- which comes to Rs. 22,21,783/- is also added back as unexplained expenditure.
Aggrieved from the said order of the Assessing Officer, the assessee has preferred an appeal before ld. CIT(A), Ajmer. The assessee has raised grounds of appeals related to these additions made by the ld. AO, the ld. CIT(A) has passed an order on 05.03.2019. It is relevant to extract the relevant findings on the grounds raised by the assessee as under:-
“7.6 The entire carats of diamonds purchased from impugned two parties have been during the year, so entire purchases could not be disallowed. Further, the action of the AO making disallowance of entire purchases from find parties by treating the some as bogus is nor sustainable, on the ground that purchases have not been claimed as expenses, hence rejected It has been claimed that assessee has earned commission income of Rs.5,24,221/- on all such transactions by keeping mark up (profit margin) in the range of 0.12% to 0.15%. From the details filed by the appellant, it is seen that on the total purchases (Polished Diamond) made during the year of Rs.15,75,49,302/- and Rough Diamond of Rs.19,91,22,938/-, the assessee has earned commission of Rs.5,24,221/- which works out to approx 0.15% In similar type of cases, during search Rajendra Jain Group & Bhanwarlal Jain Group have admitted charging of commission 0.50% on such accommodation/spurious transactions. Ld. CIT(A) in the case of Shri Jitendra Kumar Jain sustained profit @, 0.50% on such transactions (although deleted by ITAT on the ground that provision of Sec. 145(3) was not invoked). As discussed herein above, on such type of transactions, normal market rate of
21 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar commission is 0.5% over & above what is shown in books i.e. 0.15% shown by the assessee. Hence, I estimate suppressed commission income at Rs, 2,03,850/- on the total purchases from two parties of Rs.4,07,69,950/- same is sustained us addition. The assessee will get a relief of Rs.4,05,66,100/- (Rs.4,07,69,950 - Rs.2,03,850). Ground of appeal is partly allowed
In the result, appeal is partly allowed.”
As the facts of the case of the appellant are identical to the facts of the case of Anshuman Ramdhalji Kumavat decided by the CIT(A)-1, Surat, therefore, I am of the considered view that it would be fair and reasonable to reject the book results declared by the appellant by invoking the provisions of section 145(3) and estimate the commission income on the purchases effected through the appellant. The appellant had submitted that he had earned commission of Rs. 5,99,726/- on the consignment purchase of Rs. 60,26,94,181/- effected through him. The rate of commission declared by the appellant varies from 0.07% to 0.37%. Hence, I am of the considered opinion that it would be fair and reasonable to estimate the commission income of the appellant @0.50% on the total purchases of Rs. 60,26,94,181/-. Thus, the net commission income of the appellant is estimated at Rs. 30,13,471/- (0.5% of Rs. 60,26,94,181). As the appellant has declared net commission income of Rs. 1,41,580/-, therefore, out of total addition of Rs. 3,55,48,537/- (Rs. 3,33,26,754 + Rs. 22,21,783), addition of Rs. 28,71,891/- (Rs. 30,13,471 - Rs. 1,41,580) is confirmed and remaining addition of Rs. 3,26,76,648/- (Rs. 3,55,48,537 Rs. 28,71,891) is hereby deleted.”
“I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen that the AO had specific information in the form of the statement of Shri Gautam B. Jain and Shri Gyanchand Bhanwarlal Jain, wherein they have admitted that they were providing accommodation entries of purchases and unsecured loans. The
22 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar appellant had also shown purchases and sales from the concerns controlled and managed by these persons. Therefore, I am of the considered view that there was sufficient material with the AO to form the belief that income chargeable to tax pertaining to A.Y. 2009-10 had escaped assessment. Accordingly, the reopening of assessment u/s 147 and issue of notice u/s 148 for the A.Y. 2009-10 are held to be valid and in accordance with the provisions of law. These grounds of appeal are dismissed.”
Aggrieved from said order of the ld. CIT(A), Ajmer, the revenue as well as the assessee has filed cross appeal before us. The ld. AR appearing on behalf of the assessee has filed his written submission based on the ground he has taken in the appeal filed by him. The said submission reads as under:- “The assessee is an individual who under the name and style of M/S Mangal Deep Exports was providing commission agent (Pacca Arahtia) services to the Diamond Traders in Surat for rough and polished diamonds. The assessee’s income was commission income which was difference between purchase amount and markup sale amount. Because of competitive market and the fact that the year under consideration was the first year of the business of the assessee, the commission income earned by the assessee from various parties ranged between 0.10% to 0.15%.The assessee for the year under consideration, after getting his accounts audited, filed his Return of income on 24.08.2009 declaring total income of Rs. 1,40,350. The case of the assessee was reopened u/s 147 and the income was assessed at Rs. 3,56,88,870 vide order dated 22.12.2016.
Ground No. 2: Reopening u/s 147 1. Reopening made by Non-Jurisdictional Officer: 1.1. The assessee filed his Return of Income for the year under consideration on 24.08.2009, before ITO Ward 6(3), Surat [PB 1-2].The notice u/s 148, after recording reasons [PB 90] and after obtaining sanction u/s 151 [PB 91-92], was issued by ITO Ward 2, Beawar on 30.03.2016 [PB 89] (AO Page 1 Para 2)
1.2. The jurisdiction of the assessee on the date of issue of notice i.e. 30.03.2016 was with ITO Ward 1, Beawar as evident from information on Income Tax Portal [PB: 94]. The fact that jurisdiction was lying with ITO 1, Beawar was also appreciated by ITO Ward 2, Beawar as he, on 31.05.2016
23 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar i.e. after issuing of notice u/s 148, transferred the case of the assessee to ITO Ward 1, Beawar via transfer memo [PB: 93]
1.3. ITO Ward 1, Beawar, did not record fresh reasons and did not issue fresh notice u/s 148. He just continued the case of the assessee as if it was transferred to him u/s 127 of the IT Act, 1961. Therefore, the reopening made by Non-Jurisdictional AO is illegal.
1.4. Reliance is placed on the following case laws:
a) Hon’ble ITAT Delhi in case of Mukesh Kumar vs. ITO Ward 23(3), Delhi – ITA No. 2358/Del/2012[CLC: 1-4] b) Hon’ble ITAT Delhi in case of ITO Ward 11(4) vs. M/s Indus Valley Investment & Finance Pvt Ltd- ITA No. 4239/Del/2011
1.5. The above contention was raised before ld. CIT(A) also, however, ld. CIT(A) without making any discussion about the jurisdictional issue rejected the ground of reopening in the most summary manner (CIT(A) Page 16 Para 5.3)
Jurisdiction could have been assumed only u/s 153C
2.1. In the present case, ld. AO received information from DCIT Circle 8(3), Mumbai (AO page 1) who was the jurisdictional AO of Jain Brothers [PB 146]. Hence, the information was received from the AO of search party and not from the Investigation Wing.
2.2. Reassessment pursuant to material found in search can be done through recourse to section 153C only and not by invoking the provisions of section 147/148. The provisions of section 153C are over-riding in nature and contain non obstante clause for sections 139,147,148,149,151 and 153.
2.3. Section 147 and 153C are not interchangeable but are mutually exclusive sections. It is not the choice of the revenue to invoke either of the two sections at its whims. The scope of the two sections has been legislated differently with a definitive purpose.
2.4. Reliance is placed in the following decisions: a) Hon’ble ITAT Jaipur in the case of Shri Navrattan Kothari, in ITA No. 425/JP/2017 [CLC: 5-48] b) Hon’ble ITAT Amritsar in the case of Arun Kumar Kapoor [2011] 140 TTJ 249 (Amritsar) c) Hon’ble ITAT Vizag in the case of G. Koteswara Rao [2015] 64 taxmann.com 159 (Visakhapatnam - Trib.)
24 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar d) Hon’ble ITAT Delhi in the case of Rajat Shubra Chatterji, ITA No. 2430/Del/2015 (Delhi –Trib) In view of above the reopening deserves to be quashed in toto.
Ground No.1: Rejection of books of accounts u/s 145(3) Ground No. 3: Addition of Rs. 28,71,891 being 0.50% of total purchases.
Brief Facts
1.1. Ld. lower authorities on the basis of information received from DCIT, Mumbai considered the purchases made from M/s Simran Gems, M/s Karishma Diamonds Pvt Ltd, M/s Mihir Diamonds, M/s Krishna Diam and M/s Parshwanath Gems Pvt Ltd run by Jain Brothers to be bogus purchases.
1.2. Books of accounts of the assessee were rejected. Disallowance of a percentage of purchases was made. Ld. AO disallowed Rs. 3,33,26,754 being 15% of alleged bogus purchases amounting (Alleged bogus purchases = Rs. 22,21,78,361 * 15%). Ld. CIT(A) restricted the disallowance to Rs. 30,13,471 (Total purchases = Rs.60,26,94,181* 0.5%)
Submission
2.1. The assessee for the year under consideration was liable to get his accounts audited as per the provisions of Section 44AB of the Income Tax Act, 1961.
2.2. The tax auditor of the assessee, after taking note of the business of assessee i.e. commission agent [PB 87-88] dealing in diamonds and after making detailed study of books of accounts, monthly stock summary [85-86], purchases [PB 81-82], sales [PB 83-84], bank statements [PB 16-53] etc, issued tax audit report on 11.07.2009 wherein no qualification of any sort was mentioned [PB 3-12].Thus, the purchases as well as sales were found satisfactory by the tax auditor.
2.3. The assessee during the year under consideration entered into purchases and sales transactions with the following alleged to be paper concerns run by Jain Brothers. The details of transactions along with the details furnished by the assessee before ld. lower authorities are as under:
Name & Purchases Sales Sample Ledger PAN Mode Address Amount Amount Invoice/ [PB 16- Purchase 53] Bill M/s Simran 2,97,89,438 40,19,438 [PB: 74] [PB: ACWPJ4796L Banking Gems; 203, 55] [PB:74] Channel
25 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar Vishwas Apartment, Ghiya Sheri, Mahidhrpura, Surat M/s 3,20,76,319 1,49,33,044 [PB: 73, [PB: AACCK5154E Banking Karishma 78] 56] [PB:73] Channel Diamonds Pvt Ltd M/s Mihir 2,75,90,459 2,38,87,459 [PB: 77] [PB: Banking Diamonds 57] Channel M/s Krishna 3,06,39,156 1,80,64,156 [PB: 76] [PB: AAGFK9877P Banking Diam 59] [ PB:76] Channel
M/s 10,20,82,989 8,13,36,904 [PB: 75, [PB: AAECP3391E Banking Parshwanath 79] 61 - [PB;75] Channel Gems Pvt 62] Ltd Total 22,21,78,361 14,22,41,001
2.4. Therefore, it can be seen that the assessee discharged his complete onus of proving the purchases to be genuine.
2.5. Ld. lower authorities without point out any defect in the books of account [PB 13-15] or in the evidences placed before them rejected the books of the assessee. It is submitted that except for the statements of Jain Brothers [PB 95-107] which were also subsequently retracted [PB 108-113], ld. lower authorities were not having iota of evidence which could even remotely suggest that the assessee obtained accommodation entry. Thus, rejection is illegal.
2.6. Without agreeing, it is submitted that even if books of accounts are rejected, it is not mandatory to make additions. Reliance is placed on the decision Hon’ble Rajasthan High Court in case of CIT vs. Gotan Line Khanji Udyog 256 ITR 243
2.7. It is further submitted that where receipts and payments are through banking channels and the transactions are supported with documents which appear to be genuine and where no trail of cash has been established addition/disallowance cannot be made. The assessee’s case is squarely covered by the decision of Hon’ble Rajasthan High Court in case of CIT vs. Pooja Agarwal ITA 385/2011
26 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 2.8. The sole basis of disallowance is the statements of Jain Brothers [PB: 95-107] i.e. third parties. It is submitted that statements cannot be relied upon because of the following:
2.8.i. Statements cannot be relied unless there is corroborative evidence to confirm the same.In the present case ld. lower authorities have failed to bring any evidence on record least the trail of cash.
2.8.ii. Opportunity of cross-examination which is mandatory as per the principals of natural justice is not allowed. Reliance is placed on the following decisions of Hon’ble Supreme Court:
a) Sunita Dhadda, order dated 28.03.2018, Special Leave Petition (403 ITR 183) b) Andaman Timber Industries, order dated 02.09.2015,CIVIL Appeal No. 4228 OF 2006
2.8.iii. The statements were retracted [PB 95-107]. Ld. AO did not rely on the retraction as the Jain Brothers did not appear before him and he could not examine them. While he relied upon the statements without being examination-in-chief.
2.8.iv. Without prejudice to above it is submitted that the nature of business of assessee being a commission agent is not in dispute. Even the statements relied upon talks about various brokers of diamond industry like assessee [PB 105]. Therefore, without agreeing it is submitted that accommodation entry if taken was taken by/for traders or manufacturers. The assessee had no financial interest except for his commission income which ranged between 0.10% to 0.15%.
2.8.v. Without prejudice to above it is submitted that ld. lower authorities as per their sweet will have relied upon the statements. The impact of modus operandi, as stated by the Jain brothers in their statements, have been taken in the case of the assessee. However, the impact of the fact that the Jain brothers earned commission income of 0.05%, as stated in the statements, have been taken in the case of assessee. It is submitted that if Jain brothers earned commission income of 0.05% [PB 97] only then how can assessee earn commission income any percentage more than 0.05% on the alleged bogus purchases.
2.8.vi. Without prejudice to above it submitted that after rejection, ld. AO disallowed 15% of alleged bogus purchases and added the said amount to the total income of the assessee. Meaning thereby, the nature of business of the assessee of being commission agent was accepted, the commission income ranging from 0.10% to 0.15% was accepted, sales made to all parties
27 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar including alleged paper concerns were accepted and only purchases of Rs. 22,21,78,361 from alleged paper concerns were found inflated and 15% of the same was disallowed.
2.8.vii. Ld. CIT(A) although partly allowed the appeal of the assessee by restricting the disallowance to Rs. 30,13,471, however, fell in error in making disallowance of 0.50% of the total purchases of Rs. 60,26,94,181 and not just alleged bogus purchases of Rs. 22,21,78,361. It is submitted that other purchases were found genuine by ld. AO. Without any adverse finding about other purchases disallowance of 0.50% of the same is unjustified.
The disallowance made by ld. AO and ld. CIT(A) can be tabulated as under:
Authority Total Purchases Alleged Bogus Disallowance Disallowance (A) Purchases (B) Rate (C) Amount Ld. AO 15% Rs. 3,33,26,754 (B*C) Ld. CIT(A) 0.50% Rs. 30,13,471 (A*C) 60,26,94,181 22,21,78,361 What should 0.50% Rs. 11,10,892 have been (B*C)
2.8.viii. Ld. CIT(A) on the basis of decision of Anshuman Ramdhalji Kumawat, [PB 114-145] applied 0.50% rate. In the said decision also under identical facts 0.50% rate was applied only on alleged bogus purchases [PB 144]. The decision of ld. CIT(A) has been also upheld by Hon’ble Surat Bench in ITA No 1974/AHD/2016 [CLC: 49-61].
In view of above the rejection of books of account is illegal and the disallowance made may please be deleted.
The department has filed a detail report of ITO Ward-01 dated 15.04.2021. “Subject- Clarification required in appellate _proceedings before the Hon'ble ITAT, Jaipur in the case of Shri Manoj Amarchand Tailor, PAN: AHDPT3045J, A.Y. 2009-10 ITAs No. 819/JP/19 (Dept. Appeal) & 910/JP/19 (assessee's cross appeal)- reg.- * * * * * *
28 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar Kindly refer to your office letter No. CIT(DR- 1)/ITAT/JPR/2021-22/15 dated 12.04.2021 on the above cited subject. 2. In this connection, I am submitting herewith clarification on the queries raised by the Bench, as under:-
(i) In the case of Shri Manoj Amarchand Tailor (PAN: AHDPT3045J) for A.Y. 2009-10, on receipt of information from the DDIT, Central Circle-8(3), Mumbai vide his office letter No. DCIT/CC-8(3)/Intimation/2015-16 dated 14.03.2016 by the ITO, Ward-2, Beawar on 21.03.2016, proposal for initiation of proceedings u/s 147 of the Act was submitted to PCIT Ajmer, since PAN in this case was lying under his AO code. Afterwards, in this case, notice u/s 148 of the Act was issued on 30.03.2016 by the then ITO, ward-2, Beawar in view of approval u/s 151(1) of the I.T. Act, 1961 solicited by the PCIT, Ajmer vide his office letter No. 3169 dated 28.03.2016. (ii) The ITO, Ward-2, Beawar had transferred the case records for A.Y. 2009-10 in the captioned case to ITO, Ward-1, Beawar vide Transfer Memo No. 124 dated 31.05.2016 mentioning that territorial jurisdiction over this case lies under the jurisdiction of ITO, Ward-1, Beawar. 3. Copies of letter No. DCIT/CC-8(3)/Intimation/2015-16 dated 14.03.2016 of DCIT, CC-8(3), Mumbai, Transfer Memo No. 124 dated 31.05.2016 and notice u/s 148 of the Act dated 30.03.2016 are enclosed herewith for kind perusal.”
Further, the Income Tax Officer, Ward -1, Beawar has filed a detail report of ITO Ward-01 dated 08.12.2021.
“Sub:- Clarification required in appellate proceedings before the Hon'ble ITAT, Jaipur in the case of Shri Manoj Amarchand Tailor, PAN: 'AHDPT3045J, A.Y. 2009-10, ITAs No. 819/JP/19 (Deptt. Appeal) & 910/JP/19 (Assessee's Cross Appeal)- reg,- Kindly refer to your office letter No. CIT(DR-I)/ITAT/JPR/2021-22/220 dated 23.11.2021 addressed to the Pr.CIT, Udaipur and copy endorsed to this office on the above cited subject. 2. In this regard, I am submitting the desired report in the case of Shri Manoj Amarchand Tailor, PAN: AHDPT3045J, A.Y 2009-10 in following para as under:-
29 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 2.1 The then AO i.e. ITO, Ward-2, Beawar had specific information in the form of the statements of Shri Gautam B. Jain Shri Gyan Chand Bhanwar Lal, Wherein they have admitted that they were providing accommodation entries of purchases and unsecured loan, the DCIT, Central Circle-8(3), Mumbai vide his office letter dated 14.03.2016 have forwarded the investigation report alongwith the data of such transactions for initiation of appropriate action. On perusal of data, it was observed that during the period relevant to A.Y. 2009-10, Shri Gyan Chand Bhanwar Lal Jain Prop. M/s Simran Gems has shown sales to the tune of Rs. 2,97,89,438/- to above referred assessee namely Shri Manoj Amar Chand Tailor, Prop. M/s Mangaldeep Exports which is assessee to tax with ITO, Ward-1, Beawar. Taking into consideration findings as discussed in Appraisal Report, the assessee had been identified an assessee who has taken bogus accommodation entries during the F.Y. 2008-09 of Rs. 2,97,89,438/- from Shri Gyan Chand Jain Prop. M/s Simran Gems. Since the PAN in this case was pertaining to ITO, Ward-2, Beawar and as per rules the last date of issue of notice u/s 148 of the Act was 31.03.2016, therefore, on the basis of this information, the then jurisdiction AO i.e, ITO, Ward-2, Beawar had taken appropriate action i.e. u/s 147 of the I.T. Act, 1961 and after recording reasons and taking approval of competent authority, issued notice u/s 148 of the Act on 30.03.2016 for A.Y. 2009-10. 2.2 Thereafter: the jurisdiction AO as supra transferred the assessment records of the aforesaid assessee to the ITO, Ward-1, Beawar as the correct jurisdiction over this case was lying with ITO, Ward-1, Beawar considering that the assessee while filing his latest ITR i.e. for A.Y. 2017- 18 had mentioned the address i.e. "Sheetla Mata Gall, Bijainagar"). Thus, from these facts, it appears that ITO, Ward-2, Beawar had rightly transferred the case records of the assessee to the ITO, Ward-1, Beawar. 2.3 It is further submitted that the case record was transferred from ITO, Ward-2, Beawar to the correct jurisdictional AO i.e. ITO, Ward-1, Beawar vide Transfer Memo No. 124 dated 31.05.2016. No approval of the competent PC1T was taken before such transfer because there was no necessity to be taken prior approval for transferring any assessment record to be lies to the jurisdiction AO. In this connection, a copy of jurisdiction Notification issued by the then Addl. CIT, Range-2, Ajmer vide No. 776 dated 15.11.2014 is also enclosed herewith for kind perusal and necessary action, wherein it is not mentioned that the prior approval should be taken by the AO before transfer the assessment record to the concerned jurisdiction AO. 2.4After receiving the assessment record in this case, the concerned jurisdiction AO i.e. ITO, Ward-1, Beawar had passed the assessment order u/s 143(3)/ 147 of the Act on 22.12.2016 on assessed income at Rs. 3,56,88,870/- as against returned income of Rs. 1,40,350/-.
30 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 2.5 Necessary copies of relevant documents i.e. Transfer Memo dated 31.05.2014, ITR filed for A.Y. 2017-18 and jurisdiction notification (as supra) with regard to pare No. 2.1 to 2.4 are enclosed herewith for necessary action.”
The Ld. DR has also filed the compilation of case laws which are relied upon in case of jurisdiction issue raised by the assessee as under:- • Hon’ble ITAT, Amritsar in case of Sh. Nirmal Singh S/o Sh. Lachhman v/s Income Tax Officer, Jalandhar on 27 June, 2018 I.T.A No. 588/ASR/2016 • Hon’ble High Court, New Delhi in case of Commissioner of Income Tax- III v/s Shri Shyam Sunder Infrastructure (P) Ltd. on 04 February, 2015 I.T.A No. 236/2014. • Hon’ble Supreme Court of India, in case of Rai Bahadur Seth Teomal vs. The Commissioner of Income Tax and the Commissioner of Excess on 02, March, 1959 Equivalent Citations: 1959 AIR 742, 1959 scr Supl. (2) 301 • Hon’ble Rajasthan High Court of India, in case of Indra & Co. vs. The Commissioner of Income Tax and the Commissioner of Excise on 11 September, 1979 Equivalent Citations: (1982) 13 CTR Raj 353, 1982 134 ITR 466 Raj.
In addition to the written submission filed by the AR of the assessee he has argued that the assessee is regularly assessed to tax and his source of income is commission income as pakka aadatiya. The allegation of the AO is based on the statement recorded, but same were retracted. He has maintained regular books of accounts and the same are audited as per provision of the section 44AB of the Act. The ld. AR of the assessee also argued that even the notice issued is under section 148 whereas since the information is coming on account of search of third party his proceedings should have been covered u/s. 153C of the Act and not under section 148 thus, even the proceedings are invalid. The action of the ld. AO disallowing the 15 % of the purchase of tainted parties whereas the ld. CIT(A) has estimated the income @ 0.5 % of
31 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar the entire purchase. Merely on this reasons rejection of books of accounts are not in accordance with the law and the adhoc addition made thus will not survive. In addition to the arguments on merits the ld. AR of the assessee raised an issue of jurisdiction of the AO passing order under challenge as the officer who has reopened the case has transferred the case of the assessee and no fresh notice were given to the assessee on account of change in the incumbent.
Per Contra the ld. DR appearing on behalf of the revenue contended that the assessee can not take the jurisdictional issue and issue of notice before the bench as he has not taken such ground before the lower authorities and has participated in the proceedings. As regards the jurisdiction issue the ld. DR relied upon the provision of section 124(3) of the Act and also on the decision of Shri Nirmal Singh Vs. ITO in ITA no. 588/Asr/2016. He also argued that looking to the facts placed on record and by a report of ld. AO dated 08-12-2021 & 07-03-2022 stating that even the ITR shows the address same and the jurisdiction thus rest with ITO, Ward-1 Beawar and thus, the contentions of the assessee is not tenable and the jurisdiction ground is not maintainable based on the set of facts placed on record in the status report submitted by the AOs. He vehemently argued that in this case the liberal view is not required to be taken, as the assessee is involved in purchase and sale to the same parties who are engaged and involved in the bogus entry provider and bogus bill provider and this is going on the mass scale. The ld. AO has given all the material and records relied upon he has even not produced the person on whose behalf he is filling the retraction affidavits. To check the veracity of the affidavit AO issued summons and the parties did not appear or filed any
32 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar confirmation about the retraction. Instaed their statement are recorded before the authorized officer of the department and by filling mere photocopy of the affidavit assessee cannot escape from his liability to present their witness. Therefore, the action of the AO is required to be upheld to stop such persons and thus heavily relied upon the findings of the AO.
We have heard the rival contentions and have also persuaded the records and submission made by both the parties. As regards the ground no 2 raised by the assessee considering the detailed status report of the AO on two dates mentioned here in above and provision of section 124(3) and based on the arguments of ld. DR relying on the judgement cited and referred here in above we do not find any merits in the arguments of the ld. AR of the assessee and thus the Ground no. 2 raised by the assessee is dismissed. As regards the ground no. 1 being the rejection of the books of account, the ld. AR of the assessee only relied upon the decision of the Hon’ble Rajasthan High Court delivered in the case of CIT Vs. Pooja Agarwal ITA no. 385/2011 where in the court has held that in absence of the cash trail found and transaction are though normal banking route the court has considered that the rejection of books cannot be made. Whereas, in this case the two person admitted proved that they are mere entry provider and purchase and sales even though through bank they are against the intention of the law to provide the bogus billing and fictitious purchase and sale transaction involved and thus, the facts related the case relied upon the case on hand are clearly different and in the absence of any cogent argument this ground no. one raised by the assessee is dismissed. As regards the ground no. 3 raised by assessee he has
33 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar stated that estimation of profit @ 0.50 % on the entire purchase is not proper and thus stated that the issue is related to tainted purchase only. Based on the submission made by the ld. DR that the assessee is actively involved and assessee grossly failed to establish the genuineness of each purchase and sale transaction and looking to arguments recorded by us of the ld. AR and perusing the finding of the ld. CIT(A) we do not find any reason to deviate ourself of the finding given by the ld. CIT(A) as he has cited comparable cases and deem it fit fair and reasonable, whereas, ld. AR failed to sustained his case of why the estimation should not sustain. In the results ground no. 3 raised by the assessee is dismissed.
The revenue has vide ground no. 1 to 3 has challenged the deletion of profit @ 15 % of the tainted purchase for Rs. 3,33,26,754/- made by the assessee and also deletion of the addition @ 1 % being the commission earned as commission received on the purchase of bogus purchase entries amounting to 22,21,783/-. Thus, the grievance of the revenue is related to the relief granted by the ld. CIT(A). Ld. CIT(A) has given his detailed finding based on the set of facts placed before him and ld. DR except the fact that the assessee is involved in bogus entry provider list and the statement of two person recorded based on which the addition was made there is no other comparable case law cited or comparable assessee’s data submitted based on which the addition confirmed by the CIT(A) be required to be changed or has not placed forward any persuasive argument that why decision of the ld. CIT(A) is required to be changed.
34 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 25. In fact, we find that the case law cited by the ld. CIT(A) in the case of Anshuman Ramdhalji Kumavat for A. Y. 2007-08 based on which the ld. CIT(A) has given his finding and relief was also challenged by the revenue with the Surat ITAT in ITA NO. 1974/AHD/2016. As the fact of that case and the case on hand is similar the relevant finding of Surat bench is extracted here in below: “13. We note that solitary grievance of the Revenue in this appeal is pertaining to addition of Rs.4,07,69,950/-made towards alleged bogus purchases made through accommodation entries received from M/s. Mihir Diamodns and M/s. Krishna Diam Pvt. Ltd.(actual name is M/s. Krishna Diam), an entities of Gautam Jain group. Before ld CIT(A) the assessee has argued that except statement of Shri Gautam Jain group, no positive evidence was brought on record by the Assessing Officer to prove his allegation that impugned purchases were bogus. The main basis of the Assessing Officer for making addition is the information received from investigation wing, Mumbai regarding search action and statement recorded by Search Party in the case of Shri Gautam Jain and others group of Mumbai wherein it was admitted by them that the hawala racket of providing "accommodation entries" for bogus purchases to various persons through web of numerous benami concerns was run by them. On verification of facts and evidence, the ld CIT(A) noticed that during the year under consideration, the assessee had purchased goods worth Rs.4,07,69,950/- from two of such concerns of Gautam Jain and others Group namely, M/s. Mihir Diamodns and M/s. Krishna Diam. Apart from the information there is no positive evidence brought on record by the AO to substantiate his findings that actually assessee received only bills without actually receiving any goods shown as purchases. The Ld. AO has simply narrated the entire alleged "modus oparendi" in very generic terms which seems a "copy & paste" work and seemingly copied from report received from DGIT (Inv), Mumbai. The ld CIT(A) noted that assessing officer has passed the orders in a very routine and stereo-typed manner. The ld CIT(A) had come across many such orders passed where in numerous cases she has used similar language identical para by para and word by word. As a quasi-judicial authority, it speaks volumes about non-application of mind and shows routine manner in which such assessment order were passed.
The ld CIT(A) noticed that assessing officer had consistently harped on the statement recorded of Mr. Jain during search on 03.10.2013 admitting the whole modus oparendi of "issue of bogus bills" through various benami concerns run and operated by them through staff/ employees/associates. It is also claimed by assessing officer that during search action various clinching evidences were found and seized which corroborated the finding of search
35 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar party that alleged concerns were merely engaged in providing accommodation entries and no real business was carried out by them. However, ld CIT(A) observed that for fastening of tax liability by treating any item as income, the onus squarely falls on the shoulder of revenue through Assessing Officer who cannot shrug off his/her shoulders and mindlessly and blindly follow the findings arrived at by other arm of the department i.e. Investigation Wing. Well, information received from investigation wing could be a very good starting point for making further investigation in the matter but such findings of other wing of department cannot be applied ipso facto and that too in a mechanical manner. In the present case, the Ld. AO neither brought out any independent material/finding on record to prove her allegation that said purchase of Rs.4,07,69,950/- from M/s Mihir Diamonds and M/s. Krishna Diam Pvt. Ltd. was bogus. It was also observed by ld CIT(A) that neither the copy of statement, nor any evidence proving the allegation was provided to the assessee to defend his case. No opportunity of cross- examination was allowed to the assessee though specifically asked for by the assessee. Besides this, apparently Ld. AO neither issued Summons u/s 131 or notice u/s 133(6) of the Act to the seller party nor independently verified the facts about the genuineness of the said purchases from said parties as well as the impugned purchase transaction. Therefore, ld CIT(A) held that ld. AO did a very shoddy investigation and whole addition was based on mere guess work, conjectures and surmises which has not place in tax jurisprudence.
Regarding the true nature of business activity carried on by the assessee during the year under consideration, that is, whether assessee is a trader or commission agent? As per Written Submission dated 25.01.2015, the assessee has contended that “he was commission agent of rough and polished diamond in Surat, making sales and purchases on behalf of some diamond trades for which he was receiving commission. Though sales and purchases were recorded in books of accounts but they are for inventory purpose and no trading account is made for that". Having reproduced this contention raised by the assessee, Id. AO has given her findings which totally in contrast to the claim of the assessee. She has observed on Pg. 5 of assessment order as under: "Since last many years he has been filing return of income as trader in rough and polished diamonds and has been filing return of income as trader only by mentioning the nature of business as trader in ITR form 4.”
Before us, ld Counsel for the assessee has referred to CBDT Circular No 452 [F. No 201/3/85-IT(A-ll) dt 17.03.1986] mandating that Audit of Accounts under section 44AB of the Act for "commission agent" is mandatory. It has been clarified that commission agents do not have to prepare "Trading Account" and only commission earned on such purchases and sales is to be shown as income earned. Purchases and sales are recorded in the books of accounts for the purpose of maintaining inventory. It is contended by ld Counsel that
36 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar relationship between assessee and those traders was of agent and principal. Besides this, in the Part- A Profit and Loss of ITR Form 4 the assessee has shown NIL in purchases column [PB Pg. 7]. The assessee has claimed that during the year he had made purchases and sales for his principals which includes the subjected parties, M/s Mihir Diamonds but does not include other party namely M/s Krishna Diam Pvt. Ltd. The ld Counsel stated that confirmation along with purchase Sale bills of parties with name and address of principals and Ledger account copies were duly filed before Assessing Officer. Before ld CIT(A), the assessee submitted various other details including copy of ITR-4, computation of income, copy of Tax Audit Report (3CB &3CD) Income and Expenditure Account and Balance Sheet for Assessment Year 2007-08 in Paper Book. On verification of ITR-V (PB Page 4) in the column of Nature of Business, the assessee has mentioned "0301- General Commission Agent". Further, in 3CD report column 8(a) Nature of business has been mentioned as "Commission agents dealing in diamonds"(PB Pg 43). It is also noted by ld CIT(A) that assessee has not prepared and trading account to reflect purchase and sale of goods but instead Income and Expenditure account has been prepared wherein only gross receipts (by way of commission) has been reflected at Rs.5,24,221/-(PB Pg 52). Likewise, on Paper Book page 54 in Notes of Accounts [Part of 3CD Report], Auditor has put the following note [Sr. No 2]: "2. As explained to us assessee is commission agent but to record the movement of goods it has maintained sales and purchases register. Commission / gross receipts denotes to excess of safes over purchases." On the basis of above evidences and material, the ld CIT(A) held that assessee was not a trader but commission agent (Pucca Araditya) evident by the fact that no purchases shown in Income and Expenditure account and Return filed. In fact, no Trading account was prepared to reflect purchases and Sales and fact of his being "Commission agent" is apparent from 3CD Report, Return of Income and Books of Accounts. The Auditor has clarified that Purchase and sales Registers were made just to record the movement of stock. The assessee has maintained daily stock tally product wise, quantity wise which is tallied without having any shortfall or discrepancy therein. Assessee has stated that goods purchased are later sold to principals after addition up the commission ranging from 0.12% to 0.15%, thus difference of sales and purchase is commission earned by the assessee which is shown as gross receipts in Audited Income and Expenditure account at Rs.5,24,221/- during the year. During appellate hearings, the assessee has also submitted party wise break up which duly found corroborated with the contention of the assessee. On the basis of above submission it has been established beyond doubt that assessee's case is of a "commission agent" where only mark up (profit margin) on purchases have been shown as income, therefore, question of disallowance of "bogus purchases" does not arise especially when assessee has maintained quantitative tally purchases have not been claimed as expense and sales have not been doubted by the Id. Assessing officer. In view of this, ld CIT(A) has rejected the finding of the Id.
37 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar Assessing Officer of treating the entire purchases of Rs. 4,07,69,9507- from two parties namely M/s Krishna Diam (erroneously mentioned by AO as M/s Krishna Diam Pvt. Ltd) and M/s Mihir Diamonds because finding of the AO is without any positive evidence and contrary to the evidence because disallowance cannot be made if the assessee has not claimed such amount as expense in his books.
The Learned CIT(A) noticed that when purchase bills were produced, stock tally is shown and payments were made by account payee cheques, it is absolutely unfair to treat the entire purchases as 'bogus' when the corresponding sales have not been doubted by the Id. Assessing Officer. It is settled law that there cannot be sales without having corresponding purchases. The assessee has also vehemently contended that assessee has maintained regular books of accounts which were subjected to Tax Audits, that too without any qualification. Assessing Officer has treated the purchases from M/s. Mihir Diamonds and M/s. Krishna Diam Pvt. Ltd. as ‘bogus’ only for the reason of statement of Shri Gautam Jain who later on retracted his earlier statement by filing affidavit (copy filed by assessee). On verification of purchase detail, it was noticed by ld CIT(A) that purchases from M/s. Mihir Diamonds were ranging from Rs.5395/- per carats to Rs.19,389/- per carats, having a very vast difference in the pricing. There have been serious allegations about "accommodation transaction" through alleged parties. The assessee did not furnish any evidence to establish that purchase price and sale price charged (after markup) are as per market price. The ld CIT(A) also noted that assessee could not provide one to one mapping of impugned purchases with sales to show as to how much commission income was earned on such alleged purchases vis-a-vis other purchases of Rs.4,07,69,950/-. This puts the entire transaction under a shadow of doubts about unverifiability of purchase price that assessee must have purchased the goods from grey/open market and bill must have been obtained from other party to support the purchases and price shown in said bill was inflated in order to suppress the profit. There is nothing on record to accept the possible contention of the assessee that price paid to said party was at Arm’s Length Price (ALP). The surrounding circumstances and statement of Shri Gautam Jain casts enough doubts about the genuineness of purchase transactions. On the basis of preponderance of probability, it could be said that book results are not showing true and correct picture leading to rejection of book results u/s 145(3) of the Act. Based on these facts and circumstances, the ld CIT(A) wanted to reject the books of accounts of the assessee and for that he relied on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Me Millan & Co. (33 ITR 182) (SC) wherein, Hon`ble Supreme Court held that CIT(A) has power to reject the books of accounts accepted by the Assessing officer. In view of this, ld CIT(A) proceeded to estimate the commission income on the impugned purchases amounting to Rs.4,07,69,950/-. Therefore, ld CIT(A) observed that the entire carats of diamonds purchased from impugned
38 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar two parties have been sold during the year, so entire purchases could not be disallowed. Further, the action of the Assessing Officer making disallowance of entire purchases from said parties by treating the same as bogus is not sustainable, on the ground that purchases have not been claimed as expenses, hence rejected. It has been claimed that assessee has earned commission income of Rs.5,24,221/- on all such transactions by keeping mark up (profit margin) in the range of 0.12% to 0.15%. From the details filed by the assessee, it was noticed by ld CIT(A) that on the total purchases (Polished Diamond) made during the year of Rs.15,75,49,302/- and Rough Diamond of Rs. 19,91,22,938/-, the assessee has earned commission of Rs.5,24,221/- which works out to approx. 0.15% [ 15% of ( Rs.15,75,49,302 +. Rs. 19,91,22,938)] The ld CIT(A) compared the similar type of other assessees and noted that during search of Rajendra Jain Group & Bhanwarlal Jain Group have admitted charging of commission @ 0.50% of such accommodation/spurious transactions. Thus, ld CIT(A) observed that on such type of transactions, normal market rate of commission is 0.5% over and above what is shown in books i.e. 0.15% shown by the assessee. Hence, ld CIT(A) estimated the suppressed commission income at Rs.2,03,850/- ( 0.50% of Rs. Rs.4,07,69,950),on the total purchases from two parties of Rs.4,07,69,950/-. This way, ld CIT(A) deleted the addition to the tune of Rs.4,05,66,100/- and confirmed the addition at Rs.2,03,850/-.
We note that during the assessment proceedings, assessing officer observed that entities of Shri Gautam Jain Group who are leading entry providers of Mumbai group have given accommodation entries of bogus purchases to the assessee during the year. We note that neither the copy of statement, nor any evidence proving the allegation was provided to the assessee to defend his case. No opportunity of cross-examination was allowed to the assessee though specifically asked for by the assessee. Hon`ble Supreme Court in the case of Andaman Timber Industries 281 CTR 214(SC) held that not allowing the assessee company to cross examine the witness by the adjudicating authority though the statements of those witness were made the basis of impugned order is a serious flaw which makes the order nullity. On the same issue, the Hon`ble Calcutta High Court in the case of Eastern Commercial Enterprises 210 ITR 103 (cal) held as follows: “It is a trite law that cross examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against the party unless the party is put on notice of the case made out against him.” We note that statement of Shri Gautam Jain has not been provided to the assessee. The opportunity of cross examination has not been provided to the assessee, therefore statement of Shri Gautam Jain does not apply to the assessee. That being so we decline to interfere in the order of the ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.”
39 ITA Nos. 910 & 819/JP/2019 Sh. Manoj Amarchand Tailor, Bijainagar Vs.ITO, Ward-1, Beawar 26. Respectfully following the ratio, the decision of co-ordinate bench in 1974/AHD/2016 and we do not find any merits in the grounds raised before us by the revenue. Thus, the ground no. 1 to 3 raised by the revenue is dismissed in terms of the above observation.
In the results the appeal of the assessee is dismissed in ITA No.910/JP/2019 and the appeal of the revenue in ITA No. 819/JP/2019 stands dismissed.
Order pronounced in the open Court on 28/06/2022.
Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur fnukad@Dated:- 28/06/2022 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Sh. Manoj Amar Chand Tailor, Bijainagar 2. izR;FkhZ@ The Respondent- ITO Ward -1, Beawar 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA Nos. 910 & 810/JP/2019} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत