INCOME TAX OFFICER, WARD 2(3)(7), SURAT vs. SHRI ANIL PUKHRAJ JAIN, SURAT

आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the Revenue and Cross Objection filed by the Assessee, pertaining to Assessment Year (AY) 2008-09, are directed against the order passed by the Learned Commissioner of Income Tax (Appeals), Surat [in short “the ld.CIT(A)”], which in turn arise out of an assessment order passed by

raised by the Revenue are as follows: “i) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.16,54,65,748/- made on account of accommodation entry pertaining to bogus purchases. ii) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in estimating income @ 5% of total unverifiable purchase of Rs. 17,41,74,472/- without appreciating the fact that a search and seizure action was carried out by the Investigation Wing, Mumbai in the case of Sh. Pravin Kumar Jain and Gautam Kumar Jain and other Groups of Mumbai on 01.10.2013 which resulted in collection of evidences and other findings, which conclusively proved that said groups of Mumbai had through Benami concerns, run and operated by them, provided accommodation entries to various parties, the assessee being one of them, in respect of bogus unsecured loans, bogus purchases and bogus sales. Therefore, the Ld. CIT(A) should have treated the whole amount of these purchases as income of the assessee as assessee reduced his income to this extent by inflating his purchases by this amount in his P&L account. iii) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in accepting the plea of the assessee that proper books of accounts and stock register was maintained without considering the fact that no such books of account and documents were produced before the AO. Ld. CIT(A) did not give any opportunity to the AO to rebut the contention of the assessee raised before him and relied upon the judicial pronouncement, facts of which are different from the instant case. iv) On the facts and in the circumstances of the case and in Law, the Ld.CIT(A)- 1, Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld.CIT(A)-3 Surat may be set-aside and that of the Assessing Officer's order may be restored.”

3. Grounds of appeal raised by the assessee in Cross Objection No.10/SRT/2021, are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in partly confirming the action of assessing officer in making addition as unverifiable purchases by sustaining addition to the extent of Rs.87,08,724/- as against addition of Rs.17,41,74,472/- made by ld. Assessing officer.

2. It is therefore prayed that above addition made by assessing officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted.

3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain

, which is reproduced below: “Sub: Request to admit additional ground for A.Y 2008-09. Ref: Cross Objection No.10/SRT/2021filed against Revenue appeal- A.Y. 2008-09

1. In the above case, the assessee has filed cross objection against appeal filed by Revenue for the above assessment year. In addition to the ground raised in the cross objection, assessee prays to admit the following additional ground:  On the facts and circumstances of the case as well as law on the subject, learned CIT(A) has erred in confirming the action of assessing officer in reopening assessment u/s 148 of the I.T. Act, 1961.

5. Learned Counsel for the assessee, pleads that above additional ground in cross objection may be admitted in the interest of natural justice, equity and fair play, as the omission of the same in Form 36A is purely unintentional.

6. On the other hand, Learned DR for the Revenue, argues that at this stage such additional ground should not be admitted, as the assessee has not raised this issue during the appellate proceedings before the ld CIT(A).

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain Company Ltd., vs. CIT (1998) 229 ITR 382 (SC), we admit the additional ground raised by the assessee.

11. The assessing officer noted that Assessee had received accommodation entries pertaining to bogus purchases of Rs.17,41,74,472/- which was nothing but accommodation entry, as no real business was carried out by the assessee, as the bogus nature was confirmed in the statement recorded on oath by one of the directors of the group. It was further stated that the entities of this group were operated solely with the purpose of facilitation of fraudulent transactions which includes providing accommodation entries of bogus purchases / sales. The ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain specific and important information received as above, has been subjected to the verification. After formation of reason to believe that the purchase bill of diamonds received by assessee firm are bogus in nature and escaped assessment due to failure on the part of the assessee to disclosed fully and truly all the material facts necessary for the purpose of assessment. The case was reopened u/s. 147 of the Act after obtaining the necessary satisfaction of the competent authority. The notice u/s. 148 of the Act was issued on 31.03.2015 and served upon the assessee firm. In response to notice u/s. 148, the assessee vide its letter dated 28.04.2015 has requested to treat the original return of income filed on 25.09.2008 as the return of income filed of the Act for A.Y. 2008-09, and also requested for copy of reasons recorded, which was provided to the assessee in view of the Hon'ble Supreme Court judgment in the case of GKN Driveshafts (India) Ltd. (259 ITR 19).

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain During the search proceedings statement on oath were recorded of dummy directors/partners/proprietors of concerns of Shri Gautam Jam Group and Shri Pravinkumar Jain Group. In which the following person stated on oath as follows: (i) Shri. Gautam Bhanwarlal Jain director of M/s. Parshwanath Gems Pvt. Ltd and M/s. Karishma Diamond Pvt. Ltd. during the search proceedings in his statement he stated that I would like to state that factually there is no actual business of trading in diamond that is being carried out by me in the above stated three concerns namely M/s. Karishma Diamond Pvt. Ltd., M/s. Krishna Diam, M/s. Mihir Diamond and that is why during the course of search and seizure action u/s. 132 of the IT Act on 03.10.2013, business premises were found vacant and not being in use. Those addresses have been kept only for the purpose of registration of company address; receiving any mails including Income Tax notices if any, bank verification etc. Sir, I would also like to add that not only the above 3 concerns, but I also control the concerns in the name of M/s. Parshwanath Gems Pvt. Ltd. and M/s Shree Ganesh Gems which also claim to be trading in diamonds but in which no actual business takes place. I hereby on my own declare that I running these paper based companies with no real business activities at all." (ii) Also Shri Gautam Jain Has explained the modus oparendi which is reproduced as under: "Various brokers of the diamond market approach me regularly and they give direction from time to time to import diamonds in my books of A/c, Once the diamonds are received they are taken away by these brokers at whose direction these imports were made, For doing these activities, I get a commission. As a result of above, stock of diamonds is reflected in my books without any physical stock being there. Thereafter, at a certain commission I issue bogus sale bills of such diamonds which are appearing in my books as sock in the names of other interested parties/concerns, which is again arranged by these brokers. For this, I get commission. I also give bogus sale bills when there is no stock available in my books, by arranging bogus purchase bills from the local market from various concerns through various brokers. For this type of transaction, I get profit of ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain differential commission received and paid by me. Also, in case some person required entry for unsecured loan, I give the entry by giving them cheque and in return I receive cash for the same. But most of the times it so happens that I have to pay this cash back to some parties to get cheque entry in my books again so as to maintain the balance in bank accounts. Normally, there is no surplus cash which remains available with me at any point of time. All the local purchases, local sales and loan entries appearing in my books of accounts of the above 2 concerns controlled by me are totally bogus entries which were done against cash taken/given against such entries. None of these entries reflect any genuine transaction at all.” (iii) Shri Gyanchand Bhanwarlal Jain director of M/s. Karishma Diamond Pvt. Ltd., M/s. Parshwanath Gems Pvt. Ltd, M/s. Krishna Diam Pvt. Ltd has stated in his statement recorded during search proceedings in the case of Gautam Jain Group that the concerns namely M/s. Karishma Diamond Pvt. Ltd., M/s. Parshwanath Gems Pvt. Ltd, M/s. Krishna Diam Pvt. Ltd 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 and that all the loan and advances to interested parties are nothing but "accommodation entries" given against cash. (iv) Shri Manish Jain, the director of M/s. Ansh Merchandise Pvt. Ltd. had admitted in his statement recorded during the search proceedings that he is dummy partner of M/s. Ansh Merchandise Pvt. Ltd. and the firm is not engaged in any business of actual diamond trading and the firm is engaged in provide accommodation entries and the M/s. Ansh Merchandise Pvt. Ltd. is Paper entity only. He also stated in his statement that he is employee of Shri. Pravinkumar Jain and the firm Ms. Ansh Merchandise Pvt. Ltd. belongs to Shri Pravinkumar Jain only. (v) Shri. Nilesh F. Parmar, the Proprietor of M/s. Mohit International had admitted in his statement recorded during the search proceedings that he is dummy partner of M/s. Mohit International and the firm is not engaged in any business of actual diamond trading and the firm is engaged in provide

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain accommodation entries and the M/s. Mohit International is Paper entity only. He also stated in his statement that he is employee of Shri. Pravinkumar Jain and the firm Ms. Mohit International is belong to Shri Pravinkumar Jain only. (vi) Also Shri Pravinkumar Jain Has explained the modus oparendi which is reproduce as under "As I have told you I am in the business of import of diamond. I need to import diamonds in various group companies controlled by me to create a base for my bogus loans and advances. There are several brokers and traders in the market who want to import a part of their rough diamonds through people like me with a view to suppress their turnover and profit. The consignments are sent on credit by the suppliers (usually from Hong Kong and Dubai) in the name of companies at the instance of the actual importer. On receipt of consignments in the name of my company, the real importer gets the actual delivery of diamonds from the Clearing Housing Agents (CHA) on the basis of my authority letter and declaration from. The payments are settled through a process of adjustment and understanding between the supplier and the real importers which I am not aware of. The payments for the imports are shown as outstanding creditors in my books as I have an understanding with the facilitating brokers that the payments can be sent to supplier through cheque as per my convenience. The payment made by me by cheque is returned to me in cash by the broker in India. There are certain parties in the market who want accommodation entries for the purchase of diamonds in their books. Such parties either approach me or my network of brokers for an accommodation entry in the nature of bogus purchase of diamonds. The payment received from the party for accommodation entry of bogus purchase is used to give entries of unsecured loans and investments to builder, jewelers, and businessmen and corporate for which I earn an interest of about 0.15% to 0.20% per month. The cash is received back from the builder/real estate company who takes an accommodation entry for unsecured loan/advance. The cash received from the builder/real estate company is paid to the party to whom the bogus sale of diamonds is made to square off the transaction. After a period of about 6 month to 1 year, the payment is made to the party based in Hong Kong or ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain Dubai is square off the transaction which was shown as outstanding creditors in my books. The cash received is paid to the builder/real estate company to square off the transaction. Sir, the only profit I have earned in this entire transaction is the commission on the accommodation entry given to the beneficiary company/builder @ 0.15% to 0.20% per month. I do not get any commission on the bogus diamond purchase made through my companies or on the accommodation entry given for sale of the diamonds to the third party.

13. Then after Assessing Officer dealt with the objection raised by the assessee as follows: “10. Point wise Reply to objection raised by the Assessee in response to show cause and final conclusion: I have carefully gone through the various objection raised by the assessee through their CA in reply to the show cause notice and they are rejected for the following reasons: Point: The assessee has not been granted an opportunity either to go through the statements of the principal hawala operator / his associates or given an opportunity to cross examine the person whose statements is being used against the assessee. Reply: as regards assessee's claim that the assessee has not been furnished with the statement of hawala operators and their associates nor being given an opportunity to cross examine such persons ,it may be stated that furnishing a copy of the statements and the cross examination is an absolute necessarily under the law of evidence and a trail under Indian penal code , the law of evidence and the provision of Indian penal code is do not operate directly under the income tax act proceedings which is a semi judicial proceedings and not criminal proceedings. Therefore, non-granting of opportunity of cross examination does not deprive the assessee of its right or it is in violation of principle of natural justice. Under the income tax act, proceedings are based on the principle of preponderance of probability and not the law of the evidences. Point : In the support of the contention the CA of the assessee has furnished several details like Party wise purchase and sales, purchase registers, stock registers, ledger account of purchase parties, movement of goods and copy of the bank statement etc. the CA of the assessee has also furnished additional information to prove genuineness of purchases made. The information furnished are like PAN Card copy of the parties, Copy of Relevant Bank Statements of the supplier parties reflecting the genuineness of the transactions, Copy of Income Tax Return Acknowledgment of the referred parties/ suppliers, Declaration from the referred parties/ suppliers regarding genuineness of their business transactions.

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain Reply: I have carefully gone through all the materials in the Party wise purchase and sales purchase registers stock registers, ledger account of purchase parties, movement of goods and copy of the bank statement etc., have been carefully considered by me. This documentary evidences and proof are sufficient and acceptable if it is a matter of normal scrutiny assessment. The most important aspects should not be lost sight of that but for the search and seizure and unearthing of incriminating evidences, the nature of bogus accommodation entry, bills against the cash would not have come to the lime light. The search and seizure action is the most stringent and effective action by the department for the purpose of unearthing undisclosed income/ finding incriminating evidences. The search and seizure action is a rare and uncommon action which to some extent amount to encroaching upon the privacy of private citizen. And therefore such action is taken seldom and with an extreme care and caution and conducted by the highest investigation authority of the department i.e. DDIT (Inv) u/s. 132 of the Income Tax Act. Certain powers of CRCP and CPC are imbedded in it, which shows the significance of such search proceedings. When such proceedings are conducted by extreme care and caution and evidences collected which cannot be found under normal proceedings, cannot be viewed lightly or without significance. And therefore such incriminating documents directly implicating the assessee in the hawala transactions either through principal hawala operator or through one of the shale concerns far over weight than normal documents furnished during the normal assessment proceedings. Point: The AR of the assessee has relies on judgements of Tribunal and courts. Reply: As per case laws quoted, I find that the facts of the case under scrutiny totally different and distinguishable and therefore the case laws has not application. Point: It is argued that during original assessment proceedings u/s 143(3) of the Act, no such inference of bogus transactions were drawn by the then A.O. Reply: in this connection your kind attention is invited to the proviso to section 147 which refers to failure on the part of the assessee to disclose fully and truly all the material fact necessary for the purpose of assessments. Since the assessment was completed us. 143 (3) of the Act, the assessee and his representative was under greater obligation to disclosed fully and truly all the primary facts. The assessee having failed to do so the proviso to section 147 correctly invoked.

14. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has partly allowed the appeal of the assessee, observing as follows: “7.8 In this factual background, the question arises as to what should be the profit estimation. On one side, the assessee is showing GP/NP at the rate of 2% (maximum) approximately in various years which I have found quite low in comparison to industry average. On after hand Ld AR has also placed reliance on Gujarat High Court decision in the case of Mayank Diamond Pvt Ltd. wherein Hon'ble court has upheld NP @ 5%. On this basis, Ld AR has pleaded for application of the ratio of said decision. I have perused the above cited decision & found the same applicable to the facts of this case. Following the binding precedent of Hon'ble Gujarat High Court in the case of Mayank Diamonds Pvt. Ltd. (Supra), entire purchases could not be disallowed and profit @ 5% should be estimated. So the action of the AO of making disallowance of entire purchases from such alleged parties by treating the same as bogus is not sustainable, hence rejected.

8. The appellant vide written submission dated 26.05.2017 has also put forth alternative plea t sustain addition to the extent of 5% of impugned purchases of Rs.17,41,74,472/- which works out to be Rs.87,08,724/- in view of the decision of M/s. Mayank Diamond case (supra). The ratio of Hon'ble High Court is binding and facts of the present case are also quite similar to M/s. Mayank Diamondcase, therefore I uphold the addition to the extent of Rs.87,08,724/- and grant a relief of Rs.16,54,65,748/- (Rs.17,41,74,472 – Rs.87,08,724). The ground of appellant is partly allowed.

15. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before us and as well as assessee is in cross objection before us.

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain

17. Therefore, Ld. Counsel contended that there is no provision in the Act to record the reasons three times on the same issue, therefore on this count the reasons recorded may be quashed. The Ld. Counsel also submitted that in assessee`s case, the assessment was reopened after a period of four years and there is no failure on the part of the assessee to disclose fully and truly all material facts for making the original assessment. That is, assessing officer has failed to demonstrate in the reasons so recorded that in the assessee’s case, the assessment was reopened after a period of four years and there is failure on the part of the assessee to disclose fully and truly all material facts necessary for making assessment, therefore the reopening proceedings initiated by Assessing Officer is bad in law.

“147. Income escaping assessment.—If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year. Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but— (i) income chargeable to tax has been under assessed ; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.”

21. From the above section 147 of the Act, it is vivid that assessing officer may reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section. Thus, it is abundantly clear that Assessing Officer may reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148 of the Act. Therefore, there is no restriction on the number of reasons to be recorded, that is, reasons may be recorded twice, thrice etc. as per the circumstances, hence we do not agree with the ld Counsel to the effect that reasons cannot be recorded three times.

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain was fresh issue before the Assessing Officer and it is a fresh and new information therefore assessing officer has rightly reopened the assessment. Moreover, in the reasons recorded on dated 28.03.2015, it is mentioned that: “From the above facts, I have reason to believe that income to the tune of Rs.12,29,63,397/- chargeable to tax has escaped assessment due to failure on the part of the assessee to disclose true particulars of income”

...one has to look to the purpose and intent of the provisions. One of the purposes of Section 147 appears to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would, be travesty of justice to allow the assessee that latitude.

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain that income chargeable to tax and had escaped assessment. It was held that even if the information be such that it could have been obtained by the I.T.O. during the previous assessment proceedings by conducting an investigation or an enquiry but was not in fact so obtained, it would not affect the jurisdiction of the Income Tax Officer to initiate reassessment proceedings, if the twin conditions prescribed under Section 147 of the Act are satisfied.

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain Wing, Mumbai made a search on Bhanwarlal Jain Group. During the search and after search, the Investigation Wing made a thorough investigation and concluded that Bhanwarlal Jain Group and his associates including his sons were indulging in managing about 70 benami concerns. The benami concerns were engaged in providing accommodation entries. The assessee is one of the beneficiaries of such accommodation entries. In the transaction of accommodation entries, the documentary evidences are created in such a way, so that the bogus transaction is looks like genuine transaction. In bogus transaction, the fabricated evidences are always maintained perfectly. The assessee has obtained accommodation entry only to inflate the expenses and to reduce the ultimate profit. No stocks of diamonds were found at the time of search on Bhanwarlal Jain Group. The assessee has shown a very meagre gross profit (GP) @ 0.78% and not net profit (NP) at 0.02%. The ld. CIT(A) restricted the addition to the extent of 12.5% which is on the lower side. The ld. CIT-DR for the revenue prayed that disallowance made by the AO may be upheld or in alternative submitted that it may restricted at least @ 25%, keeping in view that the NP declared by the assessee is extremely on lower side.

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain the genuineness of expenses. The AO accepted the same in the assessment order passed under section 143(3) on 10.03.2009. During re-assessment, the assessee again furnished complete details about the genuineness of purchases. The assessee filed confirmation purchases invoices, accounts of the parties, bank statement of assessee showing transaction to the banking channel. The AO has not made any comment on the documentary evidence furnished by assessee. The AO solely relied upon the statement of third party and the report of Investigation Wing. The report of wing and the statement of Bhanwarlal Jain were not provided to the assessee. The AO has not disputed the sales of assessee. No sale is possible in absence of purchase. The books of accounts were not rejected. The AO made the disallowance of entire purchases. The assessing officer not provided cross examination of the alleged hawala dealers. The disallowances sustained by the Ld. CIT(A) @ 12.5% of the impugned purchases, is on higher side and deserve to be deleted in total. The ld.AR of the assessee submits that entire purchases shown by assessee are genuine. In without prejudice and alternative submissions, the Ld. AR for the assessee submits that in alternative submission, the disallowance may be sustained on reasonable basis. To support his various submission, the ld.AR for the assessee is relied upon case laws: 1 M/s Andaman Timber industries VsCommissioner of Central Excise, CIVIL APPEAL NO. 4228 OF 2006 (Supreme Court) 2 CIT vs. Indrajit Singh Suri [2013] 33 taxmann.com 281 (Gujarat) 3 Albers Diamonds Pvt. Ltd. Vs ITO 1(1)(1), Surat &1180/AHD/2017 4 The PCIT-5 vs. M/s. Shodiman Investments Pvt. Ltd. TTANO. 1297 OF 2015 (Bombay High Court) 5 ShilpiJewellers Pvt. Ltd. vs. Union of India &Ors. WRIT PETITION NO. 3540 OF 2018 (Bombay High Court) 6 CIT in Vs. Mohmed Juned Dadani 355 ITR 172 (Gujarat) 7 Micro Inks Pvt. Ltd. Vs. ACIT [2017] 79 taxmann.com 153 (Gujarat) 8 Shakti Karnawat Vs. ITO - 2(3)(8), Surat ITA 1504/Ahd/2017 and 1381 /Ahd/2017 9 Asian Paints Ltd. Vs. DCIT, [2008] 296 ITR 90 (Bombay) 10 PCIT, Surat 1 Vs. Tejua Rohit kumar Kapadia [2018] 94 taxmann.com 325 (SC) 11 The PCIT-17 vs. M/s Mohommad Haji Adam & Co. ITA NO. 1004 OF 2016(Bombay High Court) 12 Pankaj Kanwarlal Jain HUF Vs. ITO 2(3)(8) Surat ITA.No.269/SRT/2017 16. In the rejoinder submissions the ld. CIT-DR for the revenue submits that that rigour of the rules of evidence contained in the Evidence Act is not applicable before the tax authorities. It was submitted that the ratio of various case laws relied by the ld. AR for the assessee is not applicable on the facts of the present cases. The ratio of decision of Hon’ble Gujarat High Court in ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case.

before ld CIT(A) while assailing the order of AO on reopening. The ld CIT(A) while considering the ground of appeal against the reopening held that the AO has received report from investigation wing Mumbai, which indicate that the assessee is beneficiary of the accommodation entry operators. The accommodation entry provider admitted before investigation wing that he has given such entry to various persons; based on such report the AO has reason to believe that the income of the assessee has escaped assessment and thus the action of AO in reopening is justified.

18. We find that the Hon’ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd Vs DCIT (supra) while considering the validity of similar notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a person who is engaged in providing accommodation entries, held that where after scrutiny assessment the assessing officer received information from the investigation wing that well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in re- opening assessment. Further similar view was taken by Hon’ble Jurisdictional High Court in Pushpak Bullion (P) Ltd Vs DCIT (supra). Therefore, respectfully following the order of Hon’ble High Court, we find that the assessing officer validly assumed the jurisdiction for making re-opening under section 147 on the basis of information of investigation wing Mumbai. So far as other submissions of the ld AR for the assessee that there is no live link of the reasons recorded, we find that the Hon’ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd clearly held that when assessing officer received information from the investigation wing that two well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified. Hence, the ground No. 1 in assessee’s appeal is dismissed.

19. Ground No. 2 in assessee’s appeal and the grounds of appeal raised by the revenue are interconnected, which relates to restricting the disallowance of bogus purchases to the extent of 12.5%. The AO made of 100% of purchases

ITA 89/SRT/2017 & CO. 10/SRT/2021/AY.2008-09 Anil Pukhraj Jain shown from the hawala dealers/ entry provider namely Bhanwarlal Jain. We find that the AO while making additions of 100%, of disputed purchases solely relied on the report of the investigation wing Mumbai. No independent investigation was carried by the AO. The AO has not disputed the sale of the assessee. The AO made no comment on the evidences furnished by the assessee. We further find that ld CIT(A), while considering the submissions of the assessee accepted the lapses on the part of the AO and noted that no sale is possible in absence of purchases. The Books of the assessee was not rejected by the AO. The ld CIT(A) on further examination of the facts and various legal submissions find that Ahmedabad Tribunal in Bholanath Poly Fab Private Limited (supra) held that in the such cases the addition of bogus purchases was sustained to the extent of 12%, on the observation that the assessee may have made purchases from elsewhere and obtained the bills from impugned supplier to inflate Gross Profit Rate. The ld CIT(A) by considering the overall facts, concluded that the 100% disallowance of purchase is not justified. We also find that the ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. (supra) and compared the fact of the present case with the facts in Mayank Diamonds Pvt Ltd (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The ld CIT(A) noted that in that case the AO made disallowance of entire bogus purchase and on first appeal before CIT(A) the disallowances were maintained. However, the Tribunal gave partial relief to the assessee directing to sustain the addition @12% of such bogus purchases. And on further appeal, the Hon'ble High Court sustained Gross Profit Rate @ 5% being average rate of profit in industry.

20. Now adverting to the facts of the present case, the ld.CIT(A) held that in some other similar cases; though he had sustain 5% of Gross Profit Rate, considering the fact that where Gross Profit shown by those assessee’s are more than 5%. However, in the present case, the assessee has merely shown Gross Profit Rate only at 0.78% of turnover, accordingly, the ld. CIT(A) was of the view that disallowance of 12.5% of impugned purchases/bogus purchases would be reasonable to meet the end of justice.

under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No. 2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed.

22. In the result the appeal of revenue is dismissed and the appeal of the assessee is partly allowed.”

30. Since, the issue under consideration is squarely covered by the judgment of the Co-ordinate Bench of ITAT, Surat in the case of Pankaj K. Chaudhary (supra). There is no change in facts and law and the Revenue, as well as Assessee are unable to produce any material to controvert the aforesaid findings of the Co- ordinate Bench (supra), wherein the Tribunal considering overall facts and circumstances held that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. Therefore, respectfully following the binding judgment of Co-ordinate Bench, the appeal of the Revenue is partly allowed and cross objection filed by the assessee are dismissed.

31. In the combined result, appeal filed by the Revenue (in Cross Objections (in CO No.10/SRT/2021) and additional ground raised by the assessee are dismissed. Registry is directed to place one copy of this order in all appeals folder / case files.

Order is pronounced on 23/01/2023 by placing the result on the Notice Board.