MOREWEL IMPEX P. LTD,MUMBAI vs. ITO WD 5(2)(3), MUMBAI

In all the three years, the assessee is aggrieved by the decision of Ld CIT(A) in confirming the rejection of books of account and consequent estimation of income.

The facts relating to the issue cited above are stated in brief. The assessee is engaged in the business of trading in diamonds. The revenue carried out a survey operation u/s 133A of the Act on 07-07-2008 at the business premises of the assessee. The revenue also carried out survey operations in the hands of other concerns named M/s Basant Dia Jewels and M/s Mox diam. Consequent to survey operations, the ADIT (inv) recorded a statement u/s 131 of the Act from Sri Basant Jain, proprietor of M/s Basant Dia Jewels, wherein he admitted that his business concern is engaged in the business of providing accommodation entries in respect of import/purchase and sale of diamonds. He also described the modus operandi followed in this regard. It appears that an identical statement was given by M/s Mox diam also. Certain specific replies given in the above said statements about the modus operandi followed were confronted with one of the directors of the assessee company named Shri Ramesh L Jain and he also confirmed that the statement given in the cases of M/s Basant Dia Jewels and M/s Mox diam. The said reply given by Shri Ramesh L Jain was endorsed by him in the statement recorded from him on 18.7.2008 and the same is extracted below:- “I have gone through the statement of Shri Basant D Jain recorded u/s 131 of the Income tax Act, 1961 dated 09-07-2008 duly endorsed by Shri Nitesh T Jain partner of M/s Mox Diam and I reaffirm that the modus operandi revealed and explained and discussed by Shri Basant D Jain and duly endorsed by me and Shri Nitesh T Jain, Partner of M/s Mox diam was the modus operandi adopted by us for providing accommodation bills to various interested parties in the market. I also state further that in terms of our letter dated 10/7/2008 we viz., Shri Basant D Jain and Shri Nitesh T Jain & myself individually confirmed the statement given in this regard on 09/07/2008 as being correct and true and we stand by it.”

In the sworn statement, Shri Basant D Jain had stated that the diamonds are imported in the name of his concern on behalf of some other dealers and sales are made on behalf of others, i.e., though the purchases and sales are carried out in the name of his concern, they are done on behalf of others. The payments made and payments received by way of cheques are compensated by way of cash. In this process, they will get commission only @ 0.2% in respect of imported diamonds and @ 0,05% in respect of locally sourced diamonds.

It is pertinent to note that the survey officials did not unearth any incriminating material during the course of survey operations nor did they find any defects in the books of account. The director Shri Ramesh L Jain retracted from the statement given by him by filing an affidavit on 20-08- 2008, i.e., within one month of giving statement affirming the modus operandi explained by other businessmen. In the affidavit, Shri Ramesh L Jain has stated that survey officials entered his office premises at 1.30 pm on 07-07-2008 and they left the office at 3.00 am on 09-07-2008. He was forced to accept the nature of business carried on by the assessee as that of providing accommodation bills only. It is further stated that his concern

Subsequently, another statement was recorded from Shri Ramesh L Jain on 21-02-2009 during the course of assessment proceeding for AY 2007-08, wherein also he stood by the averments made in the affidavit.

The assessing officer, during the course of assessment proceedings, issued commission u/s 131(d) of the Act to the Asst. Director of Income tax (Inv.), Surat in order to verify the purchases and sales recorded by the assessee. However, the Deputy Director of Income tax reported that the concerned parties are not available in the given addresses. When the report given by the Deputy Director of Investigation was confronted with the assessee, it filed the ledger account copies duly confirmed by the concerned parties, copy of acknowledgement of return of income filed by them in order to establish the genuineness of the purchase and sales transactions. However, the AO chose to reject all these documents, but placed reliance on the statement recorded from Shri Basant Jain, which was originally confirmed by Shri Ramesh L Jain. Accordingly, the assessing officer rejected the book results and estimated the income @ 2% of sales value as stated earlier, even though the commission for accommodation bills was stated as 0.20% for imported diamonds and @ 0.05% on the locally sourced diamonds.

The Ld CIT(A) held that the documents relating to concerned parties furnished by the assessee are cooked up documents, since the DDI had reported that such parties did not exist at the given addresses. Accordingly he held that the assessing officer has rightly rejected those documents. He further held that the documents furnished by the assessee are exactly as per the modus operandi admitted during the course of survey operations and statement recorded u/s 131 of the Act. Accordingly

We have heard the parties and perused the record. A careful perusal of the record would show that the assessing officer has placed reliance on the statement given by Shri Basant Jain, proprietor of M/s Basant Dia Jewels, which was originally endorsed by the assessee. The AO has further placed reliance on the report given by the DDIT (Inv.) to the effect that the suppliers and customers of the assessee were not available in the given address. Apart from this, it is a fact that the AO has not brought on record any other material to support his conclusions.

We have earlier noticed that the director of the assessee company has retracted from the statement of confirmation given by him earlier within a period of one month by filing an affidavit. In the said affidavit, it has been clearly stated that the survey officials entered his office premises at 1.30 pm on 07-07-2008 and they left the office at 3.00 am on 09-07- 2008. Further, it was stated that he was forced to accept the nature of business carried on by the assessee as that of providing accommodation bills only. Hence, in our view, the assessing officer could not have placed reliance on the statement given by the director of the assessee for the following reasons:- (a) the survey officials are not entitled to record statement on oath during the course of survey operations u/s 133A of the Act. (see. DCIT Vs. Premsons (2009)(ITAT Mumbai) (b) the statement recorded during the course of survey operations do not have evidentiary value and hence the same cannot be used as evidence in the assessment proceedings. (see CIT Vs. Khader Khan sons (2012)(25 taxmann.com 413)(SC) (c) the assessee has retracted the statement given during the course of survey operations within one month by filing affidavit. The submissions made in the affidavit has not been found fault with.

The assessing officer has also placed reliance on the report given by the DDIT (inv.), wherein he had stated that the customers/suppliers of the assessee were not available in the given addresses. When the report given by the DDIT was confronted with the assessee, it has furnished following documents to the assessing officer:-

We further notice that the assessee has maintained proper books of accounts. The purchases and sales recorded therein have not been found fault with, i.e., no defect has been pointed out by the assessing officer. Hence, we are of the view that there is no ground available with the assessing officer to reject the books of account. Accordingly we are of the view that the assessing officer was not justified in rejecting the books of account and consequently, in our view, the book results should have been accepted. Accordingly, we are of the view that there is no justification or proper ground warranting the estimation of profits in the assessee’s hand in all the three years under consideration.

In view of the above, we are unable to sustain the orders passed by Ld CIT(A) in all the three years under consideration. Accordingly, we set aside the orders passed by the Ld CIT(A) and direct the assessing officer

In the result, all the three appeals filed by the assessee are allowed.