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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM &DR. A.L.SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM &DR. A.L.SAINI, AM आयकर अपीलसं./IT(SS)A Nos.288 to 293/AHD/2017 (�नधा�रणवष� / Assessment Years: (2009-10 to 2014-15) (Physical Court Hearing) M/s Kangan Jewels Pvt. Ltd. Deputy Commissioner of C/o 106, Saryu Chambers, Income-tax, Central Circle-4, Vs. Jadakhadi Mahidharpura, Surat- Surat 395003. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AADCK 2552 R अपीलाथ� / Appellant ��यथ� /Respondent आयकर अपीलसं./IT(SS)A Nos.306 to 311/AHD/2017 (�नधा�रणवष� / Assessment Years: (2008-09 to 2013-14) आयकर अपीलसं./ITA Nos.1579/AHD/2017 (�नधा�रणवष� / Assessment Year: (2014-15) M/s Maniprabha Impex Pvt.Ltd. Deputy Commissioner of C/o 106, Saryu Chambers, Income-tax, Central Circle-4, Vs. Jadakhadi Mahidharpura, Surat- Surat 395003. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AAECM 6219 L अपीलाथ� /Appellant) ��यथ� /Respondent) आयकर अपीलसं./IT(SS)A Nos.312 to 317/AHD/2017 (�नधा�रणवष� / Assessment Years: (2008-09 to 2013-14) आयकर अपीलसं./ITA Nos.1580/AHD/2017 (�नधा�रणवष� / Assessment Year: (2014-15) M/s Dharam Impex Deputy Commissioner of C/o 106, Saryu Chambers, Income-tax, Central Circle-4, Vs. Jadakhadi Mahidharpura, Surat- Surat 395003. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AAFFD 2692 C अपीलाथ� /Appellant) ��यथ� /Respondent)
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
�नधा�रती क� ओर से /Assessee by Shri Rasesh Shah, CA राज�व क� ओर से /Respondent by Shri H.P.Meena, CIT-DR सुनवाई की तारीख /Date of Hearing 18-08-2022 उ�घोषणा क� तार�ख Date of Pronouncement 29-08-2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned twenty (20) appeals filed by three set of different assessees pertaining to assessment year(s) 2008-09 to 2014-15, are directed against the separate orders passed by the Learned Commissioner of Income-Tax (Appeals), Surat [in short “ld.CIT(A)”], which in turn arise out of separate assessment order(s) passed by Assessing Officer, under section 144 r.w.s 153C of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. Since, the issues involved in all the appeals are common and identical except variation of amounts; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in IT(SS)A No.312/AHD/2017, for assessment 2008-09, in the case of M/s Dharam Impex, have been taken into consideration for deciding the above appeals en masse. 3. The grounds of appeal raised by the assessee in “lead” case (in IT(SS)A No.312/AHD/2017, for assessment year 2008-09, are reproduced below: “1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in upholding the proceeding u/s 153C without appreciating the fact that no incriminating material was found during the course of search. 2. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in confirming order passed by Ld. AO u/s 144. 3. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in confirming the rejection of books of account without pointing out any defect in books of accounts. 4. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in not appreciating the fact that assessment order was framed without providing opportunity to cross examine and without furnishing the material and evidences to
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. the appellant inspite of the appellants request, in gross violation of principal of natural justice. 5. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in confirming action of AO of making addition of Rs.5,04,425/- by treating appellants business as fictitious and holding that appellants business as being commission agent and accommodation entry provider only. 6. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of genuine expenditure and allowed only 25% of commission income as expenditure on ad-hoc basis. 7. Appellant craves liberty to add, further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.” 4. The assessee has also raised additional grounds of appeal under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, which reads as follows:-
“On the facts and circumstances of the case as well as law on the subject, the Assessing Officer has erred in issuing notice u/s 153C for the year under consideration as notice u/s 153C can be issued for six years immediately preceding the assessment year in which the search was initiated i.e. 13.01.2015 and assessment for the year under consideration therefore becomes time barred for issue of notice u/s 153C.”
Shri Rasesh Shah, Learned Counsel for the assessee, pleads that above additional ground may be admitted in the interest of natural justice, equity and fair play as its omission in the main ground of appeal attached with Form 36 is purely unintentional. The ld Counsel further pointed out that such additional ground pertains to legal issue and facts are already on record therefore said additional ground may be admitted.
On the other hand, Learned DR for the Revenue, submits that assessee did not raise such ground during the appellate stage before ld CIT(A), therefore, at later stage, the additional ground raised by the assessee should not be admitted.
We have heard both the parties and gone through the additional ground raised by the assessee. We note that the objection raised by the assessee in additional ground is a purely legal objection going to the root of the jurisdiction of the matter and in view of the Hon’ble Apex Court judgment in the case of NTPC Vs CIT(1998) 229 ITR 383 (SC) it can be raised at this stage even for the first time. The Hon’ble
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. Supreme Court while dealing with ground raised before the ITAT for the first time relating to legal issue has held that Tribunal should not be prevented from considering questions of law arising in assessment proceedings although not raised earlier. It was also held that under section 254 of the Act the Tribunal has jurisdiction to examine a question of law which though not arose before lower authorities but arose before it from facts as found by lower authorities and having a bearing on tax liability of assessee. Therefore, we do not agree with contention of ld DR for the Revenue to the effect that assessee cannot raise this legal issue first time before the Tribunal. Since the additional ground raised by the assessee challenging the validity of reassessment proceedings is a legal issue which goes to the root of the matter and no further inquiry is needed for deciding the said legal issue as all facts are already on record, hence we admit the said additional ground of appeal of the assessee for adjudication. 8. The facts necessary for disposal of these appeals are stated in brief. The assessee (M/s Dharam Impex), is a partnership firm. A search action u/s 132 of the Act was carried out at the premises of the Rajendra Jain and other group on 03.10.21013. The assessee filed return of income (ROI) u/s 139(1) on 22.09.2008, declaring total income of Rs.1,70,064/-. The assessee`s case was selected for scrutiny and Assessing Officer passed assessment order under section 143(3) of the Act on 24.09.2010, by assessing at Rs.2,43,530/-. Later on, notice under section 153C of the Act was issued on assessee on 13.01.2015 and then assessment was framed u/s 144 r.w.s 153C of the Act on 29.01.2016. During the course of search action in the case of Dharmichand Jain Group, it is revealed that group of companies has indulged as the groups in giving accommodation entries. The seizure made at place of Dharmichand Jain, C-301, Sheffield "Apartment, Anand Nagar, Opp. Jarimari Garden, C S Road, Dahisar (E), Mumbai-400 068, comprises of loose paper folder and one Pen drive which contains details of group companies including details belonging to M/s Maniprabha Impex, Kangan Jewels Pvt Ltd. and M/s Dharam Impex. Looking at the nature of the transactions, the seized materials carry a clear implication over the income of the assessee. M/s Maniprabha Impex, Kangan Jewels Pvt. Ltd and M/s Dharam Impex is shown to be run by Shri Dharmichand
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. Jain. His residence has been covered u/s 132A of the Act. Shri Dharmichand Jain in his statements recorded on oath during the search proceedings, has categorically admitted that they were operating the business of providing accommodation entries through various companies. He is hold position as Director/partner in these concerns. M/s Dharam Impex, is one of the firm in which Dharmichand Jain has done accommodation entries. Therefore, assessing officer noted that this fact requires detailed investigation.
Due to these facts involved in the assessee`s case, the assessee`s case required to be covered with the provisions of section 153C of the Act. Therefore, a notice u/s 153C of the I.T. Act was issued to the assessee on 13.01.2015, which was duly served upon the assessee. In response to the said notice, the assessee furnished copy of his original return of income (ROI) on 16.02.2015, declaring total income at Rs.1,70,064/-. The assessee has not offered any additional undisclosed income in the return of income filed in response to the notice u/s 153C of the Act. Thereafter, notice u/s 143(2) was issued on 15.06.2015 and duly served upon the assessee.
The assessing officer noted that search was conducted on Rajendra Jain, Sanjay Choudhary & Dharmichand Jain group on 03-10-2013. Various evidences were collected during the search which explained inter alia, the modus operandi of the "business of providing accommodation entries in the nature of bogus sales & unsecured loans". During the search proceedings, it was established by evidences & statements of Shri Rajendra Jain, Shri Sanjay Choudhary & Shri Dharmichand Jain that there group concerns are : i) Engaged in merely paper transaction ;
ii) Engaged in import of rough & cut polished diamonds for other clients (who do not want to show in there books), whose physical delivery is taken by actual importers, immediately after the clearance of consignment by CHA.
iii) These concerns of Rajendra Jain, Sanjay Choudhary & Dharmichand Jain are left with stock on paper & zero stock in actual. These are basis of
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
issuing bills & giving accommodation entries on commission basis, to various parties, who either purchases from cash, or want to inflate the cost. iv) In addition to these, these concern provides entries of unsecured loans against cash. The business premises as well as residential premises were covered during search and survey proceedings. During the search and survey proceedings, Shri Dharmichand Jain, partner of the firm was asked to explain the nature of business functions, day-to-day affairs, role of their business activity details of persons who were contacted for purchase / import / sale. Shri Dharmichand Jain was not able to explain these things and admitted and explained the entire modus operandi. Most importantly, no single piece of diamond was found from any of business or residential premises of Shri Dharmichand Jain. Upon being confronted, Shri Dharmichand Jain has stated that they don't do any real purchase/sale of diamond and further explained modus operandi of their business.
11.In reply dated 07.01.2016, assessee has submitted before assessing officer, during the assessment stage that there was no closing stock on the date of search. It was fact that as per books of accounts of Shri Dharmichand Jain's group concerns there was stock. The Stock position lying in books of accounts on the date of search/survey, are as under: STOCK POSITION CHART Stock as on date of search Sr.No. Name of the assessee Rough Polished diamond Diamond 1 Mani Prabha Impex Pvt Ltd 3714.29 Nil 2 M./s Dharam Impex (Surat) Nil 999.25 3 M./s Dharam Impex Nil 34.66 (Mumbai)
When Shri Dharmichand Jain confronted during the search proceedings rather explaining the reason for absent of stock in reply he admitted non existence of stock. No evidence of goods being in transit (Popularly called as 'Jangad') was found or stated by the assessee. This has precluded department from any
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. corroborative and independent verification. During the search proceedings no records of goods movement was also found from any residential/ business premises of Shri Dharmichand Jain's group concerns. During the search and surveys proceedings, the assessee could not produce any verifiable evidence that the business was actually conducted. Only evidences have been created in the form of bank entries and books of account to claim that business have been conducted. Auditor has verified the bills and vouchers; not the goods.
The assessee submitted before the assessing officer that his business activities are duly acknowledged by the other Government authorities like customs department, sale tax department. However, assessing officer rejected this contention of the assessee, stating that it is not reliable. Regarding Customs Department, as explained by assessee himself, diamonds were handed over to real beneficiaries after the clearance from customs officials. Other Government authorities has not done any physical verification as the I.T. department has done. Issuance of sales tax/ VAT registration, payment of trade tax (in certain cases) are done by State- Authorities. There is no evidence brought before the department whether any spot verification or any physical verification is carried out by such authorities, on other hand proceedings u/s 132, collection of evidences and information's during the course of such proceedings as well as corroborative verification with parties, transactions undertaken by this assessee prove that no real business was being carried out by this assessee. Such finding of the department is past the event of any verification or issuance of VAT/ sales tax numbers, registration etc, by State Government or any other Authorities. The Assessing Officer further noted that the statement which are recorded by administering oath are presumed to be carrying truth in view of provisions of section 181 and 193 of the Indian Penal Code, which provides for imprisonment if the false statement is given. When it is so, no one like to be punished knowingly and hence, it is but logical to accept a sworn statement or the statement taken on oath as revealing the truth. Burden to prove the statement as incorrect is on the deponent and in case of failure of the deponent to prove that earlier stated facts
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. were wrong, his earlier statements are sufficient to conclude a matter. Merely because a statement is retracted, it cannot become as involuntarily or unlawfully obtained. For any retraction to be successful in the eyes of law the deponent has to show as to how earlier recorded statements do not state the true facts or that there was coercion, inducement or threat while recording his earlier statements.
Thus, Assessing Officer noted that it is settled law that admission by a person is a good piece of evidence, though not conclusive and the same can be used against the person who makes it. The reason behind this is, a person making a statement stops the opposite party from making further investigation. This principle is also embedded in the provisions of the Evidence Act. But the statement recorded under section 132(4) is on a different footing. The Legislature in its wisdom has provided that such a statement may be used as evidence in any proceedings under the Act. However, there are exceptions to such admission where the assessee can retract from such statement/admission. The first exception exists where such statement is made involuntarily, i.e., obtained under coercion, threat, duress, undue influence, etc. But the burden lies on the person making such allegation to prove that the statement was obtained by the aforesaid means. The second exception is where the statement has been given under some mistaken belief either of fact or of law. If he can show that the statement has been made on mistaken belief of facts, than the facts on the basis of which admission was made were incorrect. In the case of ACIT v/s Hukum Chand Jain [2010] 191 Taxman 319 (Chhattisgarh) Hon'ble High Court held that burden of proving that statement under section 132(4) was obtained by coercion or intimidation lies upon assessee. Proof of threat or coercion is necessary for valid retraction. The allegation that the assessee was tortured and harassed by the search team and was forced to make an admission is not enough [Manharlal Kasturchand Chokshi v. Asstt. CIT [1997] 61 ITD 55 (Ahd.)]. The Mumbai Tribunal, in the case of Param Anand Builders (P.) Ltd. v. ITO [1996] 59 ITD 29, has held that allegations of torture and harassment were unacceptable when independent witnesses were present at the time of search. Mere filing of a letter retracting the statement was not held to be rebuttal of the presumption that what is
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
admitted is true. The Tribunal's observations were also based on the fact that the 'Panchas' had not brought any harassment to the notice of the higher authorities. In the present case assessee failed to prove by any legally acceptable evidence that statement of the partners given during search was involuntary or was tender under coercion or duress or was under misconception of facts.
Based on the above facts, assessing officer held that assessee is not doing actual business and earned only commission income on sales, import and loan entry. Hence, the books of account maintained by the assessee is not reliable and rejected u/s 145(3) of the Income Tax Act, 1961 and order was passed by assessing officer u/s 144 of I.T. Act, on best judged assessment basis. It was also held by the assessing officer that when assessee is doing import on behalf of client who is "not identified by the assessee" it was held that all expenses like exchange loss, VAT payment, octroi payment, custom duties and all statutory expenses are also met by such client on whose behalf the goods are imported. Due to such reason the books of accounts and audit prepaid by assessee is rejected and assessment of income is done on the basis of commission income earned by assessee. Working of commission on total imports, local sales, loan entries, by assessing officer is reproduced below: Sales Amount Rate of commission Commission income Total turnover 60,27,08,000/- Total import 13,63,50,150/- Total turnover 44,63,30,059/- @ 0.02% 89,266/- (excluding import & group turnover) Import made 13,63,50,150/- @ 0.20% 2,72,700/- Loan outstanding at year end 2,84,91,894/- @ 0.50% 1,42,459/- Total commission income earned 5,04,425/- Deduction of expenses of 25% is given for paper transactions & related cos as the such. 1,26,106/- Income assessed 3,78,319/-
Thus, as per the above working, the assessing officer made addition to the tune of Rs.3,78,319/-. Since, Dharmichand Jain has stated in his statement that he is the main person of the group and his group concerns were being run by himself through his associates and employees. Therefore, the net assessed income of
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. Rs.3,78,319/- was also assessed in the hands of Dharmichand Jain on protective basis.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before Ld. CIT(A) who has confirmed the action of the Assessing Officer observing as follows: “DECISION 7.2 I have gone through the facts of the case, the statements of Shri Dharmichand Jain, partner of the firm recorded during search u/s 132(4), his subsequent statement u/s 131 on 13.01.2014, the assessment orders, the contentions of the appellant and the case law on the issue including that relied upon by the appellant. The basic objection of the appellant is that the reopening of the case; is not based on incriminating documents/evidence unearthed during search. As discussed subsequently in detail in this order; Shri Dharmichand Jain through the businesses in the style of firms and companies where he is partner/director as a group (i) businesses were found with no physical stock of diamond at all, (ii) correspondence or orders, were found not placed by the assessee and his group to the foreign concern from which imports were shown in the books. All this prove that his admission was given when corroborative evidence was unearthed during the course of search. The above observations/evidences are being discussed in detail later in the order. In the light of above, where such evidences pertaining to the appellant was recovered during the course of search at the premises of Shri Dharmichand Jain and other group cases and there was clear admission (even confirmed after 3 months) that the nature of business of Shri Dharmichand Jain, through, various concerns including companies and firms was not as shown in the books but was being done to provide accommodation entries and accommodation to actual importers of diamonds. The rates of commission etc. were also disclosed. All these clinching and corroborative evidences along with the statements given during the search constitute incriminating evidence against the appellant. The partner of the appellant firm had accepted the entire modus operandi during the course of search in statements recorded u/s 132(4). In this case, therefore, there are ample incriminating evidences/documents recovered during the course of search. Even otherwise, the Hon'ble Delhi High Court in the case of AA/s. Nau Nidh Overseas Pvt. Ltd. in ITA No. 58 of 2017 and other cases in its order dated 03.02.2017; 2017-, TIOL-389; has held that statement of a third party recorded during course of search \ proceedings u/s. 132(4), constitutes 'material on record' for purposes of section 153C. In this case, the statements u/s 132(4) admitting the entire modus operandi corroborated with evidences, is of the Partner himself. Therefore, following the judgment this would definitely in itself is incriminating evidence against the appellant at least. This is without prejudice to the clinching and corroborative incriminating evidence found during the course of search discussed above. The reopening u/s 153C is held to be on totally valid grounds. The ground no. 1 of the appeals for A.Yrs. 2008-09 to 2014-15 are therefore, dismissed.
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. 8. All the remaining grounds of appeal for all the years question the additions and changes made to the total income on merits saying that the additions have-been made without any incriminating document or material, the statement u/s 132(4) did not indicate admission of undisclosed income, retraction of statement has been wrongly ignored, claiming that there was no evidence against the appellant, alternatively challenging the quantum of addition made and challenging the passing of order u/s 144, invocation of section 145(3) and asserting that the orders are bad in law on lack of natural justice etc. 8.1 I have already discussed the issue of evidences collected/recovered during the course of search in para 7.2 above. The following evidences (including details of. incriminating evidences found/recovered during the search as discussed above) and pertinent observations are culled out from the facts and circumstances of the case: a) Not a single piece of diamond was found from the different premises of the appellant and group concerns although there was substantial stock as per books of account. The evidence was confronted to Shri Dharmichand Jain (partner of the appellant firm); and only after two days of search starting and on the 2nd day of statement being recorded did he admit (Q. No. 30) that they were only doing paper transactions in various companies and firms where he was partner/director. b) Shri Dharmichand Jain himself, as discussed above; has admitted the entire modus operandi of how he runs the businesses in various concerns controlled by him to show bogus transactions of imports of rough diamonds and sales and actually through these entities helps actual importers to remain benami, provide bogus bills and bogus credits etc, without actually not at all trading in the diamonds as shown in regular account books and income tax returns. c) Shri Dharmichand Jain has admitted it not only during search on 5th Oct. 2013 but has reiterated it again in the statement recorded on 13.01.2014 i.e. after 3 months of the first statement. d) The delivery of diamonds was being taken even by the real beneficiaries/real importers. The fact that the statement cannot be forced is evidenced by the appellant giving the name of actual importers (hidden from record), who according to the appellant using the appellant to make imports outside books of account. Not only Dharmichand Jain suo-moto gave the names of two such parties in reply to Q. No. 33 of statement dated 05.10.2013 (reproduced in the assessment order) although department was not knowing them, as this is not part of regular books of account. e) Although different concerns of the group are claimed real importers, but no e-mail/purchase order, ordering for purchase was found. The appellant's claim that natural justice has not been provided to it is rejected because all the major evidences relied have been collected from them only and they were working collectively together. The appeal against passing of orders u/s. 144 is also not acceptable because the appellant should have at least after being
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. detection of real business, disclosed the actual accounts in every detail which it obviously has failed to do. To sum up, in view of (i) not a carat of diamond being found during search proceedings (ii) admission by Shri Dharmichand Jain, Partner in his statement during search (iii) reiteration of admission by Shri Dharmichand Jain after even 3 months (iv) the detailed statement of Shri Dharmichand Jain on the modus operandi (v) identification of actual beneficiaries of import by Shri Dharmichand Jain himself (vi) no order or correspondence for purchase being found from any of the premises though the concerns were shown as importer of diamonds; I uphold the decision of the AO that the appellant was engaged in providing accommodation entries and importing diamonds on behalf of other parties who wanted to do business outside books of account. Once, the business as per books is proved fictitious and bogus, and the AO holds it as such; automatically his decision to reject the books of account is obvious. The second set of the ground of appeal, disputing the addition contests the working of profit and allowance of 25% for expenses. I find that the rates of providing bogus purchases, bogus loans and imports as admitted during the course of statements by Bhanwarlal Jain where also searches were undertaken and similar modus operandi was found the rates accepted by him are substantially higher. In light of this, where for similar businesses including that of providing of accommodation entries, the rates of commission should generally be similar due to market forces. Even otherwise, the rates applied are already too low, looking to the risk of the appellant where credit purchases (imports) are in its name and the banks would first catch him in case of default. The appellant who is engaged in helping others suppress taxable income etc. does not merit any further relief, looking to the entirety of facts and circumstances discussed above. Once, the gross profits are estimated on the basis of commission rates, the net profit has to be determined. The expenses shown in the books are obviously bogus. For instance, the appellant has been claiming expenses and incomes like exchange rates difference and expenses/commission on sales etc. When the actual business is importing for others and in books credits in the name of exporters stand for months together, naturally the exchange rate difference is not payable by the appellant. In fact, the cash payments from the actual beneficiary of imports are received much earlier. The cash flow generated would definitely be used to guarantee/pay the exporter immediately. In light of the total fictitious natural of transaction shown in books, where actual expenses of paper business can only be very low; allowance of 25% of gross income estimated as expenses as done by the AO is quite lenient and the appellant deserves no further relief. In fact, the total net profit estimated in all the years is such that it leaves no reasonable cause of grievance looking to the huge turnover of accommodation business. As far as, the last ground of appeal in the appeals regarding protective addition of the same income being made in the case of Dharmichand Jain is concerned, the grievance can only be of Shri Dharmichand Jain and not of the appellant. The ground is dismissed. The remaining grounds for all years on merits of addition are therefore, dismissed. The net profit and income as assessed by the AO is therefore, confirmed for A.Yrs. 2008-09 to 2014-15. 9. In the result, the appeals of the assessee for all the years are dismissed.”
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us. 17. In respect of additional ground raised by the assessee, and in respect of merits of the case, the ld Counsel submitted before us written submission, which is reproduced below:
“In this above cases, various assessment years are involved, wherein the assessment was made consequent to search conducted on 03.10.2013 in the case of Shri Dharmichand Jain. In the course of search at his residence, statement of Dharmichand Jain was recorded u/s 132(4) on 04.10.2013. He stated that he is engaged in providing accommodation entries and earned the commission on such arrangement in regard to various concerns in which he is associated namely Maniprabha Impex Pvt. Ltd., Dharam Impex and Kangan Jewels Pvt. Ltd. For A.Y. 2014-15, the assessment was made u/s144 and for other assessment years, the assessment was made u/s153C r.w.s. 144. In other words, notice u/s 153C was issued in all the years except for A.Y. 2014-15. 2. In all the cases, return of income were filed u/s 139(1)/139(4). In some of the cases, assessment under scrutiny were completed originally. In other cases, where the scrutiny assessment were not completed, the time limit for issue of notice u/s 143(2) had already expired. Therefore, for all the assessment years except for A.Y. 2014-15, the assessment has to be treated as completed/unabated. The assessee has given the chart giving the details of date of filing of return of income, issue of notice u/s 153C and expiry of time limit u/s 143(2) and date of assessment made u/s 143(3) if made. 3. For A.Y. 2008-09, in case of Maniprabha Impex Pvt. Ltd. and Dharam Impex, assessee raised additional ground to the effect that issue of notice u/s 153C for this year is not valid. For A.Y. 2014-15, in case of all the assessees viz, Maniprabha Impex Pvt. Ltd., Dharam Impex and Kangan Jewels Pvt. Ltd., assessee took additional ground to the effect that assessment should have been made u/s 153C. All the ground including the additional grounds are discussed as under: Additional Ground regarding validity of assessment made u/s. 153C for A.Y. 2008-09: 4. For A.Y. 2008-09 in the case of Maniprabha Impex Pvt. Ltd. [IT(SS)A No. 306/AHD/2017] and Dharam Impex [IT(SS)A No. 312/AHD/2017] the following additional ground was raised: “On the facts and circumstances of the case as well as law on the subject, the Assessing Officer has erred in issuing notice u/s 153C for the year under consideration as notice u/s 153C can be issued for six years immediately preceding the assessment year in which the search was initiated i.e. 13.01.2015 and assessment for the year under consideration therefore becomes time barred for issue of notice u/s 153C.” FACTS: 5. In this case, notice u/s 153C was issued on 13.01.2015. The satisfaction note was recorded on 13.01.2015. In the satisfaction note, the assessment year was not mentioned. Further, satisfaction note was common for all the years. ARGUMENTS: 6. As per the proviso to section 153C, the date of initiation of search u/s 132 is required to be taken as the date of receiving the books of accounts or documents or assets seized by the assessing officer having jurisdiction over the assessee. It has been held by the courts that the date of recording of satisfaction note is to be taken as date of receiving the books of accounts or documents or assets seized by the assessing officer. As per section 153C, the notice u/s. 153C is required to be issued for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted. So the date of search is to be taken as 13.01.2015 as per the proviso of this section.
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
Accordingly, notice u/s 153C can be issued only for A.Y. 2009-10 to 2014-15 (six assessment years) and not A.Y. 2008-09. The reliance is placed on following decision of courts: CIT vs. RRJ Securities Ltd. - [2015] 62 taxmann.com 391 (Delhi) SSP Aviation Ltd. vs. DCIT – 346 ITR 177 PCIT vs. Sarwar Agency (P.) Ltd. – 397 ITR 400 (Del. HC) Additional Ground regarding validity of assessment made for A.Y. 2014-15: 7. For A.Y. 2014-15, in case of all the three assesseess [IT(SS) No. 293/AHD/2017 & ITA No. 1579- 1580/AHD/2017], the following additional ground was raised: “On the facts and circumstances of the case as well as law on the subject, the Assessing Officer has erred in passing assessment order u/s 144 without issuing notice u/s 153C as the search in the case of assessee is deemed to have been initiated on 13.01.2015 when the satisfaction note was recorded as per first proviso to 153C.” FACTS: 8. For A.Y. 2014-15, no notice u/s 153C was issued and the assessment was made u/s 144 only. ARGUMENTS: 9. As discussed above, the date of search is to be regarded as 13.01.2015 and action u/s 153C can be taken for preceding sex years A.Y. 2009-10 to 2014-15. Accordingly, the assessment made for A.Y. 2014-15 u/s 144 without issuing notice u/s 153C is invalid, particularly when assessing officer made addition on the basis of statement recorded u/s 132(4) and alleged so called materials collected at the time of search. Validity of assessment u/s 153C for A.Y. 2008-09 to 2013-14: 10. For all the assessment years, all the three assessees [IT(SS)A No. 288-293, 306-317/AHD/2017 & ITA No. 1579-1580/AHD/2017] challenged validity of assessment u/s. 153C vide ground no. 1 as under: “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the proceeding u/s. 153C without appreciating the fact that no incriminating material was found during the course of search.” FACTS: 11. The assessing officer has supplied the satisfaction note only in case of Maniprabha Impex Pvt. Ltd. and Dharam Impex. The satisfaction note was not supplied in case of Kangan Jewels Pvt. Ltd. For all the years the satisfaction note was recorded common on 13.01.2015 wherein the assessing officer failed to mention even assessment year. ARGUMENTS: 12. The assessing officer issued notice u/s 153C wherein it was mentioned that search was conducted in the case of assessee. In fact, search was not conducted in case of assessee and search was conducted in case of Dharmichand Jain. Further, in notice u/s. 153C, the reference of statement recorded u/s 132(4) of Shri Dharmichand Jain and collection of materials if any was not mentioned. 13. In the satisfaction note, it was mentioned that during the course of search action in case of Dharmichand Jain, it was revealed that group companies were indulged in giving accommodation entries on the basis of seizure of loose paper and one pendrive. Further it was mentioned that Shri Dharmichand Jain has given statement that they were operating the business of providing accommodation entries through concerns in which he is director or partner. 14. The satisfaction note was not recorded yearwise and further the details of the materials collected by way of loose paper and pendrive were not mentioned. Even the reference of any assessment year was not given in satisfaction note. Even in the assessment order and order of CIT(A), the nature of materials
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
collected were not mentioned. Even at the stage of appeal before Hon’ble Tribunal, the revenue failed to produce any incriminating materials belonging to the assessee. 15. In the satisfaction note, the assessing officer has failed to establish that the documents which were seized have any correlation document-wise with any assessment years. Under Section 158BC the existence of cogent and demonstrative material is germane to the assessing officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BC. Before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is - after such satisfaction is arrived at that the document is handed over to the Assessing Officer of the person to whom the said document "belongs". In the satisfaction note recorded u/s. 153C it was also mentioned that the proceedings u/s 153C were initiated on the basis of statement of Shri Dharmichand Jain without mentioning any incriminating material except loose papers and pendrive. The assessing officer didn’t describe any incriminating material either in the satisfaction note or in the assessment order. The statement cannot be standalone basis without reference to any material discovered during search and seizure operations can empower the assessing officer to frame block assessment u/s 153C. The statement recorded u/s 132(4) can only be basis for block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and seizure. Merely because a satisfaction note was recorded, same could not lead to reach a conclusion that notice under section 153C was justified. 16. Prior to 01.06.2015, the proceedings u/s 153C can be taken only when the books of accounts seized in the course of search of third person belongs to assessee. However, with effect from 01.06.2015, the amendment was made and even when the books of accounts seized do not belong to the assessee, the proceedings u/s 153C can be taken if such books of accounts relates or pertains to assessee. It has been held by the courts that the amendment made u/s 153C w.e.f 01.06.2015, cannot be applied retrospectively. With effect from 01.10.2014, Section 153C was amended and Assessing Officer should also be satisfied that the document seized have bearing on the total income of the assessee. In assessee’s case the satisfaction note was recorded on 13.01.2015 and therefore this amendment is applicable. Accordingly, in the satisfaction note recorded u/s. 153C, assessing officer should have spelled out that the materials recovered from third person belonged to the assessee and they had bearing on the total income of the assessee. No such satisfactions are discriminable from satisfaction note recorded u/s. 153C. In the satisfaction note, it has not been stated that materials seized in the course of search of Dharmichand Jain have bearing on the total income of the assessee. In the satisfaction note it was indicated that action u/s. 153C was taken on the basis of the seizure of loose papers and pendrive. However, assessing officer failed to demonstrate either in the assessment order or the satisfaction note that the materials collected in course of search have bearing on total income of the assessee. The revenue has failed to bring such materials in the appellate proceeding before CIT(A) and Hon’ble Tribunal. In the case of group company belonging to Rajendra Jain named Kriya Impex Pvt. Ltd., the action u/s. 153C was confirmed only on the ground that incriminating materials in the form of email were recovered and accounts belonging to employees of Rajendra Jain were found. Such is not the case with the assessee. 17. In support of the above submissions the reliance is placed on the following decisions of courts : CIT vs. Singhad Technical Education Society [84 taxmann.com 290] (SC) CIT vs. Calcutta Knitwears [362 ITR 673] (SC) ACIT vs. Pepsi Foods (P.) Ltd. – [2018] 89 taxmann.com 10 (SC) Pepsi Foods (P.) Ltd. vs. ACIT – [2014] 52 taxmann.com 220 (Del. HC)
CIT vs. Harjeev Aggarwal [ 70 taxmann.com 95 ] (Del. HC) PCIT vs. Allied Perfumes Pvt. Ltd. [ 124 taxmann.com 358 ](Del. HC) PCIT vs. Meeta Gutgutia [ 82 taxmann.com 287 ](Del. HC) PCIT vs. Index Securities Pvt. Ltd. [ 86 taxmann.com 84 ] (Del. HC)
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
CIT vs. IBC Knowledge Park Pvt. Ltd. [ 69 taxmann.com 108 ](Kar. HC) CIT vs. Shri Ramdas Motor Transport [ 238 ITR 0177 ](A.P. HC) CIT vs. Naresh Kumar Agarwal [ 369 ITR 0171 ](A.P. HC) PCIT vs. Best Infrastructure (India) (P.) Ltd - [2017] 84 taxmann.com 287 (Delhi) Sree Lakshmi Venkateshwara Minerals vs. DCIT - [2021] 123 taxmann.com 255 Trishul Hi-Tech Industries vs. DCIT – [IT(SS) No. 84-86/KOL/2011]
The Ld. CIT(A) confirmed the validity of assessment made u/s 153C also on the ground that the statement u/s 132(4) constituted material on record for purposes of section 153C. He relied on the judgment of Delhi High Court in case of PCIT vs. Nau Nidh Overseas (P.) Ltd. – [2017] 88 taxmann.com 665 (Delhi). However, the decision is distinguishable as in that case cash was seized in the course of search and the director admitted that the cash belonged to assessee company and therefore it was held that it was sufficient material to initiate proceedings u/s. 153C. However, in case of assessee no such asset or incriminating material was found belonging to the assessee representing any income. Against, the assessee has already relied on judgment of Courts in case of CIT vs. Shri Ramdas Motor Transport (supra), CIT vs. Naresh Kumar Agarwal (supra) and PCIT vs. Best Infrastructure (India) (P.) Ltd. (supra). The Ld. CIT(A) observed that the non-finding of physical stock and correspondence of orders constituted materials. However, as per section 153C, there should be finding of any asset or incriminating materials belonging to the assessee in course of search. The statement made u/s 132(4) cannot be sole ground for initiation of proceeding u/s 153C. 19. Further even otherwise, in absence of incriminating materials the assessment is not valid in case of unabated assessment in view of following judgment of high courts: CIT vs Kabul Chawla [380 ITR 573] (Del HC)(SLP Dismissed in SC – 380 ITR (ST) 4) PCIT vs. Kurule Paper Mills P. Ltd. [2016] 380 ITR 64 (Del.HC) – SLP Dismissed in SLP No. 34554 of 2015 PCIT vs Saumya Construction [ 81 taxmann.com 292] (Guj HC) PCIT vs. Star PVG Exports [ 112 taxmann.com 163] (Kar. HC) CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd [58 taxmann.com 78] (Bombay HC) PCIT vs. Delhi International Airport (P.) Ltd. – [2022] 40 taxmann.com 440 (Kar. HC)
Written submission on merits are as follows:
Addition on account of alleged commission income for A.Y. 2008-09 to 2014-15 : 20. On merits, the assessee has taken the following grounds: On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming order passed by Ld. AO u/s 144. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming the rejection of books of account without pointing out any defect in books of accounts. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in not appreciating the fact that assessment order was framed without providing opportunity to cross examine and without furnishing the material and evidences to the appellant inspite of the appellants request, in gross violation of principal of natural justice. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming action of AO of making addition by treating appellants business as fictitious and holding that appellants business as being commission agent and accommodation entry provider only.
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of genuine expenditure and allowed only 25% of commission income as expenditure on ad-hoc basis. 21. It is submitted that Shri Dharmichand Jain retracted his statement recorded at the time of search. The retraction statement was filed on 20.01.2014 which was not rebutted till the passing of assessment order. In the course of assessment proceedings, assessee filed ample evidence that his business of trading in goods was genuine which are as under: Import Invoices verified by Customs department House Air Waybills showing movement of goods Bill of entry furnished before Customs department Details of customs duty paid on imports Export documents verified by Customs department Documents showing movement of goods from India to overseas Insurance documents for goods in transit Kimberley process certificate issued after physical inspection of good Registration certificate issued by Maharashtra and Gujarat Sale Tax Department VAT Audit report along with VAT Challans Import-Export Certificate issued by Director General of Foreign Trade Invoices for purchase made from a government sponsored enterprise Sample Bank Statement showing non-existence of any substantial cash withdrawal 22. In the following cases, the purchases were held to be genuine even when the statement was given by the entry provider that he has given the accommodation entries. The reliance is placed on the following decision of tribunals : DCIT vs. Shri Sourabh Navalkishore Garg [ ITA No. 4130/Mum/2017 ] Shantivijay Jewels Ltd. [ ITA No. 1045/Mum/2016 ] Prabhat Gupta vs. ITO [ ITA No. 277/M/2017 & 797/M/2017 ] Manoj Begani vs. ACIT [ ITA No. 932, 933, 935, 936/Kol/2017 ] M/s. M.B. Jewellers & Sons vs. DCIT [ ITA No. 1/Kol/2017 ] Out of the above cases, in case of Manoj Begani vs. ACIT (supra) and M/s. M.B. Jewellers & Sons vs. DCIT (supra), the additions were made on the basis of statement of Shri Rajendra Jain. 23. On the basis of statement of Dharmichand Jain, action for Income Tax assessment were taken against many persons to whom assessee sold the goods. Shri Dharmichand Jain was called upon to appear in those cases. Shri Dharmichand Jain, in his statement recorded u/s. 131 confirmed the sales made to various parties in their assessment proceedings. 24. It is submitted that assessing officer has estimated commission income on the basis of the statement recorded u/s. 132(4) in case of Dharmichand Jain although no incriminating documents were found indicating the percentage of commission earned by the assessee in providing accommodation entries. Accordingly, no addition can be made on the basis of statement recorded u/s. 132(4) particularly when the statement was subsequently retracted in view of decision of Gujarat High Court in case of CIT vs. Ramanbhai B. Patel [96 CCH 0495](Guj. HC) and Chetnaben J. Shah vs. ITO [79 taxmann.com 328](Guj. HC). Even otherwise, the statement has to be read as a whole and no pick and choose method can be adopted. The revenue cannot blow hot and cold water at the same time. In other words revenue cannot approbate and reprobate at the same time. The reliance is placed on the decision of Gujarat High Court in the case of PCIT vs. Income Tax Settlement Commission [111 taxmann.com 176] and
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
CIT vs. Advance Construction Co. Pvt. Ltd. [275 ITR 30]. Accordingly, without prejudice it is submitted that the commission should be assessed as per the net profit disclosed as per the Profit and Loss A/c. When no unexplained expenditure or unexplained investment was found in the course of search, the income should be estimated by adopting net profit ratio and not gross profit ratio. 25. Further it is submitted that the lower authorities have observed that the assessee group has declared less commission income in providing accommodation entries as compared to Bhanwarlal Jain. However, the story is other way round as assessee declared more commission income as compared to Bhanwarlal Jain. The main difference is of commission on import which assessee declared at 0.2% while Bhanwarlal Jain declared commission income at 0.02%. Accordingly, assessee declared the commission income ten times than Bhanwarlal Jain and this fact is considerable as assessee’s volume is much on imports compared to other items i.e. other items viz. loan. In case of Bhanwarlal Jain, the commission was estimated @ 1% for loan and in case of assessee it was taken @ 0.5% but this is having negligible effect as the loan outstanding in the case of the assessee is very less. Accordingly, Shri Bhanwarlal Jain declared commission on import after considering the expenses on import including Forex loss. Alternatively, it is submitted that the commission income @ 0.02% on import should be taken if expenses are allowed @ 25% as it was allowed in the case of Bhanwarlal Jain. 26. In the case of Bhanwarlal Jain, all the additions on account of commission of controlled concerns were added in his case only. However, in case of Dharmichand Jain, the additions of controlled concerns were made on protective basis which were deleted by CIT(A) and therefore there are separate appeals in case of alleged controlled concerns of Dharmichand Jain. 27. From the above discussion it is clear that the assessing officer has wrongly rejected books of accounts of the assesse on the basis of statement recorded u/s. 132(4) of Dharmichand Jain without furnishing any materials to the assessees. Further, the materials collected in the case of Rajendra Jain if any, cannot be made applicable in case of assessee, as the materials didn’t implicate the name of assesses. Further, the assessees were not allowed to cross examine Shri Rajendra Jain and parties controlled by Rajendra Jain. 28. The assessing officer has given deduction of expenses @ 25%, however, as submitted above and net profit disclosed should be considered as net commission income after incurring expenses which is supported by the statement recorded u/s 132(4) of Dharmichand Jain. Without prejudice, it is submitted that expense should be allowed @ 50% in view of the decision of Tribunals in case of Rajendra P. Jain vs. DCIT [ITA No. 296, 297, 298/Mum/2018]. The lower authorities have not given the further deduction for expenses on the ground that in the case of Dharmichand Jain group, the addition was made less compared to Bhanwarlal Jain group. However, as stated above in case of Bhanwarlal Jain the rate of commission was declared substantially low in case of import. The substantial addition was made in the case of Bhanwarlal Jain as in that case the volume was more. Accordingly, it is submitted alternatively that the expenses should be allowed @ 50% considering the decision of Rajendra P. Jain vs. DCIT cited supra. 29. In view of the above submission, the assessment framed u/s 153C may please be quashed and/or addition in excess of declared income may please be deleted.”
On the other hand, Ld. CIT-DR for the Revenue submitted that search was conducted on 03.10.2013 for which the relevant assessment year is, assessment year 2014-15 and the previous assessment year is 2013-14 would be applicable to the assessee for the year under consideration, therefore prior to assessment year 2013-14, the six assessment years extended up to the assessment year 2008-09. Therefore, assessment year 2008-09 is also covered within the ambit of six previous years. Hence, Ld DR pointed out that assessment year 2008-09 should not
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. be excluded from the purview of the preceding six assessment years. The ld DR also pointed out that satisfaction note recorded by the assessing officer under section 153C is a common satisfaction note and this satisfaction note is in accordance with law, therefore additional ground raised by the assessee may be dismissed.
On merits, Ld. CIT-DR argued that during the assessment proceedings loose papers, data contains in pen drive etc. were incriminating material and the entry recorded in these incriminating material has not been explained by the assessee. The Ld. CIT-DR for the Revenue also pointed out that assessee also did not co- operate during the assessment proceedings, therefore assessment was framed u/s 144 of the Act. The Ld. CIT-DR further pointed out that during the assessment stage, the Assessing Officer has given enough relief to the assessee and also given the deduction in respect of expenses incurred by the assessee, therefore the assessee does not deserve further relief and hence order passed by the Assessing Officer should be confirmed.
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that in additional grounds, the assessee has challenged the validity of assessment under section 153C on account of defective satisfaction- note, stating that satisfaction-note was recorded on 13.01.2015, therefore, assessment year 2008-09 does not fall in the definition of previous six years to make the assessment under section 153C of the Act. In this scenario, first of all, we should examine the satisfaction note, which is reproduced below:
“Performa for recording satisfaction under section 153C (To be filled by the Assessing Officer of the person referred to in section 153A) 1. Name of the Group searched Rajendra Jain Group 2. Name and PAN no of the person referred to in section Dharmichand Jain 153C is proposed PAN ABHPI 0584 C
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
Date of intimation of search in the case of the person 03.10.2013 referred to in section 153C is proposed 4 Name, address and PAN no. of the person in whose case M/s Dharm Impex (AAFFD2692 C) 106, Saryu Chambers, action under section 153C is proposed Jaddakhadi, Mahidharpura,Surat 5. Specific details of the seized material on the basis of which action under section 153C is proposed (a) Nature of seized material Loose paper folder and data contains in pen drive which (money/buillion/jewellery/other valuable article or needs investigation thing/books of account/documents) (b) Description of the seized material (c) Address of premise/place from where such material C-301, Shefield Apartment, Anand Nagar, Opp.Jarimari was seized Garden, C S Road, Dahisar(E ), Mumbai-400 068 (d) Date of seizure of such material 04.10.2013 (e) Particulars of the relevant panchanama Panchnama Dated 05.10.2013 (f) Annexure/Sr.No./Page no. etc.,(particulars to be Anneexure-A & Annex.-A-I specified) 6. Relationship of the person referred in S.No.4 with the As stated in point 7 below person referred to in S.No.2 7. Satisfaction of the Assessing Officer of the person During the course of search action in the case of referred to in section 153A that the seized material Dharmichand Jain Group, it is revealed that group of referred to in S.No. 5 belong to the person referred to in companies has indulged as the groups in giving S.No.4 accommodation entries. The seizure made at place of Dharmichand Jain, C-301,Shefield Apartment, Anand Nagar, Opp. Jarimari Garden, C S Road,,Dahisar (E), Mumbai-400 068 comprises of loose paper folder & one Pen drive which contains details of group companies including details belonging to M/s Maniprabha Impex, Kangan Jewels Pvt. Ltd. and M/s Dharam Impex. Looking at the nature of the transactions, the seized materials carry a clear implication over the income of the assessee. M/s Maniprabha Impex, Kangan Jewels Pvt. Ltd and M/sDharam Impex is shown to be run by Shri Dharmichand Jain. His residence has been covered u/s 132A of the Act. Shri Dharmichand Jain in his statements recorded on oath during the search proceedings, has categorically admitted that they were operating the business of providing accommodation entries through various companies. He is hold position as Director/partner in these concerns, M/s Dharam Impex is one of the firm in which Dharichand Jain has done accommodation entries. This requires detailed investigation. Due to these facts involved in the case, the case requires to be covered with the provisions of section 153C of the Act. 13.01.2015 Sd/-Shashi Bhushan Prasad Asstt. Commissioner of Income-tax Central Circle-4, Surat
We have gone through the above satisfaction note and noted that search was conducted on 03.10.2013 whereas satisfaction note was recorded on 13.01.2015. Therefore, the satisfaction note was recorded by the assessing officer after Fifteen Months and Thirteen days. At this juncture, learned Counsel submitted that satisfaction note has not been recorded within normal period allowed by the Act and rather it has been recorded after Fifteen Months and Thirteen days, and moreover it is combined satisfaction note and in the Income Tax Act there is no concept of combined satisfaction note, therefore such satisfaction note contains
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. several defects and hence assessment framed based on such satisfaction note should be quashed.
The Learned Counsel also argued that since the satisfaction note is recorded on 13.01.2015, which pertains to assessment year 2015-16. Therefore, six previous assessment years for the purpose of assessment under section 153C of the Act, would be assessment years: 2014-15, 2013-14, 2012-13, 2011-12, 2010-11 and 2009-10. Therefore, assessment year 2008-09 should be excluded from the ambit of section 153C of the Act. We find merit in the submission of ld Counsel that period of six years should be reckoned with respect to the date of recording of satisfaction- note and not the date of search. For that reliance can be placed on the Judgment of Hon`ble High Court of Delhi in the case of RRJ Securities Limited 62 taxmann.com 391(Delhi), wherein the Hon`ble Court held as follows: “21. As discussed hereinbefore, once the AO of the searched person is satisfied that the seized assets/documents belong to another person and the said assets/documents have been transferred to the AO of such other person, the proceedings for assessment/reassessment of income of the other person has to proceed in accordance with provisions of Section 153A of the Act. Section 153A requires that where a search has been initiated under Section 132 of the Act, the AO is required to issue notice requiring the noticee to furnish returns of income in respect of six assessment years relevant to the six previous years preceding the previous year in which the search is conducted. As discussed hereinbefore, by virtue of second proviso to Section 153A, the assessment/reassessment pending on the date of initiation of search abate. In the context of proceedings under Section 153C of the Act, the reference to the date of initiation of the search in the second proviso to Section 153A has to be construed as the date on which the AO receives the documents or assets from the AO of the searched person. Thus, by virtue of second proviso to Section 153A of the Act as it applies to proceedings under Section 153C of the Act, the assessment/reassessment pending on the date on which the assets/documents are received by the AO would abate. In respect of such assessments which have abated, the AO would have the jurisdiction to proceed and make an assessment. However, in respect of concluded assessments, the AO would assume jurisdiction to reassess provided that the assets/documents received by the AO represent or indicate any undisclosed income or possibility of any income that may have remained undisclosed in the relevant assessment years. This Court in CIT v. Kabul Chawla [2015] 61 taxmann.com 412 (Delhi) has held that completed assessments could only be interfered with by the AO on the basis of any incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments. This Court had summarized the legal position in respect of Section 153A of the Act as under:—
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. '37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.' 22. The aforesaid principles would be equally applicable to proceedings initiated under Section 153C of the Act as Section 153C(1) of the Act expressly provides that once the AO has received "money, bullion, jewellery or other valuable articles or thing or books of account or documents seized" from the AO of the searched person, he would proceed to assess or reassess the income of the person to whom such assets/books belong in accordance with Section 153A of the Act. 23. In the present case, the Assessee had claimed that the assessments for the concerned assessment years were not pending on the date of recording of satisfaction by the AO and, therefore, would not abate by virtue of the second
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. proviso to Section 153A of the Act. Further, the period of six years would also have to be reckoned with respect to the date of recording of satisfaction note – that is, 8th September, 2010 – and not the date of search. 24. As discussed hereinbefore, in terms of proviso to Section 153C of the Act, a reference to the date of the search under the second proviso to Section 153A of the Act has to be construed as the date of handing over of assets/documents belonging to the Assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said Assessee. Further proceedings, by virtue of Section 153C(1) of the Act, would have to be in accordance with Section 153A of the Act and the reference to the date of search would have to be construed as the reference to the date of recording of satisfaction. It would follow that the six assessment years for which assessments/reassessments could be made under Section 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the Assessee. In this case, it would be the date of the recording of satisfaction under Section 153C of the Act, i.e., 8th September, 2010. In this view, the assessments made in respect of assessment years 2003-04 and 2004-05 would be beyond the period of six assessment years as reckoned with reference to the date of recording of satisfaction by the AO of the searched person. It is contended by the Revenue that the relevant six assessment years would be the assessment years prior to the assessment year relevant to the previous year in which the search was conducted. If this interpretation as canvassed by the Revenue is accepted, it would mean that whereas in case of a person searched, assessments in relation to six previous years preceding the year in which the search takes place can be reopened but in case of any other person, who is not searched but his assets are seized from the searched person, the period for which the assessments could be reopened would be much beyond the period of six years. This is so because the date of handing over of assets/documents of a person, other than the searched person, to the AO would be subsequent to the date of the search. This, in our view, would be contrary to the scheme of Section 153C(1) of the Act, which construes the date of receipt of assets and documents by the AO of the Assessee (other than one searched) as the date of the search on the Assessee. The rationale appears to be that whereas in the case of a searched person the AO of the searched person assumes possession of seized assets/documents on search of the Assessee; the seized assets/documents belonging to a person other than a searched person come into possession of the AO of that person only after the AO of the searched person is satisfied that the assets/documents do not belong to the searched person. Thus, the date on which the AO of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for AY 2003-04 and AY 2004-05 were outside the scope of Section 153C of the Act and the AO had no jurisdiction to make an assessment of the Assessee's income for that year.”
On the identical facts as noted above, again the Hon`ble High Court of Delhi, in the case of Sarwar Agency (P) Limited, 85 taxmann.com 269 (Del), held as follows:
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. “2. The question sought to be urged by the Revenue is whether the ITAT was justified in holding that the notice issued to the Assessee under Section 153 C of the Act for the AY in question, i.e. 2006-07, is without jurisdiction since the said AY is beyond the purview of issuance of notice in terms of the said provision. 3. The facts, in brief, are that a search under Section 132 of the Act took place on 11th November 2010 in the Tinna Group of cases. The documents pertaining to the Assessee were forwarded along with a satisfaction note by the AO of the searched party to the AO of the Assessee on 3rd January 2013. The AO of the Assessee issued notice to the Assessee, which qua the searched party was the 'other person', under Section 153C on 4th January 2013. 4. Sub-section (1) of Section 153 C provides that the assessment or re- assessment of the income of the 'other person' would be in accordance with the provisions of Section 153 A. The first proviso to sub-section (1) of Section 153 C further states that, in case of such other person, the reference to the date of initiation of search in the second proviso to Section 153 A(1) "shall be construed as reference to the date of receiving the books of accounts or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person." 5. In terms of Section 153 A(1)(b) of the Act, the AO shall assess or re- assess the total income of six AYs immediately preceding the AY relevant to the previous year in which the search was conducted. The second proviso to sub-section (1) of Section 153 A of the Act, states that assessment or re- assessment relating to any AY falling within the period of six AYs referred to in the said sub-section pending on the date of initiation of the search under Section 132, would abate. 6. The case of the Revenue is that the first proviso to Section 153C refers only to the second proviso to Section 153A(1) of the Act, which only indicates that any assessment relating to any AY falling within the period of six AYs which is pending as of the initiation of search shall abate. Therefore, the second proviso to Section 153C is also concerned only with the aspect of abatement of pending assessments. According to the Revenue, this makes no difference to the computation of the block of six years preceding the AY relevant to the previous year /in which the search was conducted. In other words, according to the Revenue, the block period for both the searched person and the 'other person' would remain the same notwithstanding that there may be some delay in transmitting the documents recovered during the search which belong or pertain to the 'other person' to the AO of such other person. 7. The case of the Assessee, on the other hand, is that since in the case of the 'other person' the AO issues notice only subsequent to the notices issued under Section 153 A to the searched person, the starting point for computation of the block period would be the date on which, based on the seized documents, notice is issued to the 'other person' under Section 153C of the Act. Thus in the present case, the six year period prior to AY 2012-13 i.e. AY 2007-08 to AY 2012-13. Thus no notice could be issued under Section 153C of the Act to reopen the Assessee's assessment for AY 2006- 07. Reliance is placed on the decision of this Court in CIT v. RRJ Securities Ltd. [2016] 380 ITR 612/[2015] 62 taxmann.com 391 (Delhi) where this very question was examined and answered in favour of the Assessee and against the Revenue.
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. 8. In RRJ Securities (supra), the Court after noticing the decision in SSP Aviation Ltd. v. Dy. CIT [2012] 346 ITR 177/207 Taxman 260/20 taxmann.com 214 (Delhi), held as follows: "21. As discussed hereinbefore, once the AO of the searched person is satisfied that the seized assets/documents belong to another person and the said assets/documents have been transferred to the AO of such other person, the proceedings for assessment/reassessment of income of the other person has to proceed in accordance with provisions of Section 153A of the Act. Section 153 A requires that where a search has been initiated under Section 132 of the Act, the AO is required to issue notice requiring the noticee to furnish returns of income in respect of six assessment years relevant to the six previous years preceding the previous year in which the search is conducted. As discussed hereinbefore, by virtue of second proviso to Section 153A, the assessment/reassessment pending on the date of initiation of search abate. In the context of proceedings under Section 153C of the Act, the reference to the date of initiation of the search in the second proviso to Section 153A has to be construed as the date on which the AO receives the documents or assets from the AO of the searched person. Thus, by virtue of second proviso to Section 153A of the Act as it applies to proceedings under Section 153C of the Act, the assessment/reassessment pending on the date on which the assets/documents are received by the AO would abate. In respect of such assessments which have abated, the AO would have the jurisdiction to proceed and make an assessment. However, in respect of concluded assessments, the AO would assume jurisdiction to reassess provided that the assets/documents received by the AO represent or indicate any undisclosed income or possibility of any income that may have remained undisclosed in the relevant assessment years…… 24. As discussed hereinbefore, in terms of proviso to Section 153C of the Act, a reference to the date of the search under the second proviso to Section 153A of the Act has to be construed as the date of handing over of assets/documents belonging to the Assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said Assessee. Further proceedings, by virtue of Section 153C(1) of the Act, would have to be in accordance with Section 153A of the Act and the reference to the date of search would have to be construed as the reference to the date of recording of satisfaction. It would follow that the six assessment years for which assessments/reassessments could be made under Section 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the Assessee." 9. The said decision in RRJ Securities (supra) has been followed by this Court subsequently in ARN Infrastructure India Ltd. v. Asstt. CIT [2017] 394 ITR 569/81 taxmann.com 260 (Delhi). 10. Mr. Salil Aggarwal, learned counsel for the Assessee, has drawn the attention of the Court to the recent amendment made in Section 153 C of the Act by the Finance Act, 2017 with effect from 1st April 2017. This amendment in effect states that the block period for the searched person as well as the 'other person' would be
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. the same six AYs immediately preceding the year of search. This amendment is prospective. 11. Mr. Ashok Manchanda, learned Senior Standing counsel for the Appellant, sought to pursue this Court to reconsider its view in RRJ Securities (supra). The Court declines to do so for more than one reason. First, for reasons best known to it, the Revenue has not challenged the decision of this Court in RRJ Securities (supra) in the Supreme Court. The said decision has been consistently followed by the authorities under this Court as well as by this court. Thirdly, the recent amendment to Section 153 C(1) of the Act states for the first time that for both the searched person and the other person the period of reassessment would be six AYs preceding the year of search. The said amendment is prospective. 12. Consequently, no substantial question of law arises from the impugned order of the ITAT. The appeal is, accordingly, dismissed.”
Respectfully following the judgment of Hon`ble High Court of Delhi in the case of RRJ Securities Limited (Supra) and in the case of Sarwar Agency (P) Limited (supra), we quash the assessment order framed by the Assessing Officer under section 144 r.w.s. 153C of the Act for assessment year 2008-09 in case of M/s Maniprabha Impex Pvt. Ltd. and in case of M/s Dharam Impex.
In the result, appeal filed by the assessee for assessment year 2008-09, in IT(SS)A No.306/Ahd/2017 in case of M/s Maniprabha Impex Pvt. Ltd. and in IT(SS)A No.312/Ahd/2017 in case of M/s Dharam Impex, are allowed.
Other arguments made by ld Counsel based on the satisfaction- note, such as satisfaction- note, is recorded by AO after Fifteen Months and Thirteen days, combined satisfaction -note is invalid, and there is no incriminating material found during the search etc. are hereby rejected. As we have noted that during the course of search action in the case of Dharmichand Jain Group, it is revealed that group of companies has indulged in giving accommodation entries. The seizure made at place of Dharmichand Jain, C-301, Shefield Apartment, Anand Nagar, Opp. Jarimari Garden, C S Road, Dahisar (E), Mumbai-400 068 comprises of loose paper folder & one Pen drive which contains details of group companies including details belonging to M/s Maniprabha Impex, Kangan Jewels Pvt. Ltd. and M/s Dharam Impex. Looking at the nature of the transactions, the seized
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. materials carry a clear implication over the income of the assessee. We note that loose papers and pen drive are incriminating material. There is no prohibition in the Act that a combined satisfaction-note should not be recorded. Moreover, the satisfaction- note, is recorded by Assessing Officer after fifteen months and thirteen days, which is normal time the Department takes to issue satisfaction- note, hence we do not find merit in these arguments of ld Counsel, therefore these contentions of the ld Counsel are not acceptable.
The next grievance of the assessee is that notice u/s 153C r.w.s. 153A of the Act is defective notice therefore all the proceedings initiated against these assessees` may be quashed. We reproduce such notice as follows:
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. 28.With help of the above notice u/s 153C r.w.s.153A of the Act, the ld Counsel states that search u/s 132(1) was not conducted in assessee’s case as on 03.10.2013, whereas the above notice says that search was conducted in assessee`s case, thus the Department is not aware about the basic facts of the assessee`s case, hence, the contents of the notice u/s 153C r.w.s.153A of the Act, is not in accordance with law, therefore all proceedings initiated against these assessees` may be quashed.
On the other hand, ld CIT-DR argued that this is typographical error in issuing notice 153C r.w.s.153A of the Act. The assessee has participated in assessment proceedings under section 153C of the Act during the assessment stage. The assessee has also participated in appellate proceedings and never objected the notice, that is, the assessee accepted the notice.
We have considered arguments of both sides and noted that there is typographical error in issuing notice 153C r.w.s.153A of the Act. We note that assessee has neither objected the notice during assessment proceedings nor during appellate proceedings. The assessee participated in the proceedings before lower authorities therefore contention raised by the assessee is not acceptable.
Now Coming to the merits of the case, we note that assessee is not doing actual business and earned only commission income on sales, import and loan entry. Hence, the books of account maintained by the assessee is not reliable and rejected u/s 145(3) of the Act by the Assessing Officer and then after Assessing Officer passed order u/s 144 of Act, on best judged assessment basis. The assessee is doing import on behalf of client who is "not identified by the assessee" therefore it was held by the Assessing Officer that all expenses like exchange loss, VAT payment, octroi payment, custom duties and all statutory expenses are also met by such client on whose behalf the goods are imported. Finally, the Assessing Officer made addition on account of commission on total imports, local sales, loan entries, as follows:
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
Sales Amount Rate of commission Commission income Total turnover 60,27,08,000/- Total import 13,63,50,150/- Total turnover 44,63,30,059/- @ 0.02% 89,266/- (excluding import & group turnover) Import made 13,63,50,150/- @ 0.20% 2,72,700/- Loan outstanding at year end 2,84,91,894/- @ 0.50% 1,42,459/- Total commission income earned 5,04,425/- Deduction of expenses of 25% is given for paper transactions & related cos as the such. 1,26,106/- Income assessed 3,78,319/-
Thus, as per the above working, we note that Assessing Officer also allowed deduction of expenses at the rate of 25% for paper transactions and related costs, hence we note that assessing officer passed reasoned and speaking order therefore assessee does not deserve further relief, therefore, we dismiss all the appeals of these assessees` on merit.
On the identical facts, on merits the issue is covered against the assessee by the Judgment of the Coordinate Bench in the case of Sh Rajendra Sohan Lal Jain, in IT(SS)A No. 294 to 299/AHD/2017 (AY 2008-09 to 2014-15) and ITA No.1577/AHD/2017, order dated 26.11.2021, wherein the coordinate Bench held as follows:
“12. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. We have also perused all the documents placed on record by the assessee. We have also deliberated on the various case laws relied by the ld. AR for the assessee. We find that in Ground No. 1, the assessee has challenged the validity of search action carried out under section 132 and upholding the action of A.O. in making assessment under section 144 rws 153A, however, during the submissions no specific submissions was made, therefore, the corresponding ground No.1 of appeal is treated as not pressed and dismissed as such. 13.Now adverting to the Ground No. 2 to 5 which relates to the additions of commission income that such additions are not based on incriminating evidence. A search action was carried out by the revenue at the assessee group on 03.10.2013, during the search action the statement of Rajinder Jain, Dharmi Chand Jain and Sanjay Chowdhary was recorded. Consequent on the search action and evidences gathered during search and post search action, notice under section 153A was served on the assessee to file return of income. The assessee filed return in response to the said notice, but no additional income was offered. The assessing officer after serving statutory notices proceeded for assessment. During
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
the assessment the assessing officer referred relevant part of the statement of assessee and diagram of modus operandi of business operation which was prepared during the search action, as followed by assessee and his group while making the business of accommodation entry. The assessing officer further noted that the statement of Sachin Pariekh proprietor of Arihant Export, director of Karnawat Impex Pvt Ltd & Moulimani Impex, Manish Jain (prop of Kalash Enterprises, Director of Kriya Impex Pvt Ltd and Karnawat Impex Pvt Ltd.) and Anoop Jain (Prop of Adi Impex) was recorded during search. The Assessing Officer (AO) on the basis of statement of Sachin Parikh, Manish Jain and Anoop Jain in wherein they admitted that all they were working on remuneration with Rajinder Kumar Jain (assessee). The AO also held that during recording statement of assessee, in Question No. 15, the assessee was asked to explain the modus operandi of his business. The AO prepared the diagram of modus operandi disclosed by the assessee. The AO on the basis of incriminating material gathered during the search action and on the basis of statement of Rajendra Jain and his associates held that all the business concerns of the assessee were merely doing paper transaction, instead of carrying any real business, those concern were doing of maintaining ‘books of accounts’ and do not carry any actual or physical business of diamonds. It was held by AO that the actual importers of rough diamonds approach assessee to import their diamonds through his group and on receipt of consignment, the real importer get the delivery of diamonds after clearance from CHA (clearance house agent). The books of stock of rough diamonds have been converted by assessee group to cut and polished diamonds through commission companies or through name landing concern, issues bill of rough diamonds to local purchasers and show purchase of polished diamonds from them. On receipt of sale proceed; this group makes import remittance at the request of importer. Further, the AO on the basis of discloser of assessee, evidences of e-mails and other material which was incriminating material gathered during the search held that the assessee is entry provider as stated by him in his statement recorded during the search and received commission @0.20% of bill amount of import and commission @ 0.50% on loan transactions. The AO worked out the total disallowance of Rs.24,54,136/- as a commission income and after granting deduction of expenses @ 25% on such addition made addition of Rs.18,40,602/- in the following way; Sales Amount Rate of commission, Commission income Total turnover 2,43,23,94,646/- Total Import 86,88,19,534/- Total turn over 1,47,37,83,599/- @0.02% 2,94,757/- (Excluding import & group turnover) Import made 89,88,19,534/- @0.20% 17,37,639/- Loan outstanding at 8,43,48,087/- @0.50% 4,21,740/- year end Total commission 24,54,136/- income earned Deduction of expenses of 25% is given for paper transactions & 6,13,534/- related cost as the such Income Assessed 18,40,602/-
14.Though, the AO also made various protective additions of income assessed in assessee’s group concern, however, all those protective additions were deleted by
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. the ld CIT(A). No further appeal is filed by revenue against such order in deleting the protective additions. 15.The Ld. CIT(A) confirmed the additions of commission income on export as well as on unsecured loan. The ld CIT(A) while confirming the order of the assessing officer recorded that that the basic objection of the assessee that his admissions of doing only paper business of trading of diamonds, in providing accommodation entry; is not correct and not based on incriminating document recovered in search action. The ld CIT(A) noted that assessee is Director in various companies/partners in various firms and also proprietor of a firm, the business of all firms and companies are controlled by the assessee. During the search no physical stock of diamonds was found, there were numerous e-mails including some e-mail found and seized during search clearly proved that the real beneficiary of importer of diamonds were different then the books, there were also e-mails which prove that the person wanting accommodation entry were approaching the assessee and his group, the correspondence of orders were found not placed by the assessee and his group to the foreign parties. Besides, books of account of various concerns was maintained by assessee, which the assessee himself said being run by him in the name of various persons, which he able to get them to his residence from Surat, during the search though Sachin Parikh, who is his accomplice. A pen drive containing accounts from various concerns including those where Rajendra Jain as per ownership had no interest was also provided by the assessee. All these facts and evidence clearly prove with the corroborative evidence recovered during the search action that assessee was indulging in providing accommodation entry. All these aforesaid evidence and corroborative facts found during the search are incriminating material. The ld CIT(A) also recorded that not a single piece of diamond found during the search action. Further, from the admission of assessee, Sachin Pareek and Surendra Jain in their statement and identification of actual beneficiary of import and delivery of diamonds by actual beneficiary and e-mail found to actual beneficiary, the ld CIT(A) concluded that assessee and his group was providing accommodation entry. The ld CIT(A) further concluded that once the business as per books is proved fictitious and bogus, the action of AO in rejecting the books is obvious. On the ground/ grievance of the assessee on additions of commission and allowance of 25% expenses the ld CIT(A) concluded that the addition made by AO is on lower side comparative to the addition in case of Bhanwar Lal Jain, who was also providing similar accommodation entry with similar modus operandi. The ld CIT(A) further held that once books are rejected, the profit is to be estimated on the basis of commission rates and net profit is to be determined. On the grievance of assessee of exchange rate difference, the ld CIT(A) held that when the actual business is importing for others and in the books credit in the name of exporters (other beneficiary), the exchange rate difference is not payable by the assessee and rejected the ground raised by the assessee. 16.Before us, the ld AR for the assessee basically made two fold submissions that no incriminating material/ evidence was recovered during the course of search and that the assessee retracted from his statement recorded by the search party and the assessee was doing real business and not engaged in providing accommodation entry. We find that during the search action more than sufficient incriminating evidence was found, which is also supported with the corroborative evidence found in the form of e-mails and other evidence in the form of books of
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. account recovered from the pen drive, which itself is incriminating evidence against the assessee. We further noted the assessee in his retraction statement has not explained the material evidence found in the form of e-mail, from his e-mail account, his background history as to how he entered in the this particular business of providing entry, which he himself disclosed during the search action that he learnt all this business module of providing accommodation entry from his ex-employer namely Ratanlal Jain. The said retraction is filed for the first time before AO after gap of 12 months period. The reliance in case Manoj Begani Vs ACIT (supra), passed by Kolkata Tribunal which is case of beneficiary of the alleged accommodation entry from Rajendra Jain, is not helpful to the assessee. Here in the present case, there is clear admissions of the assessee about the entire business affair carried out by him with his associate for providing bogus entry, mere obitor in case of beneficiary by the Coordinate bench, will not absolve the assessee from his own admission. The finding of Tribunal in Manoj Begani vs. ACIT(supra) is based on the facts and evidences produced by that assessee. Therefore, in view of the abovesaid discussions, we are in full agreement with the finding of ld CIT(A) that once the books are rejected the profit is to be estimated on the basis of commission rates and net profit is to be determined. We also affirms the finding of ld CIT(A) that that when the actual business of assessee was importing goods for others and in the books credit in the name of exporters, thus exchange rate difference is not payable by the assessee and the assessee is not eligible for deduction of such exchange rate fluctuation. Even otherwise, no evidence is filed by the assessee on record to prove the fact that the assessee entered into hedging contract with the Banker, the evidence found in the form of e- mail and other evidences show the facts otherwise. Therefore, the submissions made by the assessee do not inspire confidence. None of the case laws relied by the ld AR for the assessee is helpful to the assessee as there was sufficient incriminating material seized during the search action on the assessee on the basis of which it is clearly proved that the assessee is in the business of entry provider. Therefore, we do not find any merit in the grounds No. 2 to 5 raised by the assessee, which we dismissed. 17.Ground No. 6 relates to alternative and without prejudice ground that the alleged commissions has already included by the assessee in his sales transaction. Considering the facts that the lower authority have categorically held that the assessee was not doing any genuine business transactions and was engaged in providing accommodation entry, books of the assessee was rejected and only very meager rate of commission income was added to the total income of the assessee, which we have already affirmed. If for the sake of assuming it is considered that the assessee was doing genuine business, thus, keeping in view of volume of transactions in his bank account, the income of assessee would be estimated many fold comparative to the commission income added by the AO. Thus, the alternative ground of appeal is also rejected. 18.Ground No. 7 relates to rejection of books of accounts and ground No. 8 relates to expenses including foreign exchanges expenses, we find that the grievances of the assessee raised in these grounds of appeal has already been discussed in ground No. 3 to 5, therefore, needs no further adjudication. In the result all the grounds of appeal raised by the assessee are rejected.
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors. 19.In the result, the appeal of the assessee for AY 2008-09 in ITA No. 294/SRT/2021 is dismissed.
Considering the fact that we have dismissed the appeal for AY 2008-09, the remaining appeals for AY 2009-10 to 2014-15, are also dismissed with similar observation. No order as to cost.”
Respectfully following the judgment of the Coordinate Bench in the case of Sh Rajendra Sohan Lal Jain (supra), we dismiss appeal of the assessee.
We have adjudicated the issue on mertits taking into account the facts narrated in IT(SS)A No.312/AHD/2017. The facts are identical and similar, on merits, in other remaining appeals of assessee, therefore, our observations made in IT(SS)A No.312/AHD/2017, shall apply mutatis mutandis to the aforesaid other appeals of assessees, on merits. For the parity of reasons, we dismiss other appeals of the assessees, on merit in terms of directions noted in IT(SS)A No.312/AHD/2017 (supra).
In the result, appeals filed by the assessees (M/s Kanagan Jewells Pvt. Ltd.) in IT(SS)A Nos. 288 to 293/Ahd/2017, IT(SS)A No.307 to 311/Ahd/2017 and ITA No.1579/Ahd/2017 (M/s Maniprabha Impex Pvt. Ltd.); IT(SS)A No.313 to 317/Ahd/2017 and ITA No.1580/Ahd/2017 (M/s Dharam Impex) are dismissed.
In combined result, IT(SS)A No.306/AHD/2017 and IT(SS)A No.312/AHD/2017 of assessee’s appeals are allowed whereas remaining eighteen (18) appeals of assessee are dismissed. A copy of the instant common order be placed in the respective case file(s). Order is pronounced on 29/08/2022 by placing result on Notice Board.
Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat �दनांक/ Date: 29/08/2022 Dkp Outsourcing Sr.P.S
IT(SS)A.288-293, 306-311, 312-317/Ahd/17, ITA No. 1579-1580/Ahd/17/AYs.2008-09 to 2014-15 Kangan Jewels Pvt. Ltd. & Ors.
Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order
// True Copy // Sr. PS/ PS /Assistant Registrar/ ITAT, Surat