DCIT, CIRCLE-1(1)(1), SURAT vs. DIVA DIAMONDS PVT. LTD, SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRIPAWAN SINGH, JM &DR. A.L.SAINI, AM आयकर अपीलसं./ITA No.128/SRT/2020 (�नधा�रणवष� / Assessment Years: (2014-15) (Virtual Court Hearing) Deputy Commissioner of Diva Diamonds Pvt.Ltd., Income-tax, Circle-1(1)(1), 302, Gokul Building, Vs. Mahidharpura, Pipla Sherry, 1st Room No.108, Floor, Surat-395007 Aayakar Bhavan, Majura Gate, Surat-395001 �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AADCD 1389 H (Appellant) (Respondent) Cross Objection No.13/SRT/2020 [Arising in ITA No.128/SRT/2020] (�नधा�रणवष� / Assessment Years: (2014-15) Diva Diamonds Pvt.Ltd., Deputy Commissioner of 302, Gokul Building, Income-tax, Circle-1(1)(1), Vs. Mahidharpura, Pipla Sherry, 1st Room No.108, Floor, Surat-395007 Aayakar Bhavan, Majura Gate, Surat-395001 �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AADCD 1389 H (Applicant) (Respondent) आयकर अपीलसं./ITA No.313/SRT/2019 (�नधा�रणवष� / Assessment Years: (2014-15) Diva Diamonds Pvt. Ltd., Principal CIT-1,Surat 1st 302, Gokul Building, Room No.123, Floor, Vs. Mahidharpura, Pipla Sherry, Aayakar Bhavan, Majura Surat-395007 Gate, Surat-395001 �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AADCD 1389 H (Appellant) (Respondent)

Assessee by Shri Himanshu Gandhi, CA Respondent by Shri H. P. Meena, CIT(DR) Date of Hearing 27.06.2022 Date of Pronouncement 14.07.2022

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 आदेश / O R D E R PER DR. A.L. SAINI, AM: This bunch of three appeals pertaining to single assessee for Assessment Year (AY) 2014-15. In ITA No.128/SRT/2020, the Revenue has filed the appeal, and assessee is in Cross-Objection in C.O. No.13/SRT/2020. In ITA No.313/SRT/2019, the assessee has filed an appeal against the order of Ld. Principal Commissioner of Income-tax, Surat dated 22.03.2019 u/s 263 of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’).

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 21.11.2016 furnished the ledger account in respect of nine creditors. In order to verify the genuineness of purchase, summons were issued by assessing officer on 16.12.2016 to Surat based seven parties namely (i) Vardhaman Trading, (ii) Sahil Enterprises (iii) Mahak Enterprise (iv) Sparsh Impex (v) Arihant Exports (vi) Yatin Enterprise (vii) Vatsal Enterprise. The Inspector was deputed to serve these summons to the concerned parties. Then the Inspector so appointed has reported to the assessing officer that out of the seven parties against whom summons were issued, he was able to serve only one summon to the party namely, M/s Vatsal Enterprise, Surat. Remaining summons were not served due to various reasons. Later on, assessing officer has also issued notice to these seven parties at the below given address for personal attendance on 21.12.2016. Sr Name of the party Address No 1 Vardhaman Trading Shop No 2/3,Vardhman Park, Amroli, Surat 2 Sahil Enterprises 13-14, Vardhaman park-A, New Kosad Road, Amro 3 Mahak Enterprise 9, Bagar Faliya, ModiTekra, Nana Varachha, Surat 4 Sparsh Impex Office No. 112, New DETC Building, Hath Faliya, Haripura, Surat 5 Arihant Exports Office No. 112, New DTC Building, Hath Faliya, Haripura, 6 Yatin Enterprise B-32, Gokul Building, Pipla Sheri, Mahidharpura, Surat 7 Vatsal Enterprise 13, Vujay Nagar, Bh. Harji Nagar, Udhna, Surat

Finally, the assessing officer held that genuineness of these seven parties has not been proved by assessee. SN Name of the party Amount 1 Vardhman Trading 86,78,072 2 Sahil Enterprises 1,13,905 3 Mahak Enterprise 1,22,320 4 Sparsh Impex 5,00,52,671 5 Arhant Exports 5,00,57,441 6 Yatin Enterprises 52,03,383 7 Vatsal Enterprises 5,04,950 11,47,32,742

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15

Therefore, assessing officer made addition of Rs.11,47,32,742/- under section 68 of the Act.

“8.8 In interest of principles of uniformity and consistency the same decision is taken in the instant appeal. The AR has also raised this as alternative plea. Accordingly, a disallowance of 5% of impugned unverified purchases of Rs.14,56,72,642/- is made. The disallowance amounts to Rs.73,28,630/-. The grounds of appeal are partly allowed.”

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 five parties the addition should not sustain @6% of bogus purchases. We do not agree with ld Counsel`s stand, because all remaining five parties are also engaged in bogus purchases/sales, hence the issue under consideration is squarely covered by the decision of Co-ordinate Bench of this Tribunal in the case of ITO Ward- 3(1)(5), Surat vs. Pankaj K. Choudhary & Otrs. For A.Y. 2007-08 in ITA No.1152/SRT/2017 dated 27.09.2021, wherein the Co-ordinate Bench of this Tribunal has inter alia observed as follows: “4. Brief facts of the assessee that the assessee is proprietor of Parvati Exports and engaged in the business of diamond. The assessee filed his return of income for the A.Y. 2007-08 on 26.09.2007 declaring total income of Rs.1,81,840/-. Scrutiny assessment for this assessment year was competed under section 143(3) on 10.03.2009 determining the total income of Rs.6,50,490/-. Thereafter, the case of assessee was reopened under section 147 of the Act. Notice under section 148 of the Act was issued on 29.03.2014 served on 31.03.2014. The case was reopened on the basis of information received from DGIT(Investigation) Mumbai. In the information received from Investigation Wing, Mumbai it was informed that a search and seizure action was carried out by Investigation wing-Mumbai on Bhanwarlal Jain Group on 03.10.2013, which resulted in collection of evidence that Bhanwarlal Jain, his sons Rajesh and Manish were operating certain benami concerns in the name of their employees and staff for providing bogus accommodation entries of unsecured loans, sale and purchase of different kinds of material. It was unearth that said Bhanwarlal Jain Group provided accommodation entries of Rs. 25,000 crore. The statement of Bhanwarlal Jain was recorded under section 132(4) of the Act, wherein he had admitted that his family members are managing various entities which are providing accommodation entries. During the course of search, blank cheque book signed by dummy partners / directors /proprietor of entities were found and seized. It was informed that assessee is one of the beneficiaries of bogus purchase form three following entities managed by Bhanwarlal Jain Group. The assessee has shown following purchased from the said parties: Name of the Party Amount Parvati Export 2,00,06,398/- Mahalaxmi Gems Pvt Ltd 2,28,37,445/- Mayur Export 5,56,500/- 4,34,00,343/-

5.On the basis of such information, the Assessing Officer (AO) formed opinion that income of the assessee of Rs.4.34 crore has escaped from assessment and that he was satisfied that it is a fit case for reopening under section 147 of the Act. The assessee in response to notice under section 148, filed his reply dated 28.04.2014, stating therein that return of income filed on 26.09.2007 may be treated return in response to notice under section 148 of the Act. The assessee demanded copy of reasons recorded. The copy of reasons recorded was provided to the assessee. The assessee filed his written objection on 18.12.2014. In the objection, the assessee stated that information received by AO is general in nature with no evidentiary value. In the objection, the assessee stated that it is not disclosed that the Parvati Exports, Mahalaxmi Gems Pvt. Ltd and Mayur Exports are related to Bhanwarlal Jain Group. Bhanwarlal Jain has no connection with all three concerns. The assessee has never made any transaction with Bhanwarlal Jain Group. The assessee has shown purchases in the Income Tax Return for the A.Y. 2007-08 in Profit and Loss Account which includes purchase from said

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 concerns and thus fully disclosed in the return of income and there was no escapement of income for the assessment year under consideration. The assessee also referred certain case laws in its objections. The objection of assessee was dispose off by AO vide separate order dated 09.02.2015 wherein the objection of assessee was rejected. The AO after rejection of objection proceeded for assessment. 6.The AO issued show cause notice dated 13.03.2015, as to why the purchases shown from three entities should not be added to the income of assessee. The extract of notice is referred in para 5 of the assessment order. The assessee filed his reply dated 19.03.2015. The assessee along with its reply furnished confirmation of parties, purchase bill, bank statements, stock register and copy of ITR of purchased parties. The assessee claimed that all transactions were routed through banking channel and that there is no proof that assessee received cash against the cheque issued for purchase. The explanation furnished by the assessee was not accepted by the AO. The AO concluded that mere transaction routed through banking channel is not sufficient evidence. The AO by relying upon the report of Investigation Wing of Bhanwarlal Jain Group made addition of 100% of the purchases shown from all three entities. 7.Aggrieved by the 100% addition of impugned purchases in the assessment order, the assessee filed appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee challenged the validity of reopening as well as additions on merit. The assessee filed detailed written submission. The submission of assessee is recorded in para 7 of the order of ld.CIT(A). In the submission, the assessee explained that AO has not mentioned in the reasons recorded as well as in the assessment order, if he has taken prior approval of higher authorities as required under section 151 of the Act. Therefore, reopening of assessment under section 147/148 of the Act is void and need to be quashed. No independent enquiry is conducted by AO before issuing notice under section 148 of the Act. The AO purely acted on the information received from the Investigation Wing. The AO was required to form his own opinion that income has escaped assessment. The AO has not applied his mind to the information the basis and the material of the so-called information. The AO acted on vague information. During the original assessment, the assessee furnished all details related to the transactions of all three concern. The AO has no new material or information for reopening. The assessee disclosed true and material things and the return of income and there is no escapement of income of the assessee. The re-opening of the assessment is based on third party information, which was recorded during the search action in their places. The initiation under section 148 of the Act is bad in law being based on statement of third party. The AO has not mentioned any tangible material to prove his contention. On addition, the assessee submitted that he has furnished complete evidentiary proof of purchase consisting of account information of Parvati Exports, Mahalaxmi Gems Pvt. Ltd and Mayur Exports. The copy of purchase bill, one to one mapping and specific sale, stock register, bank statement and ITR acknowledgment of parties were filed before AO. The assessee reiterated that he has not dealt with Bhanwarlal Jai Group and he does not know him as far as transactions of purchase of goods are concerned. The assessee is not aware in which capacity Bhanwarlal Jain is connected with Parvati Exports, Mahalaxmi Gems Pvt. Ltd and Mayur Exports and not knows how he was authorised to give statement on their behalf. There was no corroborative evidence that assessee received accommodation entry. The AO solely relied upon the statement of Bhanwarlal Jain. The assessee stated that the assessee has not received back any cash against the purchase, no corroborative evidence was provided by the AO. The goods purchased from the said parties has been subsequently sold and quantitative tally thereof given in the Tax Audit report which tallies with the books of accounts. Once the sales are accepted, the purchase cannot be doubted. The assessee is maintaining purchase register, sales register, stock register, ledger, day book, bank book and no defects or irregularity was found are noted by the auditors. The statement of third party cannot be relied. The AO disregarded the evidences provided by assessee. The assessee again furnished all the evidences as

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 furnished before the AO and reiterated that he is engaged in the business of import, export, trading of cut& polished and rough diamond. The statement of Bhanwarlal Jain was not provided to the assessee. 8.The assessee also relied upon certain case laws as recorded by the ld.CIT(A). The ld.CIT(A) after considering the submission of assessee on the validity of reopening of the assessment held that the assessee is beneficiary of accommodation entry, the entry operator admitted before Investigation Wing about the accommodation entry that he is providing bogus entries to many persons. On the basis of such report, the AO had reason to believe that income has escaped assessment. The ld.CIT(A) held that on examination of record, he noted that AO relied on the report of Investigation Wing without furnishing copy of material relied upon to the assessee. The ld.CIT(A) concluded that in holding assessment as invalid for the above reason without going into merit would be amount to gave undue benefit to the assessee for technical mistake or omission by AO and the principle of equity do not allow this, without considering the grounds on merit. 9. On merit, the ld.CIT(A) after discussing the submission of assessee held that AO has not discussed about any details of books of accounts, documents, stock register produced by assessee during the assessment. The AO neither examined nor found any defect in the document to discredit the same. The assessee has produced day to day stock register, details of purchase and sale. The purchases made during the year are sold during the year as seen from the trading account. If the impugned purchases are treated as bogus, then the stock in hand will become negative from 26.06.2006 onwards and no sale is possible in absence of purchases. The AO relied on the statement of Bhanwarlal Jain recorded by Investigation Wing against, copy of purchase bill, copy of bank statement, showing payment, day to day stock register, incoming and outgoing diamonds and daily stock tally, confirmation of the impugned parties from whom the said purchases has been made, thus, the assessee practically furnished all possible evidences in support of his claim for purchases. Moreover all the payment are made by bank account. The AO has made no comments about these documentary evidences. On the aforesaid observation, the ld.CIT(A) concluded that assessment order suffer from incomplete investigation, lack of marshalling of all relevant facts and procedural loopholes. Similarly, the ld.CIT(A)also observed that there is no denying circumstances under which statement were made by Bhanwarlal Jain and the elaborate modus-operandi unearthed by Investigation Wing, Mumbai, which has created sufficient suspicion regarding the purchase made by the assessee. The said parties are assessed with Central Circle, Mumbai where they are treated as “entry provider” and assessed accordingly. 10.The ld.CIT(A) after referring the decision of Tribunal in Bholanath Poly Fab Private Limited in ITA No.137/AHD/2009 dated 26.07.2011 wherein the addition was sustained to the extent of 12%. The ldCIT(A) by following the observation of order of Tribunal in Bholanath Polyfab Pvt. Ltd.(supra), the ld.CIT(A) held that the assessee may have made purchases from elsewhere and obtained the bills from impugned supplier to inflate Gross Profit Rate. The ldCIT(A) after considering the overall facts, submissions of the assessee and evidences produced by assessee, concluded that the 100% disallowance of purchase is not justified. The ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. reported in [2014] 11 TMI 812 (Guj) (Tax Appeal No.200 of 2003 dated 07.11.2014). The ld.CIT(A) compared the fact of the present case, with the facts in case of Mayank Diamonds (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The AO in said case made disallowance of entire bogus purchase. The ld.CIT(A) dismissed the appeal, however, the Tribunal gave partial relief to the assessee directing and sustained the addition @12%. And on further appeal before Hon'ble High Court, the disallowance was sustained at Gross Profit Rate of 5%, which is average rate of profit in industry. The ld.CIT(A) further held that in some other similar cases though he has sustain 5% of Gross Profit Rate considering the fact that where Gross Profit shown by assessee is more than 5%. However, in the present

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 case, the assessee has merely shown Gross Profit Rate only at 0.78% of turnover, accordingly, the ld.CIT(A) was of the view that disallowance of 12.5% of impugned purchases/bogus purchases would be reasonable to meet the end of justice, hence the disallowance was restricted to 12.5% of the impugned purchase. 11.Aggrieved by the order of ld.CIT(A), both the parties have filed cross appeals. The assessee has challenged the validity of reopening as well as sustaining the addition to the extent of 12.5% only. Likewise, the Revenue has assailed the order for sustaining addition to the extent of 12.5% only. We have noticed that there is typing mistake in the ground no. 2 of revenue’s appeal wherein the assessing officer has mentioned the additions of ‘5%’ instead of ‘12.5%’. 12.We have heard the submission of ld.CIT-DR for the Revenue and the ld.Authorised Representative(AR) of the assessee. We have also gone through the various documentary evidences furnished by assessee. The ld.CIT-DR for the Revenue supported the order of AO. The ld.CIT-DR submits that Investigation Wing, Mumbai made a search on Bhanwarlal Jain Group. During the search and after search, the Investigation Wing made a thorough investigation and concluded that Bhanwarlal Jain Group and his associates including his sons were indulging in managing about70benami concerns. The benami concerns were engaged in providing accommodation entries. The assessee is one of the beneficiaries of such accommodation entries. In the transaction of accommodation entries, the documentary evidences are created in such a way, so that the bogus transaction is looks like genuine transaction. In bogus transaction, the fabricated evidences are always maintained perfectly. The assessee has obtained accommodation entry only to inflate the expenses and to reduce the ultimate profit. No stocks of diamonds were found at the time of search on Bhanwarlal Jain Group. The assessee has shown a very meagre gross profit (GP) @0.78% and not net profit (NP) at 0.02%. The ld.CIT(A) restricted the addition to the extent of 12.5% which is on the lower side. The ld. CIT-DR for the revenue prayed that disallowance made by the AO may be upheld or in alternative submitted that it may restricted at least @25%, keeping in view that the NP declared by the assessee is extremely on lower side. 13. On the validity of reopening, the ld.CIT-DR for the revenue submits that the AO received credible information about the accommodation entry provided by Bhanwarlal Jain Group. The assessee is one of the beneficiaries, who had availed accommodation entries from such hawala trader. At the time of recording reasons, the mere suspicious about the accommodation entry is sufficient as held by Hon'ble jurisdictional High Court in various cases. To support his submissions, the ld.CIT-DR relied upon the decision;  Pushpak Bullion (P) Ltd Vs DCIT [2017] 85 taxmann.com 84 (Gujarat High Court),  Peass Industrial Engineers (P) Ltd Vs DCIT [2016] 73 taxmann.com 185 (Gujarat High Court),  ITO Vs PurushttomDassBangur [1997} 90 Taxman 541 (SC) and  Mayank Diamond Private Limited (2014) (11) TMI 812 (Gujarat High Court).  AGR Investment Vs Additional Commissioner 197 Taxman 177 (Delhi) and  Chuharmal Vs CIT [1998] 38 Taxman 190 (SC). 14.On the other hand, the ld.AR of the assessee submits that he has challenged the validity of reopening as well as restricting the addition to the extent of 12.50% of the alleged bogus purchases. The ld.AR of the assessee submits during the assessment, the AO has not made any independent investigation. The AO reopened the case of the assessee on the basis of third party information without making any preliminary investigation. The AO received vague information about providing accommodation entry

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 by Bhanwarlal Jain Group. No specific information about the accommodation entry obtained by assessee was received by AO. There is no live link between the reasons recorded qua the assessee. Therefore, the re-opening is invalid and all subsequent action is liable to be set aside. 15.On account of additions of bogus purchases, the ld.AR submits that in the original assessment, the assessee filed its complete details of purchases to prove the genuineness of expenses. The AO accepted the same in the assessment order passed under section 143(3) on 10.03.2009. During re-assessment, the assessee again furnished complete details about the genuineness of purchases. The assessee filed confirmation purchases invoices, accounts of the parties, bank statement of assessee showing transaction to the banking channel. The AO has not made any comment on the documentary evidence furnished by assessee. The AO solely relied upon the statement of third party and the report of Investigation Wing. The report of wing and the statement of Bhanwarlal Jain were not provided to the assessee. The AO has not disputed the sales of assessee. No sale is possible in absence of purchase. The books of accounts were not rejected. The AO made the disallowance of entire purchases. The assessing officer not provided cross examination of the alleged hawala dealers. The disallowances sustained by the Ld. CIT(A) @ 12.5% of the impugned purchases, is on higher side and deserve to be deleted in total. The ld.AR of the assessee submits that entire purchases shown by assessee are genuine. In without prejudice and alternative submissions, the Ld. AR for the assessee submits that in alternative submission, the disallowance may be sustained on reasonable basis. To support his various submission, the ld.AR for the assessee is relied upon case laws: 1 M/s Andaman Timber industriesVsCommissioner of Central Excise, CIVIL APPEAL NO. 4228 OF 2006 (Supreme Court)

2 CIT vs. Indrajit Singh Suri [2013] 33 taxmann.com 281 (Gujarat) 3 Albers Diamonds Pvt. Ltd. Vs ITO 1(1)(1), Surat I.T.A. No.776 &1180/AHD/2017 4 The PCIT-5 vs. M/s. Shodiman Investments Pvt. Ltd. TTANO. 1297 OF 2015 (Bombay High Court) 5 ShilpiJewellers Pvt. Ltd. vs. Union of India &Ors. WRIT PETITION NO. 3540 OF 2018 (Bombay High Court) 6 CIT in Vs. Mohmed Juned Dadani 355 ITR 172 (Gujarat) 7 Micro Inks Pvt. Ltd. Vs. ACIT [2017] 79 taxmann.com 153 (Gujarat) 8 Shakti Karnawat Vs. ITO - 2(3)(8), Surat ITA 1504/Ahd/2017 and 1381 /Ahd/2017 9 Asian Paints Ltd. Vs. DCIT, [2008] 296 ITR 90 (Bombay)

10 PCIT, Surat 1 Vs. TejuaRohitkumar Kapadia [2018] 94 taxmann.com 325 (SC) 11 The PCIT-17 vs. M/s Mohommad Haji Adam & Co. ITA NO. 1004 OF 2016(Bombay High Court) 12 Pankaj Kanwarlal Jain HUF Vs. ITO 2(3)(8) Surat ITA.No.269/SRT/2017 16.In the rejoinder submissions the ld. CIT-DR for the revenue submits that that rigour of the rules of evidence contained in the Evidence Act is not applicable before the tax authorities. It was submitted that the ratio of various case laws relied by the ld. AR for the assessee is not applicable on the facts of the present cases. The ratio of decision of Page | 9

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 Hon’ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. 17.We have considered the submissions of the parties and have gone through the order of the lower authorities. We have also deliberated on each and every case laws relied by both the parties. We have also examined the financial statement of all the assessee(s) consisting of computation of income and audit report. We have also gone through the documentary evidences furnished in all cases. Ground No.1 in assessee’s appeal relates to the validity of reopening. The ld AR for the assessee vehemently argued that the AO reopened the case of the assessee on the basis of third party information, and without making any preliminary investigation, which was vague about the alleged accommodation entry by Bhanwarlal Jain Group. And that there was no specific information about the accommodation entry availed by the assessee. There is no live link between the reasons recorded qua the assessee. We find that the assessee has raised objection against the validity of the reopening before the AO. The objections of the assessee was duly disposed by AO in his order dated 09.02.2015. The assessee raised ground of appeal before ld CIT(A) while assailing the order of AO on reopening. The ld CIT(A) while considering the ground of appeal against the reopening held that the AO has received report from investigation wing Mumbai, which indicate that the assessee is beneficiary of the accommodation entry operators. The accommodation entry provider admitted before investigation wing that he has given such entry to various persons; based on such report the AO has reason to believe that the income of the assessee has escaped assessment and thus the action of AO in reopening is justified. 18.We find that the Hon’ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd Vs DCIT (supra) while considering the validity of similar notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a person who is engaged in providing accommodation entries,held that where after scrutiny assessment the assessing officer received information from the investigation wing that well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in re-opening assessment. Further similar view was taken by Hon’ble Jurisdictional High Court in Pushpak Bullion (P) Ltd Vs DCIT (supra). Therefore, respectfully following the order of Hon’ble High Court, we find that the assessing officer validly assumed the jurisdiction for making re-opening under section 147 on the basis of information of investigation wing Mumbai. So far as other submissions of the ld AR for the assessee that there is no live link of the reasons recorded, we find that the Hon’ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd clearly held that when assessing officer received information from the investigation wing that two well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified. Hence, the ground No. 1 in assessee’s appeal is dismissed. 19. Ground No. 2 in assessee’s appeal and the grounds of appeal raised by the revenue are interconnected, which relates to restricting the disallowance of bogus purchases to the extent of 12.5%. The AO made of 100% of purchases shown from the hawala dealers/ entry provider namely Bhanwarlal Jain. We find that the AO while making additions of 100%, of disputed purchases solely relied on the report of the investigation wing Mumbai. No independent investigation was carried by the AO. The AO has not disputed the sale of the assessee. The AO made no comment on the evidences furnished by the assessee. We further find that ldCIT(A), while considering the submissions of the assessee accepted the lapses on the part of the AO and noted that no sale is possible in absence of purchases. The Books of the assessee was not rejected by the AO. The ldCIT(A) on further examination of the facts and various legal submissions find that Ahmedabad Tribunal in Bholanath Poly Fab Private Limited (supra) held that in the such cases the addition of bogus purchases was sustained to the extent of 12%, on the observation that

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 the assessee may have made purchases from elsewhere and obtained the bills from impugned supplier to inflate Gross Profit Rate. The ld CIT(A) by considering the overall facts, concluded that the 100% disallowance of purchase is not justified. We also find that the ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. (supra) and compared the fact of the present case with the facts in Mayank Diamonds Pvt Ltd (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The ld CIT(A) noted that in that case the AO made disallowance of entire bogus purchase and on first appeal ore CIT(A) the disallowances were maintained. However, the Tribunal gave partial relief to the assessee directing to sustain the addition @12% of such bogus purchases. And on further appeal, the Hon'ble High Court sustained Gross Profit Rate @ 5% being average rate of profit in industry.

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 10. In the result, Revenue’s appeal is allowed partly.

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 considered the submission of the assessee and stated that assessee`s case belong to Rajendra Jain group cases and in case of Gotum Jain group case/Bhanwar Lal Jain, the substance of the transactions are that they relate to bogus purchases. The matter discussed by the AO in the assessment order was related to bogus purchases therefore ld CIT(A) corrected unintentional mistake committed by AO that is, corrected the mistake of quoting wrong section. We note that just to quote “wrong section” while making an assessment order does not vitiate the findings of the entire assessment order. The ld CIT(A) has co-terminus power as that of assessing officer and to correct the mistake of section as per the substance discussed in the assessment order does not mean enhancement of assessment without giving notice to the assessee. That is, when the substance of the transactions, as discussed in the assessment order by the assessing officer are in the nature of bogus purchases, then it would not mean enhancement of assessment, and just because ld CIT(A) made correction in the section in accordance with the substance discussed in the assessment order does not vitiate the appellate order. For this, reliance can be placed on the judgment of the Hon`ble Supreme Court in the case of Navinchandra Mafatlal v CIT [1955] 27 ITR 245, 261, affirmed, [1961] 42 ITR 53 (SC), wherein it was held as follows: “If an order is made by an income-tax Officer and even though he may state that he has not made it under any particular section of the income-tax Act, or even if he may state that he has made it under a particular section, it is for us to decide which is the proper provision of the law under which such an order should have been made.”

Therefore, respectfully following the judgment of Hon'ble Supreme Court in the case of Navinchandra Mafatlal (supra) we dismiss the ground no.2 and 3 raised by the assessee.

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 15. In the result, cross objection filed by the assessee is dismissed.

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 20. Further, ld PCIT noticed that there was gross disproportions between the figures of foreign exchange rate fluctuation loss and fluctuation gain vis-à-vis the corresponding export and import. Therefore, the correctness of the loss claimed on this account was required to be verified for thoroughly which was not done during the course of assessment proceedings.

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 against ‘H’ form. Therefore, jurisdiction exercised u/s 263 of the Act, by Ld. PCIT is bad in law.

The ld PCIT observed that long term loans were given by the assessee-company to various persons who appear to be related to the assessee-company and also no interest receipt in respect of these loans was shown. Therefore, provision of Section 2(22)(e) of the Act attracted in the assessee`s case which reads as under: Page | 16

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 “According to Section 2(22)(e ) of the Act when a company in which the public are not substantially interested, extends a loan or an advance to; a. Any of its shareholders who has more than 10% voting power in the company or b. To any concern in which such shareholder is substantially interested or c. For the individual benefit of such shareholder or d. On behalf of such shareholder To the extent the company has accumulated profits such payment would be deemed as a dividend u/s 2(22)(e)

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 voting power s a Karta of HUF or on behalf of a mine Shareholding pattern in the holding company is of utmost importance. Similarly, ascertaining the profit ratio in concern where shareholder is a member or partner to have substantial interest is also equally important. iii. It should be confirmed that company making payment of loan/advance is a closely held company and its shareholders holding 10% or more voting power should also old substantial interest in such concern. iv. In case loans/advances including ICD/Deposits etc are made to shareholders/concerns in which shareholders have substantial interest or made on behalf of shareholders, then investigation should be made to ascertain the incidence of “Deemed Dividend” v. The closely held company should have accumulated profits which includes reserves and also include proportionate profit of the profit of the whole year. vi. All the factual details i.e. shareholding pattern of closely held company status of recipient of loan/advance i.e. beneficial shareholder either in individual capacity or as a member/partner of a concern, quantum of accumulated profits should be clearly mentioned in the body of assessment order.

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 certificate issued by Sales tax/VAT department as proof of export. Only register dealer who exports the goods outside Indian can get H form. Against these export sales, profit on account of fluctuation in exchange rates is shown at Rs.64.80 lakhs import of cut & polished diamonds during the year of Rs.33.71 crores. As against this import, loss in account of fluctuation in exchange rates is claimed at Rs.3.92 crores. In view of the above gross disproportions between the figures of foreign exchange rate fluctuation loss and fluctuation gain vis-a-vis the corresponding export and import, the correctness of this account was required to be verified for thoroughly which was not done during the course of assessment proceedings therefore order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. It is also to be noted that ld Counsel, during the course of hearing stated that assessee is not exporter, however, on examination of Balance Sheet of the assessee, the ld PCIT noticed that assessee has shown foreign exchange gain/loss in its Balance Sheet therefore if the assessee is not exporter then wherefrom these foreign exchange gain and loss arised in the Balance Sheet. Hence, we are of the view that assessing officer failed to conduct inquiry. Reliance is also placed in the decision of the Hon'ble High Court of Delhi in the case of CIT vs. Nagesh Knitwers P. Ltd and others (2012) 345 ITR 135 (Del) wherein it has been held that when the AO has allowed claim of the assessee in a slipshod manner without conducting any inquiry, then in the case of no inquiry, the assessment order is not only erroneous but also prejudicial to the interest of revenue. The order of assessment has to be a speaking order and when the fact of others view has not been mentioned and the claim of expenses pressed by the assessee has been allowed without making any inquiry, then the order must be held as erroneous and prejudicial to the interest of revenue. Hon'ble High Court has also considered ratio of earlier decisions viz. decisions of Hon'ble Apex Court in the case of Rampyari Devi Sarogi vs CIT (1968) 67 ITR 84(SC), Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC) and the decision in the case of Malabar Industrial Company Ltd vs. CIT, 243 ITR 83 (SC) and decisions of Hon'ble Jurisdictional High Court of Delhi in the case of Gee Vee Enterprises vs. ACIT (supra) while passing the order in favour of the revenue in the case of CIT vs. Nagesh Knitwears Pvt. Ltd. (supra). Therefore, based on these facts and Page | 19

ITA.128/SRT/2020 & CO.13/SRT/2020 & ITA No.313/SRT/2019 AY.2014-15 circumstances, we uphold the order passed by ld PCIT under section 263 of the Act, dated 22.03.2019 and dismiss the appeal of the assessee.

Registry is directed to place one copy of this order in all appeals folder/case files.

Order is pronounced in the open court on 14/07/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963.

Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat �दनांक/ Date: 14/07/2022 Dkp Outsourcing Sr.P.S 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 // Assistant Registrar/Sr. PS/PS ITAT, Surat