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�नधा�रतीक�ओरसे /Assessee by Shri Mayur K.Bhagatwala, C.A राज�वक�ओरसे /Revenue by Shri Vinod Kumar, Sr-DR सुनवाई की तारीख/Date of hearing 07.07.2022 उ�घोषणा क� तार�ख/Date of pronouncement 07.07.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of ld. National Faceless Appeal Centre (NFAC)/Ld.CIT(A) dated 19.08.2021for assessment year (AY) 2012-13, which in turn arises out assessment order passed by Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide order dated 27.11.2018. The assessee has raised the following grounds of appeal:-
(A.Y 12-13) Sagar Enterprise “1.Issue of notice u/s 148 and reopening of the assessment is bad in law and fact and not within the ambit of the provision of the I.T Act 1961. The learned AO recorded reason u/s 147 of I.T Act 1961 for reopening giving reference to the statement of one Shri Bhanvarlal Jain one of the partners M/s Daksh Diamond and also recorded statement of facts are different in respect of Yoour Honour’s Petition facts of case. (This will be discussed elaborately in the written submission of the time of hearing) 2.Unverified purchase The learned CIT(A) has erred in sustaining addition of Rs.10,55,541/- being 25% of purchase cost of Rs.42,22,165/- made from Shri Ritesh S Siroya Proprietor of M/s Daksh Diamond. The learned AO has erroneously inferred said purchase being unverified leading him to make additions as above invoking provision of section 69 of I.T. Act 1961. The inference of the learned AO is not only incorrect but also bad in law and fact. The learned AO has wrongly applied decision of Vijay Proteins Ltd. reported in 55 TTJ 76 whose facts are totally different from the facts of your honour petition. (This will be discussed elaborately in the written submission at the time of hearing)
3. The Appellant craves leave to add, delete, alter of substantiate any or all of ground of appeal at the time of hearing with necessary documents, evidences, supporting, etc and also relevant legal authorities.”
Brief facts of the case are that assessee is a firm is engaged in the business of manufacturer, importer and exporter of cut & polished diamonds in local as well as in market abroad. The assessee-firm filed its return of income for assessment year 2 (A.Y 12-13) Sagar Enterprise 2012-13 on 12.08.2012 declaring income of Rs.36,44,150/-. The case of assessee was selected for scrutiny and assessment was completed under section 143(3) on 22.10.2014, by making addition of Rs.3.02 lakhs. Subsequently, the assessment was re- opened under section 147 of the Act. The assessment was re- opened on the basis of information received from DGIT (Inv), Mumbai that a search action under section 132 in case of Shri Bhanwarlal Jain & Others was carried on 03.10.2013, wherein investigation team found incriminating and seized various documents and busted a racket of bogus entries provider through web of benami concerns. The statement of Shri Bhanwarlal Jain and his associates were recorded, wherein it was revealed that there are managing various entity for providing bogus investment entry of sale and purchase of different kind of rough and polished diamond and other entries. Shri Bhanwarlal Jain was managing various bogus entries which were provided bogus entry without actual delivery of goods. The assessee was one of the beneficiaries who have shown purchase from Daksh Diamonds, the entity managed by Shri Bhanwarlal Jain. The assessee has shown purchased of Rs.42.22 lakhs from 3 (A.Y 12-13) Sagar Enterprise entity managed by Bhanwarlal Lal Jain group, thus on the basis of information case of assessee was reopened. Notice under section 148 of the Act was served upon the assessee on 26.03.2018. In response to notice under section 148, the assessee was filed its return of income on 05.11.2018 showing total income as shown in its return of income filed under section 139(1).
During the re-assessment, assessee furnished certain details of the party from whom the assessee has shown purchase. The assessee was confronted with the fact that that assessee has shown purchase from Daksh Diamond which is managed by Bhanwarlal Jain, who is providing bogus entries. According, a show cause notice was issued to the assessee as to why the purchase from Daksh Diamonds be not treated as bogus. The assessee was also asked to produce the seller party for confirmation. The assessee filed his reply dated 25.10.2018. In reply, assessee stated that they have purchased cut and polished diamond from Daksh Diamonds and its proprietor name is Ritesh S Siroya. They made the payment through ING Vysya Bank, but unable to contact them. The assessing officer 4 (A.Y 12-13) Sagar Enterprise after considering the submission of the assessee recorded that the assessee failed to produce the proprietor of Daksh Diamonds. The purchase has shown by assessee is non-genuine and accordingly by following the decision of Ahmedabad Tribunal in Vijay Proteins Ltd. reported in 55 TTJ 76 (Trib. Ahd), disallowed purchase of 25% shown Daksh Diamonds and added to the total income of assessee.
On appeal before Ld. CIT(A), the assessee has challenged the validity of quantum addition only. The assessee in its submission submitted that they are in the business of import and export of cut and polished diamond. The assessee made purchased from Daksh Diamond in US dollar and that purchase is genuine. The assessee furnished complete evidence. To support the transaction the assessee filed purchase bills, invoice and payment made in US dollar, ledger for verification of transaction was furnished. Though, no specific grounds of appeal
challenging the validity of re-assessment was raised, yet the Ld. CIT(A) examined the validity of re-opening on the submissions of the assessee and held that in the present case, the Assessing Officer was having information about the entry 5 (A.Y 12-13) Sagar Enterprise provided by the bogus hawala entry providing the diamond was part of racket which was running all over the country. Thus, he has a reasonable and just suspicious to believe that income of assessee has escaped assessment and dismissed / rejected the allegation / ground of assessee for re-opening on the quantum addition.
5. On the disallowances of 25% of purchases shown from Daksh Diamonds, the Ld. CIT(A) held that Assessing Officer made elaborate discussion with cogent reasoning which leads to the conclusion that assessee was engaged in bogus purchase from Daksh Diamonds and dismissed the appeal of assessee. Thus, the ld CIT(A) upheld the action of assessing officer in making disallowances of 25% of disputed purchases. Further aggrieved the assessee has filed present appeal before the Tribunal.
6. We have heard Ld. Authorized Representative for the assessee and Ld. Sr. Departmental Representative (Sr. DR) for the Revenue. Ground No. 1 relates to the validity of re-opening. The ld. AR for the assessee submits that the case of assessee was re- opened on the basis of information of third party that Mumbai Based parties were involving in hawala transaction. The 6 (A.Y 12-13) Sagar Enterprise reopening is not valid as the assessee has shown genuine purchase from Daksh Diamonds, which is not owned and managed by Bhanwarlal Jain. The proprietor of Daksh Diamonds is Ritesh S Siroya. Therefore, the reasons recorded are not valid.
7. On the addition of alleged bogus purchase, which is challenged in the ground No.2, the ld. AR for the assessee submits that assessee is a trader and the addition made by Assessing Officer is excessive. The turnover of assessee is more than Rs. 21 crores and assessee has shown gross profit at 3.123%, which is fairly good enough in the business of assessee. The ld. AR for the assessee submits that a token disallowance @ 2 or 3% of the disputed purchases may be made to avoid the protracted litigation, though the entire purchases shown by the assessee is genuine.
8. On the other hand, Ld. Sr. DR for the Revenue submits that the lower authorities have made reasonable disallowance @ 25% of purchase shown from hawala dealers. The entire purchases shown from the hawala dealer is bogus. The hawala dealers were merely entry provider without actual delivery of goods. The ld. 7 (A.Y 12-13) Sagar Enterprise Sr. DR for the Revenue prayed fro dismissal of appeal of assessee.
9. We have considered the rival submission of both the parties and have gone through the order of authorities below. Ground No.1 relates to validity of re-opening. At the time of hearing before us, the ld. AR for the assessee has not brought any material to our notice as to why the re-opening is bad in law and he simply argued that Daksh Diamonds is not managed by Bhanwarlal Jain and that the reopening is not valid. We find that the Hon'ble jurisdictional High Court in the case of Pass Industrial Engineers Pvt. Ltd. vs. DCIT 77 taxmann.com 185 (Guj), on similar set of facts held that when after scrutiny assessment the Assessing Officer received information from Investigation Wing that well known entry operators of Country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, the Assessing Officer was justified in re-opening assessment. Considering the aforesaid binding decision of Hon'ble jurisdictional High court (supra), we do not find any merit in the submission raised by Ld. AR for the assessee. Thus, Ground No.1 raised by assessee is dismissed. 8 (A.Y 12-13) Sagar Enterprise 10. Ground No.2 relates to addition of 25% on account of disputed / bogus purchases shown by assessee from Daksh Diamonds. We find that the Assessing Officer made of 25% of purchase by following the order of co-ordinate Bench in the case of Vijay Proteins Ltd. (supra). We find that neither the books of account of assessee were rejected nor sale of assessee was doubted by Assessing Officer. And the assessing officer made the disallowance @ 25% of purchase shown from Daksh Diamonds on the basis of information of investigation wing. The ld. CIT(A) confirmed the action of Assessing Officer, without giving any specific finding. We find that the assessee is in the business of cut and polish diamonds and the disallowances confirmed by the lower authorities are on excessive side in the business of assessee. We are of the view that when there is allegation of bogus purchases against the assessee and the assessee claimed that the transaction is genuine and payments are made through bank, only the component of profit element embedded in such transaction may be disallowed to avoid the possibility of revenue leakage.