SHRI JAYESH KANTILAL MODI,SURAT vs. INCOME TAX OFFICER, WARD 2(2)(2), SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 357 & 356/SRT/2017 (Assessment Year: 2007-08 & 2008-09) (Hearing in Virtual Court) Shri Jayesh Kantilal Modi, I.T.O., 8/1212, Bhakti Vhavan, Gopipura, Ward-2(2)(2), Surat Vs. Surat-395003. Aayakar Bhawan, Majura Gate, PAN : AEZPM 7748 A Surat-395002. APPELLANT RESPONDEDNT

Assessee by None Department by Shri Vinod Kumar, Sr. DR Date of hearing 24/05/2022 Date of pronouncement 24/05/2022 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by the assessee against the separate orders of the ld. Commissioner of Income tax (Appeals)-1, Surat [‘ld. CIT(A)’ for short] dated 07/09/2017 & 08/09/2017 for the Assessment Year (AY), 2007-08 & 2008-09 respectively. 2. In Both these appeals the assessee has raised certain common grounds of appeals, facts in both the years are almost common, thus, with the consent of the parties both the appeals are clubbed together, heard and are decided by consolidate order to avoid the conflicting decision. For appreciation of fact, facts for AY 2007-08 in ITA No. 357/Srt/2017 is treated as ‘lead’ case. The assessee in this appeal has raised following grounds of appeal:-

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO “1.0 That on the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeals)-I, Surat (hereinafter referred to as Ld. CIT(Appeals) was not justified and grossly erred in upholding the addition of Rs. 2,83,846/- made by the A.O. in respect of being 0.5% commission earned on total turnover on estimated basis. 2.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. in by accepting the addition on account of interest income amounting to Rs. 12,464/- to the total income of the appellant. 3. (i) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. in reopening of assessment was not justified because instead of the A.O. recording his satisfaction, initiated action at the behest of the Investigating Wing, Surat. (ii) Without prejudice to above ground that on the facts and in the circumstances of the case, the ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. in by accepting the assessment order on the basis of incorrect facts and on mere guess work done by A.O. 4.0 That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated hereinabove, either before or at the time of hearing of this appeal.” 3. Brief facts of the case are that assessee is a proprietor of Jayesh Gems and engaged in trading activities of polished and rough diamonds, filed his return of income for the A.Y. 2007-08 03/03/2008 declaring total income of Rs.1,14,988/-. In the computation of income, the assessee has shown income from’ business and profession’ of Rs. 99,878/- and income from ‘other sources’ Rs. 15,110/-. Initially, the case was processed under Section 143(1) of the Income Tax Act, 1961 (in short, the Act) on 23/03/2009. Subsequently, the case of assessee was reopened under Section 147 on the basis of information with the department that the

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO assessee the trading activities of the assessee is doubtful. There was huge transfer of funds through RTGS and banks channel and amount was withdrawn on the same date. However, the amount of payment was kept below Rs. 20,000/- to avoid contravention of Section 40A (3) of the Act. There was no actual purchase and payment was shown for conducting business. As per such information, the assessee has shown sale of diamonds of Rs. 6.35 crores to Kalsaria Diamonds and others. On further conducting enquiry, it was found that the assessee could not furnish complete names and addresses of persons from whom the assessee purchases of diamonds and claimed to have made payments in cash not exceeding Rs. 20,000/-. There was no verifiable evidence to prove the actual business of trading of diamonds and the assessee could not prove the genuineness of purchases. As per information, on such similar entries in the diamond business, the commission is paid from 0.25% to 0.50%. On the basis of such information, the Assessing Officer has reason to relieve that income of assessee has escaped assessment. Accordingly, the Assessing officer after recording reasons of reopening, issued noticed under Section 148 of the Act on 30/03/2014. In response to the notice under section 148, the assessee submitted that the return filed originally be treated as in response to notice under Section 148 of the Act. The reasons recorded were asked and was provided to the assessee. After serving other statutory notices under Section 143(2) of the Act, the Assessing Officer proceeded for reassessment.

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO 4. During the assessment, the Assessing Officer noted that the assessee has shown turnover of Rs. 7.67 crores in trading of diamonds. The assessee was asked to prove the delivery of diamonds in respect of sale made and the details pf parties from whom the assessee made purchases and further made sales. The Assessing officer recorded that the representative of assessee submitted that they are unable to provide evidence in respect of required details. The Assessing Officer issued detailed show cause notice as to why commission on total turnover at 0.50% of the turnover for providing accommodation entry be not added. The assessee filed its detailed reply dated 25/03/2012. The reply of assessee is recorded in para 9 of page No.5 of the assessment order. In the reply, the assessee stated that he is in trading of diamonds and made purchases from local market and sold to the different parties and has not made any sales of Kalsaria Diamonds. No addition is required because all the transactions were carried out through RTGS, deposits of cash from the sales and payments were made for purchase. The volume of purchase is very small, so transactions are in small proportion and there is no violation of Section 40A(3) of the Act. All the purchases are supported by valid and genuine bills. During the course of business, the assessee had purchased rough and polished diamonds from the local market by way of cash. The cash book was furnished. The confirmation of parties were also furnished. The contents in the show cause notice that transactions are bogus, is not right and the proposed commission of 0.50% on proposed sale is also not right. The assessee has conducted genuine business transactions. All the profit earned have already been

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO disclosed in the return of income. The assessee also relied on certain case laws. The reply of assessee was not accepted by the Assessing Officer. The Assessing Officer recoded that the assessee stated that he is unable to provide any proof of delivery of diamonds in respect of sales made. Further the assessee could not provide complete names and addresses of the parties from whom the assessee made purchases. The Assessing Officer held that it could not ascertain whether the diamonds were actually purchased and payments made or not or that he actually conducted business. During the enquiry by the Investigation Wing, the assessee could not furnish complete names and addresses of the persons from whom the assessee made purchases of diamonds and against which the payment in cash is not exceeding Rs. 20,000/-. There is no verifiable evidence to prove the actual business of trading of diamonds. The Assessing Officer on the basis of information about the commission on similar type of entries, made addition @ 0.50% of turnover. The assessee has shown turnover of Rs. 7.67 crores, thus the commission was worked out at Rs. 3,83,724/-. The assessee has already declared net profit against the audit report at Rs. 99,878/-, therefore, the assessee was granted set off of addition and difference of Rs. 2,83,846/- was added.

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO income, therefore, the difference of Rs. 12,464/- was added to the income of the assessee. 6. On appeal before the ld. CIT(A), the assessee challenged the validity of reopening as well as addition on merit. The assessee filed detailed written submission. The submission of assessee are recorded in para 5 of order of ld. CIT(A). On the validity of reopening, the assessee stated that the Assessing Officer was not justified in reopening. The assessee submitted that he has raised objection against the reopening and filed a letter claiming to have been filed before the Assessing officer for raising objection against the reopening. The ld. CIT(A) recorded that such letter does not bear the acknowledgement of receiving by Assessing Officer or his office. In order to verify the contention of assessee, the case record was called. On perusal of case record, the ld. CIT(A) recorded that the Assessing officer meticulously maintained the order sheet starting from 15/12/2014 to 18/03/2015. Perusal of order sheet entries shows that the assessee has not filed any details as recorded by the Assessing Officer. The Assessee has not filed return of income in response to notice under Section 148 of the Act within the statutory period of 30 days. The letter informing the Assessing Officer to treat the original return of income was filed after statutory period. As the assessee has not made compliance of notice under Section 148, thus the return is to be treated as nonest as per provisions of Section 124(3) of the Act. The ld. CIT(A) after referring various case laws, held that the provisions of Section 147 of the Act required that the Assessing officer should have reason to believe that any income chargeable to tax has

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO escaped assessment. The Assessing Officer has a cause or justification that the income has escaped assessment it could be considered to have a reason to believe that such income had escaped assessment and upheld the validity of reopening. 7. On the additions, the assessee submitted that he has furnished all the details to prove the genuineness of his business activities. The ld. CIT(A) held that the assessee has not furnished copy of bills raised by the parties to whom the purchases were made and the evidence of payment made. The existence of parties could not be ascertained, thus the purchases made by the assessee were found to be not genuine. The Assessing Officer after relying on enquiries conducted by the Investigating Wing, held that the assessee is only providing entry on which he earned a commission and therefore the commission income @ .50% on turnover was made. The assessee claimed that he is in the business of diamond trading and return of income was filed showing income of Rs. 1,14,988/-. The assessee claimed that he has furnished sales and purchase stock register and copy of bank account, ledger of unsecured loans alongwith confirmation of creditors. The ld. CIT(A) on perusal of such details, held that the assessee could not furnish the names and addresses of the persons from whom the assessee made purchases as the existence of parties could not be ascertained, therefore, the purchases shown by the assessee were found to be not genuine and the ld. CIT(A) upheld the addition and dismissed the appeal. Further aggrieved, the assessee has filed the present appeal before the Tribunal.

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO 8. The notice of hearing of appeal was served upon the assessee. Initially, the authorised representative of the assessee filed his authority letter and sought adjournment on more than two occasions and thereafter stopped attending the hearing. Today neither any application for adjournment was filed nor any representative appeared on behalf of the assessee, therefore, we left no option except to decide the appeal after hearing the submissions of the assessee and on the basis of material available on record. 9. The ld. Sr. DR for the Revenue submits that the assessee has shown bogus purchases. Before reopening, the Investigation Wing made adequate enquiry/investigation against the assessee. The assessee during such investigation stated that he is unable to furnish the names and addresses of the parties from whom the purchases were made. The Assessing Officer made reopening on the basis of information received from the Investigating Wing that the assessee has shown bogus purchases. During the assessment, the assessee failed to furnish the complete details of parties from whom the assessee had shown purchases. The Assessing Officer made addition on a reasonable basis @ 0.50% on the total turnover and granted set off of income declared by assessee and addition of Rs. 2.82 lacs, were made. Further due to difference in TDS details and the income offered by assessee on account of interest income, the Assessing Officer made addition of Rs. 12,464/-. The addition of interest income was not challenged before the ld. CIT(A), thus the assessee is precluded from raising such grounds of appeal

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO against such additions. The ld. Sr. DR for the Revenue prayed for dismissal of the appeal. 10. We have considered the submissions of ld. Sr. DR for the Revenue and also perused the statement of fact filed before the ld. CIT(A) and various contentions raised before the lower authorities. We find that the Assessing officer made addition under the head ‘other sources’ on account of difference in TDS details. The assessee had shown interest income of Rs. 15,110/- and claimed TDS of Rs. 2,813/-. However, as per ITS Data, the assessee received interest income of Rs. 27,574/-, accordingly, the Assessing Officer made addition of differential amount of Rs. 12,464/-. We find that this addition was not challenged before the ld. CIT(A). Thus, the addition attained finality and the assessee cannot challenged directly before Tribunal. As this addition, which was not subject matter of first appeal, therefore the assessee is now precluded from raising such ground of appeal. 11. The other additions relates to commission income estimated at 0.50% of the turnover. The Assessing Officer during the assessment, asked the assessee to furnish the details of parties from whom the assessee were shown purchases. The Assessing Officer recorded that despite giving opportunity, the assessee failed to furnish the details of parties. Moreover, before the Investigation Wing, the assessee admitted that he is not having details of such parties. The Assessing officer, accordingly made addition addition @ 0.50% of turnover. We find that assessee has shown turnover of Rs. 7.67 crores, thus the assessing officer worked out commission of Rs. 3,83,724/-. As the assessee has already declared net profit

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO against the audit report at Rs. 99,878/-, the assessee was granted set off of addition and only difference of Rs. 2,83,846/- was added. The ld. CIT(A) confirmed the addition by taking a view that the assessee could not furnish the names and addresses of the persons from whom the assessee made purchases and that the existence of parties could not be ascertained, therefore, the purchases shown by the assessee were found to be not genuine and upheld the addition by dismissing the appeal of the assessee. Before us, neither the assessee appeared nor filed any written submissions or any documentary evidence to substantiate the grounds of appeal. Therefore, in absence of any documentary evidence, we are unable to differ from the findings so recorded by the ld. CIT(A), thus the addition of commission income is upheld. 12. The other grounds of appeal raised by assessee relates validity of reopening. We find that the Assessing officer relied upon the case on the basis of information received from Investigation Wing about the non-genuine business activities of the assessee. We find that at the time of reopening mere information that income had escaped assessment as the assessee is beneficiary of accommodation entry is sufficient for making belief that. Therefore, we do not find any infirmity in the order of the lower authorities in making/upholding the validity of reopening. In the result, all the grounds of appeal raised by the assessee are dismissed. 13. In the result, this appeal of the assessee is dismissed. 14. The assessee in its appeal for A.Y. 2008-09 in ITA No.356/SRT/2017 has raised following grounds of appeals:-

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO “1.0 That on the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeals)-I, Surat (hereinafter referred to as Ld. CIT(Appeals) was not justified and grossly erred in upholding the addition of Rs. 4,12,186/- made by the A.O. in respect of being 0.5% commission earned on total turnover on estimated basis. 2.0 (i) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. in reopening of assessment was not justified because instead of the A.O. recording his satisfaction, initiated action at the behest of the Investigating Wing, Surat. (ii) Without prejudice to above ground that on the facts and in the circumstances of the case, the ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the A.O. in by accepting the assessment order on the basis of incorrect facts and on mere guess work done by A.O. 15. Since the facts in this appeal is similar as of facts in ITA No. 357/Srt/2017 for the Assessment year 2007-08, except variation of addition of commission added to the income of assessee. Therefore, considering the totality of facts and circumstances of the case, the finding given by us in the former paras i.e. in ITA No. 357/Srt/2017 for the Assessment year 2007-08 shall apply mutatis mutandis in this appeal also. In the result, the appeal of the assessee is dismissed.

Order pronounced on 24 /05/2022 in open court and result was also placed on the notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 24/05/2022 *Ranjan

ITA 357 & 356/SRT/2017 Sh. Jayesh Kantilal Modi Vs ITO Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order

Sr. Private Secretary, ITAT Surat