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IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 533/SRT/2019 (AY: 2008-09) (Hearing in Virtual Court)
I.T.O. Shri Jitendra Axaysingh Babel, Ward-3(3)(2), Sy. No. 1105 to 1107, 2nd Floor, 212, Vs. Surat. Tulsi Complex, Somnath Mahadev Ni Sheri, Mahidharpura, Surat. PAN : AMRPB3416A APPELLANT RESPONDEDNT
ITA No. 555/SRT/2019 (AY: 2008-09) Shri Jitendra Axaysingh Babel, I.T.O. Sy. No. 1105 to 1107, 2nd Floor, 212, Ward-3(3)(2), Vs. Tulsi Complex, Somnath Mahadev Ni Surat. Sheri, Mahidharpura, Surat. PAN : AMRPB3416A APPELLANT RESPONDEDNT
Department by Ms. Anupama Singla, Sr. DR Assessee by Shri Rohit Vijayvargiya, CA Date of hearing 06/04/2022 Date of pronouncement 06/04/2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: The appeal filed by the Revenue and the cross appeal filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-3, Surat [in short ‘ld. CIT(A)] dated 12/09/2019 for the Assessment Year (AY) 2008-09. The Revenue in its appeal has raised the following grounds of appeal:
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel “1. Whether, on the facts and in law, the ld. CIT(A) was not justified in partly allowing the appeal of the assessee and estimating disallowance at @5% of bogus purchases, as against 25% made by the Assessing Officer. 2. Whether, on the facts and in law the ld. CIT(A) was justified in partly allowing the appeal of the assessee upon the decision in the case of M/s Mayank Diamonds Pvt. Ltd. and estimating disallowance at @ 5% of bogus purchases, without considering the decision of the Hon'ble ITAT, Ahmedabad in an identical case of M/s Vijay Proteins Ltd., wherein 25% of purchases was held to be reasonable amount of disallowance of expenditure. 3. Whether, on the facts and in law the ld. CIT(A) was not justified on relying upon the case of M/s Mayank Diamonds Pvt. Ltd. which is different and distinct from the facts of the case of the assessee. 4. On the facts and circumstances of the case and in law, the ld. CIT(A) ought to have upheld the order of the A.O.. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the A.O. may be restored.” 2. The assessee in his cross appeal has raised following grounds of appeal:
“1. Ld. CIT(A) has erred in confirming reopening U/s 148 of the Income Tax Act, 1961 of appellant’s case for A.Y. 2009-10. 2. Ld. CIT(A) has erred in confirming addition of Rs. 38,32,473/- being 5% of alleged bogus purchases. 3. The appellant reserves the right to add, alter, amend or withdraw any grounds of appeal.” 3. We observe from perusal of record that the appeal of the assessee is filed after 3 days of period of limitation. The ld. AR of the assessee has filed an application for condonation of delay. In the application, the assessee has submitted as under:
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel “It was brought to our notice by the Hon'ble’ ITAT, Surat that there is a delay of 3 days in filing of the appeal. In this regard, I would like to state that I was out of city at the time of filing the appeal and on documents for filing the appeal my signatures were required. Signed document was than posted through courier. Therefore, filing of appeal was delay 3 days. Therefore, it is our kind request that delay may be condone and appeal may be allowed. Inconvenience caused is highly regretted.” The ld. AR of the assessee submits that the delay in filing appeal is neither intentional nor deliberate but due to the circumstances explained above. The assessee will be vigilant in future. The Ld. AR for the assessee prayed for condonation of delay of three days in filing appeal before Tribunal.
On the other hand, the ld. Sr. DR appearing on behalf of the Revenue submits that the Bench may take decision on the application for condonation of delay.
Considering the submissions of both the parties and considering the fact that there is delay of only 3 days, therefore, keeping in view the fact that when technical consideration are petted against the cause of substantial justice, the cause of substantial justice may be prevailed. Therefore, the delay of three days in filing the appeal by the assessee is condoned. Now adverting to the adjudication of the appeal.
Brief facts of the present case are that the assessee is the proprietor of M/s Kanchan Corporation and engaged in the business of trading of rough and polished diamonds and commission agent, filed his return of income for the Assessment Year 2008-09 on 30/09/2008 declaring total income of Rs. 1,14,580/-. The return was
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel processed under section 143(1) of the Income Tax Act, 1961 (in short, the Act). The case of the assessee was reopened under section 147 of the Act. Notice under section 148 dated 30/3/2015 was served upon the assessee.
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 Gautam Jain and his Group on 03.10.2013, which resulted in collection of evidence that Gautam Jain group and its associates 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 the assessee is one of the beneficiary of the accommodation entry and that Gautam Jain Group provided accommodation entries of purchases of Rs. 7,66,49,458/-. The statement of Gautam Jain group and its associates under section 132(4) of the Act was recorded, wherein they had admitted that their associate 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 Rajan Gems managed by Gautam Jain Group.
On the basis of such information, the Assessing Officer formed opinion that income of the assessee of Rs. 7,66,49,458/-has escaped from assessment and that he was satisfied that it is a fit case for reopening under section 147 of the Act. The
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel assessee in response to notice under section 148, filed his reply vide his letter dated 24/08/2015 to treat the original return as return in response to notice under section 148. The reasons of reopening was asked by the assessee. The assessee filed his objections against the reopening. The objections of the assessee was rejected in detailed and speaking order dated 11/01/2016 by the assessing officer.
During the course of assessment proceedings, the assessee stated that he was doing business as a commission agent under the name and style of his proprietary concern M/s Kanchan Corporation. The assessee is a commission agent (Pucca Aartiya) of rough and polished diamond and making sales and purchases on behalf of some diamond traders and received commission. The assessee further stated that he has not carried out any trading activity and as per the prevailing practices, the assessee is maintaining commission ledger/bank book/cash book etc. and the ledger of parties to whom transactions were carried out. The reply of the assessee was not accepted by the assessing officer (A.O.). The A.O. took his view that if reply of assessee is accepted then there should be debit and credit entries of equal amount in the bank statement of assessee and each debit/credit entry should be related to any of purchase/sale transaction. However, on verification of the bank account produced by the assessee, it was noticed that there are several other entries in the bank statement/ledgers of the parties in addition to the sale and purchase transaction. On confronting such fact, the assessee stated that he has also carried out certain sale and purchase on which the assessee had not earned any commission income. Besides that the Assessing Officer noted that the assesse is also engaged in financial transaction with other parties. On 5
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel confronting such fact, the assessee explained that these transactions are of loans and advances given/received from several other parties to meet out the short term financial commitment. The Assessing Officer noted that these financial transactions were in the nature of loans and advances were required to be a part of audit report. The assessee failed to prove that he is earning commission income only. The Assessing officer on the basis of discrepancies in the audit report, noted that the assessee has given substantial amount of loans and advances to various parties but has not shown any interest income against such loan. The AO was of the view that why a prudent business man will give loan and advances to the other party without charging any interest as the assesse failed to provide any reason and has shown a very low amount of commission on high value of transaction which is not sufficient for covering the risk involved. On such reasoning, the Assessing officer treated the assessee as a trader and not commission agent. The AO held that the assessee is a beneficiary of bogus accommodation entries from M/s Rajan Gems for an amount of Rs. 7.66 crores. The entries must have been used by the assessee to suppress the profit margin of the assessee by increasing the cost of the items purchased. On the basis of such observation, the Assessing Officer again issued show cause notice to the assessee for disallowance of purchases. The contents of the show cause notice is recorded in para 7 of the assessment order. In the show cause notice, the Assessing Officer asked the assessee as to why 25% of purchases of Rs. 7.66 crores from M/s Rajan Gems be disallowed by treating as accommodation entry for reducing the profit margin. The assessee filed its reply dated 21/03/2016. The contents of the reply is extracted in
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel para 8 of the assessment order. In reply, the assessee besides objecting again reopening, reiterated that the assessee is a commission agent of rough and polished diamond. The relationship between the assessee and the traders was of principal and agent. The assessee made purchases from M/s Rajan Gems. The assessee received commission being an agent. M/s Rajan Gems gave commission to the assessee and TDS was deducted. M/s Rajan Gems is a proprietary concern of Sh. Dharmendra Kumar Babel, whose statement was recorded under section 131 of the Act by the Investigation Wing during the search action. Sh. Dharmendra Kumar Babel has retracted his statement by filing a notarised affidavit. The assessee prayed that no proposed addition be made. The reply of the assessee was not accepted by the Assessing Officer. The Assessing officer held that the assessee failed to explain that as to why the name of the assessee is appearing in the list of beneficiary of non-genuine sales by Gautam Jain Group concern. The Assessing Officer on the basis of information and document collected during the search action on Gautam Jain Group, treated the purchases as non-genuine. The A.O. in para 10.2 of assessment order held that, it is likely that the assessee has purchased the goods of Rs. 7.66 crores from open market in cash and had sold the same in cash as well and to adjust these entries of cash purchases and to suppress the profit, the assessee must have taken accommodation bills from M/s Rajan Gems. The assessee failed to produce exact details regarding stock of these purchases and subsequent sales, the parties are not ascertained. On the basis of decision of Ahmedabad Tribunal in the case of Vijay Proteins reported in 55 TTJ 76 wherein the Tribunal has sustained 25% of the disputed purchases. The Assessing
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel Officer, accordingly, disallowed 25% of purchases of Rs. 7.66 crores and worked out the disallowance of Rs. 1.91 crores.
On appeal before the ld. CIT(A), the assessee challenged the validity of reopening as well as additions on merit. The assessee filed detailed written submission before the ld. CIT(A). The submission of assessee are recorded in para 5 of the order of the ld. CIT(A). Besides filing of detailed written submission on reopening, the assessee on merit has submitted that the assessee is a commission agent. His case is covered under section 44AB of the Act and filed his return of income accordingly. The assessee’s gross receipt is below the limit of Section 44AB of the Act i.e. Rs. 1,34,257/- . His books of account are audited. In the return of income, the assessee declared income of Rs. 1,14,580/-. The assessee earned commission income and offered the same for taxation. The assessee furnished confirmation alongwith consignment, purchases were made from the parties mentioned therein, and the same has been recorded in the books of account of the said parties. The Assessing Officer ignored the fact that the assessee is a commission agent. No independent investigation was conducted by the Assessing Officer. The ld. CIT(A) after considering the submission of assessee, upheld the validity of reopening by referring the decision of the Hon’ble Supreme Court in the case of Purushottam Das Bangur & Another 224 ITR 362 (SC) as well as the decision of Hon’ble Jurisdictional High Court in the case of Pushpak Bullion (P) Ltd. (2017) 85 taxmann.com 84 (Gujarat) wherein the Hon’ble High Court held that the information received from Investigation Wing is sufficient for making a reasonable plea for reopening. 8
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel 11. On merit, the ld. CIT(A) has restricted the addition to the extent of 5% of the amount/bogus purchases by referring various decisions of the Tribunal and decision of Jurisdictional High Court in Mayank Diamonds Pvt Ltd Vs ITO ( Tax appeal No. 200 of 2003) by taking a view that the gross profit rate as average rate in the industry is of 5%.
Being aggrieved by the order of the ld. CIT(A), both the parties i.e. the Revenue and the assessee have filed their respective appeals before the us. The assessee has filed its appeal against restricting the addition to the extent of 5%. Similarly, the Revenue has also challenged the addition for restricting to the extent of 5% only.
We have heard the submissions of the learned senior departmental representative (Sr DR) for the revenue and the learned authorised representative (AR) for the assessee. The ld. Sr. DR submits that the grounds of appeal on merit, in assessee’s appeal as well as in Revenue’s appeal are interconnected. The ld. Sr. DR submits that the Assessing officer while passing the assessment order, made disallowance of bogus purchase at 25% of aggregate purchases shown from M/s Rajan Gems. M/s Rajan Gems was managed by Gautam Jain and Rajendra Jain group which were engaged in providing bogus entry of purchases without actual delivery of goods. The A.O. after giving full opportunity to the assessee, disallowed 25% of purchases on the basis of decision of the Ahmedabad Tribunal in the case of Vijay Proteins (Supra). The assessee is a trader in diamond business and have shown purchases only to inflate the expenses and to reduce the profit. The investigation wing during the search action
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel on Gautam Jain gathered sufficient evidence which proved that the said group was indulging in providing the bogus entry without actual delivery of goods. The disallowance made by the A.O. was quite reasonable. The ld. CIT(A) restricted the addition to the extent of 5% on the basis of decisions of the various Tribunals including the decision of the Hon’ble Jurisdictional High Court in the case of Mayank Diamond Pvt. Ltd. Vs ITO (Tax Appeal No. 200 of 2003) dated 17/11/2014, decision of this Tribunal in the case of DCIT Vs J.B. Brothers, Surat in ITA No. 3661/Ahd/2015 and C.O. No. 22/Ahd/2016 order dated 06/04/2018 and M/s Delux Diamonds, Surat Vs ITO in ITA No. 1396/ahd/2017 order dated 11/04/2018 by considering the fact that the gross profit rate of 5% is an average rate in the diamond industry. The ld. Sr. DR submits that the facts in the case of Mayank Diamond are at variance. In the said the gross profit was estimated at 5%. Here in this case, the Assessing officer disallowed 25% of aggregated of purchases only, which was shown from bogus hawala traders.
On the other hand, the ld. AR appearing on behalf of the assessee submits that he is not pressing the grounds of appeal related with validity of reopening and supporting the order of ld. CIT(A) that the ld. CIT(A) after considering all the facts and circumstances of the case, restricted the addition to the extent of 5%. 5% disallowance is quite reasonable keeping in view the profit margin in the diamond industry is very low.
We have considered the rival submissions of the parties and have gone through the orders of the lower authorities carefully. As noted above, the ld. AR of the assessee,
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel at the outset supporting his submission and has submitted that he is not pressing the grounds of appeal relating to reopening and other grounds except the disallowance of 5% of the purchases. Considering this submission of the ld. AR of the assessee, grounds No. 1 and 3 of the appeal of assessee are dismissed as not pressed.
Now adverting to the interconnected grounds of appeal which relates to restricting the addition to the extent of 5%. The assessee has shown purchases from M/s Rajan Gems which is managed by Gautam Jain and his group. It is a known fact that Gautam Jain and Rajendra Jain group and his associates were engaged in providing accommodation entry without actual delivery of goods. We find that the A.O. during the assessment found so many discrepancies in the books of assessee and rejected the books result. The ld. AR of the assessee has not challenged such discrepancies nor made any submission that those observations of Assessing Officer are perverse. The limited issue for our consideration is whether the disallowance of alleged bogus purchases/impugned bogus purchases @ 5% are reasonable or justified. The ld. Sr. DR vehemently submitted that the disallowance restricted by the ld. CIT(A) on the basis of decision in the case of Mayank Diamond (supra) and that the ratio in the decision of Mayank Diamond (supra) is not applicable on the facts of the present case. It is a settled law that in case of disputed purchases shown from such hawala dealer’s only profit element embedded in such transaction is to be disallowed, to avoid the possibility of revenue leakage and not the substantial part of transaction. No doubt, the Assessing Officer identified the purchases of Rs. 7.66 crores shown from hawala dealers, the assessee may have shown other transaction with some other parties. 11
ITA 533 & 555/SRT/2019 ITO Vs. Sh. Jitendra Axaysingh Babel However, the assessee has offered a meagre income of Rs. 1,14,580/- for taxation, thus the assessee was shown an extremely low profit. This combination in other similar cases wherein the purchases are shown from Bhanwarlal Jain or Rajendra Jain or Gautam Jain group have restricted or enhanced the addition to the extent of 6% of such amount or disputed purchases. Therefore, taking a consistent view, the disallowance which was restricted to the extent of 5% by ld. CIT(A) are increased to 6% of the impugned purchases of Rs. 7.66 Crores.
In the result, the grounds of appeal raised by the Revenue is partly allowed resultantly, the ground No. 2 of assessee’s appeal is dismissed. Finally, the appeal of the revenue stands partly allowed and the appeal of the assessee stands dismissed.
Order pronounced on 06/04/2022, in open court and result was placed on notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 06/04/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order Sr. Private Secretary, ITAT Surat