DCIT, CIRCLE 3(3), SURAT vs. DIVYA ENTERPRISES,, SURAT

Assessee by Shri Mehul Shah, C.A. Revenue by Ms Anupama Singla, Sr-DR Date of hearing 29.03.2022 Date of pronouncement 29.03.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER:

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 Myank Diamonds Pvt. Ltd without considering the facts that M/s Mayank Diamonds Pvt. Ltd. was C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat only a trader of diamonds whereas the assessee was manufacturer and exporter of polished diamond.

3. Whether, on the facts and in law the ld. CIT(A) was justified on relying upon the case of M/s Mayank Diamonds Pvt. Ltd. which is different and distinct from the facts of the assessee’s.

4. On the basis of the facts and circumstances of the case, the learned CIT(A) ought to have upheld the order of the Assessing Officer.

5. It is therefore prayed that the order of the CIT(A) may kindly be set aside and that of Assessing Officer be restored.

2. On receipt of notice of appeal, the assessee has filed it Cross Objection raising the following grounds:- “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in reopening the assessment u/s 147 after issuing notice u/s 148 of the Act and passing the re-assessment order which is bad in law. 2 On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in partly confirming the action of Assessing Officer by sustaining the addition of Rs. 4,12,095/- out of total addition of Rs. 82,41,914/- on account of bogus purchase.

3. It is therefore prayed that assessment framed u/s 143(3) r.w.s 147 of the Act may kindly be quashed and/or addition made by assessing officer may please be deleted.

4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

3. Brief facts of the case are that the assessee is engaged in the manufacturing of cut and polish diamond, filed its return of income declaring total income of Rs. 20,92,370/- on 01.09.2009 for Assessment Year 2009-10. 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 2 C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat 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. 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. Rajendra Jain was asked to explain how the contact the parties from whom the imports have been made in the respective for concerned, he was unable to comment on the same. Rajendra Jain admitted of not having visited any foreign country for purpose of business. Information received during the year, bills have been issue by Rajendra Jain Group only to provide bogus entry of the sales. 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 Rs. (000) 82,41,914/- Kriya Impex 82,41,914/- C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat 1. On the basis of such information, the Assessing Officer was of the view that income of the assessee to the extent of Rs. 82,41,914/- from Kriya Impex Pvt. Ltd. on the basis of such information, the Assessing Officer was of the view that income of the assesse to the extent of Rs. 82,41,914/- has escaped assessment. The Assessing Officer after service statutory notices under section 143(2) of the Act proceeded for the assessment. The assessee was asked to furnish the complete details of quality and quantity wise of purchase and sales of rough and polished diamond, copy of original challan of receipt of delivery of diamond, original jhangad of the purchase in question, books of accounts for verification. The Assessing Officer recorded that in response to the same, assessee furnished copy of bills dated 05.02.2009, ledger account, confirmation of M/s Kriya Impex Pvt. Ltd. and computer print-out of polish diamond. On verification of details, the Assessing Officer recorded that assessee was not maintaining. Quantity and quality was detailed and rough and polished diamond. The original challan of jhagad was produced. Carat wise diamonds are manufactured and not furnished. The assessee was asked to show cause as to why the entire purchases should not be disallowed. The assessee again filed its reply and contended that they maintained complete C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat quantity and quality details in audit report which is verifiable in sales made out. The purchases are genuine than corresponding purchase cannot be treated as bogus. The assessee also objected that the assessee also stated that purchases were made through account payee cheque. The contention of assessee was not accepted by Assessing Officer. The Assessing Officer rejected the books of accounts due to various infirmities detected in the books as original copy of jhangad of delivery of rough and polished diamond were not furnished. Day to day quantitative and qualitative details were not furnished. The Assessing Officer after rejecting the books of accounts made the addition of 100% of purchases shown from Kriya Impex Pvt. Ltd.

2. On appeal before ld. CIT(A), the assessee reiterated the similar submission as made before Assessing Officer. The ld. CIT(A) after considering the submission of the assessee and referring to the various case laws held that Rajendra Jain Group was not any genuine business and was only indulging in providing bogus entry. The ld. CIT(A) after referring, the decision of Gujarat High Court in M/s Mayank Diamond Pvt. Ltd. vs. ITO (Tax Appeal No. 200 of 2003) dated 17.11.2014, restricted the additions to the extent of C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat 5%. The ld. CIT(A) restricted the addition to the extent of average rate of gross profit in the industry.

raised by revenue, we find that tax effect involved in the present appeal is less than the monetary limit of tax effect of Rs. 50,00,000/- as determined by CBDT in its Circular No. 17/2019.

4. The ld. CIT-Sr. DR fairly submits that tax effect in the present appeal is less than the monetary limit of Rs. 50,00,000/-. Therefore, the appeal of the revenue is not maintainable. The ld. CIT-Sr. DR for the revenue, further submits that she also furnished working of tax effect vide application dated 24.09.2021. Considering the admitted position that tax effect involved in the present case is less than the monetary limit of Rs. 50,00,000/- as determined by CBDT for filing the appeal before Tribunal by revenue. Therefore, the appeal of the revenue is dismissed as not maintainable.

5. Now adverting to the grounds of cross objection raised by the assessee. At the outset, the ld. AR of the assessee submits that he is not pressing the ground of appeal relating to the validity of C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat reopening under section 147 (ground No.1). Considering the submission of ld. AR of the assessee ground No. 1 of cross objection is dismissed.

6. Ground No. 2 of cross objection relates to part confirming the additions @ 5% of bogus purchases. The ld. AR of the assessee submits that Assessing Officer made addition of Rs. 82,41,914/- on account of alleged bogus purchases shown from the entities allegedly managed/control by Rajendra Jain Group. The ld. CIT(A) restricted the addition to 5% of such purchases shown from Rajendra Jain Group on relying upon various case laws. The facts of case of assessee is distinguishable to those cases relied by ld. CIT(A). The assessee is in trading of diamonds. The total turnover of assessee was only Rs. 1,79,85,772/-, wherein alleged bogus purchases is of Rs. 82,41,914/-. The Assessing Officer has accepted the sales. No sale/export is possible in absence of purchases. The assessee has shown gross profit of Rs. 39,76,557/- of total turnover, which is @ 22.10% which is high in the line business of diamonds. The entire sales of the assessee are exports sales which is not in dispute. The assessee has proved one to one correlation between the impugned purchase and the corresponding sales and the assessee has earned margin of Rs. 20,59,550/- @ C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat 24.98% on sales realization of the said purchases which is very reasonable. The ld. AR of the assessee submits that similar set off fact, Surat Bench of Tribunal in Sh. Pankaj Kanwarlal Jain vs. ITO in dated 27.08.2019 deleted the entire addition instead of sustaining 5% of the alleged bogus purchases on the principle of estimated profit in bogus purchases. The ld. CIT(A) confirmed the addition to the extent of 5% mainly on relying upon the decision of Mayank Diamonds Pvt. Ltd. (Supra). The ld. AR of the assessee also relied upon the decision of Mumbai Tribunal in M/s Mohammad Haji Adam & Co. vs. ITO in ITA No. 4154 & 4155/Mum/2010 dated 28.10.2015. The ld. AR of the assessee further submits that he relied upon all the submission made before the ld. CIT(A).

7. On the other hand, ld. Sr. DR for the revenue supported the order of ld. CIT(A). The ld. Sr. DR submits that though the revenue has filed appeal against deleting 95% addition, however, due to Board Circular, the appeal of revenue is not maintainable as tax effect is below monetary limit for filing appeal before the Tribunal. The ld. Sr.DR submits that ld. CIT(A) order may be confirmed.

8. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat also delivered on various case laws relied by ld. CIT(A) as well as by ld. AR of the assessee. We find that during the assessment, the assessee asked the assessee to provide complete quantity and quality wise details of rough and polished diamond. The Assessing Officer noted that the assessee failed to provide original challan or jhangad as well as complete details of carat wise diamond manufacture and quality wise details. In absence of such details, the Assessing Officer rejected the books of accounts under section 145(3). We find that assessee has not raised any ground against rejection of books of accounts before Tribunal.

9. Though before ld. CIT(A), the assessee has raised such specific grounds, which has been impliedly rejected. The main submission of the ld. AR of the assessee are that the assessee has shown Gross Profit @ 22.10% which is high in the line of business of the assessee. We do not find any merit in the submission of the assessee as no such submission was raised either before Assessing Officer or before ld. CIT(A). Before Assessing Officer no such fact and figure was furnished. The Assessing Officer while rejecting the books of accounts clearly 9 C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat held that no details of quantity and quality wise and rough and polished diamond was furnished. Further, details of carat wise diamond manufactured and quality details were not furnished. The assessee for the first time has come with these fact and figure. No such one to one correlation of purchase and export was prove before Assessing Officer. The case laws relied by ld. AR is not applicable on the facts of the present case as furnished in the case of Pankaj Kawarlal Jain (HUF) (supra). Further, the facts in Mohammad Haji Adam & Co. (supra) is also not applicable on the facts of the present case. In the said case, the assessee was trading in cotton in men made fabrics and has furnished complete details before the Assessing Officer, yet the additions were made on Gross Profit(GP) basis. However, in the instant case, there is clear finding of Assessing Officer in para 4.2 that no quantity wise and quality wise detail were furnished, no original challan or jhangad was produced. The assessee has not established as to how much rough diamond used for manufacturing in diamond. Thus, in view of aforesaid discussion, we do not find any merit for further reducing the addition of disputed 10 C.O. 01/SRT/2019 (A.Y.2009-10) Ms Divya Enteprise, Surat purchases shown from alleged hawala/bogus entry provider. In the result, ground No. 2 of cross objection is dismissed.

10. Ground No. 3 of cross objection is general in the form of prayer, which needs no specific adjudication. Hence dismissed.

Date Initial Draft order was dictated by author (JM) Draft placed before author Draft proposed & placed before the second member Draft discussed/approved by Second Member.

Approved Draft comes to the Sr.PS/PS Kept for pronouncement on File sent to the Bench Clerk Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order. Draft dictation sheets are attached