MANISH CHORDIA,SURAT vs. ITO-3(1) (5), SURAT

THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No.549/SRT/2019 (AY 2009-10) (Hearing in Virtual Court) Manish Babulal Chordia, The ITO, 304,Kohinoor Complex, Ward-3(1)(5), Vs. Choksi Sheri, Surat. Saiyedpura, Surat, PAN: ADVPJ 8719 M Applicant Respondent

Assessee by Shri Suchek Anchaliya – CA Revenue by Ms Anupma Singla- Sr.DR Date of hearing 10/03/2022 Date of pronouncement 10/03/2022 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. Commissioner of Income tax (Appeals)-3, (hereinafter referred as “ld.CIT(A)”, Surat dated 11.09.2019, for the Assessment Years 2009-10. The assessee raised the following grounds of appeal: (1) On the facts and circumstances of the case and in law, the CIT(A) has erred in not considering that the assumption of jurisdiction by the Ld.Assessing Officer is bad in law as the conditions laid down under the Act for initiating reassessment proceeding u/s 147 have not been fulfilled. (2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not holding that the learned Assessing Officer erred in not providing an opportunity to cross examination to the appellant

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while relying on a third party statement as the same was also in violation of principles of natural justice. (3) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ of 5% of the purchases of Rs. 3,32,03,131/- as alleged bogus purchase by treating genuine purchases as non-genuine. (4) The appellant craves leave to add, alter or delete all or modifyany or all the above grounds of appeal.” 2. Brief facts of the assessee that the assessee is a proprietor of Parvati Exports and engaged in the business of diamond. The assessee filed his return of income for the A.Y. 2009-10 on 26.09.2007 declaring total income of Rs.1,71,850/-. Scrutiny assessment was competed under section 143(3) on 28.12.2010 determining the total income of Rs.2,31,000/-. Thereafter, the case of assessee was reopened under section 147 of the Act. Notice under section 148 of the Act was issued on 29.03.2016 served on 30.03.2016. 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 in 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

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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 has admitted that his family members are managing various entities which are providing accommodation entries. During the course of search, blank cheque books signed by dummy partners / directors /proprietor of entities was found seized. It was informed that assessee is one of the beneficiaries of bogus purchase from three following entities managed by Bhanwarlal Jain Group. The assessee has shown following purchased from the said parties: Name of the Party Amount Rose Gems Pvt. Ltd. 3,32,03,131/- Total 3,32,03,131/- 3. On the basis of such information, the Assessing Officer (AO) formed opinion that income of the assessee of Rs.3,32,03,131/- has escaped income 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 vide his reply dated 18.04.2016, stating therein that return of income filed on 31.03.2009 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 were provided to the assessee. The assessee filed his written objection on 06.06.2016. The objection of assessee was rejected by speaking order dated 05.07.2016. The Assessing Officer after 3

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serving statutory notices proceeded for reassessment. The assessee was served notice under section 142(1) for calling certain details on 07.09.2016. None appeared on behalf of the assessee. The Assessing Officer in order to verify the genuineness of transaction issued notice under section 133(6) to the parties from, which the assessee has shown purchases. Notice sent through registered post was return back unserved. The Assessing Officer issued details of show cause notice as to why the purchases shown from the parties namely Rose Gems Pvt. Ltd. should not be treated as bogus and added to the incomes of the assessee. The Assessing officer recorded that reply furnished by assessee was considered, however the same was not accepted. The Assessing Officer on the basis of certain case laws and by referring the modus operandi of transaction carried out by entry provider made addition of 25% of such purchases shown from Rose Gems Pvt. Ltd. The Assessing Officer worked out the disallowance of Rs.83,00,782/-. 4. Aggrieved the additions the assessee filed an appeal before ld. CIT(A) challenged the validity of reopening as well as addition on merit to the extent of 25% of purchases. The assessee filed detailed written submission this tribunal, the ld. CIT(A) against the validity of reopening as well as on addition. The ld. CIT(A) after consideration the submissions of assessee uphold the validity of reopening by following decisions in case of Pushpak

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Bullion (P) Ltd. (2017) 85 taxmann.com 84 (Gujarat), however on merit, ld. CIT(A) restricted the addition to the extent of 5% of the bogus purchases the filed present before us. 5. We have heard the submissions of both the parties and have gone through the orders of lower authorities. At the outset of hearing, the ld. AR of the assessee submits that case of assessee is squarely covered by the decision of Tribunal in assessee’s own case for A.Y. 2008-09, wherein similar addition was restricted to the extent of 6%. The ld. AR of the assessee further submits that revenue has also filed an appeal against sustaining to the addition to the extent of 5%, however the appeal of the Revenue was dismissed due to low tax effect. 6. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities. We find in assessee’s own case in A.Y. 2008-09 in ITA No. 1728/AHD/2017, dated 27.09.2021, the Tribunal has passed the orders in restricting the similar additions of bogus purchases to the extent of 6%.The relevant part of the order is extracted below; “ 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 18 income and audit report. We have also gone through the documentary evidences furnished in all cases.

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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 19 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 6

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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.

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observation that 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 21 diamonds. The ld CIT(A) noted that in that case the AO made disallowance of entire bogus purchase and on first appeal before 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. 20. Now adverting to the facts of the present case, the ld.CIT(A) held that in some other similar cases; though he had sustain 5% of Gross Profit Rate, considering the fact that where Gross Profit shown by those assessee’s are more than 5%. However, in the present 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. 21. We have seen that during the financial year under consideration the assessee has shown total turnover of Rs. 66,09,62,458/-. The assessee has shown Gross Profit @ .78% and net Profit @ .02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs. 1,81,840/- only. We are conscious of the facts that dispute before us is only with regard of the disputed purchases of Rs, 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwarlal Jain Group. During the 8

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search action on Bhanwarlal Jain no 22 stock of goods/ material was found to the investigation party. Bhanwarlal Jain while filing return of income has offered commission income (entry provider). Before us, the ld CIT-DR for the revenue vehemently submitted that the ratio of decision of Hon’ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. We find that in Mayank Diamonds the Hon’ble High Court restricted the additions to 5% of GP. We have seen that in Mayank Diamonds P Ltd (supra), the assessee had declared GP @ 1.03% on turnover of Rs. 1.86 Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No. 2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed. 22. In the result the appeal of revenue is dismissed and the appeal of the assessee is partly allowed. XXXXXX XXXXXX

“Manish Chordia (AY 2007-08, 2008-09 & 2013-14) 28.The assessee in ITA No.1728/AHD/2017 (AY 2007-08) raised the following grounds of appeal:

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(5) On the facts and circumstances of the case and in law, the CIT(A) has erred in not considering that the assumption of jurisdiction by the Ld. Assessing Officer is bad in law as the conditions laid down under the Act for initiating reassessment proceeding have not been fulfilled. (6) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in disallowing the alleged bogus purchase of Rs.53,95,133/-, without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied and the addition was made without providing any opportunity of cross examination, without any corroborative evidence and without providing copy of statements relied upon. (7) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in partly allowing the purchase from M/s Nice Diamond, without appreciating the fact that the party appeared before the Ld. A.O. and given the full detail of purchase of Rs.38,53,943/-. (8) The appellant craves leave to add, alter or delete all or modify any or all the above grounds of appeal.” 29.The assessee in ITA No.247/SRT/2017 (AY 2008-09) raised the following grounds of appeal: (1) On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in not considering that the assumption of jurisdiction by the Ld. Assessing Officer is bad in law as the conditions laid down under the Act for initiating reassessment proceeding have not been fulfilled. (2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ 12.50% on alleged bogus purchase, without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied and the addition was made without providing any opportunity of cross examination, without any corroborative evidence and without providing copy of statements relied upon. (3) The appellant craves leave to add, alter or delete all or modify any or all the above grounds of appeal. 30.The assessee in ITA No.248/SRT/2017 (AY 2013-14) raised the following grounds of appeal:

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(1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ 12.50% on alleged bogus purchase, without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied and the addition was made without providing any opportunity of cross examination, without any corroborative evidence and without providing copy of statements relied upon. (2) The appellant craves leave to add, alter or delete all or modify any or all the above grounds of appeal. 31.We find that there is no cross appeal by revenue in case of present assessee for all three years (which may have been dismissed due to low tax effect). Considering our decision in para 21 (supra) in Pankaj K Chaudhary, wherein we have sustained the disallowance @6% of the disputed/ bogus purchases, thus, following the principal of consistency the appeals the assessee for all three years (AY 2007-08, 2008-09 & 2013-14) are partly allowed.” 7. Considering the decision of this Tribunal for A.Ys. 2007-08, 2008-09 & 2013-14, wherein we have upheld the validity of reopening and sustained the additions of disputed purchase/ bogus purchase @ 6%. For the year under consideration the ld CIT(A) has already granted substantial relief in sustain the addition of said bogus purchase to the extent of 5% only. Thus, following the order of Tribunal in all the aforesaid years, the grounds of appeal raised by the assessee is dismissed. 8. In the result, the appeal of the assessee is dismissed. Order announced on 10th March, 2022 by placing the result on notice board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 10/03/2022/ SKM*

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Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File By order //// True Copy /// / TRUE ////COPY / / Sr.Pvt. Secretary, ITAT, Surat