KRINAL GEMS, SURAT V. ACIT, CRICLE 3(3), SURAT

CO 15/SRT/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2127 (ITAT-SURAT)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-04-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-04-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 30-09-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Bogus purchase; Accommodation entries; Retraction; Reassessment proceedings; Set aside
• Section: 148; 143(3); 143(2); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 537/SRT/2019 (AY: 2009-10) (Hearing in Virtual Court) A.C.I.T. Circle-3(3), Surat. Vs. M/s Krinal Gems, 4,5,6, Brahmani Krupa Building, Pratap Rolling Mill Compound, Opp. Sidhkutir, Varachha Road, Surat-395006. PAN : AAHFK 2787 P APPELLANT RESPONDEDNT C.O. No. 15/SRT/2021(AY: 2009-10) M/s Krinal Gems, 4 to 6, Brahmani Krupa Building, Pratap Rolling Mill Compound, Opp. Sidhkutir, Varachha Road, Surat-395006. PAN : AAHFK 2787 P Vs. A.C.I.T. Circle-3(3), Surat. APPELLANT RESPONDEDNT ITA No. 112/SRT/2019 (AY: 2010-11) A.C.I.T. Circle-3(3), Surat. Vs. M/s Krinal Gems, 4,5,6, Brahmani Krupa Building, Pratap Rolling Mill Compound, Opp. Sidhkutir, Varachha Road, Surat-395006. PAN : AAHFK 2787 P APPELLANT RESPONDEDNT ITA No. 83/SRT/2019 (AY: 2010-11) M/s Krinal Gems, 4 to 6, Brahmani Krupa Building, Pratap Rolling Mill Compound, Opp. Sidhkutir, Varachha Road, Surat-395006. PAN : AAHFK 2787 P Vs. D.C.I.T. Circle-3(3), Surat. ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 2 APPELLANT RESPONDEDNT Department by Shri H.P. Meena, CIT-DR Assessee by Shri Sapnesh Sheth, CA Date of hearing 11/04/2022 Date of pronouncement 27/04/2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This set of three appeals out of which one appeal by Revenue and Cross Objection (CO) therein by assessee for assessment year 2009-10 and two cross- appeals for assessment year 2010-11 are directed against the separate orders of ld. Commissioner of Income tax (Appeals)-3, Surat [‘CIT(A)’ for short] dated 12.09.2019 & 12.12.2018, which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 23.12.2016 & 12.12.2017 respectively. In all appeals the Revenue has raised certain common grounds of appeals, facts in both the years are almost common except variation of amount of additions on account of bogus purchases, therefore with the consent of the parties all the appeal are clubbed together, heard and are decided by consolidate order to avoid the conflicting decision. For appreciation of fact, facts for AY 2009-10 is treated as ‘lead’ case. The Revenue in its appeal in ITA No.537/SRT/2019 has raised the following grounds of appeal:- “1. Whether on facts and in law the ld. CIT(A) was justified in partly allowing the appeal of the assessee and estimating disallowance at Rs.10,78,941/- ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 3 being @ 5% of Rs.2,15,78,821/-, despite of the fact the AO has made the addition of Rs.2,15,78,821/-, where the purchases made by the assessee from M/s Mayur Exports of Rs.2,15,78,821/- were proved to be unverifiable and bogus? 2. Whether on the facts and in law the Ld. CIT(A) was justified in partly allowing the appeal of the assessee on the basis of the decision in the case of M/s Mayank Diamonds Pvt. Ltd., ignoring the facts that M/s Mayank Diamonds Pvt.Ltd. was only a trader of diamonds whereas, the assessee was manufacturer and trader of polished diamonds? 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 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 AO. It is, therefore, prayed that the order of the Ld. CIT(A) maybe set aside and that of the AO may be restored.” 2. The assessee in its CO has raised following grounds of appeal ---. “1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in partly confirming the action of assessing officer in making addition as unverifiable purchases by sustaining addition to the extent of Rs. 10,78,941/- as against addition of Rs. 2,15,78,821/- made by ld. assessing officer. 2. It is therefore prayed that above addition made by assessing officer and confirmed by Commissioner of Income Tax (Appeals) may please be deleted. 3. On the facts and circumstances of the case as well as law on the subject, the learned Assessing Officer has erred in rejecting book resulting u/s 145(3) of the I.T. Act. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal:” ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 4 3. Brief facts of the case are that assessee is a firm engaged in the business of manufacturing and export of diamonds. The assessee filed its return of income for the Assessment Year 2009-10 on 14/09/2009 declaring total income of Rs. 17,76,610/-. The case of the assessee was reopened on the basis of information received from DGIT (Investigation) Mumbai that a search action was carried out on Bhanwarlal Jain and his group wherein it was found that Bhanwarlal Jain group was providing accommodation entries in the garb of sale bills, purchase bills and secured loans in the name of various proprietary concerned and companies. The assessee is one of the beneficiary who had shown non-genuine transactions of Rs. 2.15 crores from Mayur Exports. Mayur Export is managed by Bhanwarlal Jain and his group. On the basis of such information, the Assessing Officer recorded reasons that income to the extent of non-genuine transaction of Rs. 2.15 crore has escaped from assessment. Accordingly, notice under Section 148 of the Act was issued on 31/03/2016. In response to notice under Section 148, the assesse filed his reply dated 07/04/2016 stated that the return of income filed on 14/09/2009 may be treated as return in response to notice under Section 148 of the Act. The assessee requested for reasons recorded. The reasons recorded were provided to the assessee. The Assessing officer recorded that the assessee was served notice under Section 143(2) of the Act on 23/5/2016 and proceeded for reassessment. During the reassessment proceedings, the Assessing Officer test checked the books of account, bills and vouchers and found that quantity wise and quality wise details ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 5 of rough and polished diamond was not maintained by the assessee. The Assessing officer took his view that the assessee could not establish as to how rough diamond is used for manufacturing of polished diamonds. It was not verified how much carrot wise diamond was manufactured. The Assessing officer issued show cause notice to the assessee and asked as to why the purchases shown from Mayur Exports of Rs. 2.15 crores should not be treated as non-genuine and added in the income of the assessee. The assessee filed its reply dated 20/12/2016. The contents of reply of the assessee is extracted in para 5 of assessment order. In reply, the assessee stated that the purchases shown from Mayur Exports are genuine business transactions of polished diamonds. The assessee firm has made sales of same during the year. The assessee filed confirmation from Mayur Exports and receipt of payment of sales and copy of statement of receipt of sales. The ledger accounts of Mayur Exports with bank statement reflecting the payment. Copy of purchase register of polished diamond reflecting transaction of polished diamond. The assessee filed affidavit of Shri Arvind Ghevarchand Jain, proprietor of Mayur Exports, confirming of sale of polished diamond and details of payment received against the sale of polished diamond from assessee. The assessee further stated that the reopening is bad in law. No opportunity to cross examination of Shri Bhanwarlal Jain and Shri Arvind Ghevarchand Jain was given to the assessee. The reply of the assessee was not accepted by the assessing officer. The assessing officer held that the assessee himself filed retraction of Bhanwar lal ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 6 Jain and affidavit of Arvind Ghevarchand Jain and was in hand in glove with them. The assessee failed to produce the supplier and was seeking their cross examination instead of producing them. The assessing officer rejected the books of accounts under section 145(3) by taking view that the assessee failed to prove the genuineness of the purchases. The Assessing Officer completed the assessment under Section 143(3) r.w.s 147 of the Act vide order dated 23/12/2016 by making disallowance of entire purchases of Rs. 2,15,78,821/- shown from Mayur Exports. 4. On appeal before the ld. CIT(A), the assessee challenged the validity of reopening as well as additions on merit. The ld. CIT(A) after considering the submission of assessee as well as material available on record, upheld the validity of reopening by referring the decisions of the various Hon’ble Courts by taking view that the assessing officer initiated the action under section 147/148 as per law. 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%. 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 as well as cross objection before us. The Revenue has also challenged the addition for restricting to the extent of 5% only. On the other the assessee has filed its Cross objection in ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 7 restricting the addition to the extent of 5% and also challenged the rejection of books of accounts. 6. We have heard the submissions of the learned CIT-DR for the revenue and the learned authorised representative (AR) for the assessee. The learned CIT-DR submits that the grounds of appeal on merit, in Ground No. 1 in assessee’s C.O. as well as in Revenue’s appeal are interconnected. The learned CIT-DR submits that the Assessing officer while passing the assessment order, made disallowance of bogus purchase made from Mayur Exports. Mayur Exports was managed by Bhanwarlal Jain and his group which were engaged in providing bogus entry of purchases without actual delivery of goods. 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 on Bhanwarlal 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 justified as the assessee failed to prove the genuineness of the purchases. The learned 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 ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 8 11/04/2018 by considering the fact that the gross profit rate of 5% is an average rate in the diamond industry. The learned CIT- 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. 7. On the other hand, the learned AR for the assessee submits that he is not pressing the grounds of appeal related with validity of reopening in AY 2010- 11. The ld AR for the assessee submits that the profit margin in the diamond industry is very less and the disallowances restricted by the ld CIT(A) is on higher side. In alternative submission, the learned AR submits that the Assessing Officer have not disputed the sales of assessee. The Assessing Officer made disallowance only on the basis of report of investigation Wing without making any independent investigation. No finding on the documentary evidences files by assessee was given by Assessing Officer. In other alternative submission, the learned AR submits that assessee has shown gross profit of more than 3%. In case the disallowance restricted by learned CIT(A) to the extent of 5% is affirmed the assessee may be allowed relief to the extent of gross profit declared by assessee. 8. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities. We find that the Assessing Officer made disallowance of entire purchases shown from Mayur Exports. Before making disallowance, the Assessing Officer rejected the books of account under ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 9 Section 145(3) of the Act. We find that no specific submission against rejection of books of account was made by learned AR of the assessee. Thus, the rejection of books of account is affirmed. 9. 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 Mayur Exports which is managed by Bhanwarlal Jain and his group. It is a known fact that Bhanwarlal 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. As recorded above, the learned 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 learned CIT-DR vehemently submitted that the disallowance restricted by the learned 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. 2.15 crores shown from hawala dealers, the ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 10 assessee may have shown other transaction with some other parties. However, the assessee has offered a meagre income of Rs. 17,76,610/- for taxation, thus the assessee was shown an extremely low profit. The combination of this bench 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 learned CIT(A) are increased to 6% of the impugned purchases of Rs. 2.15 Crores. 10. In the result, the grounds of appeal raised by the Revenue is partly allowed resultantly, the C.O. filed by the assessee is dismissed. Finally, the appeal of the revenue stands partly allowed and the C.O. of the assessee stands dismissed. 11. The assessee in its appeal for A.Y. 2010-11 in ITA No.83/SRT/2019 has raised following grounds of appeals:- “1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of assessing officer in reopening assessment by issuing notice u/s 148 of the I.T. Act, 1961. 2. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in partly confirming the action of assessing officer in making addition as unverifiable purchase by sustaining addition to the extent of Rs.24,54,836/- as against addition of Rs.4,90,96,724/- made by ld. assessing officer. Rs.7,58,540/-. ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 11 3. It is therefore prayed that above addition made by assessing officer and confirmed by Commissioner of Income-tax (Appeal s) may please be deleted.” 12. The revenue in its Cross appeal has raised following grounds of appeal; “1. Whether, on facts and in law the ld. CIT(A) was justified in partly allowing the appeal of the assessee and estimating disallowance at Rs.24,54,837/- @ 5% of Rs.4,90,96,724/-, despite of the fact, the AO has made the addition of Rs.4,90,96,724/-. 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. without considering the facts that M/s Mayank Diamonds Pvt.Ltd. was only a trader of diamonds whereas, the assessee was manufacturer and trader of polished diamonds. 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 case of the assessee’s. 4. On the facts and circumstances of the case, the Ld. 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.” 13. Considering the fact that we have partly allowed the appeal of Revenue in A.Y. 2009-10 and dismissed the cross objection raised by assessee. Since the facts and circumstances of the case as well as submissions of both the parties are identical of the facts and submissions of ITA No. 537/Srt/2019 for the Assessment year 2009-10. There is only difference in the amount disallowed by the Assessing Officer. Therefore, considering the totality of facts and circumstances of the case, the finding given by us in the former para i.e. in ITA ITA 537/SRT/2019 ACIT Vs Krinal Gems & Ors. appeals 12 No. 537/Srt/2019 for the A.Y. 2009-10 shall apply mutatis mutandis in these appeals also. 14. In the result, both the appeals of the Revenue are partly allowed and the C.O. by assessee in A.Y. 2009-10 and appeal of assessee for A.Y. 2010-11 is dismissed. Order pronounced on 27/04/2022 in open court and result was placed on notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 27/04/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order Sr. Private Secretary, ITAT Surat