Pavan Kumar Jain, Surat V. Income tax Officer Ward-2(3)(8), Surat

ITA 107/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1664 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-07-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 19-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Search and seizure; Accommodation entries; Tax effect; Reason to believe; Reassessment proceedings
• Section: 147; 148; 143(3); 142(1); 143(2); 73; 13; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.121/SRT/2019 Assessment Year: (2008-09) (Physical Court Hearing) The ITO, Ward-2(3)(8), Surat. Vs. Pavan Kumar Jain, Prop of Pavan International, Off. No. 412, Dharnanadan Chambers, Bali Sheri, Mahidharpura, Surat-395003. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ADTPJ5694B (Revenue)/(Appellant) (Assessee)/(Respondent) आयकर अपील सं./ITA No.107/SRT/2019 Assessment Year: (2008-09) (Physical Court Hearing) Pavan Kumar Jain, Prop of Pavan International, Off. No. 412, Dharnanadan Chambers, Bali Sheri, Mahidharpura, Surat-395003. Vs. The ITO, Ward-2(3)(8), Surat. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ADTPJ5694B (Appellant) (Respondent) Assessee by Shri Mehul Shah, CA Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 07/07/2022 Date of Pronouncement 20/09/2022 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned two appeals filed by the Revenue and Assessee, pertaining to the Assessment Year (AY) 2008-09, is directed against the common order passed by the Learned Commissioner of Income Tax (Appeals)-1, Surat [in short “the ld. CIT(A)”] in Appeal No. CIT(A),-1/10550/2016-17, dated 19.12.2018 which in turn arise out of assessment orders passed by the Assessing Officer under section 147 r.w.s 144 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) dated 22.03.2016. Page | 2 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain 2. First, we shall take Revenue’s appeal in ITA No. 121/SRT/2019 for AY.2008-09. 3. At the outset, Ld. Counsel for the assessee pointed out that tax effect in the said appeal of the Revenue is below the monetary limit prescribed by the CBDT Circular No.17/2019 dated 08.08.2019. Therefore, due to low tax effect, the appeal of the Revenue should be dismissed. 4. On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue fairly agreed that due to low tax effect, the appeal of the Revenue may be dismissed. 5. The CBDT has issued Circular No. 17/2019 dated 08.08.2019, whereby the monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal and High Courts and SLP before Supreme Court have been increased as measure for reducing Litigation. The revised monetary limits laid down in para-2 of this Circular are as follows: 1. Before Appellate Tribunal Rs.50,00,000/- 2. Before High Court Rs.1,00,00,000/- 3. Before Supreme Court Rs.2,00,00,000/- 6. In the present case, that is, the tax effect in the Revenue’s appeal is less than Rs.50,00,000/-. Though this appeal had been filed by the Revenue on 28/02/2019 and was within the monetary limit in the form of tax effect for filing appeals before Tribunal, however, in view of the recent Circular of CBDT, even such appeals will be governed by the new monetary limits laid down in the CBDT Circular No.17/2019 referred to above. 7. It is a settled law that the Circulars issued by CBDT are binding on the Revenue. This position was confirmed by the Apex Court in the case of Commissioner of Customs vs. Indian Oil Corporation Ltd. reported in 267 ITR 272 wherein their Lordships examined the earlier decisions of the Apex Court with regard to binding nature of the Circular and laid down that when a circular issued by the Board remains in operation then the Revenue is bound by it and cannot be Page | 3 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain allowed to plead that it is not valid or that it is contrary to the terms of the statute. The appeal under consideration has certainly been filed contrary to the Circular issued by the CBDT Circular No.17 dated 08.08.2019. Therefore, we dismiss the appeal filed by Revenue. 8. In the result, appeal filed by the Revenue (in ITA No.121/SRT/2019) is dismissed. 9. Now, we shall take assessee’s cross appeal in ITA No. 107/SRT/2019 for the same assessment year 2008-09, wherein the grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned assessing officer has erred in re-opening assessment u/s 147 by issuing notice u/s 148 of the IT. Act, 1961. 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 in making addition of Rs.4,27,264/- out of total addition of Rs.88,45,263/- being disallowance on account of bogus purchase. 3. It is therefore prayed that assessment framed u/s 144 r.ws. 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.” 10. We note that assessing officer made addition of Rs.85,45,283/- on account of bogus purchases, as the assessee was one of the beneficiaries of bogus purchase bills provided by Shri Rajendra Jam, Shri Sanjay Chaudhary and Dharmichand Jain Group during the previous year relevant to assessment year under consideration. On appeal, ld CIT(A) restricted the addition at the rate of 5% of bogus purchases at Rs.4,27,264/-. The Revenue is in appeal before us that addition made by the assessing officer to the tune of Rs.85,45,283/- should be sustained whereas assessee is in cross appeal before us that addition restricted by the ld CIT(A) at the rate of 5% of bogus purchases at Rs.4,27,264/- should also be deleted. We have dismissed the Revenue`s appeal for the same assessment year 2008-09 on account of low tax effect. However, assessee is in appeal before us against the addition sustained by ld Page | 4 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain CIT(A) at the rate of 5% of bogus purchases at Rs.4,27,264/-. Therefore, first we shall adjudicate ground no. 1, raised by the assessee, wherein the assessee has challenged the validity of reopening of assessment under section 147 of the Act. 11. Brief facts qua the issue are that the assessee has filed original return of income for AY.2008-09 declaring total income at Rs.2,32,590/- on 26.09.2008 The assessment was finalized u/s. 143(3) on 24.08.2010 determining the total income at Rs 2,99,980/-. In this case, an information was received by the office of the undersigned from the DIT (Inv). Mumbai that assessee was one of the beneficiaries of bogus purchase bills provided by Shri Rajendra Jam, Shri Sanjay Chaudhary and Dharmichand Jain Group during the previous year relevant to assessment year under consideration. Accordingly, it was construed that the income to the extent of purchase from such parties has escaped assessment within the meaning of section 147 of the Act, which lead into invoking of provisions of section 147 followed by issuance of notice u/s. 148 of the Act after recording reasons for such reopening of assessment as required under these provisions. Accordingly, notice u/s 148 dated 27.03.2015 was issued and served upon the assessee by Speed Post. The assessment was reopened by the AO by recording reasons The assessment was reopened after examining the information received from the DIT (Inv.), Mumbai and recording satisfaction for reopening by the AO. A Search and Seizure action was conducted in the premises of Shri Rajendra Jam, Shri Sanjay Chaudhary and Dharmichand Jain & his group concerns on 03.10.2013 by the DGIT (Inv), Mumbai. During the course of Search proceedings, it was established that the group concerns are all paper companies / firms/ Proprietorship concern with no real business activities, operating solely with the purpose of facilitation of fraudulent financial transactions which includes, providing accommodation entries in the form unsecured loans to interest parties, issuing of bogus sales / purchase bills to various parties and providing a bogus front to concerns which do not want to import diamonds in their own hands. Ongoing through the documents forwarded by the DIT (Inv), Mumbai, it was found that the assessee has obtained accommodation entries of bogus purchase from the concerns of Shri Rajendra Jain, Shri Sanjay Page | 5 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain Chaudhary and Dharmichand Jain & Others, during the financial year 2007-08 relevant to AY 2008-09, the detail of which is given as under: Sr. No. Name of the Entry Provider Amount (Rs.) 1 Mayank 1,97,05,350/- Total 1,97,05,350/- 12. Thereafter, Assessing Officer discussed the facts of the case and modus operandi of business of Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain Group, are as follows: During the course of search action, it was revealed that the said group is exclusively engaged in the business of issuing non-genuine purchase bills and also unsecured loan accommodation entries to various parties It is thus established from the search and seizure action that the alleged concerns of Shri Rajendra Jain. Shri Sanjay Chaudhary and Dharmichand Jain Group are all paper companies / proprietorships and with no real business activities, operating solely with the purpose of facilitation of fraudulent financial transactions which includes providing accommodation entries in the form of unsecured loans to the interested parties, issuing of bogus sale / purchase bills to various parties etc. During the course of search and seizure action in the case of Shri Rajendra Jam, Shri Sanjay Chaudhary and Dharmichand Jain Group of cases on 03.10.2013 by the DGIT(Inv), Mumbai, it was found that there are name-sake dummy directors / partners / proprietors / brokers, etc. These concerns were being actually managed by Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain & others. These group concerns were believed to be concerns actively involved in providing non-genuine purchase bills and also unsecured loan accommodation entries to various interested parties. As a result of the search and seizure action, it was conclusively proved that these diamond concerns are only on paper base with no real business activities. Findings of the search action on Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain & Others reveals that Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain and associates manage, control and operate numerous concerns in the name of various persons who are shown as name-sake directors, partners and proprietors through which they provide accommodation entries of Page | 6 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain loans and advances, purchase and sale & unsecured loans to various parties / beneficiaries. The name-sake / dummy Directors / proprietors / Partner of all these concerns admitted on oath that they were merely employees of Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain and others and were looking after miscellaneous office work like depositing cheques in banks, handling over parcels to clients, making data entry etc. Since these persons were employees and were associated with the office work, they do have perfunctory knowledge about the nature of business activity of the concerns, which they are shown as Directors, partners and proprietors. However, all of them do not have any technical or in depth knowledge of diamond industry like assorting cutting, manufacturing etc. From the above, it clearly indicates that these employees are completely dependent on Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain and others and have no stake whatsoever in the business of the concerns in which they were shown as directors, partners and proprietors and it was the later who manage the business affairs of all the concerns with whom these employees have lent their name. 13. The assessing officer observed that all the concerns are shown to be engaged in import of diamonds. However, when these name-sake directors/ Partners/ Proprietors were specifically asked to explain as to how they contacted the parties from whom the imports have been made in the respective concerns, they were unable to comment on the same. The facts mentioned above prove that these employees have never made any import on their own and all the imports in the concerns in which they are shown as directors, partners and proprietors and are made at the direction of Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain arid family. The statements of the employees were confronted to Shri Rajendra Jam in his statement recorded under section 132(4) of the I.T. Act, 1961 on 11.10.2013. Shri Rajendra Jain has admitted that he manage and controls the business affairs of all the concerns in which the persons who were his employees are also shown as directors, partners and proprietors. The List of group concerns operated and managed by Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain & others was obtained from him. It must be mentioned at the Page | 7 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain outset, that all these group concerns were shown to be in the business of import and export of diamonds. All of them have license which make them eligible for importing diamonds. Further, data collected from customs department had revealed that all the said group concerns have genuinely been importing diamonds for last many years. The imported diamonds were also getting cleared by the CHAs. It prima facie gives an impression that all the group benami concerns were indeed in the business of import of diamond and its subsequent exports (which is a miniscule amount; and local sale. However, many evidences were found during the course of search which proved that these concerns were not into any genuine business. Such findings are enumerated below: (i) No Stock of diamond found: During the course of search, all the registered offices, business premises, business and residential premises of various dummy directors, partners and proprietors including that of Pravin Kumar Jain, and were covered. At none of these premises, any stock of diamond trade, at a given point of time would at least have some stock of diamond available. However, the fact that none of the group concerns had any stock of diamonds as on 01.10.2013 i.e. the day when search commenced raises a suspicion with regard to genuineness of business activity of these group concerns. (ii) Books of accounts not maintained at the respective registered offices: The registered offices and residential premises of the said group concerns and the Shri Rajendra Jam, Shri Sanjay Chaudnary and Dharmichand Jain and others in Mumbai and Surat were covered during the search action. However, the team of the Income Tax Authorities did not find any books of account of the said group benami concerns at any of the premises. 14. Therefore, assessing officer observed that during the course of search, evidences were found, persons were examined on oath which established that Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain and others have been using benami concerns to give accommodation entries in the nature of bogus purchase and bogus unsecured loans to various beneficiaries. Examination on oath of trusted employees of Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain for giving such accommodation entries of bogus purchases and Page | 8 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain loans and advances to various beneficiaries. There are many players in the diamond market who purchase diamond front the grey market and are in need of bogus purchase bills to regularize the corresponding sale. Further, there are others who want to take accommodation entries of bogus purchases expenses. All such parties approach likes of Shri Rajendra Jam, Shri Sanjay Chaudhary and Dharmichand Jain to get bogus accommodation entry of purchases. The benami concerns of Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain and family import diamonds on behalf of real importers to whom these diamonds are handed over out of books. But in the regular books of accounts of the benami concerns, the imported diamonds still appear as stock (bogus). This is the reason why during the search no stock of diamond was found from any of the residential or business premises of the assessee and his employees. Against this bogus stock, bogus sale bills are issued to beneficiary parties who are in need of taking accommodation entries for bogus purchases. The above finding of the Investigation Wing as summarized above clearly established the bogus nature of the transactions entered into by the Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain Group, it also establishes that forming of basis for reopening of the case was substantive and not based on mere belief. The Investigation Wing has carried out thorough Investigation and established beyond doubt that the transactions arc bogus. 15. In response to the notice issue by the Assessing Officer, the assessee submitted its reply before the assessing officer, vide letter dated 01.07.2015, wherein assessee requested to treat the original return of income filed on 23.03.2008, as return of income filed in response to notice u/s 148 of the Act. The notice u/s 143(2) of the Act, dated 15.12.2015 was issued and served upon the assessee. The notice u/s 142(1) was also issued by AO along with the detailed questionnaire to the assessee calling for various details clarifications etc. 16. In response to the notices issued, the assessee has filed the details and submissions before the assessing officer. However, assessing officer has rejected the contention of the assessee and held that assessee had obtained the bogus bill to Page | 9 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain the tune of Rs.85,45,283/- from M/s Mayank without actually getting the material (diamond). Thus, the bill issued by the said group concern is nothing but accommodation entry. Hence, the accommodation entry received from M/s Mayank to the tune of Rs.85,45,283/- was treated as bogus purchase by the AO and added to the total income of the assessee. 17. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has dismissed the technical ground of the assessee challenging the validity of reopening of assessment under section 147 of the Act. 18. Shri Mehul Shah, Learned Counsel for the assessee, pleaded that reopening of assessment, in the assessee`s case, is after the period of four years and there is no failure on the part of the assessee, to disclose fully and truly of all necessary facts for making the assessment. The Ld. Counsel submitted that in reasons recorded, the Assessing Officer mentioned that assessee does not have PAN Number, however the assessee is having valid PAN Number. In the reasons recorded status of the assessee is not mentioned. The Ld. Counsel also pointed out that no reference of original assessment order is given in the reasons so recorded by the assessing officer. The Ld. Counsel also pointed out that in reasons recorded no reference of the reopening of assessment after four years has been given stating that “there was failure on the part of the assessee to disclose fully and truly all material facts, necessary for assessment” Therefore, after four years, the Assessing Officer may reopen the assessment provided, there is failure on the part of the assessee to disclose fully and truly all material facts necessary for making the assessment. Hence, reassessment proceedings are itself bad in law and hence may be quashed. 19. On the other hand, the Ld. DR for the Revenue submitted that because of typographical error, the Assessing Officer did not mention the PAN Number in the reason recorded and also did not mention the status of the assessee. It is not necessary for the Assessing Officer to mention in the reasons that the original assessment order was framed and the reassessment was reopened after the four Page | 10 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain years. Therefore, the Ld. DR for the Revenue submitted that there is no infirmity in the reasons recorded by the Assessing Officer. 20. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. Counsel. We have gone through the reasons recorded by the assessing officer and noted that not only there existed new information with the AO from the credible sources, but also that he has applied has mind and recorded the conclusion that the purchases claimed were non- genuine and therefore bogus, (clearly meaning that what was disclosed was false and untruthful). The Hon'ble Supreme Court in the case of Phul Chand BajrangLal and another vs. ITO 203 ITR 456, was considering the question of reassessment beyond the period of four years in the case of an assessee firm; and had held that in case of acquiring fresh information specific in nature and reliable, relating to the concluded assessment, which went to falsify the statement made by the assessee at the time of original assessment and, therefore, he would be permitted under the law to draw fresh inference from such facts and material. The Court also went to an extent of saying that there are two distinct and different situations where the transaction itself, on the basis of subsequent information is found to be bogus transaction and in such event, mere disclosure of the transaction cannot be said to be true and full disclosure and the Income-tax Officer would have jurisdiction to reopen the concluded assessment. It would be apt to quote some observations of the Apex Court in the case of Phul Chand Bajrang Lal (supra), which read as under: "...one has to look to the purpose and intent of the provisions. One of the purposes of Section 147 appears to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would, be travesty of justice to allow the assessee that latitude." 21. The Hon'ble Gujarat High Court in the case of Dishman Pharmaceuticals and Chemicals Ltd. vs. DCIT (OSD), Ahmedabad (2012) 346 ITR 228 (Guj) has summed up the requirements of the law, in such circumstances and has held that: “There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on Page | 11 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain account of non-filing of the return by the assessee or failure on his part to disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor, absence of any such statement would be fatal if on the basis of reasons recorded, it can be culled out that there were sufficient grounds for the Assessing Officer to hold such beliefs." 22. A three Judges bench of Hon'ble Gujarat High Court in the case of A.L.A. Firm v. CIT, 189 (1991) ITR 285, after an elaborate discussion of the subject opined that the jurisdiction of the Income Tax Officer to re-assess income arises if he has in consequence of specific and relevant information coming into his possession subsequent to the previous concluded assessment, reason to believe, that income chargeable to tax and had escaped assessment. It was held that even if the information be such that it could have been obtained by the I.T.O. during the previous assessment proceedings by conducting an investigation or an enquiry but was not in fact so obtained, it would not affect the jurisdiction of the Income Tax Officer to initiate reassessment proceedings, if the twin conditions prescribed under Section 147 of the Act are satisfied. As observed earlier not only there existed new information with the AO from the credible sources, but also he had applied his mind and recorded the conclusion that the purchases claimed were non-genuine and therefore bogus, (clearly meaning that what was disclosed was false and untruthful). The requirements of section 147 r.w.s. 148 have clearly been met; and the reopening is held justified and legal. Therefore, we dismiss ground no.1 and 3 raised by the assessee. 23. Coming to ground no. 2 raised by the assessee, which is on merit, we note that Co-ordinate Bench of this Tribunal has taken a view in the case of Pankaj K. Chaudhary, in ITA No.1152/AHD/2047, dated 27.09.2021 that addition at the rate of 6% on bogus purchases is fair and sufficient. The findings of the Coordinate Bench are given below: “12. We have heard the submission of ld.CIT-DR for the Revenue and the ld. Authorised Representative (AR) of the assessee. We have also gone through the various documentary evidences furnished by assessee. The ld. CIT-DR for the Revenue supported the order of AO. The ld. CIT-DR submits that Investigation Wing, Mumbai made a search on Bhanwarlal Jain Group. During the search and after search, the Investigation Wing made a thorough investigation and concluded that Bhanwarlal Jain Group and his associates including his sons were indulging in managing about 70 benami concerns. The benami concerns were engaged in Page | 12 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain providing accommodation entries. The assessee is one of the beneficiaries of such accommodation entries. In the transaction of accommodation entries, the documentary evidences are created in such a way, so that the bogus transaction is looks like genuine transaction. In bogus transaction, the fabricated evidences are always maintained perfectly. The assessee has obtained accommodation entry only to inflate the expenses and to reduce the ultimate profit. No stocks of diamonds were found at the time of search on Bhanwarlal Jain Group. The assessee has shown a very meagre gross profit (GP) @ 0.78% and not net profit (NP) at 0.02%. The ld. CIT(A) restricted the addition to the extent of 12.5% which is on the lower side. The ld. CIT-DR for the revenue prayed that disallowance made by the AO may be upheld or in alternative submitted that it may restricted at least @ 25%, keeping in view that the NP declared by the assessee is extremely on lower side. 13. On the validity of reopening, the ld.CIT-DR for the revenue submits that the AO received credible information about the accommodation entry provided by Bhanwarlal Jain Group. The assessee is one of the beneficiaries, who had availed accommodation entries from such hawala trader. At the time of recording reasons, the mere suspicious about the accommodation entry is sufficient as held by Hon'ble jurisdictional High Court in various cases. To support his submissions, the ld.CIT-DR relied upon the decision;  Pushpak Bullion (P) Ltd Vs DCIT [2017] 85 taxmann.com 84(Gujarat High Court),  Peass Industrial Engineers (P) Ltd Vs DCIT [2016] 73 taxmann.com 185 (Gujarat High Court),  ITO Vs Purushttom Dass Bangur [1997] 90 Taxman 541 (SC) and  Mayank Diamond Private Limited (2014) (11) TMI 812 (Gujarat High Court).  AGR Investment Vs Additional Commissioner 197 Taxman 177 (Delhi) and  Chuharmal Vs CIT [1998] 38 Taxman 190 (SC). 14. On the other hand, the ld.AR of the assessee submits that he has challenged the validity of reopening as well as restricting the addition to the extent of 12.50% of the alleged bogus purchases. The ld.AR of the assessee submits during the assessment, the AO has not made any independent investigation. The AO reopened the case of the assessee on the basis of third party information without making any preliminary investigation. The AO received vague information about providing accommodation entry by Bhanwarlal Jain Group. No specific information about the accommodation entry obtained by assessee was received by AO. There is no live link between the reasons recorded qua the assessee. Therefore, the re-opening is invalid and all subsequent action is liable to be set aside. 15. On account of additions of bogus purchases, the ld.AR submits that in the original assessment, the assessee filed its complete details of purchases to prove the genuineness of expenses. The AO accepted the same in the assessment order passed under section 143(3) on 10.03.2009. During re-assessment, the assessee again furnished complete details about the genuineness of purchases. The assessee filed confirmation purchases invoices, accounts of the parties, bank statement of assessee showing transaction to the banking channel. The AO has not Page | 13 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain made any comment on the documentary evidence furnished by assessee. The AO solely relied upon the statement of third party and the report of Investigation Wing. The report of wing and the statement of Bhanwarlal Jain were not provided to the assessee. The AO has not disputed the sales of assessee. No sale is possible in absence of purchase. The books of accounts were not rejected. The AO made the disallowance of entire purchases. The assessing officer not provided cross examination of the alleged hawala dealers. The disallowances sustained by the Ld. CIT(A) @ 12.5% of the impugned purchases, is on higher side and deserve to be deleted in total. The ld.AR of the assessee submits that entire purchases shown by assessee are genuine. In without prejudice and alternative submissions, the Ld. AR for the assessee submits that in alternative submission, the disallowance may be sustained on reasonable basis. To support his various submission, the ld.AR for the assessee is relied upon case laws: 1 M/s Andaman Timber industries VsCommissioner of Central Excise, CIVIL APPEAL NO. 4228 OF 2006 (Supreme Court) 2 CIT vs. Indrajit Singh Suri [2013] 33 taxmann.com 281 (Gujarat) 3 Albers Diamonds Pvt. Ltd. Vs ITO 1(1)(1), Surat I.T.A. No.776 &1180/AHD/2017 4 The PCIT-5 vs. M/s. Shodiman Investments Pvt. Ltd. TTANO. 1297 OF 2015 (Bombay High Court) 5 ShilpiJewellers Pvt. Ltd. vs. Union of India &Ors. WRIT PETITION NO. 3540 OF 2018 (Bombay High Court) 6 CIT in Vs. Mohmed Juned Dadani 355 ITR 172 (Gujarat) 7 Micro Inks Pvt. Ltd. Vs. ACIT [2017] 79 taxmann.com 153 (Gujarat) 8 Shakti Karnawat Vs. ITO - 2(3)(8), Surat ITA 1504/Ahd/2017 and 1381 /Ahd/2017 9 Asian Paints Ltd. Vs. DCIT, [2008] 296 ITR 90 (Bombay) 10 PCIT, Surat 1 Vs. Tejua Rohit kumar Kapadia [2018] 94 taxmann.com 325 (SC) 11 The PCIT-17 vs. M/s Mohommad Haji Adam & Co. ITA NO. 1004 OF 2016(Bombay High Court) 12 Pankaj Kanwarlal Jain HUF Vs. ITO 2(3)(8) Surat ITA.No.269/SRT/2017 16. In the rejoinder submissions the ld. CIT-DR for the revenue submits that that rigour of the rules of evidence contained in the Evidence Act is not applicable before the tax authorities. It was submitted that the ratio of various case laws relied by the ld. AR for the assessee is not applicable on the facts of the present cases. 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. 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 income and audit report. We have also gone through the documentary evidences furnished in all cases. Ground No.1 Page | 14 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain 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 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 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. 19. Ground No. 2 in assessee’s appeal and the grounds of appeal raised by the revenue are interconnected, which relates to restricting the disallowance of bogus purchases to the extent of 12.5%. The AO made of 100% of purchases shown from the hawala dealers/ entry provider namely Bhanwarlal Jain. We find that the AO while making additions of 100%, of disputed purchases solely relied on the report of the investigation wing Mumbai. No independent investigation was carried by the AO. The AO has not disputed the sale of the assessee. The AO made no comment on the evidences furnished by the assessee. We further find that ld CIT(A), while considering the submissions of the assessee accepted the lapses on the part of the AO and noted that no sale is possible in absence of purchases. The Books of the assessee was not rejected by the AO. The ld CIT(A) on further examination of the facts and various legal submissions find that Ahmedabad Tribunal in Bholanath Poly Fab Private Limited (supra) held that in the such cases the addition of bogus Page | 15 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain purchases was sustained to the extent of 12%, on the 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 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 search action on Bhanwarlal Jain no 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.” Page | 16 121 & 107/SRT/2019/AY.2008-09 Pavan Kumar Jain 24. We notice that the issue is squarely covered by the decision of the Co- ordinate Bench of Surat in the case of Pankaj K. Choudhary (supra) and there is no change in facts and law, therefore respectfully following the binding precedent, we direct the Assessing Officer to sustain the addition at the rate of 6% of bogus purchases. 25. In the result, appeal filed by the Revenue (ITA No. 121/SRT/2019) is dismissed, and appeal filed by the Assessee (ITA No. 107/SRT/2019) is dismissed. Registry is directed to place one copy of this order in all appeals folder / case files. Order is pronounced in the open court on 20/09/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 20/09/2022 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat