ACIT-18(1), MUMBAI V. M/S. JEWELLERS NARANDAS & SONS, MUMBAI

ITA 1226/MUM/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6795 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR G SUBRAHMANYAM
• Assessee Lawyers: K SHIVARAMAN
• Keywords: Reopening of assessment; Bogus purchase; Principle of natural justice; Peak credit; Accommodation entries; Reassessment proceedings; Set aside
• Section: 69C; 143(3); 142(1); 133(6); 143(1); 143(2); 44AB; 13; 147; 148; 132

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, J M & SHRI S. RIFAUR RAHMAN, AM ./ I.T.A. NO . 1226 /MUM/2018 ( / ASSESSMENT YEAR: 2007 - 08 ) A CIT - 18(1 ) , ROOM NO. 202, 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400 002 / VS. M/S JEWELLERS NARANDAS & SONS, 255, SHEIK MENON STREET, ZAVERI BAZAR, MUMBAI - 400 002 ./ ./ PAN NO. AA A FJ2885J ( / APPELLANT ) : ( / RESPONDENT ) & C.O. NO . 59/MUM/2019 ( / ASSESSMENT YEAR: 20 07 - 08 ) M/S JEWELLERS NARANDAS & SONS, 255, SHEIK MENON STREET, ZAVERI BAZAR, MUMBAI - 400 002 / VS. ACIT - 18(1), ROOM NO. 202, 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400 002 ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI VIJAY KUMAR G. SUBRAHMANYAM , DR / RESPONDENTBY : SHRI K. SHIVARAMAN , AR / DATE OF HEARING : 03.12 .2020 / DATE OF PRONOUNCEMENT : 14.01.2021 2 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS / O R D E R PER S. RIFAUR RAHMAN ( ACCOUNTANT MEMBER) : THE P RESENT A PPEAL AS WELL AS CROSS OBJECTION HAVE BEEN FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY ARE AGAINST THE ORDER OF LD. COMMIS SIO NER OF INCOME TAX (APPEALS) - 29 IN SHORT REFERRED A S LD. CIT(A), MUMBAI, DATED 07.12.17 FOR AS SESSMENT YEAR (IN SHORT AY) 2007 - 08 RESPECTIVELY. 2. SINCE, THE FACTS RAISED IN THE APPEAL FILED BY THE REVENUE AS WELL AS C.O. FILED BY THE ASSESSEE ON THE REVENUE APPEAL ARE COMMON ISSUE. THEREFORE, IT IS HEARD AND DISPOSED OF F BY THIS CONSOLIDATED ORDER. 3 . THE BRIEF FACTS OF THE CASE ARE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 24.10.2007 DECLARING TOTAL INCOME OF RS. 40 , 94,154 / - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY ASSESSMENT ORDER U/S 143(3) WAS PASSED BY AO DETERMINING THE TOTAL INCOME OF RS. 41,22,080/ - . FURTHER, THE CASE WAS REOPENED U/S 147 OF THE ACT, ACCORDINGLY NOTICE U/S 148 OF THE ACT WERE ISSUED AND SERVED ON THE ASSESSEE. VIDE LETTER DATED 11.04.2014, ASSESSEE REQUE STED THE AO TO TREAT THE RETURN FILED ON 3 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS 24.10.2007 AS RETURN FILED U/S 148 OF THE ACT. FURTHER, NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE, AR OF THE ASSESSEE FILED THE RELEVANT INFORMATION AS CALLED FOR. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORTER OF GOLD ORNAMENTS. AO IN REFERENCE TO THE SEARCH ACTION CONDUCTED ON SH. RAJENDRA JAIN GROUP, SHRI SANJAY CHOUDHARY GROUP AND SHRI DHARAMCHAND GROUP OF CASES BY D GIT(LNV.), MUMBAI ON 03/10/2013 AND HE NOTED THAT SHRI RAJENDRA JAIN, SHRI SANJAY CHOUDHARY AND DHARAMCHAND JAIN ARE SOME OF THE ENTRY PROVIDERS OPERATING IN MUMBAI, INDULGING IN PROVIDING ENTRIES IN THE NATURE OF BOGUS SALES AND UNSECURED LOANS. AO OBSERVED THAT DURING THE FINANCIAL YEAR 2006 - 07 THE AS SESSEE HAS ENTERED INTO TRANSACTIONS TO THE EXTENT OF RS. 4,60,17,324/ - WITH 3 PARTIES I.E. MS/ MOULIMANI , M/S VITRAG AND M/S SUN DIAM AND THESE PARTIES BELONGS TO THE ABOVE SAID GROUPS WHICH ARE INDULGING IN PROVIDING ACCOMMODATION ENTRIES. FURTHER AO ISSUED NOTICE TO THE ASSESSEE TO PROVIDE THE DETAILS OF TRANSACTIONS AND SUBMIT THE COPIES OF LE DGER ACCOUNTS. AT THE SAME TIME, NOTICE U/S 133(6) 4 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS WAS ISSUED TO THE ABOVE SAID PARTIES AND THE SAME WERE RETURN ED UNSERVED. 5. IN RESPONSE, AR OF THE ASSESSEE PROVIDED THE COPY OF LEDGER ACCOUNTS, COPY OF BANK STATEMENT OF THE ASSESSEE SHOWING THE PAYME NT FOR PURCHASES, QUANTITATIVE DETAILS OF DIAMONDS IN THE STOCK ACCOUNT OF THE ASSESSEE AND C ONFIRMATIONS OF PURCHASES FROM THE PARTIES MENTIONED AND RETURN OF INCOME OF THE PARTIES AND COPY OF THEIR BANK STATEMENT OF THE ABOVE SAID PARTIES. AFTER CONSIDER ING THE DETAILS SUBMITTED BEFORE AO, AO OBSERVED THAT THE ABOVE SAID CONCERNS WITH WHOM ASSESSEE HAS MADE PURCHASES WAS OPERATED BY SHRI. RAJENDRA JAIN GROUP, SHRI SANJAY CHOUDHARY GROUP & SHRI DHARAMCHAND GROUP. ACCORDINGLY, AO REJECTED THE CONTENTIONS /S UBMISSIONS MADE BY THE ASSESSEE. 6. AO H EAVILY RELIED ON THE INVESTIGATIONS MADE IN THE ABOVE SAID GROUPS BY THE INVESTIGATION WING OF THE DEPTT. AND CAME TO THE CONCLUSION THAT ASSESSEE HAD MADE CASH PURCHASES OF RS. 4,60,17,324/ - AND ASSESSEE HAS UTILIZ ED CASH TO MAKE PAYMENT FOR SUCH PURCHASES. HE OBSERVED THAT CONSIDERING THE POSSIBILITY OF REPEATED USE OF CASH BY SEQUENTIAL TRANSACTIONS OF CASH PURCHASES 5 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS AND ADJUSTING THE SAME AGAINST TAKING OF BOGUS BILLS AND MAKING CHEQUE PAYMENTS , SUBSEQUENT RECEIV ING BACK OF CASH OF THE SAME AMOUNT, ACCORDINGLY, AO GAVE BENEFIT TO THE ASSESSEE TO THE TUNE OF RS. 1,86,90,549/ - AS PAYMENTS MADE TO THE BOGUS BILLERS AND SUBSEQUENTLY CASH OF THE SAME AMOUNT HAS BEEN RECEIVED. ACCORDINGLY, HE MADE THE ADDITION OF THE DIFF ERENCE OF TOTAL CASH PURCHASE (LESS ) RS. 1,86,90,549 AS BENEFIT OF PEAK CREDIT AND ACCORDINGLY, AO MADE AN ADDITION OF RS. 2,73,26,775/ - U/S 69C OF THE ACT. 7. FURTHER, AO OBSERVED THAT ASSESSEE HAS SUBMITTED CARAT - WISE QUANTITATIVE DETAILS OF DIAMON DS. HOWEVER, ASSESSEE HAS NOT SUBMITTED THE DETAILS OF HOW MUCH STOCK IS KEPT IN THE FORM OF LOOSE DIAMONDS AND HOW MUCH IS KEPT IN THE FORM OF DIAMOND JEWELLERY. HE OBSERVED THAT IT IS ESTABLISHED THAT A SSESSEE HAS TAKEN A BOGUS PURCHASE BILL FROM ACCOMMO DATION ENTRY PROVIDERS. IT IS DOUBTFUL THAT THE BILL WOULD CORRESPOND TO THE ACTUAL COST THAT THE ASSESSEE INCURRED IN THE GREY MA RKET. IT IS A KNOWN PRACTIC E THAT GREY MARKET GOODS ARE SOLD AT A RELATIVELY LOWER PRICE THAN IN THE R EGULAR MARKETS. HE FURTH ER OBSERVED THAT IT WAS CLAIMED BY THE ASSESSEE THAT THE MATERIAL PURCHASED WERE EITHER SOLD OR WERE 6 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS THERE IN CLOSING STOCK THE MINIMUM INFLATION OF THE ACCOMMODATION BILLS WILL BE EQUAL TO GROSS PROFIT OFFERED BY THE ASSESSEE. I N ORDER TO FULFIL L THE GAP OF ANY REVENUE LEAKAGE AND TO MEET THE CAUSE OF JUSTICE , AO PROPOSED 2.5% OF THE PURCHASE VALUE AS SUPPRESSED REVENUE. ACCORDINGLY, HE MADE DISALLOWANCE OF RS. 11,50,433/ - . 8 . AGGRIEVED WITH THE AB OVE ORDER, ASSESSEE PREFERRED THE APPEAL BEFORE LD . CIT(A) AND BEFORE HIM, MADE A DETAIL ED SUBMISSION. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE, DELETED THE ADDITION OF RS. 2,73,26,775/ - AND ESTIMATED THE GP @ 3% OF THE PURCHASES AND PARTLY ALLO WED THE APPEAL OF THE ASSESSEE WITH THE FOLLOW ING OBSERVATIONS: - 6. ALL THE GROUNDS OF APPEAL ARE RELATE D TO THE BOGUS PURCHASE OF RS. 4,60, 17,324/ - BY THE APPELLANT. FOR THE SAKE OF CO NVENIENCE, ALL THE GROUNDS OF APPEAL ARE DISCUSSED TOGETHER. 6.1 THE APPELLANT IS A FIRM ENGAGED IN THE BUSINESS OF EXPORT OF GOLD ORNAMENTS. THE ASSESSEE PURCHASES DIAMONDS FROM VARIOUS LOCAL PARTIES AND EXPORTS THE SAME TO VARIOUS PARTIES. DURING THE F.Y. 2006 - 07 RELEVANT TO A.Y. 2007 - 08, THE ASSESSEE 7 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS PURCHASED GOODS WORTH RS. 4,60,17,324/ - FROM M/S MOULIMANI, M/S. VITRAG AND M/S. SUN DIAM. DURING THE APPELLATE PROCEEDINGS, APPELLANT HAS STATED THAT ALL PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES AND AMOUNTS RECEIVED AGAINST EXPORTS ARE ALSO BY ACCOUNT PAYEE CHEQUES. TH E APPELLANT HAS DULY MAINTAINED ALL BOOKS OF ACCOUNTS. THE APPELLANT ALSO PRODUCED BANK STATEMENTS SHOWING THE PAYMENT FOR PURCHASES BEFORE THE AO WHEREIN THE PURCHASES MADE FROM M/S MOUIIMANI, M/S. VITRAG AND M/S. SUN DIAM ARE PROPERLY REFLE C TED. THERE IS A CORRESPONDING EXPORT AGAINST THIS PURCHASE. EXPORT IS ROUTED THROUGH PROPER CUSTOM CHANNEL AND WITHOUT PURCHASE OF ACTUAL GOODS, EXPORTS OF GOODS IS NOT POSSIBLE. THERE IS ALSO TOTAL QUANTITATIVE TALLY OF THE STOCK. ALSO THE APPELLANT HAS SUBMITTED CONFIRMATION OF PURCHASES FROM THE PARTIES MENTIONED AND RETURN OF INCOME OF THE PARTIES AND BOOKS OF ACCOUNTS ARE AUDITED U/S 44AB OF THE INCOME TAX ACT, 1961. THE APPELLANT HAD PRODUCED AN AFFIDAVIT BEFORE THE ASSESSING OFFICER CONFIRMING THE TRANSACTIONS. THE APPELLANT HAS SUPPLIED DETAILS OF THE PURCHASES FROM M/S MOUIIMANI, M/S. VITRAG AND M/S. SUN DIAM INCLUDING THE NAME & ADDRESS OF PARTY, CONFIRMATION OF PARTY, COPY OF BILL, MODE OF PAYMENT ETC. ENTIRE PAYMENT OF PURCHASES WAS MADE BY ACC OUNT PAYEE CHEQUES ONLY. THE SALES ARE EXPORTS AND THERE ARE NO DEFECTS FOUND IN ANY OF THE SALES TRANSACTIONS, 8 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS SO PURCHASES ARE PRESUMED TO BE GENUINE. THE SALES AND PURCHASES ARE FULLY VOUCHED AND ALL THE PURCHASES AND SALES ARE PROPERLY RECORDED IN T HE BOOKS OF ACCOUNTS. 6.2. FROM THE ASSESSMENT ORDER, IT TRANSPIRES THAT THE AO HAS SOLELY RELIED UPON THE STATEMENTS OF SHRI. RAJENDRA JAIN AND DID NOT CARRY OUT ANY WORTHWHILE INDEPENDENT INQUIRY IN THE MATTER. HE HAS TOTALLY IGNORED THE DOCUMENTARY EVI DENCES SUBMITTED BY THE APPELLANT. THE AO IN THE ASSESSMENT ORDER HAS ADMITTED EXISTENCE OF THESE DETAILS. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE ABOVE MENTIONED DOCUMENTARY EVIDENCES SUBMITTED DURING ASSESSMENT P RO CEEDINGS. WITHOUT POINTING OUT ANY LACUNA IN THE EVIDENCES SUBMITTED BY THE APPELLANT , THE SOURCES AND THE GENUINENESS CANNOT BE DOUBTED. ONCE EVIDENCES RE LATED TO A TRANSACTION IS SUBMITTED BEFORE THE A.O., THE ONUS SHIFTS ON HIM TO PROVE THESE AS NON - GENUINE OR BOGUS. THE A.O. HAS NOT DIS CHARGED THE ONUS CASTED ON HIM. IN MY OPINION, MERELY BASED ON THE STATEMENT OF A THIRD PERSON WITHOUT ANY CORROBORATIVE EVIDENCE WILL NOT MAKE THE TRANSACTIONS, IN QUESTION, AS NON - GENUINE OR BOGUS TRANSACTION. AS SUCH, IN THE ABSENCE OF ANY CONTRARY EVID ENCE PLACED ON RECORD, THE TRANSACTION CANNOT BE TREATED AS BOGUS OR PAPER TRANSACTION. 9 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS 6.3. AS FAR AS THE QUESTION OF VALIDITY OF THE TRANSACTION, EVEN IF SOME OF THE TRANSACTIONS ENTERED INTO BY THE ABOVE PARTIES ARE FOUND TO BE NOT GENUINE, IT DOES NOT LEAD TO THE CONCLUSION THAT ALL THE TRANSACTIONS ENTERED INTO BY THESE PARTIES WERE BOGUS OR NON - GENUINE INCLUDING THE TRANSACTIONS RELATED TO THE APPELLANT. THERE IS NO EVIDENCE BROUGHT IN THE ASSESSMENT ORDER TO PROVE THE ABOVE CONCLUSION, BY THE AO. THE REASSESSMENT PROCEEDINGS WERE WIDE OPEN AND THE AO COULD HAVE CARRIED OUT INDEPENDENT INVESTIGATION TO PROVE HIS ARGUMENT REGARDING THE BOGUS OR NON - GENUINE TRANSACTIONS. NO SUCH INVESTIGATION HAS BEEN CARRIED OUT BY THE AO. THE OUTCOME OF INVESTIGATION C ARRIED OUT IN THE CASE OF SHRI. RAJENDRA JAIN, THE CONCLUSIONS DRAWN THEREIN CANNOT BE APPLIED IPSO FACTO TO ALL OTHER CASES WHO HAVE DEALT IN THE TRANSACTIONS DURING THAT PERIOD. SIMPLY RELYING ON THE REPORT OF THE INV. WING, MUMBAI AND STATEMENT THE AO C ANNOT CONCLUDE THAT ALL TRANSACTIONS ARE BOGUS OR HAVE NO CREDENTIAL VALUE. 6.4. IN THIS CASE, AO NOT HAS DOUBTED THE GENUINENESS OF SALES, HOWEVER HELD THAT THE APPELLANT INDULGED IN NON - GENUINE PURCHASES TO SUPPRESS THE PROFITS AND PROCEEDED TO ADD THE ENTIRE AMOUNT OF SUCH PURCHASES, INSTEAD OF MAKING THE PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PURCHASE. AS STATED EARLIER 10 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS WHEN THE SALES ARE GENUINE, IT IS NOT POSSIBLE TO SELL THE GOODS WITHOUT MAKING ANY PURCHASES. IF THE PURCHASES ARE NOT MADE FROM THOSE PARTIES, THE APPELLANT MUST HAVE PURCHASED FROM SOME OTHER PARTIES. IN SUCH A SITUATION, ADDING THE ENTIRE AMOUNT OF PURCHASE TO THE TOTAL INCOME IS NOT CORRECT BECAUSE IT WILL GIVE A DISTORTED PICTURE OF THE PROFIT MARGIN AS STATED IN THE WRITTEN SUBMISS IONS BY THE APPELLANT. IN MY CONSIDERED OPINION, WHICH IS SUPPORTED BY SEVERAL JUDICIAL FORUMS, ESTIMATING THE PROFIT PERCENTAGE ON SUCH PURCHASES IS THE CORRECT WAY TO BR ING THE INCOME TO TAX. THUS, THE ISSUE WOULD BOIL DOWN TO FINDING OUT WHAT IS THE COR RECT ELEMENT OF PROFIT EMBEDDED IN BOGUS PURCHASES WHICH THE APPELLANT WO ULD HAVE MADE FROM SUCH UNKNOWN ENTITIES. 6.9. TAKING INTO CONSIDERATION THE ABOVE DECISIONS, THE CORRECT WAY OF DEALING THE BOGUS PURCHASES ISSUE IS TO ESTIMATE THE PROFIT MARGIN ON SUCH PURCHASES AND NOT ADDING THE ENTIRE AMOUNT OF SUCH PURCHASES. IN VIEW OF THE SAME, THE ISSUE ARRIVED AT IS TO WHAT WOULD BE THE MARGIN, ONE CAN EXPECT WHILE BUYING THE MATERIAL FROM GREY MARKET INSTEAD OF NORMAL COURSE OF BUSINESS FROM REGULAR DEALERS. TWO ASPECTS NEED TO BE TAKEN INTO 11 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS CONSIDERATION IN SUCH CIRCUMSTANCES. FIRST, THESE DIAMONDS IN THE GREY MARKET A RE ALWAYS CHEAPER THAN THE DIAMONDS SOURCED FROM THE GENUINE. THIS IS BECAUSE, THE GENUINE DEALER WOULD CHARGE HIS INCIDENTAL COST INCLUDING THE WHOLE ADMINISTRATIVE COST WHILE SELLING THE DIAMOND THE MARKET WHEREAS THE PETTY DEALERS IN THE GREY MARKET DO NOT CARRY SUCH INCI DENTAL CHARGES ON SUCH SALES, WHEREIN THEY ARE ONLY LOOKING FOR A QUICK PROFIT . SECON DLY, THERE IS ALWAYS AN ELEMENT OF DISCOUNT IN THE CASE OF INSTANT CASH P URCHASE. 6.10. IN THE LIGHT OF THE ABOVE, ONE HAS TO SEE IN THE PRESENT CASE, W HICH IS IN THE LINE OF TRADING IN DIAMONDS, WHAT IS THE CORRECT PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PURCHASES. IN THE CASE OF DIAMOND TRADE, GENERALLY THE RATE OF VAT IS STATED TO BE CHARGED @ 1% ON THE PURCHASES MADE FROM MUMBAI AND ON THE PURCHASES MAD E UNDER FORM % H' NO VAT IS LEVIED DUE TO EXPORT COMMITMENT AND PURCHASES MADE FROM SURAT ALSO THERE IS NO VAT LEVIED. COMING TO THE PROFIT MARGIN IN THE TRADE, THE TASK FORCE GROUP FOR DIAMOND INDUSTRY, AFTER CONSIDERING THE BAP SCHEME, RECOMMENDED PRESUMPTIVE TAX FOR NET PROFIT CALCULATED @2% OF TRADING ACTIVITY AND @3% FOR MANUFACTURING ACTIVITY OR @ 2.5% ACROSS THE BOARD. IT IS ALSO ASCERTAINED THAT THE OPERATING PROFIT IN CASE OF DIAMOND TRADING FOR COMPUTATION OF ALP BY THE TP 12 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS WING IS CONSISTENTLY IN THE REGION OF AROUND 1.75% TO 3%. IN VIEW OF THE SAME, CONSIDERI NG THE PROFIT MARGIN IN THIS SECTOR I.E. AROUND 2 TO 3 PERCENT AND THE TAXES SAVED AROUND 1%, I AM OF THE CONSIDERED OPINION THAT IF THE ADDITION IS SUSTAINED TO THE EXTENT OF 3% OF THE PURCHASES MADE, AS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES FROM THE THREE PARTIES BELONGING TO THE SHRI. RAJENDRA JAIN GROUP CONCERNS, THAT WILL MEET THE ENDS OF JUSTICE. IN VIEW OF THE SAME, I DIRECT THE AO TO RESTRICT THE TOTAL ADDITION @3% OF RS. 4,60,17,324/ - I.E. THE PURCHASES MADE FROM M/S. MOULIMANI, M/S. VITRAG AND M/S. SUN DIAM. THESE GROUNDS OF APPEAL ARE THEREFORE PARTLY ALLOWED. 9 . AGGRIEVED WITH THE ABOVE ORDER, THE REVENUE AND ASSESSEE PREFERRED THE APPEAL AND CO BEFORE US RAISING THE FOLLOWING GROUNDS : - 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT IN NOT SUSTAINING ADDITION U/S 69C OF RS. 2,73,26,7757 - ON ACCOUNT OF PEAK CREDIT OF TRANSACTION OF BOGUS PURCHASES, AFTER HAVING ACCEPTED THE FINDING IN PRIN CIPLE THAT THE PURCHASES WERE MADE FROM UNDISCLOSED/ UNVERIFIABLE/ UNIDENTIFIABLE PARTIES IN THE GREY MARKET BY INVESTING IN CASH AND THE PURCHASES 13 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS SHOWN WERE ONLY ACCOMMODATION ENTRIES AND NOT ACTUAL PURCHASES. 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT IN NOT SUSTAINING ADDITION U/S 69C OF RS. 11,50,433/ - BEING 2.5% OF THE ALLEGED BOGUS PURCHASES OF RS. 4,60,17,324/ - ON ACCOUNT OF INFLATION OF BOGUS BILL, AFTER HAVING ACCEPTED THE FINDING IN PRINCIPLE THAT THE PURCHASES WERE MADE FROM UNDISCLOSED/ UNVERIFIABLE/ UNIDENTIFIABLE PARTIES IN THE GREY MARKET BY INVESTING IN CASH AND THE PURCHASES SHOWN WERE ONLY ACCOMMODATION ENTRIES AND NOT ACTUAL PURCHASES. 3 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DEVIATING FROM THE FINDINGS MADE BY THE AO AND APPLYING THE G.P. RATE AND LIMITING THE DISALLOWANCE OF PURCHASES MADE FROM TAINTED SUPPLIERS TO 3% OF THE ALLEGED BOGUS PURCHASES OF RS. 4,60,17,324/ - , AND IGNORING THE FAC T THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE HIS CLAIM BEFORE THE AO DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS REGARDING GENUINENESS OF PURCHASE MADE FROM THE 3 CONCERNS NAMELY, SHRI RAJENDRA JAIN, SHRI SANJAY CHOUDHARY GROUP & SHRI DHARAMCHAND. 4 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN 14 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS IGNORING THE FACT THAT A SEARCH ACTION UNDER SECTION 132 OF THE ACT WAS CONDUCTED IN THE CASE OF SHRI RAJENDRA JAIN, SHRI SANJAY CHOUDHARY GROUP & SHRI DHARAMCHAND WHO ARE DECLARED TO BE AN ENTRY OPERATOR WITHOUT ANY GENUINE BUSINESS ACTIVITY. 5 . FOR THE ABOVE MENTIONED REASON AND ANY OTHER REASONS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER OF THE CIT(A) BE QUASHED AND THAT OF T HE A.O. BE RESTORED. 6 . THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. CO FILED BY ASSESSEE : - 1 . THE LEARNED CIT(A) FAILED TO APPRECIATE THAT REOPENING OF ASSESSMENT IS BAD IN LAW AS SANCTION FOR REOPENING IS OBTAINED IN CONTRAVENTION OF THE PROVISIONS OF SECTION 151 AS SAME IS OBTAINED FROM ADDITIONAL CIT INSTEAD OF COMMISSIONER / CHIEF COMMISSIONER OF INCOME TAX. 2 . THE LEARNED CIT(A) ERRED IN RESTRICTING ADDITION TO RS. 13,80,520/ - I.E. 3% OF RS. 4,60,17,324/ - BEING PURCHASE MADE FROM M/S. MOULIMANI, M/S. VITRAG & M/S. SUN DIAM WITHOUT APPRECIATING THAT ENTIRE PURCHASES WERE GENUINE AS PAYMENT WERE MADE THROUGH BANKI NG CHANNELS, SUSPICIOUS SUPPLIERS WERE PRODUCED BEFORE 15 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS A.O. QUANTITY TALLY WAS SUBMITTED, SALES WERE NOT DOUBTED AND LEARNED ASSESSING OFFICER MADE THE ADDITION IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND HENCE, ENTIRE ADDITION MAY BE DELETED. 3 . THE RE SPONDENT CRAVES LEAVE TO ADD, AMEND, ALTER OR VARY THE GROUNDS OF APPEAL AT THE TIME OF OR BEFORE THE DATE OF THE HEARING. 10 . BEFORE US, LD DR BROUGHT TO OUR NOTICE THAT LD. CIT(A) APPLIED 3% ON BOGUS PURCHASE AND DELETED THE ADDITION MADE U/S 69C OF THE ACT ON ACCOUNT OF PEAK CREDIT OF THE TRANSACTION OF BOGUS PURCHASES. EVEN THOUGH, HE ACCEPTED THE FINDING OF AO IN PART THAT THE PURCHASES WERE MADE FROM UNDISCLOSED, UNV ERIFIABLE PARTIES IN THE GREY MARKET BY INVESTING IN C ASH AND THE PURCHASE SHOWN WERE ACCOMMODATION ENTRIES AND NOT ACTUAL GENUINE PURCHAS E. LD. DR OBJECTED THAT LD. CIT(A) HAS APPLIED 3% GP IN P LACE OF 2.5% APPLIED BY THE AO BY DELETING THE PEAK CREDIT OF CASH TRANSACTION. 11 . ON THE OTHER HAND, LD. AR SUBMITTED THAT ASSESSEE HAS FILED CO RAISING JURISDICTION ISSUE IN THIS CASE THAT FOR REOPENING OF THE ASSESSMEN T, AO HAS TAKEN SANCTION FROM A CIT INSTEAD OF COMMISSIONER OR JOINT COMMISSIONER OF INCOME TAX AS PER THE 16 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS PROVISION OF SECTION 151 OF THE ACT. HE BROUGHT TO OUR NOTICE PAGE 2 OF CIT(A)S ORDER, WHEREIN ASSESSEE HAS RAISED THIS GROUND IN THE GROUNDS OF APPEAL AND PAGE 5 OF THE SAID ORDER, ASSESSEE HAS MADE THE DETAIL ED SUBMISSION IN THIS REGARD. HE FURTHER BROUGHT TO OUR NOTICE PAGE 9 OF THE ORDER OF LD. CIT(A) IN WHICH LD. CIT(A) HAS DISCUSSED HIS FINDINGS AND NOWHERE IN HIS FINDINGS HAS DISCUSSED ABOUT THE JURISDICTION ISSUE. HE FURTHER BROUGHT TO OUR NOTICE PAGE 209 OF THE PAPER BOOK WHICH IS LETT ER WRITTEN BY AO TO LD. CIT(A) - 29 ON THE SUBJECT REMINDER TO NON - SUBMISSION OF REPORT IN THE CASE OF ASSESSEE FOR ASSE SSMENT YEAR 2007 - 08 AND IN THAT LETTER, AO REPLIED THAT THE SAME WAS SENT VIDE LETTER DATED 17.10.16. LD. AR FURTHER BROUGHT TO OUR NOTI CE PAGE 210 OF THE PAPER BOOK IN WHICH AO HAS CONFIRMED THAT THE PERMISSION FOR REOPENING WAS SOUGHT FROM THE T HEN ACIT RG 14(1), MUMBAI AND LD. AR SUBMITTED THAT IT IS CLEAR THAT THE PERMISSION WAS GRANTED BY THE THEN ACIT ONLY. HE SUBMITTED THAT AS PER S ECTION 151 OF THE ACT IN ORDER TO REOPEN THE ASSESSMENT AFTER THE EXPIRY OF 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR, THE SANCTION HAS TO BE FROM THE PCIT OR COMMISSIONER. FOR THIS PROPOSITION, HE RELIED ON THE DECISION IN 17 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS THE CASE OF DHADDA EXPORT S VRS. ITO (2015) 377 ITR 347 (RAJ HC) AND GHANSHYAM K. KHABRANI VRS. ACIT (2012) 346 ITR 443 (BOM HC) . HE FURTHER SUBMITTED THAT EVEN THOUGH LD. CIT(A) HAS VERIFIED THIS ISSUE AS WELL, BUT NOT ADJUDICATED ON THE ISSUE OF JURISDICTION. 12. IN REJOINDE R, LD. DR AGREED THAT THIS ISSUE WAS NOT ADJUDICATED BY LD. CIT(A) AND HE PRAYED THAT IT MAY BE REMITTED BACK TO THE FILE OF LD. CIT(A) TO DECIDE THE ISSUE ON JURISDICTION. HOWEVER, HE BROUGHT TO OUR NOTICE PAGE 35 OF THE PAPER BOOK WHICH IS NOTICE ISSUED U/S 148 OF THE ACT TO THE ASSESSEE IN WHICH AT POINT NO. 3, IT IS MENTIONED THAT THIS NOTICE IS BEING ISSUED AFTER OBTAINING THE NECESSARY SATISFACTION OF THE COMMISSIONER OF INCOME TAX. 13 . CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL PLACED ON RECORD. WE NOTICE FROM THE RECORD THAT LD. CIT(A) HAS APPRECIATED THE WHOLE FACTS IN THIS CASE AND GIVEN CLEAR CUT FINDINGS . I T IS FINDING ON RECORD BY THE AO THAT THE PURCHASES MADE BY THE ASSESSEE ARE UNVERIFIED AND FALLS UNDER T HE CATEGORY OF BOGUS PURCHASES AN D AO PROCEEDED TO MAKE DISALLOWANCE ON 18 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS THE BASIS OF PRESUMED CASH TRANSACTION AND APPLIED THE PEAK CREDIT IN THE CASE OF PURCHASE TRANSACTION. WE NOTICE THAT LD. CIT(A) HAS CORRECTLY CAME TO THE CON CLUSION T HAT THE CORRECT WAY OF DEALING WITH BOGUS PURCHAS E ISSUE IS TO ESTIMATE THE PROFIT MARGIN ON SUCH PURCHASES AND NOT ADDING THE ENTIRE AMOUNT OF SUCH PURCHASES WHEN THE AO CAME TO THE CONCLUSION THAT IT IS BOGUS PURCHASES AND BY CONSIDERING THE DECISION OF THE VARIOUS COURTS, AO CAN ONLY DISALLOW THE EST IMATED MARGIN WHICH ASSESSEE WOULD HAVE ENJOYED IN SUCH PRACTICES OF TAKING ACCOMMODATION ENTRIES. THEREFORE, WE ARE IN AGREEMENT WITH LD. CIT(A) THAT AO CANNOT PROCEED TO DISALLOW THE WHOLE PURCHASES OR APPLIED PEAK CREDIT IN CASH TRANSACTION. HOWEVER, WE NOTICE THAT LD. CIT(A) APPRECIATED TO ESTIMATE THE DISALLOWANCE @ 3% INSTEAD OF 2.5% PROPOSED BY AO AND WE OBSERVE THAT THE REVENUE IS IN APPEAL OBJECTING THE FINDINGS OF LD. CIT(A). THEREFORE, WE DISMISSED THE GROUND NO. 1 RAISED BY THE REVENUE THAT AO C ANNOT APPLY ANY OTHER METHOD OTHER THAN ESTIMATING THE DISALLOWANCE ON ALLEGED PURCHASES. 14. WITH REGARD TO GROUND NO. 2 TO 6, LD. CIT(A) HAS DISALLOWED @ 3% WHEREAS AO HAS DISALLOWED @ 2.5% ALONWITH 19 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS DISALLOWING PEAK CREDIT ON CASH TRANSACTION. TH EREFORE , IN OUR VIEW, LD. CIT(A) HAS PROPOSED 3% IS HIGHER THAN THE ESTIMATION MADE BY AO. ACCORDINGLY, ALL THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED . 15. NOW COMING TO CO FILED BY THE ASSESSEE, WE NOTICE THAT ASSESSEE HAS RAISED THE JURISDICTION IS SUE AT THE TIME OF FILING OF APPEAL BEFORE FIRST APPELLATE AUTHORITY, HOWEVER LD. CIT(A) HAS SOUGHT REPORT FROM AO AND AO HAS ALSO SUBMITTED A LETTER CONFIRMING THAT REOPENING THE ASSESSMENT WAS BEYOND 4 YEARS, AO HAS TAKEN SANCTION ONLY FROM THE THEN ADDL . COMMISSIONER INSTEAD OF TAKING PERMISSION FROM COMMISSIONER AS PER THE PROVISION OF SECTION 151(1) OF THE ACT. EVEN THOUGH, THE ABOVE SAID DISCREPANCIES POINTED OUT TO THE LD. CIT(A) AND STILL LD. CIT(A) HAS NOT ADJUDICATED THE ISSUE ON JURISDICTION. 16 . IN OUR CONSIDERED VIEW, THE VIOLATION OF SECTION 151(1) OF THE ACT IS APPARENT ON RECORD AND THERE IS NO NECESSITY FOR THIS ISSUE TO GO BACK TO LD. CIT(A) AS SUBMITTED BY LD. DR . R ESPECT FULLY FOLLOWING THE DECISION IN THE CASE OF DHADDA EXPORTS VR S. ITO (2015) 377 ITR 347 (RAJ HC) AND 20 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS GHANSHYAM K. KHABRANI VRS. ACIT (2012) 346 ITR 443 (BOM HC), TH E AO HAS NO JURISD ICTION TO REOPEN THE ASSESSMENT , W HEN THERE IS VIOLATION TO THE STATUTORY DIRECTION CONTAINED IN SECTION 151 OF THE ACT. ACCORDINGLY, WE ALLOW GROUND NO. 1 RAISED BY THE ASSESSEE IN CO . THEREFORE, WE ARE INCLINED TO SET ASIDE THE ASSESSMENT ORDER, WE NOTICE THAT GROUND NO. 2 RAISED BY THE ASSESSEE IS ONLY ON MERIT, THUS THE SAME IS DISMISSED . 1 7 . IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND CO FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.01.2021 . SD/ - SD/ - (VIKAS AWASTHY ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 14.01 .202 1 SR.PS. DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 21 I.T.A. NO. 1226 /MUM/201 8 & CO 59/MUM/2019 M/S JEWELLERS NARANDAS & SONS 6. / GUARD FILE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI