Amaravati , Hyderabad V. Asst. Commissioner of Income Tax, Circle-6(1), Hyderabad

ITA 1486/Hyd/2019

AI Insights

The case involves M/s. Amaravati, a partnership firm engaged in trading gold ornaments and studded jewelry, which faced reassessment under sections 143(3) r.w.s. 147 of the Income Tax Act, 1961, for the assessment years 2007-08 to 2010-11. The reassessment was triggered by a search and seizure operation on the Pravin Jain and Bhanwarlal Jain Group, which revealed that the group was involved in providing accommodation entries for bogus sales/purchases. The Assessing Officer treated certain purchases from M/s. A2 Jewels, Surat, as bogus and added them to the income. The Tribunal's decision to partly allow the appeal was influenced by similar cases where a percentage of the bogus purchases was disallowed rather than the entire amount.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133081 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-A
• Next Hearing Date: 30-08-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 30-09-2019
• Other Referred Cases: PCIT Vs. Surya Impex, ACIT Vs. Vaishnavi Bullion Private Limited, Vithaldas and Co.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Search and seizure; Rule of consistency; Additional evidence; Accommodation entries; Reassessment proceedings
• Section: 148; 132; 143(3); 143(1)

Judgement Text

आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A” , HYDERABAD BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA Nos.1483 to 1486/Hyd/2019 Assessment Years: 2007-08 to 2010-11 M/s. Amaravati, 3-6-382, Street No.2, Himayatnagar, Hyderabad – 500029. PAN : AAGFA1008A. Vs. The Deputy Commissioner of Income Tax, Circle 6(1), Hyderabad. (Appellant) (Respondent) Assessee by: Sri K.C. Devdas, C.A. Revenue by : Sri Shakeer Ahmed, Sr. A.R. Date of hearing: 31/08/2023 Date of pronouncement: 05/09/2023 O R D E R SRI LALIET KUMAR, JM : These appeals of the assessee for A.Ys. 2007-08 to 2010- 11 arise from the separate orders of Commissioner of Income Tax (Appeals) – 6, dt.05.06.2019 invoking proceedings under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short, “the Act”). 2. Before us, at the outset, both parties submitted that the issues raised in all the four appeals are identical except for the amounts involved. In view of the aforesaid submissions, we, for the sake of convenience, proceed to dispose of all the captioned appeals by a consolidated order but however, refer to the facts in ITA No.1483/Hyd/2019. ITA Nos.1483 to 1486/Hyd/2023 2 3. As all the grounds raised by the assessee in all the appeals are identical, except the amounts involved, ITA No.1483/Hyd/2019 for A.Y. 2007-08 is taken as lead case and the grounds raised therein are reproduced below: “1. The Learned Commissioner of Income Tax -Appeals-6, Hyderabad ['the Ld.CIT (A)] failed to appreciate that in the present case, the mandatory conditions for assuming jurisdiction u/s 147 r.w. section 148 of the Income Tax Act 1961('the Act') were not satisfied and therefore, the order of the Ld.CIT (A) upholding the initiation of reassessment proceedings as valid is erroneous, invalid and unsustainable in law. 2. The Ld.CIT (A) failed to appreciate that the reassessment proceedings and recording of reasons emanated from the report of the Investigation wing of the Income Tax Department. Therefore, erred in upholding the action of the Assessing Officer ('AO') in reopening assessment on borrowed satisfaction without independent application of mind. 3. The order of the Ld. C.I.T (A) in confirming the purchase of diamonds of Rs 71,23,994 from "AZ Jewels Surat" as "Bogus Purchases" is wholly unsustainable both on facts and Law. 4. The Ld.CIT(A) failed to appreciate that the Appellant maintains its stock register electronically and the same was furnished for verification. Therefore to confirm the addition of Rs 71,23,994 on the ground that the Appellant failed to produce the original stock register is unjustified and bad in law. 5. The Ld.C.I.T (A) while confirming the addition of Rs. 71,23,994 totally ignored the documentary evidence produced by the Appellant comprising of purchase Invoices, payments by A/c Payee cheques, entries in stock records, sales etc and the confirmation made by the supplier, therefore the action by the Ld.C.I.T(A) in taking a contrary stand in confirming the addition of Rs. 71,23,994/- is totally opposed to the law of evidence and is therefore unsustainable. 6. The Ld. CIT(A) on a wrong foundation of reasoning arising from a misconception of the facts failed to appreciate the entries in the stock records which finally culminated in sales and therefore the learned CIT(A) erred in disallowing the purchases of Rs. 71,23,994 from AZ Jewels Surat. ITA Nos.1483 to 1486/Hyd/2023 3 7. The Ld. CIT(A) failed to appreciate in the line of business of the Appellant that the cut and polished diamonds purchases are embedded in various forms of jewellery and sold. Therefore, the question of placing proof for direct nexus between the purchase and sale of Diamonds would border on the impossibility of performance. Thus, erred in confirming the addition. 8. The Ld. CIT (A) failed to note that all the details called for in relation to purchases of Cut and Polished diamonds were filed including the stock register maintained in the regular course of business and therefore erred in holding to the contrary. 9. The Ld.CIT(A) having found as a matter of facts at Para 6.13.14 that the diamonds were purchased and delivered at SURAT adopted a ruse or device to disallow the expenditure solely on the aspect of "Travelling" and it's mode arid therefore the order of the Ld.CIT(A) is wholly unsustainable as it borders on surmises and suspicion. 10. The Ld.CIT(A) failed to note that the main business of the Appellant is into manufacture and trading of jewellery. Thus, cut and Polished diamonds does not constitute significant portion of the total business of the appellant and therefore erred in laying emphasis on delivery challans which are not given if the supplies are taken at the business premises of the supplier and as physical delivery was given at Surat as found and noted by the learned CIT(A). Therefore the aspect of delivery challans cannot be a ground to disallow the purchases. 11. The Ld.CIT(A) failed to note that PRAVIN JAIN and Bhanwarlal Jain group, Surat who were subject to Search & Seizure operation u/S. 132 of the Act 1961 were witnesses of the department therefore the onus lay on the department to produce them who did not turn up on 24.03.2015 for cross examination. Therefore the order of the assessing officer which was confirmed by the CIT(A) to come to a SUO MOTTO conclusion that their absence confirmed the original status of which the Appellant was not aware as they were all collected behind the back of the Appellant and therefore the addition of Rs. 7 1,23,994 has no legs to stand. 12. The order of the CIT(A) in holding that the appellant had failed to prove the genuineness of the transactions is totally contrary to the facts and evidence on record as the Appellant had discharged its onus as per the statuary provisions and therefore the confirmation of the addition of Rs. 71.23,994 is wholly unsustainable in law. ITA Nos.1483 to 1486/Hyd/2023 4 13. The order of the CIT(A) in confirming the addition of Rs. 1,55,91,176 under "Other Purchases" is wholly unsustainable both in law and facts. 14. The Ld.CIT(A) failed to note that the addition of Rs. 1,55,91,176 of purchases would distort the trading results leading to high profits which is not in line with the business carried on and therefore erred in sustaining the addition of Rs. 1,55,91,176. 15. Without prejudice to the above grounds, the Ld.CIT(A) having confirmed that the purchases of diamonds of Rs 2,27,15,170 as bogus and not genuine ought to have reduced the said purchase quantity to the extent they are subsumed in the sale/ closing stock. 4. The brief facts of the case are that assessee being a Partnership Firm, is engaged in the business of Trading in gold Ornaments, including studded jewellery in the name and style of M/s.Amaravati. The assessee filed its return of income for the AY 2007-08 on 29.10.2007, admitting a total income of Rs.14,20,540/-. The return of income was processed u/s. 143(1) of the Act and accepted the returned income without selecting the case for scrutiny. Subsequently, a search & seizure action u/s.132 of the Act, was conducted on Pravin Jain and Bhanwarlal Jain Group. During the course of search, it was unearthed that the group was operating and managing certain benami concerns through which they provided accommodation entries towards bogus sales/purchases to various beneficiaries across India including the assessee, in the instant case to the tune of Rs.71,23,994/- during the F.Y. 2006-07. Accordingly, notice u/s 148 of the Act was issued to the assessee for which assessee replied that the return filed for A.Y. 2007-08 may be treated as return in response to notice u/s 148 of the Act. Thereafter, assessee was communicated the reasons for reopening of assessment on ITA Nos.1483 to 1486/Hyd/2023 5 18.12.2014. Thereafter, assessee filed reply letter dt.27.12.2014 furnishing details of nature of business along with required documents. Subsequently, after conducting the hearings, the Assessing Officer completed the assessment u/s 143(3) r.w.s. 147 of the Act vide order dt.25.03.2015 determining the total income at Rs.2,43,76,665/-. While doing the so, the Assessing Officer treated a sum of Rs.2,29,56,125/- as expenditure claimed towards bogus purchases, including a sum of Rs.71,23,994/- pertaining to accommodation entries provided by M/s. A2 Jewels, Surat and brought the same to tax. Besides addition of Rs.71,23,994/- the assessing officer had also made the addition with respect to the other six parties from whom no confirmation letters were furnished by the assessee during the assessment proceedings for a total amount of ₹ 1,58,32,131/-. 5. Feeling aggrieved with the order of Assessing Officer, assessee carried the matter before ld.CIT(A), who granted partial relief to the assessee. 6. Before us, the learned Authorized Representative for the assessee reiterated the submissions previously presented to both the Assessing Officer and the ld.CIT(A). The AR contended that reopening the assessment after such a significant lapse of time, solely based on a sworn statement obtained from a third party, was unjustified. It was further argued that the Assessing Officer's decision to treat genuine purchases from M/s. A2 Jewels as non- genuine was unfounded, as it failed to consider the invoices issued by M/s. A2 Jewels, Surat, and the bank statements confirming ITA Nos.1483 to 1486/Hyd/2023 6 payments made for these purchases. The AR also emphasized that the Assessing Officer should have granted the opportunity to cross- examine the aforementioned third parties. 7. Per contra, the ld. DR relied on the orders of lower authorities and submitted that they are in accordance with law. He further submitted that the appeal of assessee may be dismissed as the assessee was found to be engaged in involving bogus purchases from Hawala Parties, and prayed for the Bench that the addition confirmed by the Ld.CIT(A) may be sustained. 8. We have heard the rival submissions and perused the material on record. The Assessing Officer observed that the assessee could not substantiate the receipt of stock from M/s. A2 Jewels, Surat, despite examining the provided documentary evidence such as bank accounts and stock registers. Consequently, the Assessing Officer added Rs. 71,23,994/- to the income, considering these purchases as bogus. The Assessing Officer argued that the assessee couldn't claim genuine transactions based solely on confirmation letters from M/s. A2 Jewels, Surat, especially when it was established that M/s. A2 Jewels was involved in providing accommodation entries in the context of bogus sales/purchases and unsecured loans, as revealed during the search and seizure operation involving Pravin Jain and Bhanwarlal Jain Group, Surat. ITA Nos.1483 to 1486/Hyd/2023 7 9. It is an undisputed fact that the Pravin and Bhanwarlal Jain Group, Surat, was engaged in providing accommodation entries through various paper entities nationwide. The assessee indeed purchased cut and polished diamonds from M/s. A2 Jewels, Surat, which was one of these bogus paper entities owned by the aforementioned group. Upon examining the order of the ld.CIT(A) in paragraphs 6.3.9 to 6.3.16, it becomes evident that the assessee did purchase from this bogus paper entity. According to the ld.CIT(A)'s findings, the assessee also failed to disclose any sales resulting from these alleged bogus purchases. The sales declared by the assessee were part of their regular business transactions and were unrelated to the alleged bogus purchases from M/s. A2 Jewels, Surat. Though the Ld. CIT(A) had recorded the above said finding however nothing is brought to our notice as the assessee failed to discharge is obligation of achieving the sales of diamonds, without purchase of the diamonds. Once the sales of the assessee have not been disputed by the revenue, and no evidence has been produced or brought on record to prove that the sales made by the assessee was out of the stock, then the version of the assessee, merits some consideration. 10. Before us, ld. AR for the assessee argued that the Assessing Officer should have considered the declared gross profit rate for addition rather than disallowing the entire bogus purchases. Ld. AR further contended that according to a report from the Department of Commerce's task group, the margin in diamond trading typically falls between 1% to 3%, therefore, making a 3% margin is reasonable in this case. However, the ld.CIT(A) reasoned that since ITA Nos.1483 to 1486/Hyd/2023 8 the assessee failed to provide evidence that they had accounted for sales resulting from the purchases made from M/s. A2 Jewels, Surat, or that these purchases were part of the closing stock disclosed in the profit and loss account as of 31.03.2007, the entirety of the bogus purchase amount should be disallowed and added to their income, rather than considering the gross profit rate. 11. The ld. AR also argued that they should have been allowed to cross-examine the individuals who had provided statements against them, claiming that they had availed accommodation entries. In income tax assessment proceedings, it is incumbent upon the assessee to produce their suppliers as witnesses before the Assessing Officer to demonstrate their bona fides. However, as the Assessing Officer had not examined these parties, the question of the assessee cross-examining them did not arise. Furthermore, the ld.CIT(A) granted partial relief to the assessee regarding the addition of Rs. 1,58,32,131/-. Upon reviewing the orders of the lower authorities, it is evident that the assessee had not provided confirmation letters from six listed parties, leading the Assessing Officer to add Rs. 1,58,32,131/- due to the failure to prove the genuineness of the transactions related to the purchase of goods from these parties. Thereafter, the assessee submitted a confirmation letter from M/s. Varun Gems, substantiating a sum of Rs. 2,40,955/- as an expenditure for the purchase of goods, proving the genuineness of this transaction. As a result, the ld.CIT(A) directed the Assessing Officer to remove the addition to the extent of Rs. 2,40,955/-. However, since the assessee failed to provide the requisite confirmation letters even ITA Nos.1483 to 1486/Hyd/2023 9 after ample time and opportunities, the ld.CIT(A) ultimately confirmed the addition to the extent of Rs. 1,55,91,176/- (Rs. 1,58,32,131/- - Rs. 2,40,955/-). 12. Before us, the assessee had filed the confirmation letter from M/s Mangukia Brothers for supplying the diamonds worth of Rs.45,01,267/- to the assessee. The Ld.AR for the assessee has submitted that the additional evidence be accepted and accordingly, credit for the said confirmation be given on the total addition. In the present case, though the assessee had raised the ground for reopening the assessment before the lower authorities, however, the same has been considered and detail elaborate orders were passed by the lower authorities. We have the occasion to consider the identical issues decided by the Tribunal in ITA No. 1746/Hyd/2019 decided on 27.10.2021, dismissing the similar ground raised by the assessee. Respectfully, following the above said decision, we also dismiss the legal ground raised by the assessee challenging the validity of the reopening. 13. Now coming to the merits of the case, it is the case of the assessee that the entire purchases made by the assessee through the alleged bogus invoices had been added to the income of the assessee. It is the contention of the assessee that the purchases have duly been reflected in the stock register of the assessee and further, the sales of the assessee have also been accepted. It is also his submission that there cannot be sales without purchases. Further, assessee had filed confirmation letter for Rs.45,01,267/- from Manugulia Brothers. The said ITA Nos.1483 to 1486/Hyd/2023 10 confirmation is yet to be verified being filed for the first time before us. In our view, this issue of bogus purchases is no more res integra and the co-ordinate Benches have already adjudicated the above said issue in various matters. It would be fruitful to mention herein that the Tribunal in identical facts in ITA No. 1746/Hyd/2019 and in ITA No.755/Hyd/2017 in the case of Vithaldas and Co., had restricted the addition / disallowance at the rate of 8% of the bogus purchases made by the assessee from M/s Bhanwar Lal Jain group and others. We are reproducing hereinbelow the relevant paragraphs i.e., 7 and 8 of the decision passed in case of Vithaldas & Co., (supra) in ITA No.755/Hyd/2017 which is to the following effect:- “7. We have considered the foregoing rival submissions and find no reason to delete the impugned bogus purchases disallowance/ addition in entirety in all these three assessment years. This is for the precise reason that going by the circumstances before us, it can be safely inferred that the assessee obtained bogus purchase invoices from M/s.Bhanwarlal Jain group and further sourced its purchases from other suppliers. We next note that this tribunal’s coordinate bench in ITA Nos.3451 & 3454/Mum/2017 ITO Vs. M.Shailesh and Co. dt.22-01-2019 (in case of the very search) as well as various other similar orders hold that only a percentage of such purchases than the entire amount(s) thereof has to be disallowed. The fact also remains that such an estimation depends on facts of each and every case than involving any legal interpretation which could be treated as a valid precedent as per the hon'ble jurisdictional high court’s decision in CIT Vs. B.R.Constructions (1993) 202 ITR 222 (AP). Faced with this situation, we deem it appropriate in larger interest of justice that the impugned bogus purchases in all these three year(s) deserve to be restricted to disallowance @8% only in the given facts and circumstances with a rider that the same shall not be taken as a precedent in any other case. Necessary computation shall follow as per law. 8. These three assessee’s appeals are partly allowed in above terms. A copy of this common order be placed in the respective case files.” ITA Nos.1483 to 1486/Hyd/2023 11 14. Besides that the decision of the Hon’ble Gujarat High Court in the case of PCIT Vs. Surya Impex (reported in 451 ITR 395) and the decision of this Bench in the case of ACIT Vs. Vaishnavi Bullion Private Limited in ITA No.560/Hyd/2020 are also available to support our above said view. 15. Considering the totality of the facts and circumstances of the case and adhering to the principle of consistency, we deem it proper to restrict the disallowance to 10% of the disallowance confirmed by the ld.CIT(A) in the appeal proceedings. In the present appeal, the ld.CIT(A) had confirmed the addition of Rs.2,27,15,150/- as bogus purchases despite the fact that the same was forming part of total sales. As we have restricted the disallowance to 10% in this case, the addition would be restricted to Rs.22,71,515/- as against Rs.2,27,15,150/- confirmed by the ld.CIT(A). Though the confirmation letter filed before us, however, the same was not filed before the lower authorities. If we admit the additional evidence at this stage i.e., after 15 years, then entire exercise was to be redone by the lower authorities. In view thereof, we do not admit the additional evidence and restrict the addition to 10% of bogus purchases mentioned hereinabove. Accordingly, the appeal of assessee is partly allowed. 16. In the result, the appeal of the assessee in ITA No.1483/Hyd/2019 is partly allowed. ITA Nos.1483 to 1486/Hyd/2023 12 17. As far as the other appeals i.e., ITA Nos.1484 to 1486/Hyd/2019 are concerned, in view of the submission of both the parties that the issues raised in all the appeals are identical, except the amounts involved, we for the reasons stated hereinabove while deciding the appeal in ITA No.1483/Hyd/2019 and for similar reasons, partly allow the other appeals by directing the Assessing Officer to restrict the disallowance to 10% of the amount as confirmed by the ld.CIT(A). 18. In the result, the appeals of assessee in ITA Nos.1484 to 1486/Hyd/2023 are partly allowed. 19. To sum up, all the appeals of assessee are partly allowed. A copy of the same may be placed in respective case files. Order pronounced in the Open Court on 5 th day of September, 2023. SdSd/- Sd/- (R.K. PANDA) VICE PRESIDENT (LALIET KUMAR) JUDICIAL MEMBER Hyderabad, dated 5 th September, 2023. TYNM/SPS ITA Nos.1483 to 1486/Hyd/2023 13 Copy to: S.No Addresses 1 M/s. Amaravati, 3-6-382, Street No.2, Himayatnagar, Hyderabad – 500029. 2 Deputy Commissioner of Income Tax, Circle 6(1), Hyderabad. 3 Prl.Commissioner of Income Tax – 6, Hyderabad. 4 DR, ITAT Hyderabad Benches 5 Guard File By Order