Shri Rikhab Sajjankumar Jain, Surat V. ITO Ward-2(3)(8), Surat

ITA 153/SRT/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9275 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-08-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Bogus purchase; Search and seizure; Accommodation entries
• Section: 147; 148; 143(1)

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. 199/SRT/2019 (AY: 2008-09) (Hearing in Physical Court) I.T.O., Ward-2(3)(8), Surat. Vs. Shri Rikhab Sajjankumar Jain, Office No. 105, Tulsi Building, Haripura, Surat. PAN: AHAPJ 8553 G APPELLANT RESPONDEDNT ITA No. 153/SRT/2019 (AY: 2008-09) Shri Rikhab Sajjankumar Jain, Office No. 105, Tulsi Building, Haripura, Surat. PAN: AHAPJ 8553 G Vs. I.T.O., Ward-2(3)(8), Surat. APPELLANT RESPONDEDNT Assessee by Shri Sapnesh Sheth, CA Department by Shri H.P. Meena, CIT-DR Date of hearing 05/08/2022 Date of pronouncement 31/10/2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. These cross appeals by the revenue as well as by the assessee are directed against the order of the learned Commissioner of Income Tax (Appeals)-1, Surat [in short ‘ld. CIT(A)] dated 16/01/2019 for the Assessment Year (AY) 2008-09. The Revenue in its appeal has raised the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in restricted the addition made by the AO of Rs. 3,88,21,441/- on account of bogus purchases to 5%. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has failed to appreciate the fact that the entire purchase from alleged concerns were bogus and was only to the suppress the profit of the ITA 199 & 153/SRT/2019 ITO Vs. Rikhab Sajjankumar Jain 2 beneficiaries which is substantiated by the statement on oath given by the entry provider. 3. On the facts and circumstances of the case and in law, the ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the ld. CIT(A)-I, Surat may be set aside and that of the Assessing Officer’s order may be restored.” 2. The assessee in his cross appeal 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 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 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. 20,43,233/- as against addition of Rs. 4,08,64,674/- made by ld. assessing officer. 3. It is therefore prayed that above addition made by assessing officer and confirmed by Commissioner of Income Tax (Appeals) 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.” 3. Brief facts of the present case are that the assessee is proprietor of M/s R. Rishab & Co., engaged in the business of trading in diamonds. The assessee filed his filed his return of income for the Assessment Year 2008- 09 on 25/09/2008 declaring total income of Rs. 4,28,569/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short, the Act). The case of the assessee was reopened under section 147 of the Act. Notice under section 148 dated 33/3/2015 was served upon the assessee. The case was reopened on the basis of information received from DGIT (Investigation) Mumbai. In the information received from Investigation ITA 199 & 153/SRT/2019 ITO Vs. Rikhab Sajjankumar Jain 3 Wing, Mumbai it was informed that a search and seizure action was carried out by Investigation wing-Mumbai on Gautam Jain and his Group on 01.10.2013, which resulted in collection of evidence that Gautam Jain group and its associates were operating certain benami concerns in the name of their employees and staff for providing bogus accommodation entries of unsecured loans, sale and purchase of different kinds of material. It was unearthed that the assessee is one of the beneficiary of the accommodation entry and that Gautam Jain Group provided accommodation entries of purchases of Rs. 4,08,64,674/-. The statement of Gautam Jain group and its associates under section 132(4) of the Act was recorded, wherein they had admitted that their associate members are managing various entities which are providing accommodation entries. During the course of search, blank cheque book signed by dummy partners / directors /proprietor of entities were found and seized. It was informed that assessee is one of the beneficiaries of bogus purchase managed by Gautam Jain Group. On the basis of such information, the Assessing Officer formed opinion that income of the assessee of Rs. 4,08,64,674/-has escaped from assessment and that he was satisfied that it is a fit case for reopening under section 147 of the Act. The assessee in response to notice under section 148, filed his reply vide his letter dated 17/03/2016 to treat the original return as return in response to notice under section 148. The reasons of reopening was asked by the assessee. The assessee filed his objections against the reopening. The objections of the assessee was ITA 199 & 153/SRT/2019 ITO Vs. Rikhab Sajjankumar Jain 4 rejected in detailed and speaking order dated 22/03/2016 by the assessing officer. 4. During the course of assessment proceedings, the assessee stated that he was doing business of diamond under the name and style of his proprietary concern M/s R. Rishab & Co. The assessee stated that he had furnished all necessary details, accounts and documents as required by the Assessing officer. The assessee further stated that he has carried out any trading activity and as per the prevailing practices, the assessee is maintaining ledger accounts /bank book/cash book etc. and the ledger of parties to whom transactions were carried out was produced. The reply of the assessee was not accepted by the assessing officer (A.O.). The Assessing officer took his view that the Department has conducted search and seizure in case of Gautam Jain and conclusively proved that he was engaged in business of providing accommodation entry only. The assessee has availed the benefit of modes operandi adopted by Gautam Jain to reduce his profit by inflating expenses of purchase by taking accommodation entry. The books of assessee to that extent is unverifiable and the purchases shown by the assessee in his books of account are bogus and debited to trading to suppress the true profit. The mere payment by account payee cheque cannot be a conclusive prove where the genuineness of transaction is doubt. On the basis of such observation, the assessing officer rejected the books of account of assessee and made addition of aggregate of purchases of Rs.4.086 crores shown from Krishna Diamonds Pvt. Ltd., Parashnath Jems Pvt. Ltd. and Krishna Diam Pvt. Ltd. The Assessing Officer, ITA 199 & 153/SRT/2019 ITO Vs. Rikhab Sajjankumar Jain 5 accordingly, disallowed 100% of purchases of Rs. 4,08,64,674/- and made the addition. 5. On appeal before the ld. CIT(A), though the assessee has only challenged the addition made by the Assessing Officer as no grounds of appeal against reopening was raised in grounds of appeal filed with Form-35. The assessee filed detailed written submission before the ld. CIT(A). The submission of assessee are recorded in para 6 of the order of the ld. CIT(A). Besides filing of detailed written submission on reopening, the assessee on merit has submitted that the Assessing officer has grossly erred in making addition of the entire purchases as the same had been already sold by the assessee in the same year at a normal business margin of gross profit. The assessee submits that he is in trading activity, and made sales when stock is available. During FY 2008-09 the assessee has no closing stock as on 31 st March 2008, i.e. entire stock was sold during the year. The assessing officer grossly erred in making addition of entire aggregate of purchases, which has already been sold. The assessee furnished the details of impugned purchases and revised closing stock at the end of financial year and bills of purchases, confirmation of suppliers and bank statement showing payment through cheques. The assessee also relied on certain case laws. 6. The ld. CIT(A) after considering the submission of assessee, has restricted the addition to the extent of 5% of the amount/bogus purchases by taking view that in identical issues in his earlier order in Gagnani Impex (AY 20013-14) in Appeal No. CAS-3/512//2015-16 dated 24.11.2016 by ITA 199 & 153/SRT/2019 ITO Vs. Rikhab Sajjankumar Jain 6 referring various decisions of the Tribunal and decision of Jurisdictional High Court including in Mayank Diamonds Pvt Ltd Vs ITO (Tax appeal No. 200 of 2003) he has restricted the addition to the extent of 5% , which is reasonable to tax the profit. 7. 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 before the us. The assessee has filed its appeal against restricting the addition to the extent of 5%. Similarly, the Revenue has also challenged the action of ld CIT(A) in deleting the addition to the extent of 95%. 8. We have heard the submissions of the learned Commissioner of Income tax- departmental representative (CIT-DR) for the revenue and the learned authorised representative (AR) for the assessee. The ld. CIT-DR submits that the grounds of appeal on merit, in assessee’s appeal as well as in Revenue’s appeal are interconnected. The ld. CIT- DR for the revenue submits that the Assessing officer while passing the assessment order, made disallowance of entire bogus purchase shown from Karishma Diamond P. Ltd., Krishna Diam Pvt. Ltd. and Parshwanath Gems Pvt. Ltd.. These parties were managed by Gautam Jain and Rajendra Jain group which were engaged in providing bogus entry of purchases without actual delivery of goods. The A.O. after giving full opportunity to the assessee, disallowed 100% of purchases on the basis of decision of the Ahmedabad Tribunal in the case of Vijay Proteins (Supra). 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 ITA 199 & 153/SRT/2019 ITO Vs. Rikhab Sajjankumar Jain 7 on Gautam 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. The ld. CIT(A) restricted the addition to the extent of 5% on the basis of decisions of the various Tribunals without appreciating the facts that the assessee has merely availed entry of bogus purchase without actual delivery of goods. The ld. CIT-DR submits that the facts in the case of Mayank Diamond are at variance, in the said case the director of that assessee himself was controlling the entire affairs, and there were circular transactions from the banks. In the said case the assessee has shown very good gross profit and ultimately High Court restricted the addition at 5% impugned transaction. Here in this case, the Assessing officer disallowed 100% of aggregate of purchases as the same was nothing but bogus entry to inflate the margin of profit, which was shown from bogus hawala traders. 9. On the other hand, the ld. AR for the assessee submits that he is not pressing the grounds of appeal related with validity of reopening and supporting the order of ld. CIT(A) on merit that 5% disallowance is quite reasonable keeping in view the profit margin in the diamond industry is very low. 10. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities carefully. As noted above, the ld. AR of the assessee, at the outset supporting his submission and has submitted that he is not pressing the grounds of appeal relating to reopening and other grounds except the disallowance of 5% of the ITA 199 & 153/SRT/2019 ITO Vs. Rikhab Sajjankumar Jain 8 purchases. Considering this submission of the ld. AR of the assessee, grounds No. 1 of the appeal of assessee is dismissed as not pressed. 11. 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 three parties namely Karishma Diamond P. Ltd., Krishna Diam Pvt. Ltd. and Parshwanath Gems Pvt. Ltd. which are managed by Gautam Jain and his group. It is a known fact that Gautam Jain and Rajendra 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. The ld. 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 ld. Sr. DR vehemently submitted that the disallowance restricted by the ld. 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. 4,08,64,674/- shown from hawala dealers, the assessee may have shown other transaction with ITA 199 & 153/SRT/2019 ITO Vs. Rikhab Sajjankumar Jain 9 some other parties. However, the assessee has offered a meagre income of Rs. 4,28,569/- for taxation, thus the assessee was shown an extremely low profit. This combination 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 ld. CIT(A) are increased to 6% of the impugned purchases of Rs. 4,08,64,674/-. 12. In the result, the grounds of appeal raised by the Revenue is partly allowed resultantly, the ground No. 2 of assessee’s appeal is dismissed. Finally, the appeal of the revenue stands partly allowed and the appeal of the assessee stands dismissed. Order pronounced on 31/10/2022, in open Court. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 31/10/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order // True Copy // Sr. Private Secretary, ITAT Surat