ITO Ward-2(3)(7), Surat V. Deepak Kumar Mahaveer Ajmera, Surat

ITA 202/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1688 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 02-08-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 02-04-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Search and seizure; Accommodation entries; Retraction
• Section: 131; 69C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 185/SRT/2019 (AY: 2014-15) (Hearing in Physical Court) Deepak Kumar Mahaveer Ajmera, Office No. 503, Gem Stone Building, Haripura Main Road, Mahidharpura, Surat. PAN: AIOPA 4669 B Vs. I.T.O., Ward 2(3)(7), Surat. APPELLANT RESPONDEDNT ITA No. 202/SRT/2019 (AY: 2014-15) I.T.O., Ward 2(3)(7), Surat. Vs. Deepak Kumar Mahaveer Ajmera, Office No. 503, Gem Stone Building, Haripura Main Road, Mahidharpura, Surat. PAN: AIOPA 4669 B APPELLANT RESPONDEDNT Assessee by Shri Mehul Shah, CA Department by Shri S.B.G. Mahapatra, Sr.DR Date of hearing 03/08/2022 Date of pronouncement 15/09/2022 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This set of cross appeals for the Assessment Year (AY) 2014-15 by the assessee as well as by the revenue, is directed against the order of ld. Commissioner of Income tax (Appeals)-1, Surat [‘ld. CIT(A)’ for short] ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 2 both dated 16/01/2019. The assessee in his appeal has raised the following grounds of appeal:- “1. On the facts and the circumstances of the learned Commissioner of income Tax (Appeal) erred in confirming certain purchases as in-genuine on the basis of certain documents and statements recorded by DIT without the knowledge of Assessee and without granting the copies of those documents or opportunity to cross examine them and therefore the same could have not been considered as evidence and therefore the same is bad in law. 2. On the facts and the circumstances of the learned Commissioner of income Tax (Appeal) erred in confirming certain purchases as in-genuine without appreciating that assessing officer has not brought out any material on record to substantiate that those entities were connected to so called Pravin Jain group or Gautam Jain group. 3. On the facts and the circumstance of the case the Commissioner of Income Tax (Appeal) erred in confirming addition u/s.69C treating the certain purchases made as in-genuine without appreciating that the said purchases were duly recorded in the books of accounts and the payments were made through account payee cheques out of the funds generated from the regular business of the appellant and therefore there could be no addition u/s 69C which applies only when the source of the payment is not explained. 4. The learned Commissioner of Income Tax (Appeal) erred in sustaining disallowance of Rs.8,63,900/- being 5% of the Purchases from certain Parties purported to be part of Pravin Jain Group and Gautam Jain Group without appreciating that the said Purchases were fully evidenced by the Invoices, Challans, Stock Records and further the suppliers Confirmation and their Return of Income were also filed. The Appellant craves the leave to add, amend, alter and/or delete any of the above grounds of appeal at/or before the time of hearing.” 2. The revenue in its cross appeal has raised 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. 1,64,14,100/- on account of bogus purchases to 5%. ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 3 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 suppress the profit of the 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)-1 Surat may be set-aside and that of the Assessing Officer's order may be restored.” 3. Brief facts of the case are that the assessee is proprietor of M/s Abhinav Exports, engaged in the business of trading of rough and polished diamonds, gold diamond jewellery and import/export of all kinds of diamonds. The assessee filed his return of income on 27/10/2014 declaring total income of Rs. 9,11,280/-. The case of assessee was selected for scrutiny. During the assessment, the Assessing Officer noted that he has received information from DGIT (Inv.) Mumbai that a racket for providing accommodation entry by Shri Praveen Kumar Jain and Gautam Jain was detected. A search and seizure action was carried out by the Investigation Wing on the said group on 03/10/2013 which resulted in collection of evidence for operating benami concerns which has providing accommodation entry of various sales and purchase including of unsecured loan etc. The modus operandi was admitted in the statement recorded under Section 132(4) of the Income Tax Act, 1961 (in short, the Act) by the key persons. It was revealed that the assessee has also received accommodation entry and is beneficiary of bogus bills from ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 4 various Benami concerns of Shri Praveen Kumar Jain and Gautam Jain. The assessee has shown purchases of Rs. 1,72,78,000/- from the following five parties: 1. Artharv Business Pvt. Ltd. Rs. 12,11,000/- 2. Casper Enterprises Pvt. Ltd. Rs. 14,80,000/- 3. Duke Easiness Pvt. Ltd. Rs. 33,90,000/- 4. Khushi Gems Pvt. Ltd. Rs. 91,97,000/- 5. Nakshshatra Business P Ltd. Rs. 20,00,000/- Total Rs. 1,72,78,000/- 4. The assessee was asked to explain the genuineness of the purchases from all the aforesaid parties. The assessee in response to show cause notice, filed his reply dated 24/11/2016. In the reply, the assessee submitted that the assessee has purchased rough, cut and polished diamonds, the assessee has not taken accommodation entries. The assessee made regular business transaction. The assessee has sold the entire goods to various parties which is apparently evident in the stock register. The assessee furnished copy of bills and submitted that the payments were made through banking channel. The assessee denied of having any knowledge of the persons namely Shri Praveen Kumar Jain and submitted that he never met Shri Praveen Kumar Jain or Gautam Jain and he was not aware about the accommodation entries and modus operandi adopted by them in providing accommodation entries. Reply of assessee was not accepted by the Assessing officer. The Assessing officer held that there is ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 5 no merit in the contention of assessee. The assessee was required to produce the parties for verification, the assessee failed to produce the parties despite providing particulars. The assessee could furnish only copy of ledger and bank statement to prove its claim that the transactions are genuine. The Assessing Officer recorded that a racket of issuance of bogus bills by Shri Praveen Kumar Jain and Gautam Jain who runs a number of concerns in their names and names of other persons who are the employees of their various companies which has been detected by the department and the same was admitted by Shri Praveen Kumar Jain and Gautam Jain. The admission of Shri Praveen Kumar Jain and Gautam Jain was based on evidence. The Assessing Officer on the basis of report of Investigation Wing made the addition of aggregate of purchases from all five parties of Rs. 1.72 crores in the assessment order dated 07/12/2016 passed under Section 143(3) of the Act. 5. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions. The submission of assessee are recorded in para 7 of impugned order. In the written submission, the assessee in sum and substance submitted that the assessee is engaged in the business of import and trading of rough and polished diamonds, gold and diamond jewellery in Surat. The return of income was accompanied by audited ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 6 financial statements. During the assessment, the Assessing Officer on verification of data furnished by the assessee, issued a show cause notice dated 07/11/2016. In response to show cause notice, the assessee filed its explanation for each and every transaction alleged by the Assessing Officer. The copy of reply filed before the Assessing Officer was furnished to ld. CIT(A). The assessee stated that copy of ledger, purchase bill, bank statement and confirmation reflecting the payment to Artharv Business Pvt. Ltd., Casper Enterprises Pvt. Ltd., Duke Easiness Pvt. Ltd., Khushi Gems Pvt. Ltd. and Nakshshatra Business P Ltd. Copy of stock register highlighting the receipts and subsequent sales were furnished. Copy of retraction affidavit of Shri Praveen Kumar Jain was also filed. The assessee also stated that copy of statements of Shri Praveen Kumar Jain and Gautam Jain recorded under Section 131 of the Act were not provided to the assessee. The assessee furnished complete details to the Assessing Officer. 6. The ld. CIT(A) after considering the submission of assessee and the assessment order held that the he decided identical case in Gagnani Impex for A.Y. 2013-14 in Appeal No. CAS-3/512/2015-16 dated 24/11/2016, wherein he had after considering the decision of Tribunal in Bholanath Polyfab Pvt. Ltd. in ITA No. 137/Ahd/2009 dated 26/07/2011 restricted the disallowance of purchases to the extent of 5% of the total ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 7 purchases. The ld. CIT(A) while restricting the addition of disallowance of bogus purchases also referred and relied on the decision of Hon’ble Jurisdictional High Court in the case of Satyanarayan P. Rathi (2013) 351 ITR 150, President Industries 258 ITR 654, Sumit P Seth (2013) 356 ITR 451, Bholanath Poly Fab (2013) 355 ITR 290, Mayank Diamonds in TA No. 200 of 2003 dated 07/11/2011 held that the disallowance of 100% purchases cannot be justified and only the profit element embedded in such purchases, to avoid the revenue leakage are reasonable to meet the end of justice. On the basis of various decisions, the ld. CIT(A) restricted the disallowance to the extent of 5% of the purchases. 7. Further aggrieved, both the parties have filed their respective appeals. The revenue in its appeal has challenged the deletion of disallowance to the extent of 95%, on the other hand, the assessee has challenged the addition in restricting the disallowance to the extent of 5% of aggregate of purchases. 8. We have heard the submissions of learned authorised representative (AR) of the assessee and the learned Senior Departmental Representative (Sr. DR) for the revenue and have gone through the orders of the lower authorities carefully. The ld. AR of the assessee submits that the purchases made by assessee are genuine. The assessee has entered the purchases in his stock register. The entire stock was sold. The assessee ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 8 furnished complete details of the parties from whom the purchases were made. The assessee filed ledger account, invoices of purchases and proof of payment by account payee cheque. Sale of assessee was not rejected. Books of account of assesse was also not rejected by the Assessing Officer. The Assessing Officer made addition on the basis of third party information and the statement of third party recorded by the Investigation Wing. Copy of statement of third party allegedly recorded by the Investigation Wing was not provided to the assessee. The ld. AR submits that once the assessee has furnished complete details of purchases, which was not discussed by the Assessing Officer while making addition of 100% of purchases. The ld. AR for the assessee submits that in absence of rejection of books of account or rejecting the sales of assessee, the addition on account of bogus purchases is not justified. The ld. AR for the assessee submits that the Tribunal in various cases has deleted the addition or restricted the same to the extent that the addition on account of bogus purchases should be limited to the difference between the gross profit shown by the assessee on normal purchases as against the gross profit shown on bogus purchases. To support his submission, the ld. AR of the assessee has relied on the following case laws: (i) Shri Pankaj Kanwarlal Jain Vs ITO ITA No. 269/Srt/2017 dated 27/08/2019. ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 9 (ii) PCIT Vs Others Vs M/s Mohommad Haji Adam & Co. & Others (2019) 104 CCH 0391 (Bom HC). (iii) Kirtikumar d. Shah Vs ACIT 19(2) (ITA No. 7199/Mum/2018 dated 26/02/2020. (iv) Mohamamd Haji Adam & Co. Vs ITO-13(1) ITA No. 4254/Mum/2010 dated 28/10/2015 (v) Pravin C. Bokadia Vs ITO-Circle 19(2)(5) ITA No. 3552/Mum/2019 dated 17/07/2020. 9. On the other hand, the ld. Sr. DR for the revenue has supported the order of the Assessing officer. The ld. Sr. DR submits that the Investigation Wing of Revenue made full-fledged investigation in the case of Praveen Kumar Jain and Gautam Jain. During the search action, various incriminating material was found. Statement of Shri Praveen Kumar Jain and Gautam Jain were recorded. They categorically admitted for involvement in providing accommodation entry without actual delivery of goods. The assessee is one of the beneficiary who has obtained accommodation entry without actual delivery of goods. The assessee has not furnished proof of actual delivery of goods. The ld. CIT(A) restricted the addition to the extent of 5% of the purchases rather the entire purchases shown by the assessee are bogus. The ld. Sr. DR submits that the order of ld. CIT(A) may be reversed by restoring the order of Assessing Officer. 10. We have considered the rival submissions of both the parties, perused the material available on record and have gone through the orders of the ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 10 lower authorities. We have also deliberated on various case laws relied by ld. AR of the assessee. We find that while passing the assessment, the Assessing Officer made addition on the basis of report of Investigation Wing, Mumbai. We find that the assessee has filed certain evidences i.e. ledger account, invoices, confirmation of parties and proof of payment through banking channel. We find that the Assessing officer has not given any finding on such documentary evidences furnished by the assessee. We also noted that the Assessing officer has not disputed the sale of assessee. Further the books of account of assessee was not rejected. The Assessing Officer disallowed 100% of purchases shown from 5 parties managed by Praveen Kumar Jain or Gautam Jain group. In our view, 100% disallowance in absence of rejection of books of account or without disputing the sales is not justified. 11. We further find that the ld. CIT(A) instead of giving independent finding on the facts of the present case directly relied on the decision in Gagnani Impex (supra). The ld. CIT(A) restricted the disallowance to the extent of 5% by referring and various decisions of Tribunal or Hon’ble Jurisdictional High Court. Before us, the ld. AR of the assessee vehemently argued that the purchases shown by assessee are genuine. We find that the assessee on one hand took the plea that he was not allowed cross examination of the parties on the statement of whom the addition was made. On the ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 11 other hand, the assessee himself claimed to have filed copy of affidavit of said parties in allegedly retracting the statement before the Investigation Wing. In our view, stand of assessee is itself contradictory, once the assessee was able to obtained affidavit of retraction of Shri Praveen Kumar Jain, the assesse could very well produce the said person before the Assessing Officer. 12. Now adverting to the reasonability of disallowance of bogus/tainted/disputed purchases, we find that Hon’ble Jurisdictional High Court in various case laws, including in the decision in Sumit P Seth (supra) and Bholanath Poly Fab (supra), the Hon’ble Court held that only profit element embedded in such bogus purchases should be disallowed, to avoid the possibility of revenue leakage and not the entire aggregate of disputed purchases. Considering the fact that Shri Praveen Kumar Jain was well known entry provider. Shri Gautam Jain was also actively involved along with Praveen Kumar Jain. The department has taxed Shri Praveen Kumar Jain and Gautam Jain as entry provider and taxed certain percentage on total entry provided by them. We find that in a similar case, the combination of this Bench, wherein the cases of beneficiary in case of Shri Rajendra Jain, Gautam Jain or Praveen Kumar Jain, disallowance of similar purchases were either increased to 6% or wherein the disallowance was restricted at higher percentage, was restricted to 6%, therefore, ITA No.185 & 202/SRT/2019 Deepak Kr. Ajmera Vs ITO. 12 taking a consistent view, the disallowance restricted by the ld. CIT(A) is modified and the Assessing Officer is directed to restrict the disallowance of purchases from all five parties to the extent of 6% only. 13. In the result, appeal of the revenue is partly allowed resultantly the appeal of assessee is dismissed. Order pronounced on 15/09/2022 in open court and result was placed on notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 15/09/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order Sr. Private Secretary, ITAT Surat