The ITO, Ward-3(1)(5), Surat V. Shri Manish Agarwal, Surat

ITA 206/SRT/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2356 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 09-03-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 05-11-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ANUPAMA SINGLA
• Keywords: Reopening of assessment; Bogus purchase; Accommodation entries; Reason to believe; Set aside
• Section: 143(3); 73; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA Nos.206 & 256/SRT/2017 (िनधाŊरणवषŊ / Assessment Year: (2008-09) (Virtual Court Hearing) Income Tax Officer, Ward- 3(1)(5)Room No. 115, 1 st Floor, Anavil Business Centre, Hajira Road, Opp. Star Bazar, Adajan, Surat-395009 Manish Agarwal 204, Vaibhav Chambers, Raghunathpura, Main Road,Surat-395003 Vs. Manish Agarwal 204, Vaibhav Chambers, Raghunathpura, Main Road, Surat-395003 Income Tax Officer, Ward- 3(1)(5), Aayakar Bhawan, Majura Gate, Surat ̾थायीलेखासं./जीआइआरसं./PAN/GIR No.: AFWPA 2629 A (Appellant ) (Respondent) Assessee by : Shri Suchek Anchalia, C.A Revenue by : Shri H.P.Meena, CIT-DR आयकरअपीलसं./ITA Nos.253/SRT/2017 (िनधाŊरणवषŊ / Assessment Year: (2008-09) Ramprakash V. Vijayvergiya 11, Shakti Chambers, Raghunathpura, Main Road, Surat-395003 Vs. Income Tax Officer, Ward- 3(1)(5), Aayakar Bhawan, Majura Gate, Surat ̾थायीलेखासं./जीआइआरसं./PAN/GIR No.: AEVPV 0917 N (Appellant ) (Respondent) Assessee by : Shri Suchek Anchalia, C.A Respondent by : Ms. Anupama Singla, SR-DR सुनवाई की तारीख/ Date of Hearing : 10/03/2022 घोषणा की तारीख/Date of Pronouncement : 29/03/2022 Page | 2 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya. आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned cross appeals filed by the Assessee and Revenue, pertaining to assessment year (AY) i.e. 2008-09, are directed against the separate orders passed by the Learned Commissioner of Income Tax(Appeals)-3, Surat,[‘CIT(A)’ for short] dated 30.08.2017 and 31.08.2017, respectively, which in turn arise out of separate orders passed by the Assessing Officer under section 143(3) r.w.s 147 of the Income Tax Act, 1961 (in short ‘the Act’), dated 19.02.2016 and 29.02.2016 respectively. 2.Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. 3.At the outset, Ld. Authorized Representative (AR) for the assessee submits that assessee has challenged the addition made by the assessing officer based on validity of re-opening as well as on merits. The Ld AR submits that reasons recorded by the assessing officer are defective therefore reassessment order made by the AO may be quashed. The Ld. AR of the assessee submits that for the year under consideration, the Assessing Officer made addition @ 25% of the disputed / bogus purchases. These purchases are from Shri Bhawarlal Jain Group. The Ld. AR drew our attention that grounds of appeal raised by assessee, on merits, are covered by the Decision of the Co-ordinate Bench of this Tribunal, vide order dated 27.09.2021 in the case of Pankaj K. Choudhary & others, wherein the Co- ordinate Bench has sustained the addition @ 6%of bogus purchases. The Ld. AR contended that all these appeals are covered by the afore-said decision of the Co- ordinate Bench, in the case of Pankaj K. Choudhary & others (supra). 4. On the other hand, Ld. Senior Departmental Representative (Sr.DR), relied on the order of the Assessing Officer. Page | 3 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya. 5.We have heard both the parties and perused the materials available on record. We note that issue involved in these appeals, are covered by the judgment of the Co-ordinate Bench in the case of Pankaj Choudhary in ITA No. 1152/AHD/2017, for AY.2007-08, order dated 27.09.2021, wherein the Co-ordinate Bench held as follows: “9. On merit, the ld.CIT(A) after discussing the submission of assessee held that AO has not discussed about any details of books of accounts, documents, stock register produced by assessee during the assessment. The AO neither examined nor found any defect in the document to discredit the same. The assessee has produced day to day stock register, details of purchase and sale. The purchases made during the year are sold during the year as seen from the trading account. If the impugned purchases are treated as bogus, then the stock in hand will become negative from 26.06.2006 onwards and no sale is possible in absence of purchases. The AO relied on the statement of Bhanwarlal Jain recorded by Investigation Wing against, copy of purchase bill, copy of bank statement, showing payment, day to day stock register, incoming and outgoing diamonds and daily stock tally, confirmation of the impugned parties from whom the said purchases has been made, thus, the assessee practically furnished all possible evidences in support of his claim for purchases. Moreover all the payment are made by bank account. The AO has made no comments about these documentary evidences. On the aforesaid observation, the ld.CIT(A) concluded that assessment order suffer from incomplete investigation, lack of marshalling of all relevant facts and procedural loop holes. Similarly, the ld. CIT(A) also observed that there is no denying circumstances under which statement were made by Bhanwarlal Jain and the elaborate modus-operandi unearthed by Investigation Wing, Mumbai, which has created sufficient suspicion regarding the purchase made by the assessee. The said parties are assessed with Central Circle, Mumbai where they are treated as “entry provider” and assessed accordingly. 10. The ld.CIT(A) after referring the decision of Tribunal in Bholanath Poly Fab Private Limited in ITA No.137/AHD/2009 dated 26.07.2011 wherein the addition was sustained to the extent of 12%. The ld CIT(A) by following the observation of order of Tribunal in Bholanath Poly fab Pvt. Ltd.(supra), the ld.CIT(A) held 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) after considering the overall facts, submissions of the assessee and evidences produced by assessee, concluded that the 100% disallowance of purchase is not justified. The ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. reported in [2014] 11 TMI 812 (Guj) (Tax Appeal No.200 of 2003 dated 07.11.2014). The ld.CIT(A) compared the fact of the present case, with the facts in case of Mayank Diamonds (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The AO in said case made disallowance of entire bogus purchase. The ld.CIT(A) dismissed the appeal, however, the Tribunal gave partial relief to the assessee directing and sustained the addition @12%. And on further appeal before Hon'ble High Court, the disallowance was sustained at Page | 4 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya. Gross Profit Rate of 5%, which is average rate of profit in industry. The ld. CIT(A) further held that in some other similar cases though he has sustain 5% of Gross Profit Rate considering the fact that where Gross Profit shown by assessee is 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, hence the disallowance was restricted to 12.5% of the impugned purchase. 11. Aggrieved by the order of ld. CIT(A), both the parties have filed cross appeals. The assessee has challenged the validity of reopening as well as sustaining the addition to the extent of 12.5% only. Likewise, the Revenue has assailed the order for sustaining addition to the extent of 12.5% only. We have noticed that there is typing mistake in the ground no. 2 of revenue’s appeal wherein the assessing officer has mentioned the additions of ‘5%’ instead of ‘12.5%’. 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 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), Page | 5 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya.  Peass Industrial Engineers (P) Ltd Vs DCIT [2016] 73 taxmann.com 185 (Gujarat High Court),  ITO Vs PurushttomDassBangur [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. An 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 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 Rohitkumar 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 Page | 6 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya. 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 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: 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 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 Page | 7 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya. 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 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 Page | 8 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya. 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.” 6.As the issue is squarely covered by the decision of the Coordinate Bench, in the case of Pankaj Choudhary (supra), and there is no change in facts and law and the ld Counsel is unable to produce any material to controvert the aforesaid findings of the Coordinate Bench(supra). We find no reason to interfere in the said order of the Coordinate Bench, therefore, respectfully following the binding precedent of the Coordinate Bench, we sustain the addition @ 6% of impugned purchases. 7. Before parting, we would like to deal other arguments of the ld Counsel. As, ld Counsel submitted before us that re-opening of assessment is bad in law. We have gone through the reasons recorded by the assessing officer and observed that reasons were recorded by the assessing officer as per the provisions of section 147 of the Act. The Hon'ble Supreme Court in the case of Phul Chand Bajrang Lal and another vs. ITO 203 ITR 456, was considering the question of reassessment Page | 9 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya. 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 The Apex Court in the case of Phul Ghand Bajrang Lal (supra), observed as following: "...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." Thus, based on these facts, we dismiss the ground raised (challenging the reassessment u/s 147) by the assessee. 8. In the result, assessee’s the appeals in ITA No.256 and 253/SRT/2017, are dismissed and that of Revenue’s appeal (in ITA No.206/SRT/2017) is partly allowed. A copy of the instant common order be placed in the respective case file(s) Order is pronounced on 29/03/2022 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat/िदनांक/ Date: 29/03/2022 Dkp Outsourcing Sr.P.S. Page | 10 ITA No.206, 256 & 253/SRT/2017 A.Y. 08-09 Manish Agarwal & Ramprakash V Vijayvergiya. Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat