Shri Vimalchand Jain, Surat V. ITO, Ward-3(3)(5), Surat

ITA 293/SRT/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2415 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-03-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 18-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Search and seizure; Opportunity of cross examination; Peak credit; Wrong claim; Accommodation entries; Reassessment proceedings; Set aside
• Section: 68; 69; 148; 271(1)(c); 69C; 143(3); 142(1); 274; 143(2); 73; 13; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.293/SRT/2018 (िनधाᭅरणवषᭅ / Assessment Years: (2008-09) (Virtual Court Hearing) Shri Vimalchand Jain, Prop. Gems Art, C/o. 901, Rajhans Tower, Mini Bazar, Varachha Road, Surat-395006. Vs. The ITO, Ward-3(3)(5), Aaykar Bhavan, Majura Gate, Surat. ᭭थायीलेखासं./जीआइआरसं./PAN/GIR No.: ACUPJ0819L (Appellant) (Respondent) Assessee by: Shri Himanshu Gandhi, CA Revenue by: Shri H. P. Meena, CIT(DR) सुनवाई कᳱ तारीख/ Date of Hearing : 03/03/2022 घोषणा कᳱ तारीख/Date of Pronouncement : 10/03/2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the assessee, pertaining to the Assessment Year (AY) 2008-09, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-3,Surat [in short “the ld. CIT(A)”], in Appeal No. CAS/3/28/2016-17, dated 13.03.2018, which in turn arises out of an order passed by the Assessing Officer (AO) u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 [hereinafter referred to as the “Act”], dated 11.03.2016. 2. Groundsof the appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case and law, the Id. CIT(A) erred in confirming validity of reopening under section 147 of Income Tax Act, 1961 even when the Ld CIT(A) agreed to facts that various laps are on part of the Ld. AO. 2. On the facts and circumstances of the case and law, the Id. CIT(A) failed to consider that :- a) Without issuing notice in name of assessee reassessment proceeding cannot be initiated. b) Reassessment proceeding cannot be initiate after four years when assessee has disclosed all the particulars fully and truly. c) Case cannot reopen merely because Ld. AO was directed by another officer. d) For reopening personal belief of AO is must which is absent in assessee case. Page | 2 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain e) Reassessment order cannot be passed without passing SPEAKING ORDER on objection raised by the assessee. f) Addition cannot be made on any other ground during reassessment proceeding if no addition was made on ground which was mentioned in reason recorded for reopening under section 148. 3. On the facts and circumstances of the case and law, the Id. CIT(A) erred in confirming and enhancing the disallowance of so called purchases amount Rs.12,26,43,063/- without considering the facts that assessee is a commission agent and had not claimed any purchases in books of account. 4. On the facts and circumstances of the case and law, the Id. CIT(A) failed to consider that addition cannot be made due to following factors with CIT(A) also agreed :- a) Material/ statements on which the Ld. AO relied was not provided to assessee. b) Opportunity of cross examination was not provided. c) Books of account not rejected and even it is accepted by CIT(A) that assessee has provided all possible details in support of transactions. d) Quantity details were also accepted by the Ld. AO & CIT(A). e) All transaction was through banking channel and not disputed by CIT(A) & AO. f) Third party retraced statement cannot be relied without any supporting evidence. g) 100% Gross Profit not possible. h) Section 69C cannot be apply when the source is explained: 5. On the facts and circumstances of the case and law, the Id. CIT(A) failed to decision in case of N K proteins ltd. (2016) (6) TMI 1139 on which he relied for enhancement of income is factually and legally distinguishable from the facts of the assessee case. Hence, cannot be rely. 6. Without prejudice to above: On the facts and circumstances of the case and law, the ld CIT(A) failed to consider that assessee had sold goods to same concerns (Rs.12,23,78,766) only with whom purchases was happen and disallowed by the CIT(A). So as per assumption of Id. AO & CIT(A) assessee sales to those parties is also non genuine and required to be reduced. If the Ld. AO & CIT(A) accepts that assessee sales to those parties are genuine, then the contention of AO & CIT(A) that Rajendra Jain concerns are providing bills only will be invalid because they have accepted their purchases genuine by accepting assessee sales. 7. On the facts and circumstances of the case and law, the ld.CIT(A) erred in initiating penalty proceeding u/s 271(1)(c) of Income Tax Act, 1961. 8. Assessee craves leave to reserve right to add to, alter or amend any of the aforesaid grounds of appeal at or before the time of hearing and to produce such further evidence, documents and papers in support of claim.” 3.Brief facts qua the issue are that assessee had filed its original return of income for assessment year 2008-09 on 01.07.2008 declaring total income at Page | 3 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain Rs.1,56,390/-. On the basis of information received from the DGIT (Inv.), Mumbai, the case was reopened by issuing anotice u/s.148 dated 27.03.2015, after getting prior approval from the Addl.CIT, Range-3(3), Surat. 4. In response to notice under section 148 of the Act, the assessee, vide his letter dated 24/04/2015, informed the AO that return filed on 01.07.2008 shall be treated as return filed in response to notice u/s 148 of the Act. Further, notice u/s 142(1) &143(2) of the Act was issued on 15/05/2015 and duly served to the assessee. The reason for reopening was provided to the assessee on 13.07.2015. Further, a notice u/s 143(2) of the Act was issued on 14/07/2015. A notice u/s 142(1) cum questionnaire of the Act was issued on 03.09.2015 & served on assessee on 04.11.2015. 5. Thereafter, the assessee, vide his letter dated 28.12.2015 raised an objection stating that the reopening was bad in law. The assessing officer, vide order passed on 04.01.2016, over ruled the objection. The assessee has not preferred further appeal against this order. 6. In response to the notices issued u/s 148 and 142(1) of the Act, the assessee furnished submission and explanation, vide its letter dated 05/01/2016, which is reproduced below: "I submit that I have purchased rough & polished diamonds of Rs.12,24,86,657/- on commission basis which was sold to various cutters on behalf of M/s Aadi Impex. Similarly, I have also sold diamonds of Rs.12,23,78,766/- to M/s Aadi Impex which have been procured from various cutters on behalf of M/s Aadi Impex. Therefore, it cannot be construed that I have merely taken bills from them whereas as a matter of fact, I have sold diamonds to them also in the year under re-assessment." 7. The assessing officer perused the reply of the assessee and observed that a search and seizure action was carried out by the Investigation wing, Mumbai in the case of Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Dharmichand Jain group of Mumbai on 03.10.2013, which resulted in collection Page | 4 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain of evidences and other findings, which conclusively proved that the said Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Dharmichand Jain group of Mumbai had, through benami concerns, run and operated by them in the names of their employees, provided accommodation entries to various parties in respect of bogus unsecured loans, bogus purchases and bogus sales. Various evidences found and seized from the premises as well as the statements recorded u/s 132(4) of respective key persons proved the above facts.This group has indulged in giving such accommodation entries. They have admitted the entire nature of bogus transactions in their respective statement recorded u/s 132(4) of the Income Tax Act, 1961. It was also stated by the dummy partners/ Directors/ proprietors of the entities of this group that they are closely known and associated with the above group persons and that they were made partners/ Directors/ 'proprietors of the entities of this group at the direction of Shri Rajendra Jain /Shri Sanjay Jain / Shri Dharmichand Jain & his family but the entities were managed and controlled by the latter. It was further admitted by the dummy partners/ Directors/ proprietors of the entities of this group that they were merely employees of the above groups & their family and that they were looking after miscellaneous office work like depositing cheques in banks, handing over parcels to clients, making data entry, etc. On being asked about various aspects of the business of this group, the dummy partners/ Directors/ proprietors of the entities of this group, they expressed their ignoranceand stated that they are engaged in the business of bill shopping through all the concerns and they do not maintain any physical stock of diamonds and that they are paid lump sum salary in cash. During the course of search, blank cheque books signed by the dummy partners / Directors / proprietors of the entities of this group were also found, which were seized. Similarly, books of account in the name of the dummy partners / Directors / proprietors of the entities of this group were also found, which were also seized.According, to the regular books of accounts and the returns of income filed by different entities of the group, the business of these entities are disclosed to be trading of rough and finished diamonds and manufacturing of diamond jewellery. However, no stock of diamond was found from any of the premises searched or surveyed. The Page | 5 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain statements of all the persons recorded during the course of search revealed that this group was engaged in giving accommodation entries and this fact has also been admitted by the employees, the dummy partners/ dummy Directors/ dummy proprietors of the entities of this group as also by Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Dharmichand Jain group of Mumbai. The investigations made by the investigation wing revealed that actual importers of rough diamonds import part of their diamond requirement through benami entities operated by Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Dharmichand Jain group of Mumbai & family, which ensures benefit of suppression of turnover, profits and capital requirement of the former. The consignments are sent on credit by the suppliers in the names of these benami entities at the instance of the actual importers and on receipt of the imported consignments from Customs, through CHA, the consignment is handed over to the actual importer and the bogus stock is entered in the books of the benami entities and the same is not recorded in the books of the actual importer. These benami entities of Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Dharmichand Jain group of Mumbai thereafter issue bogus purchase/sale bills. 8.From the details and evidence made available by the Director General of Income Tax (Investigation), Mumbai, it was observed by AOthat the following entities of Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Dharmichand Jain group of Mumbai have given accommodation entries of bogus sales as under, during F.Y. 2007-08 to the assessee, Vimalchand M. Jain (Prop. of M/s. Gem Art), 286, Laxmi Nagar society, Nr. Trikam Nagar, Lambe Hanuman Road, Surat. Sr. No. Name of concerns PAN Amount Rs. 1 AADI AHOPJ3837B 12,24,86,657/- TOTAL 12,24,86,657/- 9. The assessing officer noted that assessee was having business transaction with the various concerns are certain that the assessee had taken accommodation entries of sales shown for Rs.12,24,86,657/- to earn Page | 6 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain unaccounted profit. These entries were over and above the regular business transaction shown by the assessee with various concerns. The only motive behind taking these entries would have been to earn higher profits which he must have earn through out of the books sales made.As the assessee has claimed that he is not engaged in any non-genuine transaction with the various concerns shown above. Thus it can be concluded that the assessee must have not shown the sales and purchases related with these non-genuine transactions in his regular books of account. Therefore, assessing officer observed that goods shown to be sold through non genuine transaction must have been purchased by some other parties to earn higher profit. The higher profit might be earned through bogus purchases or inflation of purchase prices or through sale at higher rate. Therefore, assessing officer held that assessee must have suppressed his profit by 25% either through bogus sales/inflation of sales prices or through sale at higher rate. Therefore, AO made an addition of Rs.3,06,21,664/- (25% of Rs.12,24,86,657/-) to the total income of the assessee. 10. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has enhanced the addition made by the assessing officer, observing as follows: “10.5 In my earlier decisions in cases of similar beneficiaries of accommodation entry operator & in similar facts and circumstances I have respectfully followed the above decisions of Hon. Gujarat High Court, and further followed the decision of Hon Gujarat High court in Mayank Diamonds 2014 (11) TMI 812 (Guj) and also relied on decisions of Id CIT Appeals at Surat such as (1) CAS-1/10810/2016-17 dated 03/07/201, Shri Vrajendra Thakkar, (2) CAS-1/279/15-16 dated 05/05/2016, Creative Diamond Pvt. Ltd (3)CAS 2/743/15-16 dated 10.02.2017, Albers Diamonds Private Limited, It also weighed on my mind that the Id. AOs in Mumbai have made disallowance of 2% to 5% of bogus purchases in case of beneficiaries of the same accommodation entry providers such as shri Rajendra Jain, Bhawarlal Jain, etc. Same view was taken by Ld. CsIT(A) in Mumbai. The cases are annexed to my earlier appeal orders. It is further seen that Hon ITAT has disallowed only 3-5% of bogus purchases in such cases (cited in respective orders) Hence, I had restricted the disallowance to a part or percentage of the total unverifiable or bogus purchases in my earlier appeal orders. 10.6 However, the above decisions stand overruled by the recent Decision of Hon. Gujarat High Court in the case of M/s N K Proteins Ltd ([2016](6) TMI 1139), which is confirmed by the Hon'ble Supreme Court in the case of M/s N K Proteins Ltd. (2017-TIOL-23-SC-IT). The Hon High Court has directed that 100% of bogus Page | 7 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain purchases be added to total income of assessee. The Hon. Gujarat High Court held as following: "The Tribunal has decided the issue regarding bogus purchases relying on the decision of the Rajasthan High Court in the case of M/s Indian Woollen Carpet Factory vs. ITAT reported in [2002] 178 CTR (Raj) wherein it has been held that addition under section 68 or 69 of the Act is tenable in the case of peak credit in the accounts of bogus suppliers. He submitted that the quantum of such peak credit and retention of the addition has been decided by the Tribunal at 25% of the total bogus purchases on the basis of its earlier decision in the case of Vijay Proteins Ltd. The Tribunal in the case of Vijay Proteins Ltd. vs. CIT has observed that it would be just and proper to direct the assessing officer to restrict the addition in respect of the undisclosed income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s Indian Woollen Carpet Factory (supra) or M/s Vijay Proteins Ltd. In the present case the Tribunals has categorically observed that the assessee had shown bogus purchases amounting to Rs.2,92,93,288/- and taxing only 25% of these bogus claim goes against the principles of Section 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs.2,92,93,288/- represented alleged purchases from ''bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs.73,73,322/- " 10.7 In view of the above decision, the addition made by the AO @ 25% of bogus purchases is incorrect. Accordingly, as already stated enhancement notice u/s 251(1) r.w.s. 251(2) of the Act dated 19.02.2018 was issued to the address mentioned in form No. 35 and there has been no compliance by appellant/AR. In the absence of any judicial decision/ decision of jurisdictional ITAT, which draws out the distinction or differentiates on facts the above decision of the Hon High Court is binding. 10.8 In view of the discussion, the entire purchases of Rs.12,24,86,657 is liable to be added to the income of the appellant. The addition made by the AO in the assessment order of Rs.3,06,21,664/- on account of 25% of total purchases is hereby enhanced by Rs.9,18,64,992/- under the provisions of section 251(1) r.w.s. 251(2) of the Act. The total income of the appellant is assessed at Rs. 12,26,43,063/-In the facts and circumstances of the case, it is clear that the appellant has indulged in a elaborate scheme of taking accommodation entry of bogus purchases to reduce his taxable income. Hence I am satisfied that the appellant has furnished inaccurate particulars of income and is liable penalty u/s 271(l)(c)ofthe Act. The penalty proceedings are hereby initiated by issue of Show cause notice u/s 274 r.w.s 271(1)(c)of the Act.” 11.Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. 12.Learned Counsel for the assessee argues that reasons recorded by the assessing officer are not in accordance with the scheme of the provisions of section 147 of the Act, therefore reassessment proceedings initiated by the assessing officer may be quashed. On merits, ld Counsel contends that assessee has submitted bills, invoices and stock details before the assessing officer and Page | 8 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain considering these details, ld CIT(A) ought not to have enhanced the assessment. He prays the Bench that entire addition may be deleted. 13. On the other hand, the Learned Departmental Representative (ld. DR) for the Revenue submitted that reasons are recorded as per the provisions of section 147 of the Act and there is no infirmity of the reasons recorded by the Assessing Officer, therefore reassessment proceedings initiated by the Assessing Officer should be upheld. On merits, ld DR submits that evidences made available by the Director General of Income Tax (Investigation), Mumbai, prove that entities of Shri Rajendra Jain Group, Shri Sanjay Choudhary Group and Dharmichand Jain group of Mumbai have given accommodation entries of bogus sales, during F.Y. 2007-08 to the assessee. The assessee had furnished fabricated bills, invoices and stock details, therefore these evidences should not be relied and addition sustained by ld CIT(A) may be confirmed. 14.We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld CIT(A) and other materials brought on record. We have gone through the reasons recorded by the assessing officer and observe that the issue of notice u/s148 and assumption of jurisdiction for assessment by the AO was perfectly in accordance with law and his formation of belief for concealment of income was correctly based on material available with him at the time of issue of notice u/s148 of the Act. Consequently, the reassessment proceedings initiated by the AO is in accordance with law. Hence, this ground of appeal of the assessee is dismissed. 15. On merit, we note that issue involved in assessee’s appeal, is 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 27.09.2009, 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 Page | 9 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain 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 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 Page | 10 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain 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),  Peass Industrial Engineers (P) Ltd Vs DCIT [2016] 73 taxmann.com 185 (Gujarat High Court),  ITO Vs Purushttom Dass Bangur [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 Page | 11 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain 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 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) @ 1 M/s Andaman Timber industries Vs Commissioner 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 Shilpi Jewellers 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 | 12 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain 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 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 Page | 13 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain 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 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 Page | 14 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain 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.” 16.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 judgment of the Coordinate Bench, we sustain the addition @ 6% of impugned purchases. 17. In the result, appeal filed by the assessee is allowed to the extent indicated above. Order is pronounced on 10/03/2022 by placing result on notice board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat/ ᳰदनांक/ Date: 10/03/2022 SAMANTA Page | 15 ITA No. 293/SRT/2018 Assessment Year. 2008-09 Vimalchand Jain Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat