The Income Tax Officer, Ward-2(3)(7), Surat V. Shri Abhishek L. Jain, Surat

ITA 344/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1648 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 04-07-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 27-06-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 148; 143(3); 142(1); 143(2)

Judgement Text

आयकर अपीलȣय अͬधकरण, स ु रत Ûयायपीठ, स ु रत IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND Dr ARJUN LAL SAINI, ACCOUNTANT MEMBER आ.अ.सं./ITA No.344/SRT/2019 (AY 2007-08) (Hearing in Virtual Court) Income Tax Officer, Ward- 2(3)(7), Room No. 414, 4 th Floor, Anavil Business Centre, Adajan-Hajira Road, Adajan, Surat-395009 Vs Shri Abhishek L.Jain Prop of Manglam Export, 302, Pipla Sheri, Mahidharpura, Surat-395003 PAN : ABXPJ 0344 G अपीलाथȸ/Appellant Ĥ×यथȸ /Respondent Ǔनधा[ǐरती कȧ ओर से /Assessee by Shri Mehul Shah, C.A राजèव कȧ ओर से /Revenue by Shri H.P. Meena, CIT-DR सुनवाई की तारीख/Date of hearing 05.07.2022 उɮघोषणा कȧ तारȣख/Date of pronouncement 26.09.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income Tax (Appeals)-1, Surat [for short to as “ld. CIT(A)” dated 09.04.2019 for assessment year 2007-08, which in turn arises against additions in assessment order passed under section 143(3) r.w.s. 147 of Income-Tax Act (Act) dated 02.03.2015. The Revenue has raised the following grounds of appeal: - ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 2 “(i) 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.5,26,91,781/- on account of bogus purchases to 5%. (ii) 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. (iii). 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.” 2. Brief facts of the case are that assessee is a proprietary of Manglam Export, engaged in the business of import, export and resale of polished diamond. The assessee filed his return of income qua assessment year 2007-08 on 06.11.2007 declaring income of Rs.1,25,638/-. The case of assessee was re-opened on 28.03.2014 on the basis of information received from Investigation Wing, Mumbai that a search & seizure action was carried out by DIT(Inv.) Mumbai in case of Praveen Kumar Jain Group & Others on 03.10.2013. In the search action, evidence was collected about the detection of accommodation entry of Rs.8897 crores. In the search action, ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 3 it was found that the Praveen Kumar Jain (PK Jain) was indulging in providing bogus sales and purchases without actual delivery of goods. It was found that assessee was one of the beneficiary of bogus purchases of several parties managed by Praveen Kumar Jain Group amounting to Rs.5.269 crores, out of which purchases of Rs.2.131 Crore from New Planet Trading Private Limited, Rs. 84.20 lacks from Natasha Enterprises and Rs. 2.295 Crore from Kunal Gems. On the basis of such information, the Assessing Officer has reason to believe that income of assessee escaped from assessment to the extent of Rs.5.296 crores within the meaning of Section 147 of the Act. The Assessing Officer after recording the reasons of re-opening, issued notice under section 148 dated 28.03.2014, which was served upon the assessee through affixture on 31.03.2014. Subsequent notice under section 143(2) and 142(1) were also issued. The Assessing Officer recorded that assessee vide his letter dated 22.08.2014 the assessee requested to treat the return of income filed on 06.11.2007 as return of income in response to notice under section 148 and demanded copy of reasons recorded. The ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 4 reasons recorded were provided to the assessee on 22.08.2014. The assessee filed objection against the re- opening which was disposed of by a speaking order dated 16.02.2015. The Assessing Officer recorded that show cause notice was issued to the assessee on 19.02.2015 as to why the accommodation entry of Rs.5.269 crores should not be disclosed and added back to the total income of assessee. The Assessing Officer recorded that despite passing a considerable period, the assessee has not furnished any reply. The Assessing Officer in absence of any detail filed by assessee made addition of Rs.5.269 crores in the assessment order passed on 02.03.2015. 3. Aggrieved by the addition and the re-opening, the assessee filed appeal before Ld. CIT(A). Before Ld. CIT(A) the assessee filed detailed written submission. The submission of assessee is recorded in para-7.1 of the order of Ld. CIT(A). The assessee also challenged the validity of notice under section 143(2) of the Act. On the addition, the assessee submitted that he made purchase of cut and polished diamond from New Planet Trading Private Limited, Natasha Enterprises and Kunal ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 5 Gems. The assessee produced copies of invoices and ledger accounts. The assessee also enclosed copy of confirmation, books of account and quantitative details of sales. The assessee submitted that books of accounts of assessee are duly audited and all documentary evidence were furnished before the Assessing Officer. The entire (100%) diamond purchases were sold during the trading activities which resulted into nil closing stock of the year. The sale of assessee was accepted by the Department. Thus, the corresponding purchase should also be accepted as genuine. The Assessing Officer has not rejected the sales of assessee. The payments made to the suppliers through account payee cheques. The assessee also relied on certain case law. 4. In alternative submission, assessee submitted that addition, if any, be made, it should be made on estimate/ad-hoc basis. The assessee in the business of trading of diamond and gross margin are only of 0.15% to 0.50% in the business. The assessee has also shown profit @ 0.40% which is reflected in the books of account and in line of business of diamond and no adverse view is called for. On the service of notice under ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 6 section 143(2), the assessee contended that there is no proof of service of notice. The signature of Assessing Officer on the notice under section 143(2) does not match with the assessment order and no seal of office is affixed. 5. On the submission of assessee, the Ld. CIT(A) called for remand report of Assessing Officer. The Assessing Officer furnished remand report dated 22.06.2017, in the remand report, the Assessing Officer stated that notice under section143(2) was issued on 06.01.2015, which is wrongly mentioned dated as 06.01.2014. Notice under section 143(2) was duly served through Speed Post, the same is mentioned in the order-sheet dated 06.01.2015. The Assessing Officer also furnished the case record before Ld. CIT(A). On the remand report, the assessee filed his rejoinder vide letter dated 22.02.2019. In the rejoinder / objection, the assessee stated that no proof of service of notice given by the Assessing Officer and that notice under section 143(2) was not served. The assessee submitted that there is a difference in the signature of Assessing Officer on the notice as well as on the assessment order. The copy of notice contained Speed Post No., however, ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 7 such number was not traceable in the Speed Post tracking website. The copy of order-sheet entries is not provided. The assessee also relied on certain case laws. 6. The Ld. CIT(A) after considering the submission of assessee on the validity of re-opening held that in his opinion, the facts in the notice is curable and do not strike at the validity of assessment order. The signature of Assessing Officer on notice under section 143(2) as well as assessment order as no scope of suspicious. On the merit of the addition of bogus purchases, the Ld. CIT(A) held that on similar set of fact, he has passed order in case of Gagnani Impex A.Y 2013-14, in Appeal No. CAS-3/5112/2015-16 date of order 24.11.2016, wherein by following the decision of Tribunal in the case of Bholanath Polyfab Private Limited in ITA No.137/AHD/2009 dated 26.07.2011, wherein the addition was restricted to the extent of profit element embedded in such similar disputed / bogus purchases. The Ld. CIT(A) also examined the gross profit and net profit ratio of assessee and held that where the assessee has shown abnormal low gross profit, similar addition was restricted either 5% or 12.5% based on the gross ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 8 profit / net profit disclosed by the respective assessee depending on the nature of trade etc. The ld. CIT(A) also relied on the decisions of Hon'ble jurisdictional High Court in the case of CIT-III Vs Satyanarayan P. Rathi (2013) 38 taxmann.com 402 (Guj); CIT Vs President Industries (2002)/ 124 TAXMAN 654 (Guj); CIT vs. Summit P Seth (2013) 38 taxmann.com 385 (Guj); CIT vs. Bholanath Poly Fab (P.) Ltd. (2013) 40 taxmann.com 498 (Guj) and Mayank Diamonds ITA No. 200 of 2003 dated 07.11.2011, wherein the High Court held only profit element embedded in the bogus/ unverifiable purchases may be taxed. Accordingly, Ld. CIT(A) after considering all facts and circumstances of the case, restricted the disallowance to the extent of 5% of purchases from the entities managed by Praveen Kumar Jain Group. Aggrieved by the order of Ld. CIT(A) the Revenue has filed present appeal before the Tribunal. 7. We have heard the submission of learned Commissioner of Income Tax-Departmental Representative (Ld. CIT-DR) for the Revenue and Ld. Authorized Representative (AR) for the assessee and have gone through the orders of lower ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 9 authorities carefully. The ld. CIT-DR for the Revenue submits that assessee is a beneficiary of bogus purchase as the assessee has obtained bogus entries from the entities managed by PK Jain Group, who was well known hawala operator and was indulging in providing accommodation entry without actual delivery of goods. The Investigation Wing of Mumbai made a full-fledged enquiry and came to the conclusion on the basis of search material and the statement of PK Kumar Jain recorded under section 132, that they were not doing actual or real business except accommodating entries. The assessee is a beneficiary of such bogus accommodation entry of purchases. Before Assessing Officer, the assessee failed to discharge his onus in proving the genuineness of such purchases. The Ld. CIT(A) granted substantial relief to assessee only on the basis of other case law. Each and every case has to be judged on the basis of its fact, in the present case, the assessee miserable failed to prove the genuineness of the purchases. The Ld. CIT-DR submits that order of Assessing Officer may be restored by setting aside the order of Ld. CIT(A). ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 10 8. On the other hand, ld. AR for the assessee submits that he may be given liberty to raise the plea as per Rule 27 of the Income Tax (Appellate Tribunal) Rule, 1963, for assailing the service of notice under section 143(2). The ld. AR for the assessee submits that notice under section 143(2) was not served upon the assessee and copy of said notice, allegedly send by assessing officer is placed on record as per page-24 of the Paper Book. The ld. AR for the assessee by referring the contents of notice would submit that the notice bears the signature of Assessing Officer “Rajashree Sureshan” which is quite different with the signature appeared in assessment order. On raising specific quarry by bench, if such objection was raised before assessing officer during assessment, the ld. AR for the assessee fairly submits that no such objection was raised before the Assessing Officer. The ld AR for the assessee submits that his objection is legal objection and goes to the root of the case. The ld. AR for the assessee submits that the Speed Post No. mentioned on the said notice was not found in the record of Postal Department. Further, there is no seal of Assessing Officer on the said notice. As the notice under ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 11 section 143(2) was not served upon the assessee, therefore the assessment order is bad in law. To support his submission, the ld. AR for the assessee relied on the following decisions;  ITO Vs Gravity Systems Private Limited in ITA No.5626/Del/2012 dated 30.03.2017;  Anil Kisanlal Marda Vs ITO in ITA No.1763/Pun/2013 dated 01.07.2018;  Kamla Devi Sharma Vs ITO, in ITA No.1026/JP/2016 dated 06.02.2018;  Kusumben D. Tailor Vs ITO in ITA Nos. 2565- 2568/AHD/2014 dated 30.09.2019 and  PCIT Vs Sun Pharmaceuticals Industries Ltd. (2017) 86 taxmann.com 148 (Gujarat High Court). 9. On the merit of the case, the ld. AR for the assessee submits that assessee has made genuine purchase and the purchases made by assessee were duly reflected in his stock register. The assessee sold the entire material purchased from the said parties. The sale of the entire materials was not disputed by the Assessing Officer. The books of accounts and books results of assessee was not rejected. The ld. AR for the assessee submits that he has furnished the net profit as well as gross profit ratio for the assessment years 2007-08 to 2010-11 ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 12 respectively. The assessee has filed sufficient evidence to prove the genuineness of the purchase, however, the lower authorities have not given finding on such evidences. The gross profit and net profit ratio for the year under consideration is considerably on the higher side. Though assessee has shown gross profit @ .40% and net profit shown 0.03% respectively, which is higher than the subsequent assessment year. The turnover of the assessee was about Rs.70 crores during the year. The assessee has already shown a good net profit for this financial year, thus, no disallowances on account of bogus purchases was warranted. The ld. AR for the assessee prayed for dismissal of the appeal filed by the Revenue. To support his various submission, the ld. AR for the assessee relied upon the following case law:  Kishanchand Chellaram vs. CIT 125 IDTR 713 (SC)  Andaman Timber Industries Vs Commissioner of Central Excise (2015) 281 CTR 241 (SC)  Mehta Parikh & Co. 30 ITR 181 (SC)  CIT vs. Odeon Builders Private Limited (Review Petition) (C) Diary No. 22394 of 2019  CIT vs. Sunita Dhadda 406 ITR 220 (Raj) ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 13  Sunita Dhadda vs. DCIT 148 TTJ 719 (Jaipur Trib.)  PCIT Vs Tejua R Kapadia 24 taxmann.com 325 (SC)  PCIT Vs Tejua R. Kapadia [TA No.691/2017 (Guj)  DCIT vs. Mahendra Ambalal Patel TA No.462/1999 (Guj)  PCIT vs. Chartered Speed Private Ltd. TA No.126/2015 & 127/2015 (Guj)  ACIT vs. Vardhman Exports TA No.265/2008 (Guj)  CIT vs. M.K. Brothers 163 ITR 249 (Guj)  ACIT vs. Akruti Dyeing & Printing Mills Pvt. Ltd. TA No.997/2008 (Guj)  CIT Vs Nangalia Fabrics Pvt. Ltd. 40 taxmann.com 206 (Guj)  PCIT vs. Vaman International Pvt. 422 ITR 520 (Bom)  PCIT vs. Md. Haji Adam & Co. & Ors. 104 CCH 391 (Bom)  H.R. Mehta vs. ACIT 289 ITR 561 (Bom)  CIT vs. Nikunj Exim Enterprises Pvt. Ltd. 372 ITR 619 (Bom)  Haryana Jwellers Pvt. Ltd. vs. ITO [ITA No. 2315/Del/2018 (Delhi. Trib)]  Gopinath Gems vs. ITO [ITA No.624-629/SRT/2018 (Surat Trib.)]  Pankaj K Jain HUF vs. ITO [269/SRT/2017 (Surat Trib.)]  ACIT vs. Rushabh International [ITA No.347, 349- 350/SRT/2018 (Surat Trib.)] ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 14  Brijkishor R Sonkhiya vs. DCIT [ITA No.364- 369/SRT/2018 (Surat Trib.)]  Albers Diamond Pvt. Ltd. vs. ITO [ITA No.776 & 1180/AHD/2017 (Surat Trib.)]  ITO vs. Shri Anshuman R Kumavat [ITA No.1974/AHD/2016 (Surat Trib.)]  Simoni Gems vs. DCIT [ITA No.752/Mum/2018 (Mum.Trib.)]  ITO vs. Smt. Leena H Harde [ITA No.6429/Mum/2017 (Mum.Trib.)]  Sanjay Sawhney Vs PCIT (2002) 116 taxmann.com 701 (Delhi),  CIT Vs BPL System & projects Limited 227 ITR 779 (Ker),  Nitin P Chheda Vs ITO ITA No. 3944-3945/Mum/2018 dated 26.06.2019. 10. In rejoinder submission, Ld. CIT-DR for the Revenue submits that notice under section 143(2) was duly served upon the assessee. The assessee has not contested the assessment proceedings, except making appearance on one or two dates. Notice under section 148 was also served through affixation. The assessee conveniently chose either to appear or not to appear before the assessing officer, as per his convenience. The copy of the impugned notice under section 143(2) is filed ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 15 by the assessee himself. It is not the case of assessee that copy of said impugned notice was supplied to the assessee either by Assessing Officer or it was obtained by him by way of other means. On the submission of addition on merit, the Ld. CIT- DR submits that he is making prayer to enhance the addition @ 100%. However, in his without prejudice submission of Ld. CIT-DR submits that in a number of similar bogus purchases, the combination of this bench has already enhanced the addition or restricted the addition @ 6% of the similar purchases and dismissed all technical objection. The legal / technical objection raised by the assessee is misconceived. 11. We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case law relied by Ld. AR for the assessee. Though, the ld. AR for the assessee has filed numerous case laws on the merit of the addition, however, at the time of making his submissions he hardly referred and relied only 3 to 4 case laws, that too in support his submissions on the validity of notice under section 143(2). ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 16 12. Before adverting to merit of the case, let us examine the validity of notice under section 143(2). We find that there is no dispute that the case of assessee was re-opened under section 147 and the notice under section 148 was issued on 28.02.2014, which was served through affixation. The assessee has not disputed the service of notice under section 148. The notice under section 143(2) was also issued on 06.01.2015 (wrongly recorded as 06.01.2014 in assessment order). As per proviso to section 143(2), the Assessing Officer was required to serve the said notice before expiry of six months’ period from the end of financial year in which return is furnished. As per the Assessing Officer, the assessee fide his letter dated 22.08.2014 contended that return filed on 06.11.2017 be treated as return in response to notice under section 148. Thus, the Assessing Officer was required to serve notice within six months from the end of financial year in which return was filed in response to notice under section 148 was filed. As per assessee’s letter, the return in response to notice under section 148 was filed on 22.08.2014. The said financial year ended on 31.03.2015, the said notice under ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 17 section 143(2) was issued on 06.01.2015 i.e., well within the valid period. The said notice was issued at the given address of assessee. We find that the assessee has not disputed his address mentioned on the said notice. The assessee has raised dispute that the said notice under section 143(2) was not served to assessee. We find that the notice under section 143(2) itself contains the Speed Post Registration No. E4601902441 IN. We further find that assessee filed objection vide his letter dated 22.09.2014 as recorded on page-2 assessment order. No such objection was raised by assessee about the non-service of notice under section 143(2). Besides, service of notice, the objection of assessee is that the signature of Assessing Officer is differ from the signature appeared on assessment order. The assessee is failed to show the basic difference in the signature on the notice viz a viz the assessment order. Moreover, the assessee has not disclosed as to what prejudice is caused to the assessee in mere difference in the signature. It is not the case of assessee that the assessment order or the notice under section 143(2) is not signed by competent officer. Further, the assessee or his AR ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 18 nowhere took the plea that the signature either at the notice under section 143(2) or on the assessment is forged or the revenue is relying on some fabricated or forged signature. It is not the plea that this notice under section 143(2) was not at all issued by the assessing officer. The assessee want favourable order only from the bench without asserting such contention. In our view, the assessee has raised objection only for the sake of technical reasons, which we reject. 13. Now adverting to the merit of the case. We are conscious of the fact that the assessee has not challenged the order of ld. CIT(A) in restricting the addition to the extent of 5%. We find that the assessing officer made addition of 100% of the purchases shown from the entity managed by PK Jain and his group. No details were filed by assessee before assessing officer in response to various notices. Though the assessee appeared before assessing officer and filed objection against the reopening, but no details of purchases were furnished. Thus, the assessing officer on the basis of information available with him made addition of entire purchases from all three parties aggregating of Rs. 5.269 Crore. Before, ld CIT(A) ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 19 the assessee filed certain details as we have recorded above. On the submissions of the assessee, a remand report was called by ld CIT(A). We find that the ld. CIT(A) restricted the addition of bogus purchases to the extent of 5% by following various his earlier decisions on bogus purchases. The ld CIT(A) also relied on various case laws of Jurisdictional High Court. It is matter of common knowledge that PK Jain was well known bogus entry provider, who has provided entry of several thousand crores of rupees. During the search action on PK Jain no stock of any goods was found by search team. In the statement he admitted that he is mere entry provider. The assessee has not disputed that he has not transacted with the entity of PK Jain. We find that the ld CIT(A) restricted the addition to the extent of 5% of aggregate of purchases shown from the entity of PK Jain. In our view the disallowance to the extent of 5% is on lower side particularly when the assessee has shown negligible net profit. The assessee has shown net profit @ .03 only, on the turnover of Rs.70 Crore. The assessee has shown return income of Rs.1,25,638/- only. Thus, in order to meet out the possibility of revenue leakage 6% of the ITA No.344/SRT/2019 (A.Y 07-08) Sh. Abhishek L. Jain 20 addition of aggregate of disputed purchase will meet the end of justice. We may refer that this combination, where the assessee is beneficiary of similar disputed purchases, either from Rajender Jain, Bhanwar Lal Jain, Gautam Jain or PK Jain, we have consistently restricted or increased the similar addition to 6% of such purchases. Therefore, taking the consistent view, the disallowance restricted by ld CIT(A) @ 5% are increased to 6% of the total aggregate of impugned / bogus purchase. In the result, the grounds of appeal raised by the revenue is partly allowed. 14. In the result, appeal of the Revenue is partly allowed. Order pronounced in the open court on 26/09/2022 and the result was also placed on the Notice Board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) [लेखा सद᭭य/ACCOUNTANT MEMBER] [᭠याियक सद᭭य JUDICIAL MEMBER] Surat, Dated: 26/09/2022 Dkp. Out Sourcing Sr.P.S Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)- 4. CIT 5. DR 6. Guard File True copy/ By order // True Copy // Sr.P.S./Assistant Registrar, ITAT, Surat