RALF JEMS P. LTD, MUMBAI V. ITO 5(3)(1), MUMBAI

ITA 3707/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8043 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 27-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHAN
• Keywords: Reopening of assessment; Bogus purchase; Business income; Search and seizure; Principle of natural justice; Cost of acquisition; Tangible material; Difference of opinion; Accommodation entries; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 69C; 143(3); 145; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , A M AND SHRI PAWAN SINGH, JM ./ I.T.A. NO. 3707/MUM/2016 ( / ASSESSMENT YEAR: 2007 - 08 ) M/S. RALF JEMS PVT. LTD. 102, 1 ST FLOOR, C WING, SHREEJI CHAMBERS, TATA ROAD NO.2, OPERA HOUSE, MUMBAI - 400 004 / VS. INCOME TAX OFFICER - 5(3)(1), MUMBAI ./ ./ PAN/GIR NO. AABCR 3078 F ( ASSESSEE) : ( RE VENUE ) & ./ I.T.A. NO. 37 61/MUM/2016 ( / ASSESSMENT YEAR: 2007 - 08 ) INCOME TAX OFFICER - 5(3)(1), MUMBAI / VS. M/S. RALF JEMS PVT. LTD. 102, 1 ST FLOOR, C WING, SHREEJI CHAMBERS, TATA ROAD NO.2, OPERA HOUSE, MUMBAI - 400 004 ( REVENUE ) : ( ASSESSEE) ASSESSEE BY : SHR I SASHI TULSIYAN RE VENUE BY : SHRI M. C. OMI NINGSHAN / DATE OF HEARING : 20.09.2017 / DATE OF PRONOUNCEMENT : 11.12 .2017 / O R D E R PER SHAMIM YAHYA , A. M.: TH ESE ARE CROSS APPEALS BY THE REVENUE AND ASSESS EE ARISING OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 17.02.2016 AND PERTAIN TO THE ASSESSMENT YEAR 2007 - 08. 2 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. 2. THE GROUNDS OF APPEAL IN ASSESSEES APPEAL READ AS UNDER: LEGAL GROUNDS: (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW. THE LD. CIT(A) ERRED IN UPHOLDING THE ASSESSMENT FRAMED U/S. 143(3) R.W.S. 147 OF THE INCOME - TAX ACT, 1961 EVENTHOUGH THE SAID ASSESSMENT ORDER IS INVALID AND ILLEGAL BECAUSE THE REOPENING OF THE ASSESSMENT IS NOT IN CONFORMITY WITH THE EXPRESS LEGAL PROVISIONS IN VIEW OF THE FOLLOWING: A) RE - OPENING OF THE ASSESSMENT IS DONE WITHOUT INDEPENDENT APPLICATION OF MIND SINCE THE ASSESSING OFFICER RELIED ON THE INFORMATION RECEIVED FROM THE INVESTIGATION WING AND HAD NOT SATISFIED HIMS ELF ON THE ALLEGED BOGUS PURCHASES TO CONCLUDE AS TO ANY INCOME HAS ESCAPED ASSESSMENT. B) THE ASSESSING OFFICER HAS NOT ESTABLISHED A LIVE LINK BETWEEN MATERIAL BEING RELIED UPON TO REOPEN THE ASSESSMENT PROCEEDINGS AND THE APPELLANT. C) THE ASSESSIN G OFFICER HAS INITIATED THE REASSESSMENT PROCEEDINGS ON THE BASIS OF CHANGE OF OPINION AND WITHOUT ANY TANGIBLE MATERIAL IN HIS POSSESSION. D) THE ASSESSING OFFICER IN HIS REASONS OF REOPENING HAS NOT SPELT OUT ANY FAILURE ON THE PART OF THE APPELLANT TO FILE RETURN OR DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT AS PER PROVISIONS OF SEC. 147 OF INCOME TAX ACT 1961. E) THE LEGALITY AND VALIDITY OF THE REOPENING OF THE ASSESSMENT HAS TO BE ADJUDGED ON THE BASIS OF REASONS RECORDED AND IT CANNOT BE SUPPLEMENTED BY FURTHER REASONS. GROUNDS ON MERITS: (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES BY APPLYING NET PROFIT R ATE AT 6 PERCENT EVEN THOUGH THE PURCHASE TRANSACTIONS WERE GENUINE AND SUPPORTED BY DOCUMENTARY EVIDENCES. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION ON THE BASIS OF INFORMATION R ECEIVED FROM THE INVESTIGATION WING WITHOUT ANY CORROBORATIVE EVIDENCE. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE STAND OF THE LD. A. O. OF PLACING RELIANCE ON THE INFORMATION AND MATERIAL REC EIVED FROM THE INVESTIGATION WING AS WELL AS STATEMENTS OF VARIOUS PARTIES WITHOUT CONFRONTING THE SAME TO THE APPELLANT AND THUS VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE STAND OF THE LD. A. O. OF NOT PROVIDING AN OPPORTUNITY TO CROSS - EXAMINE THE PERSONS WHOSE STATEMENTS WERE RELIED UPON BY THE LD. A. O. IN PASSING THE ASSESSMENT ORDER UNDER CONSIDERATION. 3 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. 3. THE GROUNDS OF APPEAL IN REVENUES APPEA L READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THELD.C IT (A) ERRED IN DIRECTING THAT 6% OF THE BOGUS PURCHASES BE TREATED AS PROFITS UNDER BUSINESS INCOME OVER AND ABOVE INCOME RETURNED IN PLACE OF DISALLOWING THE PEAK OF THE BOGUS PURC HASES U/S 69C OF THE INCOME TAX ACT, 1961. L(B). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) FAILED TO APPRECIATE THAT THE FINDINGS OF THE SEARCH ACTION OF THE INVESTIGATION WING OF THE DEPARTMENT REVEALED THAT THE BHANWARLAL JAIN GROU P WAS ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES OF UNSECURED LOANS, SALES & PURCHASES, SHARE APPLICATION MONEY TO MANY PARTIES AND THE ASSESSEE COULD NOT CONCLUSIVELY ESTABLISH THE GENUINENESS OF THE PURCHASES MADE FROM THE TWO CONCERNS M/ S. JEWEL DIAM& M/S. LITTLE DIAM BELONGING TO & OPERATED BY THE BHANWARLAL JAIN GROUP. L(C). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION OF RS. 95,94,430/ - MADE U/S 69C OF THE INCOME TAX ACT, 1961 B EING THE PEAK OF THE PURCHASES OF RS. 1,19,32,516/ - MADE FRQM THE TWO CONCERNS OF THE BHANWARLAL JAIN GROUP. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 4. BRIEF FACTS OF THE CASE ARE AS UNDER: IN THIS CASE, THE ASSESSING OFFICER NOTED THAT THE I NFORMATION IN THE CASE OF ASSESSEE FOR A.Y. 2007 - 08 WAS RECEIVED FROM DIT( IN V) - II , MUMBAI VIDE LETTER DATED 13.03.2014 , WHEREIN IT IS STATED THAT SEARCH AND SEIZURE ACTION U/S 132 OF THE IT. ACT, 1961 IN THE CASE OF BHANWARLAL JAIN GROUP WAS CONDUCTED BY THE DDIT (INV), MUMBAI AND FOUND THAT DURING THE F.Y. 2006 - 07 RELEVANT TO A.Y. 2007 - 08, M/S. RALF GEMS PVT. LTD. HAS TAKEN ACCOMMODATION ENTRIES OF BOGUS PURCHASE AMOUNTING TO RS.1,19,32,5167 - FROM CONCERNS CONTROLLED AND MANAGED BY THE SAID BHANWARLAL JAIN GROUP. TH AT TH E FOLLOWING IS THE DETAILS OF BOGUS TRANSACTIONS: 4 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. SR. NO. NAME OF THE CONCERN AMOUNT 1 JEWEL DIAM 40,77,555/ - 2 LITTLE DIAM 78,54,961 / - TOTAL 1,19,32,516 / - TH AT A BOVE CONC ERNS ARE ALL CONTROLLED AND MANAGED BY BHANWARLAL JAIN GROUP, THE HAWALA DEALER. TH AT F I RST OF ALL , THE CONTENTION OF THE ASSESSEE THAT IT IS NOT SURE ABOUT THE NATURE OF ALLEGED BOGUS TRANSACTION , IS SELF CONTRADICTORY , AS LATER ON , IN THE SUBMISSION OF T HE ASSESSEE , THERE IS CLEAR CUT REFERENCE TO PURCHASES WITH THE ALLEGED HAWALA DEALERS. TH AT N OTWITHSTANDING THE SAME , IT WAS AGAIN CLARIFIED TO THE ASSESSEE VIDE ORDER SHEET NOTING DATED 16.01.2015. TH AT M AINLY THE CONTENTION OF THE ASSESSEE IS THAT IT SH OULD BE ALLOWED TO CROSS EXAMINE THE PARTIES AND THERE CANNOT BE SALE WITHOUT PURCHASE. TH AT T HE FACT OF THE MATTER IS THAT THE SEARCH AND SEIZURE ACTION CONDUCTED BY THE INVESTIGATION WING OF - TAX DEPARTMENT, MUMBAI AND FACTS AND EVIDENCES GATHERED CANNOT BE SIMPLY WISHED AWAY. TH AT TH E INVESTIGATION WING AFTER THOROUGH INVESTIGATION ARRIVED AT CONCLUSIONS LEAVING NO DOUBTS OR CONFUSION OVER THE BOGUS NATURE OF TRANSACTION. TH AT N OW, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE , WHAT HAS HA PPENED THAT THE ASSESSEE FIRST PURCHASED GOODS IN CASH WITHOUT BILLS AND SOLD THE SAME TO DIFFERENT PARTIES OR EXPORTED. TH AT N OW TO REGULARIZE THE PURCHASE , IT HAS TO OBTAIN PURCHASE BILLS AND FOR THIS PURPOSE IT APPROACHED THE BILL - SHOP [HAWALA DEALER]. TH AT C HEQUE WAS GIVEN AND CASH OF EQUIVALENT AMOUNT TAKEN 5 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. BACK AFTER ADJUSTING COMMISSIONS. TH AT TH IS IS WHAT HAS HAPPENED IN THE CASE OF THE ASSESSEE. TH AT TH IS ALSO IMPLIES THAT THE ASSESSEE WAS IN POSSESSION OF THIS MUCH OF CASH I.E. RS.1,19,32,516 / - , WHICH WAS UTI LIZED FOR THE PURCHASE OF GOODS. TH AT TH E CONTENTION OF THE ASSESSEE FOR CROSS EXAMINATION IS NOT ENTERTAINED FOR THAT THE STATEMENTS AND FINDING OF THE INVESTIGATION WING IS EXTENSIVE AND COVERS ALL ASPECTS OF INQUIRY AND FURTHER CROSS EXAMINATION WILL ON LY BE A WASTE OF PRECIOUS TIME. TH AT A S REGARDS THE CASE LAWS CITED BY THE L D.AR , IT IS SEEN THAT THE FACTS OF CASE IS DISTINGUISHABLE. TH AT I N THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE , THEREFORE , AN ADDITION OF THE PEAK AMOUNT OF RS.95,94,4 27/ - IS MA DE TO THE TOTAL INCOME OF THE ASSESSEE COMPANY U/S.69C OF THE ACT . 5. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CHALLENGING BOTH THE REOPENING AND THE MERITS OF THE ADDITION. 6. THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) CONFIRMED THE REOPENING BY HOLDING AS UNDER: I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. ORIGINALLY THERE WAS SCRUTINY U/S 143(3) CONCLUDED ON 18.8.2009 ACCEPTING LOSS RETURNED. THE ASSESSMENT IS REOPENED BEYOND F OUR YEARS BUT WITHIN SIX YEARS. FROM THE FACTS, IT IS GATHERED THAT THE REOPENING WAS DONE BASED ON THE INFORMATION RECEIVED BY THE AO FROM DIT( I NV,) - II , MUMBAI THAT SEARCH AND SEIZURE ACTION U/S 132 OF THE ACT WAS CONDUCTED BY THE DDIT( I NV.), MUMBAI IN TH E CASE OF BHANWARLAL JAIN GROUP AND FOUND THAT DURING F.Y.2006 - 07 RELEVANT TO A.Y. 2007 - 08, THE APPELLANT COMPANY HAS TAKEN ACCOMMODATION ENTRIES OF BOGUS PURCHASES AMOUNTING TO RS.1,19,32,516/ - FROM THE FOLLOWING CONCERNS CONTROLLED AND MANAGED BY BHANWARL AL JAIN GROUP. SINCE THE AO HAS ACTED ON EXTERNAL INFORMATION RECEIVED CONSEQUENT TO SEARCH AND SEIZURE OPERATIONS WHEREIN 6 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. BHANWARLAL JAIN AND OTHERS HAVE GIVEN CATEGORICAL STATEMENTS, HE HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, THEREFORE THE REOPENING OF ASSESSMENT TO EXAMINE THE FACTS OF THE CASE IS IN ORDER. THE REOPENING IS ALSO HELD VALID IN VIEW OF THE FOLLOWING RULINGS - (I) HON'BLE DELHI HIGH COURT IN THE CASE OF OPG METALS AND FINSEC LTD V. CIT, 358 ITR 144 HAS HELD THAT RE - ASSESSME NT IS VALID IF THE ISSUE IS NOT A SUBJECT MATTER OF EARLIER ASSESSMENT. SAME VIEW WAS ALSO TAKEN BY HIGH COURT OF BOMBAY IN THE CASE OF EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD V. ADDL.CIT (30 TAXMA'NN.COM 211) (2013) THAT REOPENING OF AN ASSESSMEN T IS PERMISSIBLE WHEN THE ORIGINAL ASSESSMENT ORDER PASSED UNDER S. 1432(3) IS SILENT IN RESPECT OF THE ISSUE/POINT ON WHICH RE - ASSESMENT NOTICE IS ISSUED. FURTHER, NO QUERY WITH REGARD TO THE ABOVE ISSUE HAVING BEEN MADE DURING THE ASSESSMENT PROCEEDINGS WOULD ALSO INDICATE ABSENCE OF APPLICATION OF MIND TO THE TANGIBLE MATERIAL. (II) IT WAS HELD IN THE FOLLOWING CASES THAT WHEN THERE IS NO DISCUSSION ON THIS ISSUE AND NO DETAILS ARE CALLED FOR BY THE AO OR FILED BY THE APPELLANT AND NO FINDINGS EITHER POS ITIVE OR NEGATIVE IN THE ORIGINAL ASSESSMENT PROCEEDINGS, REOPENING CANNOT BE CONSTRUED AS CHANGE OF OPINION. 1. ALA FIRM VS. CIT (102 ITR 622) (MAD HC) 2. ESS KAY ENGINEERING COMPANY PVT. LTD VS. CIT (247 ITR 818)(SC) 3. REVATHI CP EQUIPMENTS LTD VS. DCIT &ORS (241 ITR 856)(MAD HC) 4. EMA INDIA LTD VS. ACIT (30 DTR 82) (ALL. HC) (III) SUPREME COURT IN THE CASE OF KALYANJI MAVJI & COMPANY V. CIT (102 ITR 287) (SC) (1976) HAS HELD THAT THERE IS NO CHANGE OF OPINION IF THE ASSESSMENT IS REOPENED ON NEW FACTS WHICH CAME TO NOTICE SUBSEQUENTLY, EVEN THOUGH THEY ARE ALREADY ON RECORD. (IV) GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNILAL PATE! AND VASANTH CHUNILAL PATEL V. ACIT (236 ITR 832) (1999) HAS HELD THAT WHERE THE AO HAD OVERLOOKED SOME THING AT THE FIRS T ASSESSMENT, THERE CAN BE NO QUESTION OF ANY CHANGE OF OPINION, WHEN THE INCOME WHICH WAS CHARGEABLE TO TAX IS ACTUALLY TAXED AS IT OUGHT TO HAVE BEEN UNDER THE LAW BUT WAS NOT TAXED DUE TO AN ERROR COMMITTED AT THE FIRST ASSESSMENT, THE REOPENING WAS HEL D VALID. (V) ITAT, CHENNAI IN THE CASE OF CHENNAI PETROLEUM CORPN. LTD A. Y. 2006 - 07 (ITA NO.66/11 - 12/LTU(A) DATED 08.01.2013 RELYING ON THE HIGH COURT OF DELHI IN THE CASE OF CONSOLIDATED PHOTO AND FINVEST LTD V. ACIT (281 ITR 394) (2006) AND HIGH COURT O F MUMBAI IN THE CASE OF DR.AMIR'S PATHOLOGICAL LABORATORY V. JCIT (252 ITR 673) HAS HELD THAT MERE PRODUCTION OF BOOKS OF ACCOUNT, BALANCE SHEET AND PROFIT AND LOSS ACCOUNT WILL NOT NECESSARILY AMOUNT TO DISCLOSURE NECESSARY FOR EXPLANATION 1 OF SECT 147. 7 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. (VI) HIGH COURT OF DELHI IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD V. DCIT (197 TAXMAN 415) (2011) HAS HELD THAT MERELY BECAUSE THE MATERIAL LIES EMBEDDED IN THE MATERIAL EVIDENCE WHICH THE AO COULD HAVE UNCOVERED BUT DID NOT UNCOVER, IS NOT A GOOD REA SON FOR STRIKING DOWN REOPENING. (VII) HIGH COURT OF MUMBAI IN THE CASE OF EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD V. ADDL.CIT (30 TAXMANN.COM 211) (2013) HAS HELD THAT THERE IS NO FAILURE ON THE PART OF ASSESSEE TO DISCLOSE MATERIAL FACTS BUT THE RE IS COMPLETE FAILURE ON THE PART OF THE AO TO APPLY HIS MIND DURING ORIGINAL ASSESSMENT TO POINTS ON WHICH ASSESSMENT IS REOPENED, REOPENING WAS TREATED AS VALID. IT IS FURTHER TO BE UNDERSTOOD THAT WHEN IT IS THE QUESTION OF NON APPLICATION OF MIND WHET HER IT IS FOR FOUR YEARS OR MORE MAKES NO DIFFERENCE. (VIII) NOTWITHSTANDING ANYTHING STATED ABOVE, IT IS THE PREROGATIVE OF THE AO / REVENUE TO REOPEN THE ASSESSMENT IF THE AO HAS FOUND IN THE COURSE OF TIME THAT CERTAIN AMOUNTS WHICH SHOULD HAVE BEEN BRO UGHT TO TAX HAVE ESCAPED ASSESSMENT. THE POWERS WERE CLEARLY ENACTED U/S 149 R.W.S. 151 OF THE ACT. AS PER THESE PROVISIONS WHAT THE AO IS SUPPOSED TO SEE IS WHETHER THERE IS AN ESCAPEMENT OF INCOME AND WHETHER IT IS WITHIN FOUR YEARS OR BEYOND FOUR YEARS AND WHETHER IT IS A CASE OF 143(1) OR 143(3) SO AS TO TAKE APPROVAL FROM HIS APPROPRIATE SENIOR OFFICERS AS PER THE PROVISIONS. ONCE THE AO FULFILLS THESE REQUIREMENTS THEN HE CAN REOPEN THE ASSESSMENT BY RECORDING THE REASONS. THE AO WILL BE WITHIN HIS JU RISDICTION TO REOPEN THE ASSESSMENT AND HIS JURISDICTION CANNOT BE CHALLENGED PER SE. FURTHER IT IS TO BE UNDERSTOOD THAT MERE REOPENING DOES NOT MEAN THAT THE AO HAS COME TO THE CONCLUSION THAT INCOME HAS ESCAPED. (IX)HIGH COURT OF MUMBAI IN THE CASE OF E LEGANZA JEWELLERY LTD.(2014) 52 TAXMANN.COM 46 HAS HELD THAT IT IS A TRITE LAW THAT AT THIS STAGE ONLY A PRIMA FACIE VIEW OF THE AO IS NECESSARY TO ISSUE NOTICES AND NOT A CAST IRON CASE OF ESCAPEMENT OF INCOME. SIMILAR VIEWS WERE TAKEN BY THE FOLLOWING CO URTS, 1. HIGH COURT OF DELHI IN THE CASE OF MAHANAGAR TELEPHONE NIGAM LTD((2000)112 TAXMAN 337 2. SC IN THE CASE OF CENTRAL PROVINCES MANGANESE ORE CO LTD (1991) 191ITR 662 3. SC IN THE CASE OF SELECTED DALURBAND COAL CO P LTD (1996) 217 ITR 597 7. AS R EGARDS THE MERITS OF THE ADDITION, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE ADDITION TO 6% OF BOGUS PURCHASE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSI ONS OF THE ID.AR. 1 HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE LD.AR. AS SEEN 8 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. FROM THE FACTS OF THE CASE THE AO HAS REOPENED THE ASSESSMENT BASED ON THE INF ORMATION RECEIVED FROM THE DIT(I NV.), MUMBAI ON THE BASIS OF SEARCH AND SEIZURE ACTION CO NDUCTED BY THE INVESTIGATION WING DURING THE COURSE OF WHICH BHANWARLAL JAIN AND HIS STAFF MEMBERS HAVE GIVEN CATEGORICAL STATEMENTS CLEARLY STATING THE MODUS OPERANDS FOLLOWED BY THEM IN PROVIDING THE ACCOMMODATION BILLS. THEY HAVE ALSO ADMITTED UNEQUIVOC ALLY BEFORE THE INVESTIGATION WING THAT THEY WERE NOT INVOLVED IN ANY REAL TRADING OF DIAMONDS EXCEPT GIVING BOGUS BILLS TO THOSE WHO NEED THEM FOR CERTAIN COMMISSION. HAVING OBSERVED THAT THOSE PARTIES ARE NON - EXISTANT SELLERS AND THEY HAVE NOT MADE ANY S ALES EXCEPT THE BOGUS INVOICES ISSUED IN THEIR NAME, THE AO HAS BROUGHT TO TAX THE ENTIRE BOGUS PURCHASES STANDING IN THE NAMES OF THE SO - CALLED SELLERS, U/S 69C OF THE ACT AS THE EXPRESSION GIVEN BY THE APPELLANT WAS NOT SATISFACTORY TO HIM. THEIR ARGUMEN T WAS THAT UNLESS THE AO PROVES POSITIVELY THAT THE MATERIAL WAS NOT DELIVERED TO THE ASSESSEE AND THE PAYMENT MADE THROUGH THE BANK CHANNELS HAVE BEEN BOGUS OR THE AMOUNTS PAID IN THE NAMES OF THE SUPPLIERS HAVE COME BACK TO THE PURCHASER - ASSESSEE, THE AO CANNOT MAKE ANY ADDITION U/S.69C. FURTHER, AS THE AO HAS NOT DOUBTED THE SALES DISCLOSED BY THE APPELLANT HE HAS TO ALLOW THE PURCHASES SINCE THERE CANNOT BE ANY SALES WITHOUT THE PURCHASE OF THE MATERIAL. THE ONLY POSSIBILITY IS THAT THE APPELLANT MIGHT HAVE INFLATED ITS PURCHASES BY TAKING INTO ACCOUNT THE INVOICES IN THE NAMES OF THE BOGUS SUPPLIERS. THE PRESUMPTION IS THAT THE MATERIAL MIGHT HAVE BEEN PURCHASED FROM GREY MARKET AT A LOWER RATE AND MADE GOOD THE ENTRIES WITH BOGUS BILLS TO REDUCE THE PR OFITS. UNDER SIMILAR CIRCUMSTANCES THE HON'BLE HIGH COURT OF GUJRAT IN THE CASE OF SIMIT P SETH, 2013 (356 ITR 451) HAD AN OCCASION TO DELIVER ITS JUDGMENT BY CONFIRMING THE ITAT WHICH HAS ESTIMATED THE DISALLOWANCE AT 12.5% OF THE DISPUTED BOGUS PURCHASES TO MEET THE ENDS OF JUSTICE. THE HEAD - NOTE OF THE DECISION IS REPRODUCED AS UNDER - 'SECTION 145 OF THE INCOME - TAX ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF PROFITS [BOGUS PURCHASES] - ASSESSMENT YEAR 2006 - 07 - ASSESSEE WAS ENGAGED IN BUSINESS OF TR ADING IN STEEL ON WHOLESALE BASIS - ASSESSING OFFICER HAVING FOUND THAT SOME OF ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THAT PURCHASES MADE FROM SAID PARTIES WERE BOGUS - HE, ACCORDIN GLY, ADDED ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF ASSESSEE - COMMISSIONER (APPEALS) HAVING FOUND THAT ASSESSEE HAD INDEED MADE PURCHASES, THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, SUSTAINED ADDITION TO EXTENT OF 30 PER CENT O F PURCHASE COST AS PROBABLE PROFIT OF ASSESSEE - TRIBUNAL HOWEVER, SUSTAINED ADDITION TO EXTENT OF 12.5 PER CENT - WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNT , ONLY PROFIT ELEMENT EMBEDDE D I N SUCH PURCHASES COULD BE ADDED TO 9 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. ASSESSEE'S INCOME - HELD, YES - WHETHER HENCE, ORDER OF TRIBUNAL NEEDED NO INTERFERENCE - HELD, YES [PARAS 6, 7 & 9] [IN FAVOUR OF ASSESSEE]'. (EMPHASIS SUPPLIED). 5.2.1. WITH REGARD TO THE INFORMATION RECEIVE D FROM DIT(LNV.), MUMBAI THE SUMMARY OF THE COMMUNICATION WAS ALREADY PASSED ON TO THE APPELLANT WHILE COMMUNICATING REASONS FOR REOPENING. THE AO COULD NOT HAVE ALSO PASSED ON A COPY OF SUCH STATEMENT SINCE IT IS A COMPREHENSIVE STATEMENT DETAILING THE NA MES OF BOGUS CONCERNS FLOATED BY THEM AND THE MODUS OPERANDI OF THEIR ACTIVITIES. EVEN THOUGH BHANWARLAL JAIN GROUP HAS NOT MENTIONED THE NAME OF THE APPELLANT IN THEIR STATEMENTS, THEY HAVE GIVEN THE NAMES OF VARIOUS CONCERNS IN WHOSE REMAINS THE INVOICES WERE GIVEN AND THOSE NAMES APPEARING THE BOOKS OF THE APPELLANT. THEREFORE THE LINK IS ESTABLISHED. EVEN THOUGH THE AO COULD NOT PROVE SUBSTANTIVELY THAT THE AMOUNTS GIVEN TO THE SELLERS IN CHEQUE FORM HAVE COME BACK TO THE APPELLANT, THE ACTIVITIES OF AC COMMODATION ENTRIES IN THE TRADING COMMUNITY IS NOT UNHEARD OF. FURTHER, THE DISTURBING FACTS REVEALED BY BHANWARLAL JAIN GROUP DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS CONDUCTED BY THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT ITSELF, CAN NOT BE LOST SIGHT OF. EVEN THOUGH THERE ARE CATENA OF CASES, INCLUDING SOME OF THEM DELIVERED BY THE JURISDICTIONAL ITAT, WHICH HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THEY ARE NOT UNIFORM IN ALL THE CASES AS THEY WERE DECIDED AS PER THE FACTS AN D CIRCUMSTANCES OF THAT PARTICULAR CASE BEFORE THEM. I AM OF THE OPINION THAT THE THEORY LAID DOWN BY THE HON'BLE GUJRAT C OURT IN THE CASE OF SIMIT P SETH (SUPRA.) SHOULD BE APPLIED IN THE INSTANT CASE. DECISION RENDERED BY GUJARAT HIGH COURT IN THE ABOVE CASE IS ON THE BASIS OF VAT BENEFIT THE APPELLANT MIGHT HAVE SAVED BY TAKING ACCOMMODATION ENTRIES SINCE THE GOODS DEALT BY THEM WERE EXCISABLE COMMODITIES, WHERE THE VAT RATES ARE ON A HIGHER SIDE. IN THE CASE OF DIAMOND BUSINESS THE VAT CHARGES ARE ONLY 1% AND THE CUSTOMS DUTY IS ABOUT 2%. KEEPING IN VIEW THE ABOVE TAX RATES THE INTENTION OF THE ASSESSEE TO SAVE FROM THE TRANSACTION SHOULD BE VIEWED ONLY TO THE EXTENT OF SAVING FROM THE ABOVE TAXES BY INDULGING IN UNETHICAL PRACTICE OF TAKING ACCOMMODATIO N ENTRIES. IT IS ALSO PERTINENT TO MENTION HERE THE RELEVANCE OF THE BOARD'S INSTRUCTION NO - 2/2008 DATED FEBRUARY 22, 2008 WHEREIN IT HAS LAID DOWN A GUIDELINE IN THE FORM OF BENIGN ASSESSMENT PROCEDURE FOR ASSESSEE'S ENGAGED IN DIAMOND MANUFACTURING AND/O R TRADING, WHEREIN IT HAS STATED THAT - A........ B. IT AN ASSESSEE HAS SHOWN A SUM EQUAL TO OR HIGHER THAN 6% OF ITS TOTAL TURNOVER FROM SUCH BUSINESS AS HIS INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR A PARTICULAR ASSESSMENT YEA R, THE ASSESSING OFFICER SHALL EXCEPT HE'S THE TRADING RESULTS. C 10 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. 4.2.2 KEEPING IN VIEW THE ABOVE INSTRUCTION OF THE BOARD, I HEREBY DIRECT THE AO TO TREAT 6% OF RS . 1,19,32,516 / - AS PROFITS UNDER BUSINESS INCOME OVER AND ABOVE INCOME RETURNED IN PLACE OF DISALLOWANCE MADE UNDER SECTION 69C. IN VIEW OF THIS THE GROUND IS PARTLY ALLOWED . 8. AGAINST THE ABOVE ORDER, THE REVENUE AND THE ASSESSEE ARE IN CROSS APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORD. AS REGARDS THE REOPENI NG, WE FIND THE COMMISSIONER OF INCOME TAX (APPEALS) HAS PASSED AN APPOSITE ORDER. THE REOPENING HAS BEEN DONE ON THE BASIS OF COGENT INFORMATION REGARDING THE ASSESSEE DEALING WITH HAWALA OPERATORS. THE CASE LAWS REFERRED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ARE GERMANE AND SUPPORT THE VALIDITY OF REOPENING IN THIS CASE. 10. AS REGARDS THE MERITS OF THE CASE, FACTS OF THE CASE INDICATE THAT THE ASSESSEE HAS ENGAGED INTO OBTAINING BOGUS PURCHASE BILLS. SINCE, SALES HAVE NOT BEEN DOUBTED; ENTIRE DISA LLOWANCE OF PURCHASE IS NOT SUSTAINABLE IN LIGHT OF HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ ENTERPRISES. WE FURTHER NOTE THAT THE ASSESSING OFFICER HAS ALSO HIMSELF NOT DONE ANY INVESTIGATION AND ENQUIRY. THE ASSESSEE S REQU EST FOR CROSS EXAMINATION HAS NOT BEEN ENTERTAINED BY THE ASSESSING OFFICER. IN THESE CIRCUMSTANCES, 6% DISALLOWANCE OF BOGUS PURCHASE SUSTAINED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS APPROPRIATE AND DOES NOT NEED ANY INTERFERENCE ON OUR PART. BOTH THE LD . COUNSEL ALSO FAIRLY AGREED TO THIS PROPOSITION. 11 ITA NO. 3707 & 3761 /MUM/2016 (A.Y. 2007 - 08) M/S. RALF JEMS PVT. LTD. 11. ACCORDINGLY, WE UPHOLD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). 12. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEE AND REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.12.2017 SD/ - SD/ - ( PAWAN SINGH ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED 11.12.17 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI