LYPSA DIAMONDS , MUMBAI V. ITO WD- 30(2)(1), MUMBAI

ITA 4434/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0684 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 09-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained cash credit; Unexplained expenditure; Income from undisclosed sources; Principle of natural justice; Earning of tax free income; Accommodation entries; Retraction; Reason to believe; Reassessment proceedings; Rule 8D
• Section: 69C; 143(3); 14A; 147; 68; 145

Judgement Text

1 LYPSA DIAMONDS IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI MAHAVIR SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO.4434/MUM/2018 - AY 2011-12 ITA NO.4435/MUM/2018 - AY 2012-13 ITA NO.4436/MUM/2018 - AY 2013-14 LYPSA DIAMONDS, 2 ND FLOOR MEHTA MAHAL, NORTH SIDE 15 TH MATHEW ROAD CHARNI ROAD, MUMBAI-4 PAN : AAAFL0410F VS ITO, WD 30(2)(1), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI VIMAL PUNMIYA RESPONDENT BY SHRI VIJAY KUMAR JAISWAL DATE OF HEARING 19-02-2019 DATE OF PRONOUNCEMENT 27-03-2019 O R D E R PER G MANJUNATHA, AM : THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A)-41, MUMBAI DATED 1 2-04-2018 FOR THE ASSESSMENT YEARS, 2011-12, 2012-13 & 2013-14. SINC E FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THE SE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2 LYPSA DIAMONDS 2. THE ASSESSEE HAS RAISED, MORE OR LESS, COMMON GR OUNDS OF APPEAL FOR ALL ASSESSMENT YEARS. FOR THE SAKE OF BREVITY, GROUNDS OF APPEAL RAISED FOR AY 2011-12 IN ITA NO.4434/MUM/2018 ARE REPRODUCED BELO W:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD C1T(A) ERRED IN CONFIRMING THE INITIATION OF THE REASSESSM ENT PROCEEDING UNDER SECTION 147. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) FAILED TO CONSIDER THAT REASSESSMENT PROCEEDINGS CANNOT BE INITIATED. A. NO REASSESSMENT CAN BE MADE JUST TO MAKE AN ENQUIRY OR VERIFICATION, B. REASSESSMENT PROCEEDINGS CANNOT BE INITIATE MERELY ON THE INFORMATION RECEIVED FROM INVESTIGATION WING. C. REASSESSMENT PROCEEDING CANNOT BE INITIATED WHEN THE LD. CIT(A) HAVE REASON TO SUSPECT AND NOT REASON TO BELIEVE. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND LAW THE LD CIT(A) ERRED IN CONFIRMING THE ASSESSMENT ORDER UNDER SECTION 143 S UB SECTION 3 R W S 147 OF INCOME TAX ACT WHICH IS PASSED AGAINST THE PRINCIPA L OF NATURAL JUSTICE. 4. THE LD CIT(A) ERRED IN CONFIRMING AND REJECTIN G THE BOOKS OF ACCOUNTS UNDER SECTION 145 OF THE. INCOME TAX ACT. 5. THE LD CIT(A) ERRED IN CONFIRMING AND TREATING RS. 42,05,6507- BEING 12.5 PERCENT OF THE TOTAL PURCHASES OF RS. 3,36,45, 1977- AS BOGUS NON-GENUINE EXPENDITURE AND THEREBY ERRED IN ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE IN VIEW OF SECTION 69C OF THE INCOME TAX A CT, 1961. 6. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF UNSECURED LOANS TAKEN OF RS. 1,50.00,000/- AND THEREBY ERRED IN CON FIRMING AND TREATING THE SAME AS UNEXPLAINED CASH CREDITS IN VIEW OF SECTION 68 OF THE INCOME TAX ACT, 1961. 7. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF UNSECURED LOANS TAKEN OF RS. 20,958/- AND THEREBY ERRED IN CONFIRMI NG AND TREATING THE SAME AS UNEXPLAINED CASH CREDITS IN VIEW OF SECTION 68 OF T HE INCOME TAX ACT, 1961. 8. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF GENUINE COMMISSION/ BROKERAGE OF RS. 3.50,0007- AND THEREBY ERRED IN TREATING THE SAME AS UNEXPLAINED EXPENDITURE AND ADDED THE SAME IN VIEW OF SECTION 69C OF THE INCOME TAX ACT, 1961. 9. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF THE EXPENSES OF RS. 2,24,3987- ATTRIBUTED FOR EXEMPT INCOME AS PER SECTION 14A R. W.R 8D OF THE INCOME TAX, 1961. 10. THE LD. CIT(A) ERRED IN CONFIRMING & CHARGING O F INTEREST UNDER SECTION 234A, 234B, 234C AND 234D OF THE INCOME TAX ACT 196 1. 11. THE LD. CIT(A) ERRED IN CONFIRMING THE INITIATI ON OF THE PENALTY PROCEEDING UNDER SECTION 274 RWS 271(L)(C) OF THE INCOME TAX A CT, 1961. 3 LYPSA DIAMONDS 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURER, DEALERS, I MPORTERS AND EXPORTERS OF ROUGH, CUT AND POLISHED DIAMONDS. THE ASSESSEE HAS FILED REGULAR RETURN OF INCOME U/S 139(1) OF THE INCOME-TAX ACT, 1961 FOR A LL ASSESSMENT YEARS. THE ASSESSMENT FOR AYS 2011-12 & 2012-13 HAVE BEEN REOP ENED U/S 147 OF THE INCOME-TAX ACT, 1961 FOR THE REASONS RECORDED, AS P ER WHICH, THE ASSESSEE WAS THE BENEFICIARY OF ACCOMMODATION ENTRIES PROVIDED B Y M/S BHANWARLAL JAIN GROUP OF COMPANIES IN FORM OF BOGUS PURCHASE BILLS AS WELL AS UNSECURED LOANS. THE ASSESSMENTS FOR AY 2011-12 AND 2012-13 HAVE BEE N COMPLETED U/S 143(3) R.W.S. 147 AND FOR AY 2013-14, IT HAS BEEN COMPLETE D U/S 143(3) OF THE ACT. IN THE ASSESSMENTS, THE AO HAS MADE ADDITION TOWARDS A LLEGED BOGUS PURCHASES FROM M/S BHANWARLAL JAIN GROUP OF COMPANIES @12.5% OF TOTAL PURCHASES FROM CONCERNS CONTROLLED AND MANAGED BY SHRI BHANWARLAL JAIN. THE AO HAS ALSO MADE ADDITION OF RS.1.50 CRORES TOWARDS UNSECURED L OANS TAKEN FROM COMPANIES OPERATED AND CONTROLLED BY SHRI BHANWARLA L JAIN & HIS ASSOCIATES. THE AO HAS DISCUSSED AT LENGTH THE FACTS AND MODUS OPERANDI EMPLOYED BY M/S BHANWARLAL JAIN GROUP OF COMPANIES TO PROVIDE A CCOMMODATION ENTRIES TO VARIOUS BENEFICIARIES IN HIS ASSESSMENT ORDER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO TAKING INTO ACCOUNT THE RE PORT OF DGIT(INV). 4 LYPSA DIAMONDS 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY FOR ALL ASSESSMENT YEARS UNDER CONSIDERAT ION. THE LD.CIT(A), FOR THE DETAILED REASONS RECORDED IN HIS APPELLATE ORDER, C ONCURRED WITH THE FINDING OF FACTS RECORDED BY THE AO WHILE CONFIRMING ADDITION MADE TOWARDS 12.5% PROFIT ON ALLEGED BOGUS PURCHASES AND ALSO ADDITION TOWARD S UNSECURED LOAN TAKEN FROM FIRMS AND COMPANIES CONTROLLED BY SHRI BHANWAR LAL JAIN GROUP AND ASSOCIATES. AGGRIEVED BY THE ORDER OF LD.CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM THESE APPEALS IS ADDITION TOWARDS 12.5% PROFIT ON ALLEGED BOGUS PURC HASES FROM SHRI BHANWARLAL JAIN GROUP OF COMPANIES. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE IS ON E OF THE BENEFICIARIES OF ACCOMMODATION ENTRIES PROVIDED BY TWO FIRMS, VIZ. M /S DAKSHA DIAMONDS & M/S MONEY DIAM. IN ORDER TO ASCERTAIN CORRECTNESS OF PURCHASES CLAIMED TO HAVE MADE FROM ABOVE TWO CONCERNS, THE AO CALLED UP ON THE ASSESSEE TO FURNISH NECESSARY DETAILS INCLUDING SUPPORTING EVID ENCE TO JUSTIFY PURCHASES. IN RESPONSE, THE ASSESSEE HAS FILED COMPLETE DETAILS O F PURCHASES INCLUDING PURCHASE BILLS AND PAYMENT PROOF FOR WHICH PURCHASE S THROUGH PROPER BANKING CHANNEL. THE ASSESSEE ALSO FILED CO-RELATION OF PU RCHASES OF ROUGH DIAMONDS AND SALES OF CUT AND POLISHED DIAMONDS MANUFACTURED FOR THE YEAR. THE AO, 5 LYPSA DIAMONDS AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSES SEE AND ALSO ON THE BASIS OF INFORMATION RECEIVED FROM DGIT(INV) HELD THAT ALTHO UGH THE ASSESSEE HAS FILED CERTAIN PRIMARY EVIDENCES LIKE PURCHASE BILLS AND P AYMENT PROOF, BUT FAILED TO FILE FURTHER EVIDENCE TO CONTRADICT THE FINDING OF FACT BROUGHT OUT BY THE DEPARTMENT DURING SEARCH OPERATIONS IN THE CASE OF SHRI BHANWARLAL JAIN GROUP WHERE IT WAS UNEARTHED THAT SHRI BHANWARLAL JAIN WA S INVOLVED IN PROVIDING ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS AND U NSECURED LOANS TO VARIOUS BENEFICIARIES THROUGH 70 AND ODD COMPANIES FLOATED AND OPERATED IN THE NAME OF HIS EMPLOYEES / FIRMS / RELATIVES. THE AO FURTH ER OBSERVED THAT THE SEARCH TEAM HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT ALTHOUGH THE ASSESSEE HAS STATED TO HAVE BEEN DOING DIAMOND TRADING BUSINESS, DURING SEARCH, IN NONE OF THE CONCERNS ADDRESS BOOKS OF ACCOUNT AND STOCK WER E FOUND. THEREFORE, HE CAME TO THE CONCLUSION THAT PURCHASES FROM THE ABOV E TWO CONCERNS WERE ACCOMMODATION ENTRIES OBTAINED FROM SHRI BHANWARLAL JAIN GROUP TO RE-ROUTE THE ASSESSEES UNACCOUNTED MONEY TO HIS BUSINESS AN D ACCORDINGLY, CONSIDERING THE FACT THAT THE ASSESSEE HAS FILED CO MPLETE STOCK DETAILS AND ALSO NO ADVERSE COMMENT HAS BEEN MADE ABOUT SALES DECLAR ED BY THE ASSESSEE, ESTIMATED 12.5% PROFIT ON ALLEGED BOGUS PURCHASE AN D MADE ADDITION OF RS.42,05,650 U/S 69C OF THE INCOME-TAX ACT, 1961. 6 LYPSA DIAMONDS 6. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD .CIT(A) WAS ERRED IN CONFIRMING ADDITION MADE BY THE AO TOWARDS 12.5% PR OFIT ON ALLEGED BOGUS PURCHASES WITHOUT APPRECIATING THE FACT THAT THE AS SESSEE HAS FILED COMPLETE DETAILS ABOUT PURCHASES FROM TWO CONCERNS OPERATED AND CONTROLLED BY SHRI BHANWARLAL JAIN GROUP. THE AO MADE ADDITION ONLY F OR THE REASON THAT SHRI BHANWARLAL JAIN DURING SEARCH PROCEEDINGS, IN HIS STATEMENT RECORDED U/S 132(4), HAS ADMITTED THE FACT THAT HE WAS INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. BUT, FACT REMAINS THAT SHRI BHANWARLAL JAIN HAS FILED RETRACTION STATEMENT BEFORE THE INCOME-TAX DEPARTME NT WHERE HE HAD EXPLAINED THE BUSINESS ACTIVITY AND TRANSACTIONS BE TWEEN PARTIES. THE LD.AR FURTHER SUBMITTED THAT PURCHASES MADE FROM ABOVE RE FERRED PARTY WERE DULY SUPPORTED BY BILLS AND PAYMENTS FOR SUCH PURCHASES HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES, WHICH ARE SUPPORTED BY BANK STATEMENTS. THE AO, NEITHER MADE OUT A CASE OF ANY DISCREPANCY IN BOOKS OF ACCOUNT NOR SALES MADE OUTSIDE THE BOOKS OF ACCOUNT. THE AO ALSO FAILED T O MAKE OUT A CASE OF RETURN OF CASH BACK FROM THE PARTY TO ARRIVE AT A CONCLUSI ON THAT THE ASSESSEE HAS RE- ROUTED ITS OWN UNACCOUNTED INCOME IN FORM OF BOGUS PURCHASES. IN ABSENCE OF ANY ADVERSE COMMENTS ON BOOKS OF ACCOUNT, NO ADDITI ON COULD BE MADE TOWARDS PURCHASES FROM ABOVE TWO CONCERNS ONLY ON T HE BASIS OF STATEMENT OF SHRI BHANWARLAL JAIN, WHEN SUCH STATEMENT HAS BEEN RETRACTED BY THE PERSON, 7 LYPSA DIAMONDS WHO GAVE THE STATEMENT. IN THIS REGARD, HE HAS REL IED UPON VARIOUS JUDICIAL PRECEDENTS INCLUDING THE DECISION OF ITAT, MUMBAI B ENCH IN THE CASE OF SHRI GANPATRAI A SANGHVI VS ACIT IN ITA NO.2826/MUM/2013 . 7. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDERS OF LD.CIT(A) AND SUBMITTED THAT THE ASSESSEE FAILED TO CONTRADIC T THE FINDINGS OF FACTS RECORDED BY THE AO AS WELL AS THE LD.CIT(A) IN LIGH T OF FACTS BROUGHT OUT BY DEPARTMENT DURING SEARCH IN SHRI BHANWARLAL JAIN GR OUP WHERE IT WAS UNEARTHED THAT HE WAS INVOLVED IN PROVIDING ACCOMMO DATION ENTRIES AND ASSESSE IS ONE OF THE BENEFICIARY OF SUCH ENTRIES P ROVIDED BY COMPANIES / FIRMS CONTROLLED BY SHRI BHANWARLAL JAIN. THEREFORE, THE RE IS NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A) IN CONFIRMING AD DITION MADE BY THE AO TOWARDS ALLEGED BOGUS PURCHASES. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL S AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE NEVER DISPUTED THE FACT THAT HE HAD PURCHASED GOODS FROM TWO FIRMS DISCUSSED BY THE AO IN HIS ASSESSMENT ORDER. THE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF BOGU S PURCHASE BILLS ISSUED BY SHRI BHANWARLAL JAIN THROUGH TWO FIRMS MENTIONED B Y THE AO IN HIS ASSESSMENT ORDER. THE ASSESSEE CLAIMS TO HAVE FILED VARIOUS D ETAILS INCLUDING PURCHASE BILLS AND BANK STATEMENTS TO PROVE GENUINENESS OF TRANSAC TIONS BETWEEN THE 8 LYPSA DIAMONDS PARTIES. THE ASSESSEE ALSO CLAIMS TO HAVE PRODUCED VARIOUS RECORDS INCLUDING QUANTITATIVE DETAILS OF GOODS PURCHASED AND SOLD BY THE ASSESSEE. THE AO HAS ANALYSED THE FACTS AND ALSO THE MODUS OPERANDI EMPL OYED BY SHRI BHANWARLAL JAIN GROUP THROUGH 70 ODD COMPANIES PROMOTED AND OP ERATED IN THE NAME OF HIS EMPLOYEES AND RELATIVES. SHRI BHANWARLAL JAIN HAS IMPORTED ROUGH DIAMONDS AND SOLD THE SAME IN THE MARKET TO THE BUY ERS WITHOUT ANY BILLS. IN ORDER TO COVER UP THE QUANTITY OF PURCHASES, HE HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS BENEFICIARIES TO THE EXTENT OF AMOUNT OF GOODS PURCHASED / IMPORTED. THIS FACT HAS BEEN ADMITTED IN THE STATE MENT RECORDED U/S 132(4) OF THE ACT . THE DEPARTMENT HAS ALSO RECORDED STATEME NT FROM VARIOUS PERSONS INCLUDING EMPLOYEES OF SHRI BHANWARLAL JAIN, WHERE THEY HAVE REITERATED THE FACT OF ISSUING BOGUS PURCHASE BILLS. UNDER THESE FACTS, IT IS VERY DIFFICULT TO ACCEPT THE ARGUMENTS OF THE ASSESSEE THAT PURCHASES FROM COMPANIES CONTROLLED BY SHRI BHANWARLAL JAIN ARE GENUINE, WH ICH ARE SUPPORTED BY VALID DOCUMENTS MERELY FOR THE REASON THAT THE ASSESSEE H AS PRODUCED BILLS AS WELL AS PAYMENT FOR SUCH PURCHASES HAS BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES. MERE PAYMENT THROUGH ACCOUNT PAYEE CHEQUE IS NOT SACROSANCT. WHAT IS RELEVANT IS WHETHER THE TRANSACTIONS BETWEE N THE PARTIES ARE GENUINE TRANSACTIONS, WHICH ARE ENTERED INTO UNDER NORMAL C OURSE OF BUSINESS OR AN ACCOMMODATION ENTRY TO CONVERT UNACCOUNTED INCOME / MONEY BELONGED TO 9 LYPSA DIAMONDS THE BENEFICIARIES. IN THIS CASE, THE FACTS BROUGHT OUT BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS COUPLED WITH INFOR MATION GATHERED DURING SEARCH HAS STRENGTHENED THE FINDING OF THE AO TO CO ME TO THE CONCLUSION THAT THESE ARE ACCOMMODATION ENTRIES ISSUED BY COMPANIES CONTROLLED BY SHRI BHANWARLAL JAIN. THEREFORE, WE REJECT THE ARGUMENT OF THE ASSESSEE THAT PURCHASES ARE SUPPORTED BY NECESSARY EVIDENCE. 9. HAVING SAID SO, LET US EXAMINE THE PERCENTAGE OF PROFIT DETERMINED BY THE AO. THE AO HAS ESTIMATED 12.5% PROFIT ON ALLEG ED BOGUS PURCHASES FROM TWO CONCERNS BELONGING TO SHRI BHANWARLAL JAIN. TH E AO HAS COME TO THE CONCLUSION THAT ONLY PROFIT NEEDS TO BE ESTIMATED B ECAUSE THE ASSESSEE HAS MADE OUT A CASE OF CORRECTNESS IN BOOKS OF ACCOUNT BY FILING COMPLETE STOCK DETAILS. THEREFORE, CONSIDERING THE FACT THAT SALE S ARE NOT DOUBTED AND ALSO THERE IS NO MISMATCH BETWEEN QUANTITY OF GOODS PURC HASED AND SOLD, THE AO HAS ESTIMATED FAIR AMOUNT OF PROFIT BY CONSIDERING VARIOUS PARAMETERS INCLUDING AMOUNT OF VAT APPLICABLE TO THE GOODS AND ALSO THE PROBABLE PERCENTAGE OF AMOUNT SAVED BY THE ASSESSEE BY OBTAI NING ACCOMMODATION ENTRIES. KEEPING THESE FACTS IN MIND, IF YOU EXAMI NE PERCENTAGE OF PROFIT APPLIED BY THE AO, I.E. 12.5% ON ALLEGED BOGUS PURC HASES, WE FIND THAT THE AO WAS FAIR ENOUGH TO ADOPT A REASONABLE PERCENTAGE OF PROFIT ON ALLEGED BOGUS PURCHASES WHICH IS FURTHER SUPPORTED BY VARIOUS JUD ICIAL PRECEDENTS INCLUDING 10 LYPSA DIAMONDS NUMBER OF DECISIONS OF CO-ORDINATE BENCHES OF ITAT, MUMBAI WHERE THE TRIBUNAL HAS CONSISTENTLY APPLIED 12.5% PROFIT ON A LLEGED BOGUS PURCHASES. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDING RECORDED BY THE AO IN ARRIVING AT 12.5% PROFIT ON A LLEGED BOGUS PURCHASES. THEREFORE, WE ARE OF THE VIEW THAT THE LD.CIT(A) WA S RIGHT IN CONCURRING WITH THE FINDING OF FACT RECORDED BY THE AO AFTER CONSID ERING CASE LAWS RELIED UPON BY THE ASSESSEE. WE FURTHER NOTICE THAT ALTHOUGH A SSESSEE HAS RELIED UPON NUMBER OF DECISIONS, ON PERUSAL OF FACTS OF THE PRE SENT CASE, WE FIND THAT THE FACTS OF THE PRESENT CASE STAND IN A DIFFERENT FOOT ING WHERE THE AO HAS MADE OUT FURTHER ENQUIRIES IN THE LIGHT OF INVESTIGATION CARRIED OUT BY THE DEPARTMENT. THEREFORE, THE CASE LAWS RELIED UPON B Y THE ASSESSEE CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. HENCE, T HE CASE LAWS RELIED UPON BY THE ASSESSEE ARE REJECTED. 10. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO- ORDINATE BENCHES IN NUMBER OF CASES IN ALLEGED BOGU S PURCHASES CASES, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) AND HENCE, REJECT GROUND TAKEN BY THE ASSESSEE. 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION TOWARDS UNSECURED LOAN TAKEN FROM M/S AMIT DIAMONDS, M/S JE WEL DIAM AND M/S MONEY DIAM FOR RS.1.50 CRORES. THE FACTS WITH REGA RD TO THIS ISSUE ARE IDENTICAL 11 LYPSA DIAMONDS TO FACTS WHICH WE HAVE ALREADY DISCUSSED IN RESPECT OF ALLEGED BOGUS PURCHASES FROM FIRMS / COMPANIES CONTROLLED BY SHRI BHANWARLA L JAIN GROUP OF COMPANIES. THE ASSESSEE HAS OBTAINED UNSECURED LOANS FROM THRE E COMPANIES BELONGING TO SHRI BHANWARLAL JAIN GROUP OF COMPANIES. THE ASSES SEE CLAIMS TO HAVE FILED VARIOUS DETAILS IN ORDER TO PROVE IDENTITY, GENUINE NESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE PARTIES. WHEN WE ANALYSE T HE DOCUMENTS FILED BY THE ASSESSEE IN LIGHT OF FACTS BROUGHT OUT BY THE AO, INCLUDING THE DEPARTMENT DURING THE COURSE OF SEARCH IN CASE OF SHRI BHANWAR LAL JAIN GROUP OF COMPANIES, WE FIND THAT ALTHOUGH THE ASSESSEE HAS FILED VARIOU S DOCUMENTS, BUT THE UNDISPUTED FACT REMAINS THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF ACCOMMODATION ENTRIES PROVIDED BY SHRI BHANWARLAL J AIN WHICH IS FURTHER EVIDENCED FROM THE FACT THAT DURING SEARCH IN CASE OF SHRI BHANWARLAL JAIN, THE DEPARTMENT HAS FOUND OUT PARALLEL BOOKS OF ACCOUNT MAINTAINED BY SHRI BHANWARLAL JAIN IN RESPECT OF ASSESSEE WHICH IS EX ACTLY MATCHED WITH THE ENTRIES RECORDED IN THE BOOKS OF ACCOUNT OF THE ASS ESSEE IN RESPECT OF UNSECURED LOAN. FURTHER, MERE FURNISHING OF CONFIR MATION LETTER, LEDGER EXTRACT AND BANK STATEMENT IS NOT SUFFICIENT ENOUGH TO COME OUT OF THE SHADOW CAST UPON THE ASSESSEE AND WHAT IS REQUIRED TO BE PROVED IS GENUINENESS OF TRANSACTIONS. IN THIS CASE, THE AO HAS BROUGHT OUT NUMBER OF REASONS TO DOUBT TRANSACTIONS BETWEEN THE PARTIES, BUT THE ASSESSEE FAILED TO FILE ANY EVIDENCE 12 LYPSA DIAMONDS TO CONTRADICT THE FACTS BROUGHT OUT BY THE AO WHILE MAKING ADDITION TOWARDS UNSECURED LOAN. THEREFORE, WE ARE OF THE CONSIDERE D VIEW THAT THE LOWER AUTHORITIES WERE RIGHT IN MAKING ADDITION TOWARDS U NSECURED LOAN TAKEN FROM THREE COMPANIES BELONGING TO SHRI BHANWARLAL JAIN AND HENCE, WE ARE NOT INCLINED TO DEVIATE FROM THE FINDINGS RECORDED BY T HE LD.CIT(A). ACCORDINGLY, THE GROUND OF APPEAL TAKEN BY THE ASSESSEE IS REJEC TED. 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U / 14A OF THE I.T. ACT, 1961. THE AO HAS DETERMINED DISALLOWANCE OF RS.2,24,398 U /S 14A R.W.R. 8D. ACCORDING TO THE AO, ALTHOUGH THE ASSESSEE HAS EXEM PT INCOME BUT, FAILED TO DISALLOW EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THEREFORE, HE HAS QUANTIFIED THE AMOUNT OF EXPENDITURE BY INVOKING PR ESCRIBED METHOD PROVIDED UNDER RULE 8D. IT IS THE CONTENTION OF THE ASSESSE E THAT IT HAS OWN FUNDS IN FORM OF CAPITAL ACCOUNT WHICH IS MORE THAN THE AMOU NT OF INVESTMENTS. THEREFORE, THE QUESTION OF DISALLOWANCE OF INTEREST EXPENDITURE U/R 8D(2)(II) DOES NOT ARISE. IN RESPECT OF OTHER EXPENDITURE, I T WAS SUBMITTED THAT THE ASSESSEE HAS DEBITED DIRECT EXPENSES ON ACCOUNT OF DEMAT CHARGES AND STT INTO THE CAPITAL ACCOUNT. NO OTHER EXPENDITURE IN CLUDING SALARY, TELEPHONE AND OTHER ADMINISTRATIVE CHARGES HAS BEEN INCURRED FIR EARNING EXEMPT INCOME. 13 LYPSA DIAMONDS THEREFORE, THE AO WAS INCORRECT IN DETERMINING THE DISALLOWANCES OF RS.2,24,398 U/S 14A OF THE I.T. ACT, 1961. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATE RIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FAC T THAT THE ASSESSEE HAS EARNED EXEMPT INCOME. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS NOT MADE SUO MOTO DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE AO HAS DETERMINED DISALLOWANCE OF EXPE NDITURE INCLUDING INTEREST U/R 8D(2)(II) AND 8D(2)(III) OF I.T. RULES , 1962. THE ASSESSEE CLAIMS THAT NO INTEREST BEARING FUNDS HAVE BEEN USED FOR INVEST MENT, THEREFORE, INTEREST EXPENDITURE CANNOT BE DISALLOWED U/R 8D(2)(II). WE FIND THAT THE ASSESSEE HAS FILED COMPLETE DETAILS IN ORDER TO PROVE AVAILABILI TY OF INTEREST FREE FUNDS. WE FIND THAT THE ASSESSEES CAPITAL IS MORE THAN THE A MOUNT OF INVESTMENTS IN SHARES WHICH YIELDED EXEMPT INCOME. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN QUANTIFYING DISALLOW ANCE OF INTEREST U/R 8D(2)(II) OF I.T. RULES, 1962. ACCORDINGLY, WE DIRECT THE AO TO DELETE ADDITION TOWARDS INTEREST EXPENDITURE. 14. COMING TO DISALLOWANCE OF EXPENDITURE U/R 8D(2) (III). ALTHOUGH, THE ASSESSEE CLAIMS TO HAVE NOT INCURRED ANY EXPENDITUR E FOR EARNING EXEMPT INCOME, POSSIBILITY OF INCURRING CERTAIN ROUTINE EX PENDITURE LIKE OFFICE MANAGEMENT AND COMMUNICATION EXPENSES CANNOT BE RUL ED OUT, MORE 14 LYPSA DIAMONDS PARTICULARLY, WHEN ASSESSEE HAS NOT MAINTAINED SEPA RATE BOOKS OF ACCOUNT FOR INVESTMENT ACTIVITY AND BUSINESS ACTIVITY. IN THIS CASE, ON PERUSAL OF DETAILS FILED BY THE ASSESSEE WE FIND THAT THE ASSESSEE HAS INCURRED VARIOUS COMMON EXPENDITURE INCLUDING SALARIES, CONVEYANCE, TELEPHO NE AND OTHER OVERHEAD EXPENSES. SINCE THE ASSESSEE HAS NOT DISPUTED THE FACT OF EARNING EXEMPT INCOME, THE POSSIBILITY OF INCURRING CERTAIN EXPEND ITURE TOWARDS SUCH INCOME CANNOT BE RULED OUT. FURTHER, SINCE THE ASSESSEE H AS NOT FILED ANY APPORTIONMENT OF EXPENSES IN RESPECT OF EXEMPT INCO ME, WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF AO IN APPLYING PRESC RIBED PROCEDURE PROVIDED U/R 8D(2)(III) WHILE DETERMINING DISALLOWANCE U/S 14A I N RELATION TO EXEMPT INCOME. THEREFORE, WE CONCUR WITH THE FINDINGS OF LD.CIT(A) IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE U/R 8D(2)(III) @0.5% OF AVERAGE VALUE OF INVESTMENTS AMOUNTING TO RS.26,049. 15. IN THE RESULT, ALL APPEALS FILED BY THE ASSESSE E ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27-03-2019. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 27 TH MARCH, 2019 PK/- 15 LYPSA DIAMONDS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI