DIAGOLD DESIGNS LIMITED, MUMBAI V. DCIT-12(2)(1), MUMBAI

ITA 445/MUM/2023

AI Insights

Diagold Designs Limited appealed against the orders of the CIT (A) confirming the additions made by the Assessing Officer on account of alleged bogus purchases for the assessment years 2010-11 and 2013-14. The Tribunal examined the reopening of the assessment under section 147 and the subsequent additions made under section 148 of the Income Tax Act, 1961. The Tribunal noted that the assessee had provided substantial documentary evidence including affidavits, bank statements, and customs certified bills of export, which were not adequately considered by the lower authorities. The Tribunal also referenced previous decisions in similar cases involving the same entry operator group, which had ruled in favor of the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123376 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 07-06-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 14-02-2023
• Other Referred Cases: ITA No. 5621/Mum/2016, ITA No. 3519 & 3520/Mum/2018, ITA No. 6735/Mum/2010, Income Tax Appeal No. 5640 of 2010, PCIT vs. Nitin Ramdeoji Lohia, PCIT vs. Jagdish Thakkar, PCIT vs. Surya Impex
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEANS OF SHOWCAUSE NOTICE
• Keywords: Bogus purchase; Depreciation; Search and seizure; Accommodation entries; Retraction; Reassessment proceedings
• Section: 147; 148; 143(3); 133(6); 10B; 250; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 445/Mum/2023 (A.Y.2010-11) & ITA No. 446/Mum/2023 (A.Y.2013-14) Diagold Designs Limited, CC2070, Bharat Diamond Bourse, Bandra Kurla Complex, Mumbai-400 051 ...... Appellant Vs. DCIT-12(2) (1) Aayakar Bhavan, M. K. Road, Mumbai-400 020 PAN – AABCD3716 ..... Respondent Appellant by : Shri Madhur Agrawal, Hitesh Trivedi Respondent by : Smt. Mahita Nair, CIT-DR Date of hearing : 08/06/2023 Date of pronouncement : 14/08/2023 ORDER PER GAGAN GOYAL, A.M: These appeals by assessee are directed against the order of Ld. CIT (A)-47, Mumbai dated 05.01.2023 u/s. 250 of the Income Tax Act, 1961 (in short ‘the 2 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. Act’) for A.Y. 2010-11 and 2013-14 respectively. The assessee has raised the following grounds in ITA No. 445/Mum/2023 for AY 2010-11:- Gr.I. 1. The learned Commissioner of Income Tax (Appeals)-Mumbai erred in confirming the reopening of the assessment u/s 147 by issue of notice u/s. 148, dated 25.03.2015 for AY 2010-11. 2. The appellant prays that reopening the assessment be held to be bad in law and the impugned notice u/s 148 dated 25.03.2015 be held not sustainable. Gr.ll 1. The learned CIT (A)-47 Mumbai, erred in confirming the addition of Rs. 1, 28, 00,277/- on account of purchases from five parties to the Business Income of the appellant. 2. The learned CIT (A) further erred in holding that: a) confirming the addition of Rs. 1,28,00,277 being 100% purchase made by the appellant from the five parties ignoring the order of Honorable ITAT, Mumbai in ITA No. 5621/Mum/2016 dated 20/09/2017 and ITA No. 3519 & 3520/Mum/2018 dated 11/11/2020 in the case of the appellant for Assessment Year 2012-13 and AY 2011-12 and 2014-15 respectively, which was placed before the CIT(Appeals) by the letter dated 04/08/2022. b) Accepting the so called confessional statement of the parties unsupported by evidence by disregarding the CBDT instruction vide letter F.No. 286/2/2003-IT (Inv), dated 10.03.2003 which states that the adverse view will be taken if, additions are made based on confessional statements, without any evidence. c) the affidavits of the five parties confirming the transaction with the appellant, confirmation of accounts, purchase bills, bank statements, financials, appellant's, customs certified bills of export etc. were not considered on the ground that the same do not have any evidentiary value. 3 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. d) not accepting the fact that the appellant had Exported the diamond studded jewelery manufactured in its factory to foreign countries which were verified by Indian Customs and the remittances of exports were received by banking channels. e) Purchases made from the five parties and out of which closing stock costing Rs. 11, 32,173/- as on 31.03.2010 was accepted thereby, income to the extent was taxed twice. f) the day to day stock register and consumption/exports statement of cut and polished diamonds were not considered by the Assessing Officer and the CIT (A) in spite of the facts that the stock register from 1/4/2009 to 31/3/2010 showing stock of each piece and carat of cut and polished diamonds were part of page no 65 to 76 of Paper Book No. 6 and no evidence contrary to these facts were placed by the Revenue. g) the import of the information in support of his order without backing by cogent evidence and not disclosing to the appellant during the course of Assessment proceedings as well as during Appellate proceedings, loses its evidentiary value. 3. The appellant prays that addition of Rs. 1, 28, 00,277 on account of alleged bogus purchases from the parties mentioned in the assessment order be deleted. Gr. III 1. The learned CIT(A) erred in not considering business loss of Rs. 1,47,80,729/- which included depreciation allowance of Rs. 31,26,475/-, quantified as per Profit and Loss Account and Income Tax return filed. 2. He failed to appreciate that: a) Business Loss incurred at Rs. 1, 47, 80,729/- cannot be ignored to set off with the current year's income. b) Business loss is not allowed to be carried forward because the appellant is 100% EOU but setoff with current year's income has to be done. 4 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. 3. The appellant prays that the Assessing Officer be directed to compute Business Loss at Rs. 1,47,80,729/- including depreciation allowance of Rs. 31,26,475/- and set-off with the alleged current year's income. Without Prejudice to the above: Gr.IV. 1. The appellant being Export Oriented Unit (EOU) and the income of the appellant is exempt under section 10B of the Income Tax Act, 1961 for the year under consideration. 2. The appellant prays that the direction be given to calculate exempt profit as provided under section 10B (4) of the Income Tax Act, 1961. Gr.V The appellant craves leave to add, alter, amend, withdraw or substitute the above grounds of appeal. 2. The brief facts of the case are that assessee company filed its return of income on 19.09.2010 declaring loss of Rs. 31,26,475/-. Case of the assessee was assessed u/s. 143(3) of the Act vide order dated 30.01.2013 at return income. Thereafter, information was received from the office of DGIT (Inv.), Mumbai. As per the information, a search and seizure action was conducted in the case of Shri Bhawarlal Jain Group. During the search proceedings, Shri Bhawarlal Jain Group admitted in his statement recorded u/s 132(4) that Assessee Company also purchased goods from concerns operated and controlled by Shri Bhawarlal Jain Group. 3. Case of the assessee was reopened u/s. 147 and a notice u/s. 148 was issued to the assessee on 28.03.2015. In response to that, assessee filed return of income electronically on 30.04.2015 claiming higher amount of loss at Rs. 5 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. 1,47,80,730/-. As per the information, the assessee is one of the beneficiaries from the following concerns operated and controlled by Shri Bhawarlal Jain:- Sr. No. Name of the Beneficiary A.Y. Name of intermediary entry operator /Syndicate Name of Company /share/ Scrip Amount involved (in Rs.) 1 Dia Gold Designs Ltd 2010-11 Bhanwarlal Jain Prime Star Rs. 23,17,763/- 2 Dia Gold Designs Ltd 2010-11 Bhanwarlal Jain Mayur Exports Rs. 40,17,434/- 3 Dia Gold Designs Ltd 2010-11 Bhanwarlal Jain Marvin Enterprise Rs. 38,25,358/- 4 Dia Gold Designs Ltd 2010-11 Bhanwarlal Jain Mohit Enterprises Rs. 6,56,060/- 5 Dia Gold Designs Ltd 2010-11 Bhanwarlal Jain Navkar India Rs. 19,83,662/- Total Rs. 1,28,00,277/- 4. AO concluded the assessment by disallowing the amount of purchase i.e. Rs. 1, 28, 70,191/- (figures of purchase as submitted by assessee vide his letter dated 18.03.2016) after adjusting the loss declared by assessee amounting to Rs. 31, 26,475/-. Assessee being aggrieved with this order of AO preferred an appeal before the Ld. CIT (A)-47, Mumbai. In his order u/s. 250, Ld. CIT (A) also confirmed the order of AO. Assessee being further aggrieved with the order of Ld. CIT (A) preferred this appeal before us. 5. We have gone through the order of AO passed u/s. 143(3) r.w.s. 147 of the Act, order of Ld. CIT (A) passed u/s. 250 and submissions of the assessee. Assessee has taken total 5 grounds of appeal with various sub grounds also. Our adjudication will cover every ground on thereon merits and facts. Gr.I. 1. The learned Commissioner of Income Tax (Appeals)-Mumbai erred in confirming the reopening of the assessment u/s 147 by issue of notice u/s. 148, dated 25.03.2015 for AY 2010-11. 6 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. 2. The appellant prays that reopening the assessment be held to be bad in law and the impugned notice u/s. 148 dated 25.03.2015 be held not sustainable. 6. On this ground, we are of the opinion that at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woolen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). Any fresh information received by the AO can entitle him to issue notice u/s.148, if on the basis of such information he has prima facie reason to believe that income has escaped assessment. So much so that it was held by the Hon'ble Supreme Court in Claggett Brachi Co. Ltd. vs CIT 177 ITR 409 (SC) that information obtained during assessment proceedings of a subsequent year can also validate the proceedings-initiated u/s. 147 for earlier year. Similarly, Hon'ble Bombay High Court in the case of Anusandhan Investments Ltd. vs. M.R. Singh, DCIT, 287 ITR 482 held that a notice issued u/s.148 based on assessment of subsequent assessment year is valid even if the appeal is pending for such assessment. 7. In this instant case, reopening was based on information received from the office of DGIT (Inv.), Mumbai. Information was specific in nature that assessee entered into the transactions of bogus purchase with the concerns of well known 7 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. entry operator i.e. Shri Bhanwarlal Jain. AO has all the reasons to issue notice u/s. 148 and as the reopening was done on the basis of new information came to his knowledge, so it cannot be said that reopening was done on the basis of change of opinion. 8. The expression reason to believe in section 147 would mean cause or justification. If the Assessing Officer has cause or if the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is reason to believe but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief is within the realm of subjective satisfaction of the Assessing Officer. Where the AO received information from Investigation Wing that a well known entry operator has provided a bogus entry to the assessee, AO was justified in reopening assessment. In view of these facts and settled legal position on the issue of reopening, we do not find any mistake in the action of AO u/s. 148 of the Act. In view of this, ground no. 1 raised by the assessee is dismissed. 2. The learned CIT (A) further erred in holding that: a) confirming the addition of Rs. 1,28,00,277 being 100% purchase made by the appellant from the five parties ignoring the order of Honorable ITAT, Mumbai in ITA No. 8 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. 5621/Mum/2016 dated 20/09/2017 and ITA No. 3519 & 3520/Mum/2018 dated 11/11/2020 in the case of the appellant for Assessment Year 2012-13 and AY 2011-12 and 2014-15 respectively, which was placed before the CIT(Appeals) by the letter dated 04/08/2022. b) Accepting the so called confessional statement of the parties unsupported by evidence by disregarding the CBDT instruction vide letter F.No. 286/2/2003-IT (Inv), dated 10.03.2003 which states that the adverse view will be taken if, additions are made based on confessional statements, without any evidence. c) the affidavits of the five parties confirming the transaction with the appellant, confirmation of accounts, purchase bills, bank statements, financials, appellant's, customs certified bills of export etc. were not considered on the ground that the same do not have any evidentiary value. d) Not accepting the fact that the appellant had exported the diamond studded jewelery manufactured in its factory to foreign countries which were verified by Indian Customs and the remittances of exports were received by banking channels. e) Purchases made from the five parties and out of which closing stock costing Rs. 11,32,173/- as on 31.03.2010 was accepted thereby, income to the extent was taxed twice. f) the day to day stock register and consumption/exports statement of cut and polished diamonds were not considered by the Assessing Officer and the CIT (A) in spite of the facts that the stock register from 1/4/2009 to 31/3/2010 showing stock of each piece and carat of cut and polished diamonds were part of page no 65 to 76 of Paper Book No. 6 and no evidence contrary to these facts were placed by the Revenue. 9 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. g) the import of the information in support of his order without backing by cogent evidence and not disclosing to the appellant during the course of Assessment proceedings as well as during Appellate proceedings, loses its evidentiary value. 9. On this ground, assessee relied upon order of Coordinate Benches in its own case vide ITA No. 5621/Mum/2016 dated 20.09.2017 and ITA No. 3519 & 3520/Mum/2018 dated 11.11.2020. We have gone through the order of AO, order of Ld. CIT (A) and orders of Coordinate Benches in assessee’s own case mentioned (supra), wherein issue was decided in favour of assessee. The facts of year under consideration and assessment year already adjudicated by the Coordinate Benches i.e. for AY 2011-12, 2012-13 and 2014-15 are similar. We will give our specific observations relevant to decide the matter although as stated above earlier 3 years were decided in favour of assessee, but as the findings of AO is different in this year, we do not find the issue is being covered by the orders of Coordinate Benches decided earlier. The relevant operative portion of ITA No. 5621/Mum/2016 is reproduced here under:- 9. We have heard the rival submissions and also perused the material on record including the cases relied upon by the authorities below. The only grievance of the revenue is that the Ld. CIT (A) has wrongly deleted the additions made by the AO. We notice that the Ld. CIT (A) has deleted the addition by relying on the various decisions of the Tribunal and the judgment of Hon'ble Bombay High Court. The relevant portion of the order reads as under: "5.3 I have gone through the assessment order and submissions made by the appellant in this regard. It is noted that there is some merit in the contention of the appellant. The AO made an addition of this amount of Rs. 1, 35, 15,546/- and treated these purchases as non genuine since assessee could not produce these parties for verification. The AO had also noted that information from investigation wing that these parties belonging to Sh. Bhanwarlal Jain group used to give bogus bills. The AO appears to have received 10 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. information in this case from the investigating wing. It is clear that this information was about the bogus sales made and accommodation entry given by one Sh. Bhanwar Lal Jain. The A.O. seems to have received this information in general and not specifically in the context of the appellant. He had confronted the appellant by means of show-cause notice and asked for production of the concerned parties to establish genuineness of these purchases. As the appellant was unable to produce them, the A.O. simply went ahead and made the addition. 5.4 It is clear that the AO had insisted on production of these parties. The A.O. had however relied upon the information received from investigation wing and the statement of Sh. Bhanwarlal Jain. As such, he was bound to provide an opportunity to the appellant to cross examine this party. While the assessment order is silent on this matter, the appellant has forcefully brought this point out during its submission. In other words, the nonproduction of this party would not just be an issue against the appellant. It would actually strengthen the claim of the appellant as well. 5.5 It is noted that the principles of natural justice demand that the assessee should be provided with an opportunity to examine and counter the documents relied upon by the AO to decide an issue against the assessee. In the instant case, the assessing officer has also supported his view by placing reliance on the report given by the investigation wing and the statement of Sh. Bhanwarlal Jain. It is a matter of fact that the AO has not carried out any independent examination of Sh. Bhanwarlal Jain who has claimed to have given statement before the investigation wing. It is also not established that Sh. Bhanwarlal Jain and these five parties have implicated the transactions entered with the assessee before the investigation wing. In the instant case it is noticed that the assessee was able to link the consumption of materials and closing stock with the relevant purchase bills. It is noted that when the entire purchases made from these five parties was either consumed in the manufacturing process or were available as stock as at the year end, then the disallowance of purchases should result in corresponding reduction of the closing stock, the result of which would have NIL effect on profit and hence there was no requirement of 11 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. making any addition. However, this proposition should be applied only if the purchases were held to be non genuine. It is noted that the assessee has produced following documents to establish that the purchases made by it from these five parties were genuine:- A) The affidavits include the date when and by what Invoice No. goods were sold, amount of sale and the mode of receipt of amount towards such sale only through Bank. B) Purchase bills from five parties confirming quantity of Cut & Polished Diamonds sold and delivered to assessee. C) Confirmation of Ledger Accounts of five parties as per the books of the assessee confirming all the transactions with assessee. D) Copy of assessee's Bank Book for transactions recorded when payments were made to five parties. E) Copy of Bank Statement highlighting payments made to five parties on various dates. F) Confirmation of Ledger Account from the books of five parties, confirming the transactions with assessee and also contains its PAN Number. G) Copy of Bank Statements of five parties highlighting payment received in their bank account from assessee's bank account. H) Copy of Return of Income filed by five parties for the assessment year 2012-13, confirming that they are tax payers. I) Copy of Audited Balance Sheet, Profit And Loss with Schedules thereto, of five parties showing transactions with assessee and amount recoverable from assessee for assessment year 2012-13. J) Customs certified invoices. Confirming exports of Cut & Polished Diamonds studded Jewellery to various parties outside India. 12 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. K) Customs party wise stock statement/register of cut and polished diamonds studded Jewellery, which was exported. L) Retraction statement of Shri Bhanwarlal Jain along with claim that F statement recorded during search and seizure action, loses its evidentiary value. These evidences clearly establish that the assessee had made genuine purchases for which payments were made through banking channels and exports proceeds of part these diamonds during the year were also received through banking channels and the remaining were reflected in the closing stock summary. These evidences strongly support the case of assessee that there were genuine purchases made by assessee, which could not negated by the general statement of Sh. Bhanwarlal Jain which has since be retracted. In view of the foregoing discussions, there appears to be no reason to suspect the claim of purchases of goods from these five parties viz. M/s.Nice Diamonds, M/s Pankaj Exports, M/s. Malhar Exports, M/s Minakshi Exports and M/s. Daksh Diamonds, particularly when the books of accounts of the assessee had not been rejected by the AO and the sales made during the year have been accepted. On similar facts in the case of ACIT Circle-9(3), Mumbai vs M/s Say India Jewellers Pvt. Ltd., the Hon'ble ITAT, Mumbai I.T.A. No.6735/Mum/2010 vide order dated 8th August. 2014 has held as under;- "We have carefully perused the orders of the authorities below and the relevant material evidences brought on record before us. The undisputed facts are that the purchases were supported by bills, the payments were made by account payee cheque and the payments were duly reflected in the bank statement of the assessee. A perusal of the statement of the diamond traded during the year under consideration shows that the assessee purchases 1358.54 carats from M/s Zalak Impex on 1.8.2005, the same was exported on 5.8.2005 and 871.57 carats were purchased on 2.8.2005 from M/s Zalak Impex and were exported on 12.8.2005. No adverse inferences have been drawn by the AO in so far as exports of diamonds are concerned. Without purchases there cannot be any sales. The entire additions made by the AO are based on assumptions and presumptions. We, therefore, decline to interfere with the findings of the Ld. CIT (A). It is also noted that in 13 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. the matter of Nikunj Exim Enterprises Pvt. Ltd. (Income Tax Appeal No. 5640 of 2010), (2014) 107 DTR 69 (Bom), the Hon'ble Bombay High court has specifically held that in a case where sales are considered genuine and books of accounts have not been rejected, no addition, on account of bogus purchases can be made. In view of the above discussion and on the facts of the case the addition made by the A.O. on account of alleged bogus purchase cannot be sustained in appeal and is directed to be deleted. Accordingly this ground of appeal is allowed." 10. In our considered opinion the order passed by the Ld. CIT (A) is based on the evidence on record and the established principles of law. The Documentary evidence produced before the authorities below establish the genuineness of the transaction. The findings of the AO are based on mere uncorroborated statement of the third party. Moreover, the person whose statement was relied upon by the assessee has retracted from his statement made during the survey action. The documentary evidence on record fully substantiates the contention of the assessee. Hence there is a merit in the contention of the Ld. counsel. On the other hand the AO has not pointed out any cogent evidence to falsify the contention of the assessee. The Hon'ble Bombay High Court in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom) has held that merely because the suppliers had not appeared before the Assessing Officer or the CIT (A) one could not conclude that the purchases were not made by the respondent/assessee. In the Light of the facts of the present case and the evidence on record, we are of the considered view that the findings of the Ld. CIT(A) are based on the principles of law laid down by the Hon'ble Bombay High Court and in accordance with the various decisions of the Tribunals relied upon by the Ld. CIT(A), therefore do not suffer from any infirmity either factual or legal to interfere with. Thus the Ld. CIT (A) has rightly deleted the addition in question. Hence, we uphold the findings of the Ld. CIT (A) and dismiss the sole ground of appeal of the revenue. 10. We have thoroughly considered the order of AO for the year under consideration, order of Ld. CIT (A) and orders of Coordinate Benches in assessee’s own case for AY 2011-12, 2012-13 and 2014-15 also. In our observation, the fact 14 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. is not under challenge that sales of the assessee was accepted by the revenue and being 100% export oriented unit sales of the assessee was verified by Indian Customs authorities also. Moreover, assessee produced its stock register for the year under consideration and there is no deficiency pointed out by the revenue. But a material fact is there on record on which the Tribunal cannot be a mute spectator as assessee is continuously dealing in terms of purchase with a well known entry operator i.e. Bhanwarlal Jain Group since AY 2010-11 to 2014-15 (may be even before, but with us information available is for the period AY 2010- 11 to 2014-15 only). Bhanwar lal Jain Group is known in the country and specially in the state of Maharashtra and Gujarat for their notorious operations in the field of issuing fake sale /purchase bills, ghost entries like unsecured loans and subscription of share capital, etc. In this case, there is a specific information vide para 2.1 of the assessment order on page 3 that assessee is one of the beneficiaries from the concerns operated and controlled by Bhanwar lal Jain Group. In the year under consideration, it was specifically pointed out by the AO, that; a) The signatures in the affidavits do not match with the signatures in the confirmation and in the Balance Sheet of the respective parties. b) The verifications in the affidavits of Gautam N. Kamat, proprietor of Mohit Enterprises, Nitesh P. Pamecha partner of Marvin Enterprises and Arvind Kumar G. Jain, proprietor of Mayur Exports, have all signed the verification certifying the contents of the affidavits to be true on 10.09.2015. However, the notary has notarized the affidavits on 08.10.2015 certifying that the same were signed before him. Similarly, the verifications in the affidavits of Shriyansh L. Jain partner of Prime Star and Abhishek J. Lodha partner of Navkar India have signed the verification on 09.09.2015 whereas, the notary has notarized 15 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. the affidavits on 08.10.2015 certifying that the same were signed before him. It is difficult to comprehend how the notary certified that the affidavit was signed before him on 08.10.2015 when in fact the verification was signed one month prior to this date. c) No VAT has been paid against the purchases made from Prime Star and Navkar India. 3. In view of the above, you are requested to show-cause why the affidavits filed should not be rejected. You are requested to produce the persons who filed the affidavits and also the notary who notarized the affidavits for verifying the veracity of the affidavits. Accordingly, you are requested to show cause why the so called purchases made from the above five parties should not be treated as Bogus Purchase and the purchase expense claimed should not be disallowed and added to the total income of the year. 11. In response to these deficiencies pointed out by the AO, assessee vide letter dated 18 th March 2016 submitted as under:- "... We have submitted the evidence and details to prove that the transactions with the five parties mentioned below are genuine. The lists of parties are as under: Sr. No Name of the Party Amount (Including VAT) 1 Mayur Exports 40,57, 609 2 Prime Star 23,40,941.00 3 Navkar Diamonds 19,83,662.00 4 Mohit Enterprises 6,62,621.00 5 Marvin Enterprises 38,25,358.00 TOTAL 1,28,70,191.00 Your honour vide notice dated 11 th March 2016 stated about the discrepancies have been noticed 2. a) With respect to signature in the affidavits do not match with the signatures in confirmation and in the Balance sheet of respective parties: 16 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. i. The documents, such as Purchase Bills, Confirmation of Accounts, Balance Sheet, Profit & Loss A/c., Bank Statements and the original affidavits have been furnished to us by the respective persons and the same have been forwarded to you. ii. We take it that other than mismatch of signature, you have found contents of Balance Sheet, Purchase Bills, Bank Statements, Confirmation and affidavits as genuine. iii. On having furnished you letter dated 11.03.2016 to all the parties, each of them have re- confirmed by their respective letters dated 17th March, 2016 with annexure, that the signatures on the affidavits signed twice are their own signatures and they have also signed on the Register maintained by the Notary Public and the parties has attached self certified copies of their Pan Card, Self explanatory original letters are enclosed for you information and record. We hope these letters will clear you doubt. iv. It is stated by you that all the five parties who have given affidavit confirming transaction with the assessee, have signed the affidavits twice, one on the date after franking for stamps was done and the second time before the Notary Public. Your objection is that why there are two signatures on different dates. It is stated by you that the second signature on the affidavits of the parties and the Notary Public is on the same date. This would mean that all the deponents have signed on oath before the Notary Public, who has also signed at the same time. Signing verification twice amounts to re- affirmation before the Notary Public and is in conformity with the law. v. The assessee is a exporter of diamond studded Jewelery where no vat is applicable as provided under section 8 of the Maharashtra Value Added Tax Act, 2002. M/s. Mohit Enterprises, M/s. Mayur Exports, M/s. Prime Star, have collected VAT from the assessee as those parties have sold the Goods in Maharashtra. Whereas Marvin Enterprises and Navkar India are located at Surat and there is no VAT applicable in the state of Gujarat. Therefore there is no question of payment of VAT by the assessee. 17 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. 3. We are attaching herewith the re-confirmation letter in original dated 17 \march, 2016 and base on the reconfirmation letter, we object you, to treat the purchase from the five parties as bogus and is not in conformity with law. 4. We on our part have furnished all the evidence including Customs Certified Export Invoice etc. in support of our genuine transaction. It is common knowledge that every Sales/Export has its cost. You are accepting my Sales/Export to be genuine but costs of Sales/Exports are considered NIL. Expenditure earned for earning an income is allowable deduction and it is only net income which is subject to taxation under the Income Tax Act, 1961. Taxing Sales/Exports and also Purchases which is cost of Sales/Exports would amount to double taxation which is not permitted under Income tax Act, 1961..." 12. Based on assessee’s reply above, the AO pointed out further as under:- 4.2 The assessee's submission has been perused. The assessee's argument regarding the veracity of the affidavits is not acceptable. As can be seen from the affidavits filed, the verification signed by the affirming parties is dated one month prior to the date on which the notary has certified the signatures. The assessee's claim that the affidavits were signed twice is evident from the affidavits. But, the fact remains that the second signature under "verification" was apparently signed prior to the same being notarized. The assessee's claim that other than mismatch of signatures the contents of Balance sheet, Purchase bills, Bank statements, confirmation and affidavits are found genuine is baseless. The very fact that the signatures don't match and the notarized affidavits are un- reliable makes the documents produced also unreliable thereby proving the non genuineness of the transactions. Along with the reply assessee has produced letters of the parties confirming the affidavits filed. The parties are apparently available but yet the assessee has chosen not to produce them before the undersigned as desired in the show cause notice dated 11.03.2015. It is obvious that assessee is avoiding examination of the parties who are its witnesses thereby not discharging its onus of proving the identity and 18 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. genuineness of such purchase parties who are alleged to be bogus based on the investigation carried out by the office of DGIT (Inv.), Mumbai. 13. The above facts on record is not under challenge by assessee, hence it can be reasonably hold that the transaction entered into by the assessee with the concerns of Bhanwarlal Jain Group was not genuine. But as a matter of facts, sales of the assessee was not disturbed by the revenue and the figures and closing stock also accepted in that case, the whole purchase cannot be added back to the income of the assessee, but as held time and again by the Coordinate Benches and even Hon’ble High Courts in such type of cases, a percentage of purchase amount is to be added back considering the difference between purchase in grey market and coverage of the same by obtaining fake bills from entry operators like Bhanwarlal Jain Group. In these circumstances, we partly allow the ground raised by the assessee and direct the AO to delete the addition amounting to Rs. 1,28,00,277/-, but simultaneously an addition @ 4% of the alleged bogus purchase is directed, based on following judicial pronouncements :- [2022] 145 taxmann.com 546 (Bom.) PCIT v. Nitin Ramdeoji Lohia “We are in agreement with the view expressed by the CIT (Appeals) that, if the purchases are bogus, it would be impossible for the assessee to complete the business transaction and that if the purchase is bogus, the corresponding sale also must be bogus or else the transaction would be impossible to complete and as a necessary corollary, unless the corresponding sale is held to be bogus, the purchase also cannot be held to be bogus, rather it would be a case of purchase from bogus entities/parties. That view has been upheld by the Tribunal in principal while dismissing the appeal of the Revenue. In view of the above, we are of the opinion that the questions of law proposed as (a), (b), and (c) in the appeal cannot be said to be substantial questions of law. Insofar as the question of law framed as (d) is concerned, we find that the Tribunal has not addressed the issue of adopting the gross profit rate of 5% on the alleged Hawala purchase of Rs. 2.45 Crores as against the rate of 0.69% declared by the assessee, despite the fact that the CIT (Appeals) had specifically gone into that question in its order dated 18th August, 2015 and 19 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. had directed the A.O. to make 5% addition in the gross profit ratio, while deleting the balance addition.” [2022] 145 taxmann.com 414 (Bom.) PCIT v. Jagdish Thakkar “In the instant case, the assessee statedly had made purchases from the three parties totalling to amount of Rs. 3, 15, 72,840/- in respect of which it has been found by both the Commissioner (Appeals) as well as the Tribunal that the sales in question have not been doubted, that the payments have been made by the assessee through banking channels and that the Assessing Officer has also accepted the book results shown by the assessee. It is also finding of fact that the assessee has produced before the Assessing Officer delivery challans, purchase bills as well as evidence of payments through banking channels. As such, the assessee has discharged the initial burden or onus of providing the details of the parties; and it was incumbent on the Assessing Officer to rebut the evidence produced by the assessee. There is nothing on record controverting the findings of fact of the Commissioner (Appeals) as well as the Tribunal. Despite uncontroverted findings of fact and keeping in mind that the Assessing Officer had issued 133(6) notices to the three suppliers of goods and the parties had not attended and even though the Assessing Officer did not take any further steps for investigation, in all fairness, the Commissioner (Appeals) as well as the Tribunal had upheld the disallowance in respect of the purchases for the year under consideration to the extent of 10 per cent of such purchases against which admittedly no appeal has been filed by the assessee. [Para 28]” [2023] 148 taxmann.com 154 (Guj.) PCIT v. Surya Impex “It is alleged that the assessee firm received accommodation entries from Shri Bhanwarlal Jain Group. Shri Bhanwarlal Jain and his son Shri Rajesh Bhanwarlal Jain provided accommodation entries to various parties in the form unsecured loan and bogus purchases. When accommodation entries in the form of bogus purchases to the tune of Rs. 8.10 Crores (rounded of) is alleged against the assessee from M/s. Rose Gems (P) Ltd., one of the entities controlled by Shri Bhanwarlal Jain. The Assessing Officer on the ground that assessee had accommodation entry decided to do to disallow the fictitious expenditure claimed by the assessee in the form of bogus purchases. While finalising the assessment to 100% of the alleged bogus purchases claimed, was disallowed and added to the income of the assessee. Aggrieved assessee had challenged the same before the Commissioner of Income-tax (Appeals), where the CIT (Appeals) restricted the addition to 12.5% of the disputed purchases of Rs. 8.10 Crores amounting to Rs. 1,01,32,060/- by relying on various judicial pronouncements. The assessee preferred an appeal before the Income-tax Appellate Tribunal ('ITAT' hereinafter), which partly allowed the appeal of the assessee restricting the addition to 6% of the disputed purchases by holding that the Tax Authority not entitled to tax entire transaction, but only income component of the disputed transactions, to prevent the possibility of the revenue leakage.” 20 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. Gr. III 1. The learned CIT(A) erred in not considering business loss of Rs.1,47,80,729/- which included depreciation allowance of Rs. 31,26,475/-, quantified as per Profit and Loss Account and Income Tax return filed. 2. He failed to appreciate that: a) Business Loss incurred at Rs. 1, 47, 80, 729/- cannot be ignored to set off with the current year's income. b) Business loss is not allowed to be carried forward because the appellant is 100% EOU but setoff with current year's income has to be done. 3. The appellant prays that the Assessing Officer be directed to compute Business Loss at Rs. 1,47,80,729/- including depreciation allowance of Rs. 31,26,475/- and set-off with the alleged current year's income. 14. The relevant facts pertaining to this ground are that assessee filed return of income at a loss of Rs. 31, 26,475/- u/s. 139(1). Thereafter case of the assessee was reopened and a notice u/s. 148 was issued. In response to this notice, assessee filed return of income at a loss of Rs. 1, 47, 80,730/-. In this regard, this is a basic principle of law that proceedings u/s. 147 has to be for the benefit of revenue and not for the assessee. The only advantage available to the assessee is when there is some addition of income under the re-assessment proceedings, expenses / deduction directly relating to that income only can be claimed. As in this case, assessee claimed higher amount of loss in return filed in compliance to section 148 as compared to the return filed u/s. 139(1) is legally not permissible. 21 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. [1992] 198 ITR 297 (SC) CIT v. Sun Engineering Works (P.) Ltd. “In the instant case, the Tribunal rightly found that the loss which the assessee wanted to be set off against the 'escaped income' could not be allowed to be so set-off because in the original assessment proceedings no 'set off was claimed or permitted and the original assessment had acquired finality when the appeal against the order of assessment failed before the AAC and the assessee took no further steps to agitate the issue. The Tribunal was also right in concluding that the items which the assessee wanted to be taken into account in the proceedings under section 147 were unconnected with the escapement of income. The High Court clearly fell in error in holding otherwise. Since the original assessment had been concluded finally against the assessee, it was not permissible for the assessee in the reassessment proceedings to seek a review/revision of the concluded assessment for the purpose of computation of the escaped income. The High Court clearly fell in error by permitting the assessee to re-agitate, in the reassessment proceedings under section 147(a) the finally-concluded assessment proceedings and to grant to it relief in respect of items not only earlier rejected, but also unconnected with the escapement of income by assuming as if the original assessment had not been concluded or was 'still open'. Therefore, in the reassessment proceedings, it was not open to the assessee to seek a review of the concluded item, unconnected with the escapement of income, for the purpose of computation of the escaped income. The words 'such income' in section 147 clearly refer to the income which is chargeable to tax but has escaped assessment and the ITO's jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment Claims which have been disallowed in the original assessment proceeding cannot be permitted to be re-agitated on the assessment being reopened for bringing to tax certain income which had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under section 147 which are for the benefit of the revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings on his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income', and re-agitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment 22 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. proceedings relating to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed.” In the result ground no. 3 is partly allowed to the extent, assessee claimed depreciation loss amounting to Rs. 31, 26,475/- in the original return and not the figure of Rs. 1,40,80,729/- claimed as business (including depreciation loss) in return filed in compliance to section 148 of the Act. 15. In the result, appeal of the assessee is partly allowed. ITA No. 446/Mum/2023 for AY 2013-14 16. The assessee has raised the following grounds:- Gr.l. 1. The learned CIT (A)-47 Mumbai, erred in confirming the addition of Rs. 3, 14, 52,786/- on account of purchases from ten parties to the Business Income of the appellant. 2. The learned CIT (A) further erred in holding that: a) confirming the addition of Rs. 3,14,52,786/- being 100% purchase made by the appellant from the ten parties ignoring the order of Honorable ITAT, Mumbai in ITA No. 5621/Mum/2016 dated 20/09/2017 and ITA No. 3519 & 3520/Mum/2018 dated 11/11/2020in the case of the appellant for Assessment Year 2012-13 and AY 2011- 12 and 2014-15 respectively, which was placed before the CIT(Appeals) by the letter dated 04/08/2018. b) Accepting the confessional statement of the parties unsupported by evidence by disregarding the CBDT instruction vide letter F.No. 286/2/2003-IT (Inv), dated 10.03.2003 which states that the adverse view will be taken if, additions are made based on confessional statements, without any evidence. c) the affidavits of the ten parties confirming the transaction with the appellant, confirmation of accounts, purchase bills, bank statements, financials, appellants, customs certified bills of export etc. were not considered on the ground that the same do not have any evidentiary value. d) not accepting the fact that the appellant had Exported the diamond studded jewelery manufactured in its factory to foreign countries which were verified by Indian Customs and the remittances of exports were received by banking channels. 23 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. e) Purchases made from the ten parties and out of which closing stock costing Rs. 2,08,13,637 as on 31.03.2013 was accepted thereby income to the extent was taxed twice. f) the day to day stock register and consumption/exports statement of cut and polished diamonds were not considered by the Assessing Officer and the CIT (A) in spite of the facts that the stock register from 1/4 / 2012 to 31/3 / 2013 showing stock of each piece and carat of cut and polished diamonds were part of page no 65 to 91 Paper Book No 11 and no evidence contrary to these facts were placed by the Revenue. g) the import of the information in support of his order without backing by cogent evidence and not disclosing to the appellant during the course of Assessment proceedings as well as during Appellate proceedings, loses its evidentiary value. 3. the appellant prays that addition of Rs. 3, 14, 52,786/- on account of alleged bogus purchases from the parties mentioned in the assessment order be deleted. Gr.II. the appellant craves leave to add, alter, amend, withdraws or substitutes the above grounds of appeal. 17. Identical issue in the case of assessee has already been decided vide ITA No. ITA No. 445/Mum/2023 (A.Y.2010-11) against ground No. 2 raised therein. As the facts are similar in both the years, our decision for this appeal will apply mutatis mutandis here also. In these terms ground raised in this appeal is partly allowed and AO is directed to delete the addition of Rs. 3, 14, 52,786/- and disallow the expenses @ 5% as mentioned (supra) in ITA No. 445/Mum/2023 (A.Y.2010-11). 18. In the result, both the appeals of the assessee, are partly allowed. Order pronounced in the open court on 14 th day of August, 2023. Sd/- Sd/- (AMIT SHUKLA) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, दिन ांक/Dated: 14/08/2023 Sr. PS (Dhananjay) 24 ITA No. 445/Mum/2023 & Others Diagold Designs Ltd. Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकर आयुक्त CIT 4. दवभ गीय प्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्ड फ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Mumbai