ITO, WARD-2(3)(7), SURAT V. ASHOK SONRAJ JAIN, SURAT

ITA 459/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2418 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 02-03-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 02-10-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Search and seizure
• Section: 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND Dr. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 459/SRT/2019 (AY 2007-08) (Hearing in Virtual Court) Income Tax Officer, Ward-2(3)(7), Room No.414, 4 th Floor, Anvil Business Centre, Adajan-Hajira Road, Surat-395009 Vs Ashok Sonraj Jain 307, Mahavir Chamber, Haripura, Surat-395003 PAN : AAXPJ 5500 H Appellant / Revenue Respondent / assessee Assessee by Shri Himanshu Gandhi, CA Revenue by Shri Ritesh Mishra, CIT-DR Date of hearing 03/03/2022 Date of pronouncement 08/03/2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals)-1, Surat [for short to as “CIT(A)”] dated 29.07.2019 for assessment year (AY) 2007-08, which in turn arise out assessment order passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 17.03.2015. The Revenue has raised the following grounds of appeal:- “(i)On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in restricting the addition made by the AO to the extent of 5% of entire purchase i.e. Rs.3,46,08,837/- on account of bogus purchase. (ii) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has failed to appreciate the fact that the entire purchase from alleged concerns was bogus and it was only to suppress the ITA No.459/SRT/2019 Ashok Sonraj Jain 2 profit of the beneficiaries which has been duly substantiated by the statement on oath given by the entry provider. (iii) On the facts and circumstances of the case and in Law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the LD. CIT(A)-1 Surat maybe set-aside and that of the Assessing Officer’s order may be restored.” 2. Brief facts of the case are that assessee is an individual and engaged in the business of import, export, trading of diamonds. The case of the assessee for the assessment year 2007-08 was reopened on the basis of information received from Investigation Wing, Mumbai that search and seizure action was carried out in the case of Shri Praveen Kumar Jain Group on 01.10.2003 by Investigation Wing, Mumbai. In the said search and seizure action evidence was collected and the statement of various persons were recorded. From the material collected and the statement recorded during the said search and seizure action, it was found that assessee is one of the beneficiary who has shown purchases from 7 parties, which were managed by Shri Praveen Kumar Jain Group. The assessee has shown purchase of Rs. 1.64 Crores form M/s Mohit International and Rs. 1.81 Crores from M/s Kunal Gems thereby total purchase of Rs. 3.46 Crores, which was utilized to suppressed profit for the year to the extent of such purchases. The Assessing Officer after recording the reasons of reopening, issued notice under section 148 dated 26.03.2014. In ITA No.459/SRT/2019 Ashok Sonraj Jain 3 response, to notice under section 148 dated 26.03.2014, the assessee filed his return of income on 22.10.2014. During the assessment proceedings, the Assessing Officer was asked to furnish the details of purchases and show cause as to why the purchase of Rs. 3.46 Crores should not be treated as bogus purchases. 3. The assessee filed reply vide his reply dated 15.03.2015. In the reply, the assessee stated that purchase shown from Mohit International and Kunal Gems are genuine and supported by bills and payment were made through banking Channel. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer held that mere furnishing payment through account payee cheques is not sacrosanct nor can it make a non-genuine transaction as genuine. There is sufficient evidence in the form of statement recorded under section 132(4) wherein proprietor of Mohit International categorically admitted that several entities including of Mohit International are not carrying any genuine business activity. They did not have any physical stock of goods. Copy of such statement was provided to the assessee. The Director, partner of entities are closely associated with Shri Praveen Kumar Jain Group, who was engaged in providing accommodation entries. The Assessing Officer disallowed entire purchases of Rs. 3.46 Crores from Mohit International and Kunal Jems. ITA No.459/SRT/2019 Ashok Sonraj Jain 4 4. Aggrieved by the addition in the assessment order, the assessee filed an appeal before ld. CIT(A). The assessee filed written submission before ld. CIT(A). The submissions of assessee are recorded in para 7 of ld. CIT(A). The ld. CIT(A) after considering the submission of assessee held that he has decided identical issue in case of Gangani Impex for the assessment year 2013-14 in Appeal No. CAS- 3/512/2015-16 dated 24.11.2016, wherein he has sustained the disallowance of similar purchases to the extent of 5% of the disputed/ impugned purchases. Aggrieved by the order of ld. CIT(A) for the Revenue has filed the present appeal before us. 5. We have heard the rival submissions of learned Commissioner of Income Tax-departmental representative (CIT-DR) for the revenue and ld. Authorized Representative (AR) for the assessee and gone through the orders of the ld. CIT-DR for the Revenue submits that search and seizure action was carried out at the business premises of Shri Praveen Kumar Jain Group by Investigation Wing, Mumbai on 01.10.2003. No physical stock of goods was found at his premises. The statement of Shri Praveen Kumar Jain Group and his associate were recorded under section 132(4) in the statement of Shri Praveen Kumar Jain Group and associate namely N. Parmar which is proprietor of M/s Mohit International disclosed that they are operated hawala trader for providing accommodation entries of sale and ITA No.459/SRT/2019 Ashok Sonraj Jain 5 purchase of diamonds without actual delivery of goods. The Investigation Wing gathered sufficient material about modus oprendi hawala trader namely Shri Praveen Kumar Jain Groups and associates, assessee is one of the beneficiary of bogus purchases of Rs. 3.49 Crores. The assessee was given sufficient opportunity to prove the genuineness of transaction. The assessee before Assessing Officer mere submitted that he has made a genuine purchase and payments were made through banking transaction. Mere payment through banking transaction is not sufficient as the assessee failed to show actual delivery of goods. The ld. CIT-DR prayed for holding the addition of entire purchases. 6. On the other hand, ld. AR of the assessee submits that purchase shown by assessee are genuine the assessee has given sufficient evidence to prove the genuineness of purchases. The Assessing Officer has not rejected the books of account of assessee. The sale of assessee is not disputed by the Assessing Officer. The sale is not possible in absence of purchase. The ld. AR of the assessee submits that disallowances made restricted by ld. CIT(A) to the extent of 5% of the said purchases of very higher side as the margin of trade of diamonds is very low. The ld. AR of the assessee submits that once sale of the assessee is accepted, no disallowance of purchase can be made. ITA No.459/SRT/2019 Ashok Sonraj Jain 6 7. We have considered the rival submissions both the parties and perused the orders of the lower authorities and the material available on record. 8. We have also deliberated on the various case law referred and relied by ld. CIT(A) in his order. We find that assessee has shown purchases of Rs. 3.46 Crores from two parties, who were managed by Praveen Kumar Jain and his group. During the assessment, the Assessing officer on the basis of information available with him that all those parties from whom, the assessee has shown purchases are managed by Pravin Kumar Jain. The Assessing officer made addition of 100% of purchases shown from Pravin Kumar Jain Companies/entities. We find the assessee has filed bill of purchases and bank statement in order to substantiate the genuineness of purchases. The evidence furnished by assessee bills of purchases and bank statement showing the transaction through banking channel. The Assessing Officer has disregarded such documentary evidence furnished by assessee. The sales of the assessee is not disputed by assessing officer. The Assessing officer not rejected the books of account. No other observation on books of assessee was made. It is settled law that no sale is possible in absence of purchase. We find that before, ld. CIT(A) the assessee filed in very detailed and exhaustive submissions. The ld. CIT(A), instead of discussion the fact of the case of assessee ITA No.459/SRT/2019 Ashok Sonraj Jain 7 restricted the addition on the basis of his decision in case of Gagnani Impex in Appeal No. CAS-3/512/2015-16 dated 24.11.2016. The ld.CIT(A) by referring the various decision, restricted the addition to the extent of 5% of the disputed purchase. 9. We find that the assessee has shown GP of .88%. The assessee has shown total turnover of 11.76 Crore and declared income of Rs. 10.44 Lakhs only. The Hon’ble Gujrat High Court in a number of decision including in case of Samit P. Seth (supra) and Bholanath Poly Fab (supra) held that only the profit embedded in the dispute purchase is to be disallowed and not the substantially portion of the purchases. The profit element in such disputed purchase is to be disallowed to avoid the possibility of revenue leakage. We find that Assessing Officer identified the disputed purchase to the extent of sale of Rs. 12.05 Crores and disallowance of 100% of such purchases. In our view, 100% of disallowance of such purchases without disputing the sales is not justified. Similarly, disallowance restricted by ld. CIT(A) to the extent of 5% is also not justified when the assessee has shown GP of less than of less than 1% (.88%). Considering over all facts and circumstances of the case, we are of the view that disallowance of 6% of the disputed purchases of Rs. 3.46 Crore, would meet possibility of revenue leakage. Hence, the Assessing officer is directed to disallow/restrict the addition of bogus purchases to the extent of 6% ITA No.459/SRT/2019 Ashok Sonraj Jain 8 of such purchases. In the result, the appeal of the Revenue is partly allowed. Order announced on 8 th March, 2022 in the open Court and by placing the result on the notice board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 08/03/2022 SKM Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)- 4. CIT 5. DR 6. Guard File True copy/ By order Assistant Registrar, ITAT, Surat True copy/ Date Initial Draft order verbally dictated by author (JM) 05/03/2022 Draft placed before author 07/03/2022 Draft proposed & placed before the second member 08 /03/2022 Draft discussed/approved by Second Member. 08 /03/2022 Approved Draft comes to the Sr.PS/PS 08 /03/2022 Kept for pronouncement on 08 /03/2022 File sent to the Bench Clerk 09 /03/2022 Date on which file goes to the AR /03/2022 Date on which file goes to the Head Clerk. Date of dispatch of Order. Draft dictation sheets are attached