M/s. Dharmesh Exports, Surat V. The Dy.CIT.,Circle-9, Surat

ITA 473/SRT/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2065 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 10-04-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 05-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPMA SINGLA
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Bogus purchase; Accommodation entries
• Section: 148; 144

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. 473 & 474/SRT/2018 (Assessment Year: 2007-08 & 2009-10) (Hearing in Virtual Court) M/s Dharmesh Exports, C-102, Vallabh Nagar Society, Opp.- Baroda Prestige, Mini Bazar, Varachha Road, Surat-395006. PAN : AAHFD 1949 C Vs. D.C.I.T. Circle-3(3), Surat. APPELLANT RESPONDEDNT Department by Ms. Anupma Singla, Sr.DR Assessee by Shri Sapnesh Sheth, CA Date of hearing 11/04/2022 Date of pronouncement 17/05/2022 Order under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. Both these appeals are filed by the assessee against the common order of the ld. Commissioner of Income tax (Appeals)-3, Surat [‘ld. CIT(A)’ for short] dated 26/03/2018, which in turn arise out of separate assessment orders passed by the Assessing Officer under section 144r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) both dated 30/03/2015 for assessment year (AY) 2007-08 & 2009-10. 2. In Both these appeals the assesseehas raised certain common grounds of appeals, facts in both the years are almost common except variation of amount of additions on account of bogus purchases, therefore with the consent of the parties all both the appealsare clubbed together, heard and are decided by ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 2 consolidate order to avoid the conflicting decision. For appreciation of fact, facts for AY 2007-08 is treated as ‘lead’ case. The assesseein its appeal in ITA No. 473/SRT/2018has raised the following grounds of appeal:- “1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in reopening assessment by issuing notice u/s 148 of the I.T. Act, 1961. 2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in passing the ex parte order u/s 144 of the I.t. Act, 1961. 3. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in disallowing purchases of Rs. 21,64,085/- made from M/s Nice Diamonds. 4. It is therefore, prayed that above the assessment order may kindly be quashed or in the alternative, additions made by assessing officer and confirmed by Commissioner of Income Tax (Appeals) may please be deleted. 5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 3. Brief facts of the case are that assessee is a firm engaged in the business of manufacturing of polished diamonds. The assessee filed its return of income for the year under consideration on 31/10/2007 declaring total income of Rs. 19,50,111/-. The case of the assessee was reopened on the basis of information received from DGIT (Investigation) Mumbai that a search action was carried out on Bhanwarlal Jain and his group wherein it was found that Bhanwarlal Jain group was providing accommodation entries in the garb of sale bills, purchase ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 3 bills and secured loans in the name of various proprietary concerned and companies. The assessee is one of the beneficiary who had shown non-genuine transactions of Rs. 21,64,085 from M/s Nice Diamonds. M/s Nice Diamonds is managed by Bhanwarlal Jain and his group. On the basis of such information, the Assessing Officer recorded reasons that income to the extent of non-genuine transaction of Rs. 21,64,085 has escaped from assessment. Accordingly, notice under Section 148 of the Act was issued on 28/03/2014 and served upon the assessee be speed post. The assessee was provided the reasons recorded vide letter dated 07/07/2014. Opportunity was given to the assessee for filing the return of income after issuing the notice under Section 147 of the Act. Another opportunity was provided to the assessee to furnish requisite details vide office letter dated 28/01/2015. In response to letter dated 10/03/2015, the authorized representative of the assessee vide his letter dated 11/03/2015 has communicated that he conducted the last audit for A.Y. 2009-10 and since then the assessee had discontinued its work and he was not authorized by the assessee to represent the case. In response to the various notices issues by the department, nobody had attended the assessment proceedings nor filed any written submissions. The Assessing Officer completed the assessment ex parte under Section 144r.w.s 147 of the Act vide order dated 30/03/2015 by making disallowance of entire purchases of Rs.21,64,085/-shown from M/s Nice Diamonds. ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 4 4. On appeal before the ld. CIT(A), the assessee challenged the validity of reopening as well as additions on merit. The ld. CIT(A) after considering the submission of assessee as well as material available on record, upheld the validity of reopening by referring the decisions of the various Hon’ble Courts by taking view that the assessing officer initiated the action under section 147/148 as per law. On merit, the ld. CIT(A) by following the decision of Hon’ble Jurisdictional High Court in the case of M/s N.K. Proteins Ltd. (2016) (6) TMI 1139, which was confirmed by the Hon’ble Supreme Court in the case of M/s NK Proteins Ltd. (2017-TIOL 23 SC IT) wherein the Hon’ble Court has directed that 100% of bogus purchases be added to total income of assessee. On the basis of the above judgements, the ld. CIT(A) has upheld the action taken by the Assessing officer by confirming the total disallowance with regard to bogus purchases of Rs. 21,64,085/-. Further aggrieved by the order of the ld. CIT(A), the assessee has preferred the present appeal before us. 5. We have heard the submissions of the learned authorised representative (AR) for the assessee and the ld. Sr. Department Representative (Sr. DR) for the Revenue. The learned AR for the assessee submits that the notices under section 148 were not received by the assessee or its partners and therefore compliance could not be made. On the merits of the additions on account of bogus purchases, the ld. AR further submits that the purchases made are very much genuine as the same are actually made in the normal course of business and there are subsequent local & export sales. The assessee has manufactured polished ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 5 diamond from the rough diamond purchased from M/s Nice Diamonds and sold them which proves the genuineness of the purchase transaction made with the purchaser. Even assessing officer accepted that assessee is a manufacturer of polished diamond for the purpose of local sales and export of polished diamonds.The ld. A.R. further submitted that there is no material on record that assessee has given any commission to any of the person for obtaining bogus bills. It is a true fact that any search action was carried out in case of M/s Nice Diamonds during which any evidence relating to providing of such bogus bills to assessee was found. The whole process of reopening of assessment u/s 147 is based only on the statement of Shri Bhanwarlal Jain and group. However, assessee has made purchases and sales in the normal course of business and also maintained proper stock register. The sales of the assessee were not disputed by the assessing officer. No sale is possible in absence of purchases. Thus, entire additions are liable to be deleted. 6. In the alternative submissions, the ld AR for the assessee submits that even if it is presumed that the purchases are suspicious for the reasons that the seller party was related with bogus entry provider, in such circumstances only profit element minus gross profit declared by assessee on such purchases is to be disallowed. 7. On the other hand, the learned Sr.DR submits that the Assessing officer while passing the assessment order, made disallowance of bogus purchase made from M/s Nice Diamonds. M/s Nice Diamonds was managed by Bhanwarlal Jain and ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 6 his group which were engaged in providing bogus entry of purchases without actual delivery of goods. The assessee is a trader in diamond business and have shown purchases only to inflate the expenses and to reduce the profit. The investigation wing during the search action on Bhanwarlal Jain gathered sufficient evidence which proved that the said group was indulging in providing the bogus entry without actual delivery of goods. The disallowance made by the A.O. was justified as the assessee failed to prove the genuineness of the purchases. The learned CIT(A) confirmed the addition to the extent of 100% on the basis of decision of Hon’ble Jurisdictional High Court in the case of M/s N.K. Proteins Ltd. (2016) (6) TMI 1139, which was confirmed by the Hon’ble Supreme Court in the case of M/s NK Proteins Ltd. (2017-TIOL 23 SC IT). 8. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities. We find that the Assessing Officer made disallowance of entire purchases shown from M/s Nice Diamonds. Before making disallowance, the Assessing Officer initiated the reopening proceedings on the ground that various statutory notices were issued and served upon the assessee though postal receipts including the notice under Section 148 of the Act which was issued on 28/03/2015 and served upon the assessee by speed post but neither the assessee was appeared not any written submission with regard to the factual fact has been filed on behalf of the assessee. The ld. Authorised representative of the assessee vide their letter dated 11/03/2015 had communicated to the Assessing officer that he conducted last audit for the A.Y. ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 7 2009-10 and since then the assessee had discontinued its work and he is not authorised by the assessee to represent its case. Therefore, finding no alternative basis, the Assessing Officer completed assessment under section 144 and made addition of entire purchases shown from Nice Diamonds of Rs. 21,64,083/- The ld. CIT(A) had also confirmed the action with regard to initiation of proceedings under Section 147 of the Act by holding that the Assessing officer had received report of the Investigation Wing, Mumbai that the assessee was beneficiary of accommodation entry operators. Before us the ld AR for the assessee has not made specific submissions in challenging the reopening except making general submissions that no notice of reopening was received. We find that otherwise the issue of reopening is against the assessee by the decision of Jurisdictional High Court in Priya Blue Industries (P) Ltd Vs ACIT (2021) 130 taxmann.com 492 (Gujarat), wherein the High Court held that where the assessing officer has reason to believe that income chargeable to tax had escaped assessment as the assessee was beneficiary of accommodation entries and basis of belief were several inquiries and investigation by investigation wing that there had been escapement of income of assessee from assessment because of his failure to disclose fully and truly all the material facts, reopening is justified. Thus, considering the above law, coupled with facts of this case, we affirm the action initiated under Section 147 of the Act. In the result, ground No. 1 &2 of the appeal is dismissed. ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 8 9. Now adverting to the merits of grounds of appeal which relates to confirming the addition to the extent of 100% of the total purchases as raised in ground No. 3 & 4. The assessing officer made addition of 100% of purchases shown from Nice diamonds. No independent investigation was carried out by the assessing officer. The assessing officer made additions on the basis of third party information. The books of the assessee were not rejected by the assessing officer. The sales of the assessee were not disputed by the assessing officer. The learned CIT(A) on the basis of decision in the case of M/s N.K. Proteins Ltd. (2016) (6) TMI 1139, which was confirmed by the Hon’ble Supreme Court in the case of M/s NK Proteins Ltd. (2017-TIOL 23 SC IT) (supra) is not applicable on the facts of the present case. Before, ld CIT(A) the assessee also urged that only profit element embedded in such disputed purchases are to be disallowed as held by Hon’ble Gujarat High Court in CIT Vs Bholanath Polyfab Pvt Ltd. (355 ITR 290 Guj), CIT Vs Simith P Sheth (38 Taxman 385 Guj) and other similar case laws. 10. It is a settled law that in case of disputed purchases shown from such hawala dealer’s only profit element embedded in such transaction is to be disallowed, to avoid the possibility of revenue leakage and not the substantial part of transaction. No doubt, the Assessing Officer identified the purchases of Rs.21,64,085 shown from hawala dealers, the assessee may have shown other transaction with some other parties. However, the assessee has offered income of Rs. 19,50,111/- for taxation. The assessee has shown gross profit at 3.42% and net profit at 1.98%, thus the assessee was shown an extremely low profit. ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 9 The combination of this bench in other similar cases wherein the purchases are shown from Bhanwarlal Jain or Rajendra Jain or Gautam Jain group have restricted or enhanced the addition to the extent of 6% of such amount or disputed purchases. Therefore, taking a consistent view, the disallowance which was confirmed to the extent of 100% by learned CIT(A) are restricted to 6% of the impugned purchases of Rs. 21,64,085/-. In the result, the grounds of appeal raised by the assessee are partly allowed. 12. In the result, the appeal of the assessee is partly allowed. 13.The assessee in its appeal for A.Y. 2009-10 in ITA No.474/SRT/2018has raised following grounds of appeals:- “1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in reopening assessment by issuing notice u/s 148 of the I.T. Act, 1961. 2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in passing the ex parte order u/s 144 of the I.t. Act, 1961. 3. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in disallowing entire purchases made from M/s Nice Diamonds, M/s Millennium Starts & M/s Euro Diam totaling to Rs.3,88,74,816/-. 4. It is therefore, prayed that above the assessment order may kindly be quashed or in the alternative, additions made by assessing officer and confirmed by Commissioner of Income Tax (Appeals) may please be deleted. ITA 573 & 574/SRT/2018 Dharmesh Exports Vs DCIT 10 5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 12.Since the facts and circumstances of the case as well as submissions of both the parties are identical of the facts and submissions of ITA No. 473/Srt/2018 for the Assessment year 2007-08. There is only difference in the amount disallowed by the Assessing Officer. Therefore, considering the totality of facts and circumstances of the case, the finding given by us in the former para i.e. in ITA No. 473/Srt/2018 for the Assessment year 2007-08 shall apply mutatis mutandis in this appeal also. 13.In the result, both the appeals of the assessee are partly allowed. Order pronounced on 17/05/2022 in open court and result was also placed on the notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 17/05/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order Sr. Private Secretary, ITAT Surat