Shri Rajkumar D. Jain, Surat V. The Income Tax Officer, Ward-3(1)(5), Surat

ITA 548/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2414 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-03-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 01-12-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANUPMA SINGLA
• Keywords: Bogus purchase; Principle of natural justice; Accommodation entries; Reason to believe
• Section: 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. 548/SRT/2019 (AY 2009-10) (Hearing in Virtual Court) Shri Rajkumar Dharmichand Jain 11, Shakti Chambers, Ragunathpura, Main Road, Surat-395003 PAN : AESPJ 4971 P Vs Income Tax Officer Ward-3(1)(5),Room No.115, 1 st Floor, Anavil Business Centre Adajan, Surat-395009 Assessee / appellant Revenue /respondent Assessee by Shri Suchek Anchalia, C.A Revenue by Ms. Anupma Singla – Sr-DR Date of hearing 10.03.2022 Date of pronouncement 10.03.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of ld. Commissioner of Income tax (Appeals)-3, Surat [for short to as ‘CIT(A)’] dated 11.09.2019 for assessment year (AY) 2009-10, which in turn the assessment order under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 27.10.2016. The assessee has raised the following grounds of appeal:- “1.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering that the assumption of jurisdiction by the Ld. Assessing Officer as bad in law as the conditions laid down under the Act for initiating reassessment proceedings u/s 147 have not been fulfilled. 2.On the facts and circumstances of the assessee and in law, the learned CIT(A) has erred in not holding that the Learned Assessing Officer erred in not providing an opportunity to cross examination to ITA No.548/SRT/2019 (A.Y.09-10) Sh.Rajkumar D Jain 2 the appellant while relying on account of third party statement as the same was also in violation of principles of natural justice. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ of 5% of the purchases amounting to Rs.7,32,59,797/- alleged as bogus purchased by treating genuine purchases as non-genuine.” 2. At the outset of hearing, Ld. Authorized Representative (AR) for the assessee submits that though the assessee has challenged the validity of re-opening as well as addition on account of alleged bogus purchases, however, the grounds of appeal raised by assessee is covered against the assessee in assessee’s own case for AY 2012-13 in ITA No.1389/SRT/2017 dated 27.09.2021. The Ld. AR of the assessee submits that he relied on the similar submission as made in assessee’s appeal for AY 2012-13 (supra) and would pray to delete the entire addition on account of alleged bogus purchases. The ld AR for the assessee would submits that he is not conceding the issues against the assessee. 3. The Ld. AR of the assessee submits that for the year under consideration, the Assessing Officer made addition @ 25% of the disputed / bogus purchases shown from Bhanwarlal Jain Group. On appeal, Ld. CIT(A) upheld the validity of re-opening and restricted the addition on account of alleged bogus ITA No.548/SRT/2019 (A.Y.09-10) Sh.Rajkumar D Jain 3 purchases to the extent of 5%. The Ld. AR of the assessee submits that in assessee’s own appeal for AY 2012-13, wherein the disallowance was restricted to the extent of @ 6%. The appeal of the revenue was dismissed due to the low tax effect. 4. On the other hand, Ld. Senior Departmental Representative (SR.DR) for the Revenue relied upon the order of Ld. CIT(A). 5. We have considered the rival submission of both the parties and have gone through the order of authorities below carefully. We find that in assessee’s own case for AY 2012-13 on similar set of fact in ITA No.1389/SRT/2017 dated 27.09.2021, we have passed the following order:- “17. We have considered the submissions of the parties and have gone through the order of the lower authorities. We have also deliberated on each and every case laws relied by both the parties. We have also examined the financial statement of all the assessee(s) consisting of computation of income and audit report. We have also gone through the documentary evidences furnished in all cases. Ground No.1 in assessee’s appeal relates to the validity of reopening. The ld AR for the assessee vehemently argued that the AO reopened the case of the assessee on the basis of third party information, and without making any preliminary investigation, which was vague about the alleged accommodation entry by Bhanwarlal Jain Group. And that there was no specific ITA No.548/SRT/2019 (A.Y.09-10) Sh.Rajkumar D Jain 4 information about the accommodation entry availed by the assessee. There is no live link between the reasons recorded qua the assessee. We find that the assessee has raised objection against the validity of the reopening before the AO. The objections of the assessee was duly disposed by AO in his order dated 09.02.2015. The assessee raised ground of appeal before ld CIT(A) while assailing the order of AO on reopening. The ld CIT(A) while considering the ground of appeal against the reopening held that the AO has received report from investigation wing Mumbai, which indicate that the assessee is beneficiary of the accommodation entry operators. The accommodation entry provider admitted before investigation wing that he has given such entry to various persons; based on such report the AO has reason to believe that the income of the assessee has escaped assessment and thus the action of AO in reopening is justified. 18. We find that the Hon’ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd Vs DCIT (supra) while considering the validity of similar notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a person who is engaged in providing accommodation entries, held that where after scrutiny assessment the assessing officer received information from the investigation wing that well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in re-opening assessment. Further similar view was taken by Hon’ble Jurisdictional High Court in Pushpak Bullion (P) Ltd Vs DCIT (supra). Therefore, respectfully following the order of Hon’ble High Court, we find that the assessing officer validly assumed the jurisdiction for making re-opening under section 147 on the basis of information of investigation wing ITA No.548/SRT/2019 (A.Y.09-10) Sh.Rajkumar D Jain 5 Mumbai. So far as other submissions of the ld AR for the assessee that there is no live link of the reasons recorded, we find that the Hon’ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd clearly held that when assessing officer received information from the investigation wing that two well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified. Hence, the ground No. 1 in assessee’s appeal is dismissed. 19. Ground No. 2 in assessee’s appeal and the grounds of appeal raised by the revenue are interconnected, which relates to restricting the disallowance of bogus purchases to the extent of 12.5%. The AO made of 100% of purchases shown from the hawala dealers/ entry provider namely Bhanwarlal Jain. We find that the AO while making additions of 100%, of disputed purchases solely relied on the report of the investigation wing Mumbai. No independent investigation was carried by the AO. The AO has not disputed the sale of the assessee. The AO made no comment on the evidences furnished by the assessee. We further find that ld CIT(A), while considering the submissions of the assessee accepted the lapses on the part of the AO and noted that no sale is possible in absence of purchases. The Books of the assessee was not rejected by the AO. The ld CIT(A) on further examination of the facts and various legal submissions find that Ahmedabad Tribunal in Bholanath Poly Fab Private Limited (supra) held that in the such cases the addition of bogus purchases was sustained to the extent of 12%, on the observation that the assessee may have made purchases from elsewhere and obtained the bills from impugned supplier to inflate Gross Profit Rate. The ld CIT(A) by considering the overall facts, concluded that the 100% disallowance of ITA No.548/SRT/2019 (A.Y.09-10) Sh.Rajkumar D Jain 6 purchase is not justified. We also find that the ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. (supra) and compared the fact of the present case with the facts in Mayank Diamonds Pvt Ltd (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The ld CIT(A) noted that in that case the AO made disallowance of entire bogus purchase and on first appeal before CIT(A) the disallowances were maintained. However, the Tribunal gave partial relief to the assessee directing to sustain the addition @12% of such bogus purchases. And on further appeal, the Hon'ble High Court sustained Gross Profit Rate @ 5% being average rate of profit in industry. 20. Now adverting to the facts of the present case, the ld.CIT(A) held that in some other similar cases; though he had sustain 5% of Gross Profit Rate, considering the fact that where Gross Profit shown by those assessee’s are more than 5%. However, in the present case, the assessee has merely shown Gross Profit Rate only at 0.78% of turnover, accordingly, the ld.CIT(A) was of the view that disallowance of 12.5% of impugned purchases/bogus purchases would be reasonable to meet the end of justice. 21. We have seen that during the financial year under consideration the assessee has shown total turnover of Rs. 66,09,62,458/-. The assessee has shown Gross Profit @ .78% and net Profit @ .02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs.1,81,840/- only. We are conscious of the facts that dispute before us is only with regard of the disputed purchases of Rs, 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwarlal Jain Group. During the search action on Bhanwarlal Jain no stock ITA No.548/SRT/2019 (A.Y.09-10) Sh.Rajkumar D Jain 7 of goods/ material was found to the investigation party. Bhanwarlal Jain while filing return of income has offered commission income (entry provider). Before us, the ld CIT-DR for the revenue vehemently submitted that the ratio of decision of Hon’ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. We find that in Mayank Diamonds the Hon’ble High Court restricted the additions to 5% of GP. We have seen that in Mayank Diamonds P Ltd (supra), the assessee had declared GP @ 1.03% on turnover of Rs. 1.86 Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income- tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. 22. In the result the ground No. 2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed.” 23.XXXXXXXXX .... ..... 24.XXXXXXXXX ... ... .. Raj Kumar D Jain (AY 2012-13) 34. The Assessee has raised following grounds of appeal: 1.On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not considering that the assumption of jurisdiction by the Ld. Assessing Officer is bad in law as the conditions laid down under the Act for initiating reassessment proceeding have not been fulfilled. ITA No.548/SRT/2019 (A.Y.09-10) Sh.Rajkumar D Jain 8 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ 12.50% on allege bogus purchase, without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied and the addition was made without providing any opportunity of cross examination, without any corroborative evidence and without providing coy of statements relied upon. 35.We find that there is no cross appeal by revenue in case of present assessee before us. Considering our decision in para 21 (supra) in Pankaj K Chaudhary, wherein we have sustained the disallowance @6% of the disputed/ bogus purchases, thus, following the principal of consistency the appeal the assessee is partly allowed.” 6. Considering the order of this combination in assessee’s own case for AY 2012-13 (supra), wherein we have upheld the validity of reopening under section 147 and restricted the addition to the extent of 6% of the disputed purchase, thus, the ground of appeal raised by the assessee is against the assessee. Hence, we do not find any merit in the grounds of appeal raised by assessee. 7. In the result, the appeal of the assessee is dismissed. Order pronounced on 10/03/2022in the open court and result was placed on the Notice Board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 10/03/2022 Dkp. Out Sourcing P.S ITA No.548/SRT/2019 (A.Y.09-10) Sh.Rajkumar D Jain 9 Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)-Surat-3 4. CIT 5. DR 6. Guard File True copy/ By order // True Copy // Assistant Registrar, ITAT, Surat True copy/