STERLING JEWELS PVT. LTD., MUMBAI V. ACIT 5(3)(2), MUMBAI

ITA 6154/MUM/2016

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 6113 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 18-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V VINOD KUMAR
• Assessee Lawyers: K A VAIDYALINGAN
• Keywords: Reopening of assessment; Bogus purchase; Gift; Search and seizure; Cost of acquisition; Tangible material; Difference of opinion; Accommodation entries; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 69C; 143(3); 143(1); 191; 64; 147; 145; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G, BEN CH MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEM BER ITA NO.6154, 6155, 6156, 6157 & 6158/ MUM/2016 ( ASSESSMENT YEARS: 2009-10, 2010-11, 2011-12, 2012-1 3 & 2013-14 ) STERLING JEWELS PVT.LTD. 208, A-Z INDUSTRIAL ESTATE GANPATRAO KADAM MARG LOWER PAREL (W) MUMBAI-400 013 VS. ACIT-5(3)(2) 460, AAYKAR BHAWAN M.K.ROAD, CHURCHGATE MUMBAI-400 020 PAN/GIR NO. AAJCS3316D ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY K.A.VAIDYALINGAN REVENUE BY V.VINOD KUMAR DATE OF HEARING 03/10/2019 DATE OF PRONOUNCEMENT 03 / 10 /201 9 / O R D E R PER G.MANJUNATHA (A.M) : THIS BUNCH OF FIVE APPEALS FILED BY THE ASSESSEE AR E DIRECTED AGAINST CONSOLIDATED ORDER OF THE CIT(A)-10, MUMBAI , DATED 17/08/2016 AND THEY PERTAINS TO ASSESSMENT YEARS(AY ) 2009- 10,2010-11,2011-12,2012-13 & 2013-14. SINCE, THE FA CTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CO NVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE HAS MORE OR LESS RAISED COMMON GROU NDS OF APPEAL FOR ALL ASSESSMENT YEARS. THEREFORE, FOR THE SAKE OF BREVITY, GROUNDS OF APPEAL FILED FOR AY 2009-10 IN ITA NO.61 54/MUM/2016 ARE REPRODUCED BELOW:- ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF TIE CAS E, THE LEARNED CIT(A) ERRED IN UPHOLDING THE VALIDITY OF THE REASSESSMENT PROCEEDI NGS U/S. 147, WHICH IS RESORTED TO MERELY ON THE BASIS OF INFORMATION RECE IVED FROM THE INVESTIGATION WING OF THE DEPARTMENT AND WITHOUT VERIFICATION OF FACTS AND WITHOUT APPLICATION OF MIND BY THE LEARNED AO TO THE CASE OR HAVING HER OWN REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMEN T WHICH IS S/NE QUA NON FOR REOPENING. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT (A) ERRED IN UPHOLDING THE ADDITION MADE BY THE TEAMED AO U/S. 6 9C OF THE INCOME TAX AD (THOUGH QUANTUM ADDITION IS REDUCED FROM 12.5% TO 3 % OF THE ALLEGED BOGUS PURCHASE MADE), WHICH IS PURELY ON SUSPICION, SURMI SES AND CONJECTURES AND EVEN THOUGH ALL EVIDENCES IN SUPPORT OF THE IMPUGNE D PURCHASES AND THE SOURCE OF SUCH EXPENDITURE WERE FILED, PAYMENTS HAVING BEE N MADE THROUGH BANKING CHANNEL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE TEAMED CIT (A) ERRED IN UPHOLDING THE ADDITION MADE BY THE TEAMED AO U/S. 6 9C OF THE INCOME TAX ACT (THOUGH QUANTUM ADDITION IS REDUCED FROM 12.5% TO 3 % OF THE ALLEGED BOGUS PURCHASE MADE), EVEN THOUGH THE STATEMENT GIVEN BY SHRI PRAVIN KUMAR JAIN, ON WHICH HEAVY RELIANCE WAS PLACED BY THE LEARNED A O FOR THE IMPUGNED ADDITION, HAS BEEN RETRACTED BY HIM AND THEREFORE, THE SAME HAS NO EVIDENTIAL VALUE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN UPHOLDING THE ADDITION MADE BY THE LEARNED AO U/S. 69C OF THE INCOME TAX ACT (THOUGH QUANTUM ADDITION IS REDUCED FROM 12.5% TO 3 % OF THE ALLEGED BOGUS PURCHASE MADE), WITHOUT GIVING OPPORTUNITY TO CROSS EXAMINE SHRI PRAVIN KUMAR JAIN, BASED ON WHOSE STATEMENT, THE IMPUGNED ADDITI ON IS MADE. THE APPELLANT PRAYS THAT (A) THE REASSESSMENT PROCE EDINGS BE QUASHED OR IN THE ALTERNATIVE, THE ADDITION SUSTAINED BY THE CIT (A), BEING 3% OF THE IMPUGNED PURCHASES BE DELETED IN TOTO OR REDUCED SUBSTANTIA LLY CONSIDERING THE COSTLY NATURE OF THE GOODS INVOLVED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, AM PLIFY, MODIFY OR WITHDRAW ANY OF THE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURER, EXPORTER & TRADER OF STUDDED JEWELLERY AND LOOSE DIAMONDS FILED ITS RETU RN OF INCOME FOR AY 2009-10 ON 22/09/2009 AND SAID RETURN WAS PROCES SED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961. THEREAF TER, THE ASSESSMENT HAS BEEN REOPENED U/S 147 OF THE IT ACT, 1961, FOR ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 3 REASONS RECORDED AS PER WHICH A SEARCH AND SEIZER A CTION CONDUCTED IN THE CASE OF BHANWARLAL JAIN GROUP ON 3 -10-2013 REVELED THAT SHRI. BHANWARLAL JAIN WAS INVOLVED IN PROVIDING ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS TO VA RIOUS PARTIES AND AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS O NE OF THE BENEFICIARY, WHO HAD TAKEN ACCOMMODATION BILLS OF BOGUS PURCHASES FROM M/S MAYUR EXPORTS AMOUNTING TO RS. 8 7,00,600/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSME NT HAS BEEN COMPLETED U/S. 143(3) R.W.S. 147 OF THE I.T. ACT, 1 961 ON 1/03/2016 AND DETERMINED TOTAL INCOME OF RS. 25,57,930/-, AFT ER MAKING ADDITIONS TOWARDS ALLEGED BOGUS PURCHASE @ 12.50% O F TOTAL PURCHASES FROM SAID PARTY AND MADE ADDITIONS OF RS. 10,87,575/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE HAS CHALLENGED REOPENING OF ASSESSMENT ON THE GROU ND THAT THE AO HAD REOPENED ASSESSMENT ON THE BASIS OF THIRD PARTY INFORMATION WITHOUT VERIFICATION OF FACT AND NOT HAVING APPLIED HIS MIND TO FACTS OF THE CASE TO ASCERTAIN ESCAPEMENT OF INCOME. AS REGA RDS ADDITION MADE TOWARDS ALLEGED BOGUS PURCHASES, THE ASSESSEE HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE LD. AO A ND ARGUED THAT PURCHASES FROM ABOVE PARTY IS GENUINE, WHICH IS SUP PORTED BY NECESSARY EVIDENCES. THE ASSESSEE HAS FILED ALL DET AILS, INCLUDING BOOKS OF ACCOUNTS, BUT THE LD. AO HAS MADE ADDITION S, ONLY ON THE BASIS OF INFORMATION COLLECTED DURING SEARCH IN CAS E OF BHANWARLAL JAIN GROUP, IGNORING FACT THAT THE STATEMENTS GIVEN DURING COURSE OF SEARCH HAS BEEN RETRACTED BY THE PARTIES WITH AFFID AVITS . THE LD. CIT(A) AFTER CONSIDERING RELEVANT SUBMISSIONS OF TH E ASSESSEE AND ALSO BY RELIED UPON VARIOUS JUDICIAL PRECEDENTS REJ ECTED LEGAL GROUND ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 4 TAKEN BY THE ASSESSEE CHALLENGING REOPENING OF ASSE SSMENT. AS REGARDS ADDITION TOWARDS ALLEGED BOGUS PURCHASES, T HE LD. CIT(A) AFTER CONSIDERING NATURE OF BUSINESS OF THE ASSESSE E AND FACTS BROUGHT OUT BY THE AO, INCLUDING INFORMATION COLLEC TED DURING SEARCH IN CASE OF BHANWARLAL JAIN GROUP AND ALSO BY RELIED UPON VARIOUS CASE LAWS, INCLUDING THE DECISION OF HONBLE GUJAR ATH HIGH COURT, IN THE CASE OF SIMITH P. SHETH VS CIT 356 ITR 451 SCAL ED DOWN ADDITIONS MADE BY THE LD. AO TOWARDS ALLEGED BOGUS PURCHASES TO 3% OF SUCH BOGUS PURCHASES. THE RELEVANT FINDINGS O F THE LD.CIT(A) ARE REPRODUCED AS UNDER:- 4.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMS TANCES OF THE CASE. FROM THE FACTS OF THE CASE IT WAS NOTICED THAT THE ASSES SMENT ORIGINALLY WAS PROCESSED U/S 143(1) AND THERE WAS NO SCRUTINY. THE ASSESSMENT WAS REOPENE3D WITHIN FOUR YEARS EXCEPT IN THE CASE OF A .Y 2009-10 AND IT WAS REOPENED BASED ON THE INFORMATION RECEIVED FROM DI(INV.), MUMBAI AFTER THEIR SEARCH AND SEIZURE OPERATION IN THE CASE OF BHANWARLAL JAIN GROUP WHO ARE THE ENTRY OPERATORS A ND APPELLANT COMPANY WAS ONE OF THE BENEFICIARIES FROM THE ACCOM MODATION BILLS SUPPLIED BY THEM. BHANWARLAL JAIN GROUP HAS CONFESS ED BEFORE THE INVESTIGATION WING OF THE DEPARTMENT IN THE STATEME NTS TAKEN UNDER OATH THAT THEY HAVE NOT SUPPLIED ANY MATERIAL EXCEP T SUPPLYING THE ACCOMMODATION INVOICES. AS THE REASSESSMENT WAS DON E ON THE RETURN PROCESS U/S 143(1) WITHIN A PERIOD OF FOUR Y EARS BASED ON SUCH EXTERNAL INFORMATION, I HOLD THAT THE REASSESSMENT PROCEEDINGS ARE VALID. THE REOPENING BEYOND FOUR YEARS FROM THE END OF THE RELEVANT A.Y WITH REGARD TO A.Y. 2009-10 IS ALSO HELD VALID IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF HITESH R.SHAH (2013) 35 TAXMANN.COM 474. THE REASSESSMENT IS ALSO HELD VALID IN VIEW OF THE FOLLOWING DECISIONS:- (I) THE HONBLE GUJARATH HIGH COURT IN THE CASE OF RHYTHM CHEMICALS P LTD V. ACIT, 33 TAXMAN.COM 426 HAS HELD THAT SINCE INTIMATION U/S 143(1) IS NOT AN ASSESSMENT OR DER THERE IS NO CHANGE OF OPINION AND REOPENING IS VALID BEYO ND FOUR YEARS. (II) THE HONBLE DELHI HIGH COURT IN THE CASE OF OP G METALS AND FINSEC LTD V. CIT, 358 ITR 144 HAS HELD THAT RE - ASSESSMENT IS VALID IF THE ISSUE IS NOT A SUBJECT M ATTER OF EARLIER ASSESSMENT. SAME VIEW WAS ALSO TAKEN BY HIG H COURT OF BOMBAY IN THE CASE OF EXPORT CREDIT GUARAN TEE CORPORATION OF INDIA LTD V. ADDL.CIT (30 TAXMANN.CO M 211) (2013) THAT REOPENING OF AN ASSESSMENT IS PERMISSIB LE EVEN IN THE CASE OF SCRUTINY U/S 143(3) ORIGINALLY WHEN THE ORIGINAL ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 5 ASSESSMENT ORDER PASSED IS SILENT IN RESPECT OF THE ISSUE/POINT ON WHICH RE-ASSESSMENT NOTICE IS ISSUED . FURTHER, NO QUERY WITH REGARD TO THE ABOVE ISSUE HA VING BEEN MADE DURING THE ASSESSMENT PROCEEDINGS WOULD A LSO INDICATE ABSENCE OF APPLICATION OF MIND TO THE TANG IBLE MATERIAL, AND REOPENING IS VALID. (III) IT WAS HELD IN THE FOLLOWING CASES THAT WHEN THERE IS NO DISCUSSION ON THIS ISSUE AND NO DETAILS ARE CALLED FOR BY THE AO OR FILED BY THE APPELLANT AND NO FINDINGS EITHER POSITIVE OR NEGATIVE IN THE ORIGINAL ASSESSMENT PROCEEDINGS, REOPENING CANNOT BE CONSTRUED AS CHANGE OF OPINION. 1. ALA FIR VS. CIT (102 ITR 622) (MAD HC) 2. ESS KAY ENGINEERING COMPANY PVT.LTD. VS. CIT (24 7 ITR 818) (SC) 3. REVATHI CP EQUIPMENTS LTD VS DCIT & ORS (241 ITR 856 ) (MAD HC) 4. EMA INDIA LTD VS. ACIT (30 DTR 82) (ALL.HC) (IV) THE HONBLE SUPREME COURT IN THE CASE OF KALYA NJI MAVJI & COMPANY V. CIT (102 ITR 287)(SC) (1976) HAS HELD TH AT THERE IS NO CHANGE OF OPINION IF THE ASSESSMENT IS REOPENED ON NEW FACTS WHICH CAME TO NOTICE SUBSEQUENTLY, EV EN THOUGH THEY ARE ALREADY ON RECORD. (V) THE HONBLE GUJARAT HIGH COURT IN THE CASE OF P RAFUL CHUNILAL PATEL AND VASANTH CHUNILAL PATEL V. ACIT ( 236 ITR 832) (1999) HAS HELD THAT WHERE THE AO HAD OVERLOOK ED SOMETHING AT THE FIRST ASSESSMENT, THERE CAN BE NO QUESTION OF ANY CHANGE OF OPINION, WHEN THE INCOME WHICH WAS CHARGEABLE TO TAX IS ACTUALLY TAXED AS IT OUGHT TO HAVE BEEN UNDER THE LAW BUT WAS NOT TAXED DUE TO AN ERROR COM MITTED AT THE FIRST ASSESSMENT, THE REOPENING WAS HELD VAL ID. (VI) ITAT, CHENNAI IN THE CASE OF CHENNAI PETROLEUM CORPN. LTD. AY 2006-07 (ITA NO.66/11-12/LTU(A) DATED 08.01.2013 RELYING ON THE HIGH COURT OF DELHI IN TH E CASE OF CONSOLIDATED PHOTO AND FINVEST LTD V. ACIT (281 ITR 394) (2006) AND HIGH COURT OF MUMBAI IN THE CASE OF DR. AMIRS PATHOLOGICAL LABORATORY V. JCIT (252 ITR 673) HAS H ELD THAT MERE PRODUCTION OF BOOKS OF ACCOUNT, BALANCE-SHEET AND PROFIT AND LOSS ACCOUNT WILL NOT NECESSARILY AMOUNT TO DISCLOSURE NECESSARY FOR EXPLANATION 1 OF SEC 147. (VII) HIGH COURT OF DELHI N THE CASE OF HONDA SIEL POWER PRODUCTS LTD V. DCIT (197 TAXMAN 415)(2011) HAS HEL D THAT MERELY BECAUSE THE MATERIAL LIES EMBEDDED IN THE MA TERIAL EVIDENCE WHICH THE AO COULD HAVE UNCOVERED BUT DID NOT UNCOVER ,IS NOT A GOOD REASON FOR STRIKING DOWN RE OPENING. (VIII) THE HONBLE HIGH COURT OF MUMBAI IN THE CASE OF EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD V. ADDL.C IT(30 TAXMANN.COM 211) (2013) HAS HELD THAT THERE IS NO F AILURE ON THE PART OF ASSESSEE TO DISCLOSE MATERIAL FACTS BUT THERE IS COMPLETE FAILURE ON THE PART OF THE AO TO APPLY HIS MIND DURING ORIGINAL ASSESSMENT TO POINTS ON WHICH ASSES SMENT IS REOPENED, REOPENING WAS TREATED AS VALID. IT IS FURTHER TO ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 6 BE UNDERSTOOD THAT WHEN IT IS THE QUESTION OF NON APPLICATION OF MIND WHETHER IT IS FOR FOUR YEARS OR MORE MAKES NO DIFFERENCE. (IX) NOTWITHSTANDING ANYTHING STATED ABOVE, IT IS T HE PREROGATIVE OF THE AO/REVENUE TO REOPEN THE ASSESSMENT IF THE A O HAS FOUND IN THE COURSE OF TIME THAT CERTAIN AMOUNTS WH ICH SHOULD HAVE BEEN BROUGHT TO TAX HAVE ESCAPED ASSESSMENT. THE POWERS WERE CLEARLY ENACTED U/S 149 R.W.S. 151 OF THE ACT. AS PER THESE PROVISIONS WHAT THE AO IS SUPPOSED TO SEE IS WHETHER THERE IS AN ESCAPEMENT O F INCOME AND WHETHER IT IS WITHIN FOUR YEARS OR BEYON D FOUR YEARS AND WHETHER IT IS A CASE OF 143(1) OR 143(3) SO AS TO TAKE APPROVAL FROM HIS APPROPRIATE SENIOR OFFICERS AS PER THE PROVISIONS. ONCE THE AO FULFILLS THESE REQUIREMENT S THEN HE CAN REOPEN THE ASSESSMENT BY RECORDING THE REASONS. THE AO WILL BE WITHIN HIS JURISDICTION TO REOPEN THE AS SESSMENT AND IS JURISDICTION CANNOT BE CHALLENGED PER SE. FU RTHER IT IS TO BE UNDERSTOOD THAT MERE REOPENING DOES NOT MEAN THAT THE AO HAS COME TO THE CONCLUSION THAT INCOME HAS ESCAPED. (X) THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF ELEGANZA JEWLLERY LTD. (2014) 52 TAXMANN.COM 46 HAS HELD THA T IT IS A TRITE LAW THAT AT THIS STAGE ONLY A PRIMA FACIE VIE W OF THE AO IS NECESSARY TO ISSUE NOTICES AND NOT A CAST IRON C ASE OF ESCAPEMENT OF INCOME. SIMILARLY VIEWS WERE ALSO EXPRESSED IN THE FOLLOWING CASES, 1. HIGH COURT OF DELHI IN THE CASE OF MAHANAGAR TEL EPHONE NIGAM LTD. (2000) 112 TAXMAN 337 2. SC IN THE CASE OF CENTRAL PROVINCES MANGANESE OR E CO LTD. (1991) 191 ITR 662 3. SC IN THE CASE OF SELECTED DALURBAND COAL CO P L TD (1996) 217 ITR 597 (XI) THE HONBLE HIGH COURT OF BOMBAY IN THE RECENT DECISIONS IN THE FOLLOWING CASES WHILE DEALING WITH BOGUS PURCHASES/LOANS ISSUES HAS RULED THAT THE INITIATIO N OF REASSESSMENT PROCEEDINGS ON THE BASIS OF SURVEY OPERATIONS IS HELD VALID EVEN THOUGH THERE WAS SCRU TINY U/S 143(3). THE OPENED THAT IT WILL NOT TANTAMOUNT TO C HANGE OF OPINION: (1) NIKUNJ EXIM ENTERPRISES PVT.LTD. (2014) 49 TAXMANN.COM10 (2) BRIGHT STAR SYNTEX(P.) LTD.(2016) 71 TAXMANN.CO M 64 (3) NARESH K.PAUJA (2015) 54 TAXMANN.COM 258 HELD THAT MERE PAYMENTS ROUTING THROUGH BANK CHANNELS WOULD NOT BY ITSELF ESTABLISH THE GENUINENESS OF TH E GIFTS. (4) HITESH R. SHAH (2013) 35 TAXMANN.COM 474-HELD THAT REOPENING BEYOND 4 YEARS IS JUSTIFIED IN SUCH CASES OF ACCOMMODATION ENTRIES WHICH THE AO IS IN POSSESSION OF BASED ON THE INVESTIGATION CARRIED OU T. ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 7 4.2.1 IN VIEW OF THE ABOVE DISCUSSION THE REOPEN ING OF ASSESSMENT IS HELD VALID SINCE THERE WAS TANGIBLE MATERIAL AVAILA BLE WITH THE AO AT THE TIME OF REOPENING THE ASSESSMENT IN THE FORM OF INF ORMATION RECEIVED FROM THE DIT INVESTIGATION. FURTHER, AS THE ASSESSM ENT IS REOPENED BASED ON THE EVIDENCE COLLECTED AND STATEMENTS RECORDED D URING THE COURSE OF SEARCH OF ENTRY PROVIDER, THE AO HAS A REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. AS SUCH THERE IS NO CHANGE OF O PINION. THE REOPENING PROCEEDINGS ARE, THEREFORE, UPHELD AND TH E GROUND IS DISMISSED. 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND SUBMISSIONS OF THE LD. AR I HAVE ALSO GONE THROUGH THE DECISION S RELIED ON BY THE LD. AR. AS SEEN FROM THE FACTS OF THE CASE THE AO HAS R EOPENED THE ASSESSMENT BASED ON THE INFORMATION RECEIVED FROM T HE DIT(INV.), MUMBAI ON THE BASIS OF SEARCH AND SEIZURE ACTION CO NDUCTED BY THE INVESTIGATION WING DURING THE COURSE OF WHICH BHANW ARLAL JAIN AND HIS STAFF MEMBERS HAVE GIVEN CATEGORICAL STATEMENTS CLE ARLY STATING THE MODUS OPERANDI FOLLOWED BY THEM IN PROVIDING THE AC COMMODATION BILLS. THEY HAVE ALSO ADMITTED UNEQUIVOCALLY BEFORE THE IN VESTIGATION WING THAT THEY WERE NOT INVOLVED IN ANY REAL TRADING OF DIAMO NDS EXCEPT GIVING BOGUS BILLS TO THOSE WHO NEED THEM FOR CERTAIN COMM ISSION. HAVING OBSERVED THAT THOSE PARTIES ARE NON-EXISTENT SELLER S AND THEY HAVE NOT MADE ANY SALES EXCEPT THE BOGUS INVOICES ISSUED IN THEIR NAME, THE AO HAS BROUGHT TO TAX THE ENTIRE BOGUS PURCHASES STAND ING IN THE NAMES OF THE SO-CALLED SELLERS, U/S 69C OF THE ACT AS THE EX PLANATION GIVEN BY THE APPELLANT WAS NOT SATISFACTORY TO HIM. THEIR ARGUME NT WAS THAT UNLESS THE AO PROVES POSITIVELY THAT THE MATERIAL WAS NOT DELI VERED TO THE ASSESSEE AND THE PAYMENT MADE THROUGH THE BANK CHANNELS HAVE BEEN BOGUS OR THE AMOUNTS PAID IN THE NAMES OF THE SUPPLIERS HAVE COME BACK TO THE PURCHASER-ASSESSEE, THE AO CANNOT MAKE ANY ADDITION U/S 69C. FURTHER, AS THE AO HAS NOT DOUBTED THE SALES DISCLOSED BY TH E APPELLANT HE HAS TO ALLOW THE PURCHASES SINCE THERE CANNOT BE ANY SALES WITHOUT THE PURCHASE OF THE MATERIAL. AS WAS RIGHTLY POINTED OU T BY THE LD. AR WHEN THE QUANTITY DETAILS OF STOCK IS TALLYING WITH THE STOCK REGISTER, THE PURCHASES ALSO CANNOT BE DOUBTED. THE ONLY POSSIBIL ITY IS THAT THE APPELLANT MIGHT HAVE INFLATED ITS PURCHASES BY TAKI NG INTO ACCOUNT THE INVOICES IN THE NAMES OF THE BOGUS SUPPLIERS. THE P RESUMPTION IS THAT THE MATERIAL MIGHT HAVE BEEN PURCHASED FROM GREY MARKET AT A LOWER RATE AND MADE GOOD THE ENTRIES WITH BOGUS BILLS TO REDUCE TH E PROFITS. UNDER SIMILAR CIRCUMSTANCES THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF SIMIT P SHETH, 2013 ( 356ITR451) HAD AN OCCASION TO DELIVER ITS JUDGMENT BY CONFIRMING THE DECISION OF THE ITAT WHICH HAS ESTIM ATED THE DISALLOWANCE AT 12.5% OF THE DISPUTED BOGUS PURCHASES TO MEET TH E ENDS OF JUSTICE. THE HEAD-NOTE OF THE DECISION IS REPRODUCED AS UNDE R:- SECTION 145 OF THE INCOME-TAX ACT, 1961-METHOD OF ACCOUN TING-ESTIMATION OF PROFITS[BOGUS PURCHASES]-ASSESSMENT YEAR 2006-07. ASSES SEE WAS ENGAGED IN BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS-ASSESSING OFF ICER HAVING FOUND THAT SOME OF ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THAT PU RCHASES MADE FROM SAID PARTIES WERE BOGUS-HE, ACCORDINGLY, ADDED ENTIRE AMOU NT OF PURCHASES TO GROSS PROFIT OF ASSESSEE-COMMISSIONER (APPEALS) HAVING FOUND THAT ASSESSEE HAD INDEED MADE PURCHASES, THOUGH NOT FROM NAMED PARTIES BU T OTHER PARTIES FROM ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 8 GREY MARKET, SUSTAINED ADDITION TO EXTENT OF 30 PER CENT OF PURCHASE COST AS PROBABLE PROFIT OF ASSESSEE-TRIBUNAL HOWEVER, SUSTAINED ADDITION TO EXTENT OF 12.5%-WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY P ROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO ASSESSEES INCOME-HELD , YES-WHETHER HENCE, ORDER OF TRIBUNAL NEEDED NO INTERFERENCE-HELD , YES [PARAS 6,7 & 9] [IN FAVOUR OF ASSESSEE]. (EMPHASIS SUPPLIED). 5.2.1 WITH REGARD TO THE INFORMATION RECEIVED FROM DIT(INV.), MUMBAI THE SUMMARY OF THE COMMUNICATION WAS ALREADY PASSED ON TO THE APPELLANT WHILE COMMUNICATING REASONS FOR REOPENING. THE AO C OULD NOT HAVE ALSO PASSED ON A COPY OF SUCH STATEMENT SINCE IT IS A CO MPREHENSIVE STATEMENT DETAILING THE NAMES OF SEVERAL BOGUS CONC ERNS FLATED BY THEM AND THE MODUS OPERANDI OF THEIR ACTIVITIES, INCLUDI NG THAT OF THE CONCERNS IN WHOSE NAMES ACCOMMODATION BILLS WERE GIVEN TO TH E APPELLANT COMPANY. EVEN THOUGH BHANWARLAL JAIN GROUP HAS NOT MENTIONED THE NAMES OF THE APPELLANT IN THEIR STATEMENTS, THEY HA VE GIVEN THE NAMES OF VARIOUS CONCERNS IN WHOSE NAMES THE INVOICES WERE G IVEN AS MENTIONED ELSEWHERE IN THIS ORDER AND THOSE NAMES ARE APPEARI NG IN THE BOOKS OF THE APPELLANT. THEREFORE, THE LINK BETWEEN THE BOGU S CONCERNS FLATED BY THE APPELLANT IN THE NAMES OF THE SAID BOGUS CONCER NS, IS ESTABLISHED. EVEN THOUGH THE AO COULD NOT PROVE SUBSTANTIVELY TH AT THE AMOUNTS GIVEN TO THE SELLERS IN CHEQUE FORM HAVE COME BACK TO THE APPELLANT, THE ACTIVITIES OF ACCOMMODATION ENTRIES IN THE TRADING COMMUNITY IS NOT UNHEARD OF . FURTHER, THE DISTURBING FACTS REVEALED BY BHANWARLAL JAIN GROUP DURING THE COURSE OF SEARCH AND SEIZURE PROCE EDINGS CONDUCTED BY THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT ITSELF, CANNOT BE LOST SIGHT OF. FURTHERMORE, ONE SHOULD NOT BE CARRIED AW AY BY THE MYTH THAT ANY AMOUNT ROOTING THROUGH BANK CHANNELS WOULD ESTA BLISH THE GENUINENESS OF THE TRANSACTIONS AS HELD BY THE HONO RABLE BOMBAY HIGH COURT IN THE CASE OF NARESH K PAHUJA (2015) 54 TAXM ANN.COM 258. EVEN THOUGH THERE ARE CATENA OF CASES, INCLUDING SOME OF THEM DELIVERED BY THE JURISDICTIONAL ITAT, WHICH HAVE DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE, THEY ARE NOT UNIFORM IN ALL THE CASES AS THEY WERE DECIDED AS PER THE FACTS AND CIRCUMSTANCES OF THAT PARTICULAR CASE BEFORE THEM. I AM OF THE OPINION THAT THE THEORY LAID DOWN BY THE HON BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SETH (SUPRA) SHOULD BE APPLI ED IN THE INSTANT CASE. HOWEVER, THE DECISION RENDERED BY GUJARAT HIGH COUR T IN THE ABOVE CASE IS ON THE BASIS OF VAT BENEFIT THE APPELLANT MIGHT HAVE SAVED BY TAKING ACCOMMODATION ENTRIES SINCE THE GOODS DEALT BY THEM WERE EXCISABLE COMMODITIES, WHERE THE VAT RATES ARE ON A HIGHER SI DE. IN THE CASE OF DIAMOND BUSINESS THE VAT CHARGES ARE ONLY 1% AND TH E CUSTOMS DUTY IS ABOUT 2%. KEEPING IN VIEW THE ABOVE TAX RATES THE I NTENTION OF THE ASSESEE TO SAVE FROM THE TRANSACTIONS SHOULD BE VIE WED ONLY TO THE EXTENT OF SAVING FROM THE ABOVE TAXES BY INDULGING IN UNETHICAL PRACTICE OF TAKING ACCOMMODATION ENTRIES. IT IS ALSO PERTINENT TO MENTION HERE THE RELEVANCE OF THE BOARDS INSTRUCTION NO.02/2008 DAT ED FEBRUARY22,2008 WHEREIN IT HAS LAID DOWN A GUIDELINE IN THE FORM OF BENIGN ASSESSMENT PROCEDURE FOR ASSESSEES ENGAGED IN DIAMOND MANUFAC TURING AND/OR TRADING, WHEREIN IT HAS STATED THAT B. IF AN ASSESSEE HAS SHOWN A SUM EQUAL TO OR HIGHE R THAN 6% OF ITS TOTAL TURNOVER FROM SUCH BUSINESS AS HIS INCOM E UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION FO R A PARTICULAR ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 9 ASSESSMENT YEAR, THE ASSESSING OFFICER SHALL EXCEPT HES THE TRADING RESULTS. C. 5.2.2 FROM THE FACTUAL MATRIX, IT IS EVIDENT THA T SUCH UNETHICAL PRACTICES OF OBTAINING ACCOMMODATION ENTRIES TO AVOID IMPACT OF LEVIES ARE NOT UNCOMMON IN THIS LINE OF BUSINESS. SINCE THE ISSUE OF ACCOMMODATION ENTRIES IS A REALITY, TO ARREST SUCH RAMPANT MALPRA CTICES, A RESTRAINT IS ALWAYS INEVITABLE. WE CAN FIND SUCH A RESTRAINT ADV ISED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SETH (SUP RA) WITHOUT WHICH AVOIDING PAYMENT OF LEVIES WILL CONTINUE UNABATED. KEEPING IN VIEW THE ABOVE INSTRUCTION OF THE BOARD ON THE ONE HAND AND THE SAVING GAINED BY THE ASSESSEE BY INVOLVING IN ACCOMMODATION ENTRIES TO THE EXTENT OF LEVIES ON THE OTHER, I FIND IT APPROPRIATE TO TAKE 3% OF THE REPORTED BOGUS PURCHASES FOR ADDING U/S 69C INSTEAD OF ADDING 12.5 % AS THE RATE OF 12.5% SUGGESTED IN THE CASE OF SIMIT P SHETH WAS IN THE CONTEXT OF A DIFFERENT BUSINESS. THE AO IS DIRECTED ACCORDINGLY. IN VIEW OF THIS THE GROUND IS PARTLY ALLOWED. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE LD. AO HAS MADE ADDITIONS TOWARDS ALLEGED BOGUS PURCHASES @ 12.50% OF SUCH PURCHASES, ON THE GROUND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS ISSUED BY BHANWARLAL JAIN GROU P THROUGH WEB OF COMPANIES. ACCORDING TO THE LD. AO, ALTHOUGH THE ASSESEE HAS FILED CERTAIN BASIC EVIDENCES, INCLUDING PURCHASE B ILL AND PAYMENT PROOF AGAINST SAID PURCHASE THROUGH BANK, BUT FAILE D TO FILE FURTHER EVIDENCE IN THE BACKDROP OF CLEAR FINDING BY THE IN VESTIGATION WING OF DEPARTMENT THAT THOSE PARTIES ARE INVOLVED IN PROVI DING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GO ODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIGATION CONDU CTED DURING THE COURSE OF SEARCH PROCEEDINGS AND STATEMENTS RECORDE D FROM BHANWARLAL JAIN AND HIS ASSOCIATES, WHERE THEY HAD ADMITTED THAT THEY ARE INVOLVED IN PROVIDING BOGUS BILLS. THEREFO RE, HE CAME TO THE CONCLUSION THAT PURCHASE FROM THE SAID PARTY IS BOG US IN NATURE. IT IS ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 10 THE CONTENTION OF THE ASSESSEE BEFORE THE LOWER AUT HORITIES THAT PURCHASES FROM THE ABOVE PARTY IS SUPPORTED BY NECE SSARY EVIDENCES. IT HAS FURNISHED ALL POSSIBLE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS, STOCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHASES HAVE BEEN MADE THROUGH PROPE R BANKING CHANNELS. 6 HAVING CONSIDERED ARGUMENTS OF BOTH THE SIDES AND ALSO, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES HAVE FAILED TO PROVE THE CASE IN THEIR FAVOUR WITH NECESSARY EV IDENCES. ALTHOUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAI LED TO FILE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO THE SA TISFACTIONS OF THE LD.AO. AT THE SAME TIME, THE LD. AO HAD ALSO FAILE D TO TAKE THE INVESTIGATION TO A LOGICAL CONCLUSION BY CARRYING O UT NECESSARY ENQUIRES, BUT HE SOLELY RELIED UPON INFORMATION RE CEIVED FROM INVESTIGATION WING, WHICH WAS FURTHER SUPPORTED BY SEARCH CONDUCTED IN CASE OF BHANWARLAL JAIN GROUP CASES. UNDER THESE CIRCUMSTANCES, IT IS DIFFICULT FOR US TO ACCEPT ARGUMENTS OF BOTH THE SIDES. FURTHER, VARIOUS HIGH COURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGHT OF INVESTIGATION CARRIED OUT IN CASE OF B HANWARLAL JAIN AND HELD THAT IN CASE OF PURCHASES CLAIMS TO HAVE BEEN MADE FROM ALLEGED HAWALA DEALERS, ONLY PROFIT ELEMENT EMBEDDE D IN THOSE PURCHASES NEEDS TO BE TAXED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJARAT HIGH COURT, IN THE CAS E OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD CONSIDERED A SIMILAR ISSUE AND HELD THAT AT THE TIME OF ESTIMATION OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARDSTICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. THE ITAT, MUMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSUE AND DEPENDING UPON FACTS OF EACH CASE, DIRECTED ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 11 THE LD.AO TO ESTIMATE PROFIT OF 3% TO 12.50% ON TOT AL ALLEGED BOGUS PURCHASES. IN THIS CASE, THE ASSESSEE IS INTO THE B USINESS OF DIAMOND TRADING. THE PROFIT ELEMENT IN DIAMOND TRAD ING IS AROUND 2 TO 3% DEPENDING UPON NATURE OF TRADE. EVEN, THE BEP HAD RECOMMENDED PROFIT PERCENTAGE OF 2% IN CASE OF TRAD ING AND 3% FOR MANUFACTURERS. THE LD. AO, CONSIDERING THE NATURE O F BUSINESS OF THE ASSESSEE HAD ESTIMATED 12.50% PROFIT, WHEREAS THE L D.CIT(A) HAS SCALED DOWN ESTIMATION OF PROFIT TO 3% ON TOTAL ALL EGED BOGUS PURCHASE. ALTHOUGH, BOTH AUTHORITIES HAVE TAKEN DIF FERENT RATE OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, BUT NO ONE COULD SUPPORT SAID RATE OF GROSS PROFIT WITH NE CESSARY EVIDENCES OR ANY COMPARABLE CASES. ON THE OTHER HAND, THE ASS ESSEE HAD ALSO FAILED TO FILE ANY COMPARABLE CASES TO SUPPORT ITS ARGUMENTS FOR LESSOR GROSS PROFIT RATE. THEREFORE, CONSIDERING FA CTS AND CIRCUMSTANCES OF THIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO- ORDINATE BENCH IN NUMBER OF CASES, WE ARE OF THE CO NSIDERED OPINION THAT THE LD. CIT(A) HAS TAKEN ONE OF THE POSSIBLE M ETHOD FOR ESTIMATION OF PROFIT TO SETTLE DISPUTE BETWEEN THE PARTIES AND ALSO CONSIDERING NATURE OF INDUSTRY AND BEP RATE HAS SCA LED DOWN PROFIT ESTIMATED BY THE AO TO 3% ON ALLEGED BOGUS PURCHASE S. 7. FACTS REMAIN UNCHANGED. THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY EVIDENCES TO PROVE THAT PROFIT RATE ADOP TED BY THE CIT(A) IS NOT CORRECT. ALTHOUGH, THE LD. AR FOR THE ASSESS EE HAD CITED DECISION OF HON, BLE GUJRAT HC IN CASE OF ACIT VS. VARDHMAN EXPORTS IN TAX APPEAL NO. 265 OF 2008, ORDER DATED 1/8/2016, AND ARGUED THAT NO ADDITION COULD BE MADE TOWARDS PURCH ASES U/S 69C, WHEN SOURCE OF PURCHASE IS EXPLAINED. WE FIND THAT THE HONBLE GUJARAT HC AFTER CONSIDERING FACTS RECORDED BY THE TRIBUNAL CAME TO ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 12 THE CONCLUSION THAT WHEN PURCHASES ARE RECORDED IN BOOKS, PAYMENT FOR SAID PURCHASE IS MADE THROUGH BANK AND ALSO WHE N THE SUPPLIER HAD FILED AUDITED BOOKS OF ACCOUNTS WHERE PURCHASES ARE RECORDED IN BOOKS, THEN NO ADDITION COULD BE MADE TOWARDS BO GUS PURCHASES U/S 69C OF THE ACT. IN THIS CASE, THERE IS NO SUCH FACTUAL FINDING FROM LOWER AUTHORITIES AND ALSO THE ASSESSEE HAS FAILED TO FILE NECESSARY EVIDENCES AND HENCE, WE ARE OF THE CONSIDERED VIEW THAT CASE LAW RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE TO FA CTS OF THIS CASE. 8. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH V IEW TAKEN BY THE COORDINATE BENCH IN NUMBER OF CASES, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) HAS RIGHTLY SCALED DOWN ADDITIO N MADE BY THE AO FROM 12.50% TO 3% PROFIT ON ALLEGED BOGUS PURCHASES . HENCE, WE ARE INCLINED TO UPHOLD ORDER OF THE LD. CIT(A) AND DISMISS APPEAL FILED BY THE ASSESSEE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR AY 2009-10 IS DISMISSED. ITA.NO. 6155/MUM/2016, ITA NO 6156/MUM/2016, ITA NO. 6157/MUM/2016 & ITA NO. 6158/MUM/2016: 10. THE FACTS AND ISSUES INVOLVED IN THESE FOUR APP EALS ARE IDENTICAL TO FACTS AND ISSUES, WHICH WE HAD ALREADY CONSIDERED IN ITA.NO.6154/MUM/2016 FOR AY 2009-10. THE REASONS GI VEN BY US IN PRECEDING PARAGRAPH SHALL MUTATIS MUTANDIS APPLY TO THESE APPEALS ALSO. THEREFORE, FOR DETAILED REASONS GIVEN BY US I N PRECEDING ITA NOS.6154 TO 6158/MUM/2016 STERLING JEWELS PVT.LTD. 13 PARAGRAPHS IN ITA.NO. 6154/MUM/2016, WE DISMISSED A PPEALS FILED BY THE ASSESSEE FOR ASST YEARS 2010-11 TO 2013-14. 11. AS A RESULT, ALL APPEALS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 03 /10/ 2019 SD/- (RAM LAL NEGI) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 03/10/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//