M/s. V. Karan Gems, Surat V. The Income Tax Officer, Ward-2(3)(8), Surat

ITA 706/AHD/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2330 (ITAT-SURAT)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 22-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J K CHANDNANI
• Keywords: Reopening of assessment; Bogus purchase; Bogus Share capital; Search and seizure; Cost of acquisition; Tangible material; Fair market value; Corroborative evidences; Accommodation entries; Competent authority; Reason to believe; Reassessment proceedings; Borrowed satisfaction
• Section: 148; 250

Judgement Text

M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 1 OF 16 , , IN THE INCOME TAX APPELLATE TRIBUNALSURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO.706/AHD/2017/SRT / A.Y.:2007-08 M/S.V.KARAN GEMS, C3, RAJ PUSHPA APARTMENT, DALGIAMOHOLLA, PIPLA SHERI, MAHINDHARPURA, SURAT. PAN: AAFFV 1869F V S . INCOME TAX OFFICER, WARD 2(3)(8), SURAT. APPELLANT /RESPONDENT /ASSESSEE BY SHRI RA J ESH C. SHAH, CA /REVENUE BY SHRI J.K.CHANDNANI , SR.DR / DATE OF HEARING: 14 .0 3 .2018 /PRONOUNCEMENT ON 26 .04.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD.COMMISSIONER OF INCOME TAX (APPEALS)-1, SURAT DATED 27.01.2017 FOR THE ASSESSMENT YEAR 2007-08 IN RESPECT OF ORDER PASSED BY ITO WARD 2(3)(8), SURAT U/S.143(3) R.W.S. 147 OF THE INCOME TAX ACT (IN SHORT THE ACT). M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 2 OF 16 2. GROUND NO. 1 STATES THAT THE LEARNED INCOME TAX OFFICER HAS ERRED IN REOPENING THE CASE U/S.147 OF THE ACT AND IN ISSUING THE NOTICE U/S 148 OF THE ACT. 3. BRIEF FACTS ARE THAT AN INFORMATION WAS RECEIVED FROM DGIT(INV) MUMBAI THAT A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT ON 03.10.2013 IN THE CASE OF SHRI BHANWARLAL M. JAIN GROUP, WHEREIN IN STATEMENT UNDER SECTION 132(4) SHRI BHANWARLAL JAIN HAS ADMITTED THAT THE GROUP HAS PROVIDED ACCOMMODATION ENTRIES IN WHICH THE ASSESSEE IS ALSO ONE OF THE BENEFICIARY. THE ASSESSEE HAS RECEIVED ACCOMMODATION BILLS OF RS. 12,18,357 FROM M/S.MAYUR EXPORTS, A BENAMI CONCERN OF BLJ GROUP. BASED ON THIS INFORMATION THE CASE WAS REOPENED U/S.147 OF THE ACT AND NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 29.03.2014. 4. THE ASSESSEE HAS CHALLENGED THE REOPENING OF ASSESSMENT IN APPEAL BEFORE CIT (A). HOWEVER, NO COMPLIANCE OF HEARING NOTICES WAS MADE BY THE ASSESSEE BEFORE CIT(A), THEREFORE, THE CIT (A) HAS DISMISSED THE APPEAL FOR NON PROSECUTION. HOWEVER, SIMULTANEOUSLY, THE CIT (A) HAS ALSO DISPOSED-OFF THE REOPENING GROUND ON MERITS ALSO. THE CIT (A) OBSERVED THAT THE ASSESSEE HAS OBJECTED THE REOPENING OF ASSESSMENT ON THE GROUND THAT THE SAME HAS BEEN DONE ON BORROWED SATISFACTION WITHOUT BRINGING OUT ANY FAILURE ON THE PART OF THE ASSESSEE IN MAKING FULL AND TRUE DISCLOSURE OF ALL MATERIAL FACTS. THE M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 3 OF 16 CIT (A) OBSERVED THAT THE APPELLANT CHALLENGED THAT THE ASSESSEE HAS CHALLENGED THAT NOTICE UNDER SECTION 148 OF THE ACT HAS BEEN ISSUED SOLELY ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING WITHOUT CONSIDERING VITAL FACTS AND EVIDENCES AND DID NOT APPLIED INDEPENDENT MIND BEFORE FORMING HIS OWN BELIEF. IT WAS CLAIMED THAT THE AO ACTED MECHANICALLY AND REOPENED THE ASSESSMENT. HOWEVER, CIT (A) HELD THAT THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE AS THERE WAS ENOUGH SUFFICIENT RELEVANT MATERIAL TO FORM REQUISITE BELIEF. THE CIT (A) NOTED THAT A CREDIBLE INFORMATION WAS RECEIVED VIDE LETTER DATED 13.03.2014 FROM DGIT(INV) MUMBAI. THE AO RECORDED THE SATISFACTION AND PRIMA-FACIE BELIEF THAT THE BOGUS PURCHASES HAVE BEEN BOOKED BY THE ASSESSEE BY WHICH INCOME OF RS. 12,18,357 WAS ESCAPED ASSESSMENT. THE CIT (A) BY PLACING RELIANCE ON THE DECISION OF RAYMOND WOOLLEN MILLS LTD. V. ITO [1999] 236 ITR 34 (SC) NOTED THAT THE AO HAS ONLY TO SEE THAT THERE WAS PRIMA-FACIE SOME MATERIAL ON THE BASIS OF WHICH DEPARTMENT COULD REOPEN THE CASE . THE SUFFICIENCY AND CORRECTNESS OF THE MATERIAL WAS NOT A THING TO BE CONSIDERED AT THIS STAGE. THE CIT(A) ALSO PLACED RELIANCE ON THE DECISION OF HON`BLE SUPREME COURT IN THE CASE OF ACIT V RAJESH JHAVERI STOCK BROKERS PVT. LTD. [2007] 291 ITR 500 (SC) AND SUPPORTED HIS VIEW. AFTER CITING NUMBER OF CASE LAWS, THE CIT (A) HELD THAT THERE EXISTED RELIABLE INFORMATION AND ENOUGH MATERIAL HENCE, REQUIREMENT OF SECTION 147 WAS CLEARLY MET. HENCE, REOPENING OF ASSESSMENT WAS UPHELD. M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 4 OF 16 5. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS FAILED TO BRING ANY MATERIAL FOR REASON TO BELIEVE AND JUST RELIED ON THE INFORMATION RECEIVED AND RETRACTED STATEMENT OF THIRD PARTY. THE AO HAS MENTIONED IN THE REASONS RECORDED THAT THE ASSESSEE HAS NOT FILED THE RETURN OF INCOME (PARA 7 OF REASON RECORDED, PLEASE REFER PAGE NO.12), WHEREAS THE ASSESSEE HAD FILED RETURN OF INCOME, HENCE THE REOPENING IS MADE ON WRONG PRESUMPTION. WITHOUT VERIFYING THE RECORD OF ASSESSEE IN PARA 8 OF REASON RECORDING IT IS MENTIONED BY LD. AO THAT FROM THE ABOVE FACTS, IT IS CLEAR THAT ACCOMMODATION ENTRIES OF RS.12,18,357/- IS USED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AND HIS RETURN OF INCOME TO SUPPRESS HIS TAXABLE INCOME. ACCORDINGLY, THE REOPENING U/S.147 OF THE ACT WAS MADE JUST ON INFORMATION AND ON RETRACTED STATEMENT OF THIRD PARTY, WITHOUT ANY VERIFICATION OF RECORDS IS TOTALLY BAD IN LAW AND HENCE THE NOTICE ISSUED U/S.148 OF THE ACT IS ALSO BAD IN LAW. IT IS WELL SETTLED PRINCIPLE THAT JUST INFORMATION FROM INVESTIGATION WING OR STATEMENT OF ONE PERSON CANNOT BECAME REASON TO BELIEVE FOR REOPENING, WITHOUT BRINGING ANY INDEPENDENT MATERIAL EVIDENCE ON RECORD. 6. THE AO MENTIONED THAT A LETTER BEARING NO.DIT/(LNV)LL/INFORMATION/BLJ/BOGUS-SALES/2013-14/838 DTD. 13.03.2014 ' IN FIRST PARA OF REASON RECORDED GIVEN IN WRITING TO M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 5 OF 16 ASSESSEE. BUT, THE LD. AO HAS FAILED TO DISCLOSED WHAT ARE THE EVIDENCE COLLECTED AND WHAT ARE THE OTHER FINDINGS AND IN WHAT MANNER AND HOW THE EVIDENCED HELPED HIM IN FORMING HIS REASON TO BELIEVE IN HIS REASON RECORDED AND ALSO IN HIS ASSESSMENT ORDER. IN SUCH SITUATION THE BASIC CONDITION REASON IS MISSING AND THE REASON GIVEN BY THE LD. AO ARE JUST REASON TO SUSPECT AND THE REOPENING ON THE BASIS OF SUCH SUSPECT IS BAD IN LAW. THE LD. A.R. ALSO RELIED ON THE DECISION OF THE HIGH COURT OF BOMBAY AT GOA IN THE CASE OF MANVANY BROTHERS VS. CIT & DY. CIT, PANJIM [TAX APPEAL NO.88/2017 DATED 17.04.2015] WHEREIN IT WAS LAID DOWN THAT THE JURISDICTION / UNDER SECTION 147/148 OF THE ACT IS AN EXTRA ORDINARY JURISDICTION AND CAN ONLY BE EXERCISED WHEN CONDITION PRECEDENT AS PROVIDED IN SECTIONS 147/148 OF THE ACT ARE SATISFIED. IT WOULD NOT BE POSSIBLE FOR HIM TO HAVE A REASONABLE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 7. IN THE LIGHT OF ABOVE FACTS IT WAS ARGUED THAT THE REOPENING U/S.147 OF THE ACT IN PRESENT CASE IS BAD IN LAW AND THE ASSESSEE PRAYS FOR QUASHING OF THE REASSESSMENT PROCEEDINGS. 8. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER OF LOWER AUTHORITIES AND SUBMITTED THAT AT THE TIME OF ISSUE OF NOTICE UNDER SECTION 148, SUFFICIENCY AND CORRECTNESS OF INFORMATION IS NOT MATERIAL. IT WOULD BE SEEN WHETHER THERE WAS PRIMA-FACIE MATERIAL TO M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 6 OF 16 FORM BELIEF. THEREFORE, CIT (A) HAS RIGHTLY RELIED ON THE VARIOUS DECISION HAS RIGHTLY AND HELD THE REOPENING AS VALID. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE PLAIN LANGUAGE EMPLOYED IN SECTION 147 MAKES IT CLEAR THAT TWO CONDITIONS HAVE TO BE SATISFIED BEFORE AN ASSESSING OFFICER ACQUIRES JURISDICTION TO ISSUE A NOTICE UNDER SECTION 148 IN RESPECT OF AN ASSESSMENT. THESE ARE: (1) THE AO MUST HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT; AND (2) HE MUST HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT WAS OCCASIONED BY REASON OF OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THUS, THE TWO CONDITIONS MUST CO-EXIST IN ORDER TO CONFER JURISDICTION ON THE AO. IT IS ALSO IMPERATIVE FOR THE AO TO RECORD HIS REASONS BEFORE INITIATING REASSESSMENT PROCEEDINGS AS REQUIRED BY SECTION 148(2). THUS, SECTION 147 AUTHORIZES AND PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. 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 M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 7 OF 16 OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. THE FUNCTION OF THE ASSESSING OFFICER IS TO ADMINISTER THE STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. WITH REGARD TO CONTENTION OF THE ASSESSEE THAT NOTICE U/S.148 WAS ISSUED ON THE BORROWED SATISFACTION AND THAT AO HAS NOT FORMED AN INDEPENDENT OPINION AND/OR BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN THIS REGARD, IT IS REQUIRED TO BE NOTED THAT THE INFORMATION RECEIVED FROM DGIT(INV) MUMBAI CLEARLY MENTIONED THAT THE ASSESSEE HAS TAKEN ACCOMMODATION ENTRIES FROM MAYUR EXPORT AS ADMITTED IN SEARCH AND SEIZURE OPERATION CARRIED ON IN THE CASE OF SHRI BHANWARLAL M. JAIN GROUP THAT THEY HAVE PROVIDED ACCOMMODATION ENTRIES. BASED ON THIS INFORMATION AND AFTER ANALYZING THE MATERIAL AVAILABLE ON RECORD, THE AO HAS FRAMED AN OPINION THAT BY REASONS OF FAILURE ON THE PART OF THE ASSESSEE, INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ASSESSMENT YEAR UNDER CONSIDERATION. THUS, WE DO NOT FIND THAT THERE WAS ANY BORROWED SATISFACTION OF THE AO, AS THERE WAS PRIMA-FACIE TANGIBLE MATERIAL WAS AVAILABLE BEFORE THE AO TO FORM AN OPINION. THEREFORE, THE ASSESSMENT WAS REOPENED U/S.147 OF THE ACT BY ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT. UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THERE WAS NO TANGIBLE MATERIAL AVAILABLE WITH THE AO. IF THE AO HAS A PRIMA FACIE MATERIAL TO FORM AN OPINION/BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE HON`BLE SUPREME COURT IN THE M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 8 OF 16 CASE OF RAYMOND WOOLLEN MILLS LTD. V. ITO [1999] 236 ITR 34 (SC) , HELD THAT IN DETERMINING WHETHER COMMENCEMENT OF REASSESSMENT PROCEEDINGS WAS VALID, IT HAS ONLY TO BE SEEN WHETHER THERE WAS PRIMA FACIE SOME MATERIAL ON THE BASIS OF WHICH THE DEPARTMENT COULD REOPEN THE CASE. THE SUFFICIENCY OR CORRECTNESS OF THE MATERIAL IS NOT A THING TO BE CONSIDERED AT SUCH STAGE. THE TRANSACTIONS OF THE ASSESSEE ARE REQUIRED TO BE VERIFIED IN DETAIL ON THE BASIS OF THE MATERIAL/EVIDENCE COLLECTED DURING THE INQUIRY CONDUCTED BY THE ADIT (INV). THIS VIEW IS FURTHER SUPPORTED BY THE JUDGMENT OF THE HON`BLE ALLAHABAD HIGH COURT IN THE CASE OF BRIJ MOHAN AGARWAL V. ASSISTANT COMMISSIONER OF INCOME-TAX 140 TAXMAN, 317 (ALL) WHERE THE CATCH NOTE READ AS T HE HIGH COURT WAS NOT PRONOUNCING A FINAL VERDICT ABOUT THE ALLEGATIONS IN THE COUNTER- AFFIDAVIT. ALL THAT THE COURT HAD TO SEE AT THE INSTANT STAGE WAS AS TO WHETHER IT COULD BE SAID THAT THE AUTHORITY CONCERNED HAD REASON TO BELIEVE THAT THE ASSESSEE HAD CONCEALED HIS INCOME OR THAT THE CORRECT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. IN VIEW OF THE INVESTIGATION MADE BY THE INVESTIGATION WING OF THE DEPARTMENT, RELEVANT AND VERY MATERIAL FACTS HAD COME BEFORE RESPONDENT NO. 1 THAT THE ASSESSEE WAS CONCEALING HIS INCOME BY INDULGING IN BOGUS TRANSACTIONS. ALL THAT IS REQUIRED AT THE STAGE OF ISSUING OF NOTICE UNDER SECTION 148 IS THAT THE BELIEF OF THE ITO MUST BE THAT OF AN HONEST AND REASONABLE PERSON BASED UPON M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 9 OF 16 REASONABLE GROUNDS AND NOT ON MERE SUSPICION, GOSSIP OR RUMOURS. [PARA 16]. 10. HERE IN THE INSTANT CASE, THERE WAS REPORT OF THE INVESTIGATION WING THAT THE ASSESSEE HAD INDULGED IN BOGUS TRANSACTION. HENCE, RATIO OF ABOVE DECISION IS CLEARLY APPLICABLE. WE FURTHER OBSERVE THAT THE HON`BLE DELHI HIGH COURT IN THE CASE OF MIDLAND FRUIT & VEGETABLE PRODUCTS (INDIA) (P) LTD. V. CIT [1994] 73 TAXMAN 30 (DELHI) HAS LAID DOWN THAT WHERE THE LETTER FROM ADIT(INV) REGARDING BOGUS TRANSACTIONS WAS SUFFICIENT MATERIAL FOR THE AO TO LEGITIMATELY FORM A REASONABLE BELIEF FOR INITIATING THE ASSESSMENT PROCEEDINGS. 11. FURTHER, THE HONBLE GUJARAT HIGH COURT IN THE RECENT CASE OF AASPAS MULTIMEDIA LTD. V. DCIT-CIRCLE 1(1) [2017] 83 TAXMANN.COM 82 (GUJARAT) HAS HELD AS THE INFORMATION RECEIVED FROM PDIT(INVESTIGATION) REGARDING BOGUS TRANSACTION WAS SUFFICIENT TANGIBLE MATERIAL TO FORM AN OPINION FOR REOPENING OF ASSESSMENT PROCEEDINGS AND THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE SUFFICIENCY REASON CANNOT BE EXAMINED BY THE COURT. IT WAS FURTHER OBSERVED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF AASPAS MULTIMEDIA LTD. V. DCIT-CIRCLE 1(1) [2017] 83 TAXMANN.COM 82 (GUJARAT) WHICH IS REPRODUCED AS UNDER: CONSIDERING THE AFORESAID DECISIONS OF THE HON'BLE APEX COURT AS WELL AS DECISION OF THE DIVISION BENCH OF THIS COURT AND DELHI HIGH COURT AND APPLYING THE SAME TO THE FACTS OF THE CASE ON HAND, IT CANNOT BE SAID THAT THERE WAS NO MATERIAL BEFORE THE AO TO REOPEN THE ASSESSMENT. IN THE PRESENT CASE, ALSO THE REASSESSMENT M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 10 OF 16 PROCEEDINGS HAVE BEEN INITIATED BY THE AO ON THE BASIS OF MATERIAL PROVIDED BY THE PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION), AHMEDABAD. IT IS ALSO REQUIRED TO BE NOTED THAT THE GENUINENESS OF THE VARIOUS COMPANIES WHO MADE SHARE APPLICATIONS ARE DOUBTED. THE ASSESSEE IS ALLEGED TO HAVE BEEN ENGAGED IN BOGUS SHARE APPLICATIONS FROM VARIOUS BOGUS CONCERNS OPERATED BY SHRI PRAVIN KUMAR JAIN. THE ASSESSEE IS THE BENEFICIARY OF THE SAID TRANSACTIONS OF SHARE APPLICATION BY THOSE BOGUS CONCERNS. IN THE WAKE OF INFORMATION RECEIVED BY THE AO, WHEN AO FORMED A BELIEF THAT THE INVESTMENT MADE FROM THE FUNDING OF SUCH COMPANIES WHICH ARE BOGUS, THE AO HAS RIGHTLY ASSUMED THE JURISDICTION OF INITIATING THE REASSESSMENT PROCEEDINGS. AO, ON THE BASIS OF INFORMATION SUBSEQUENTLY HAVING COME TO HIS KNOWLEDGE, RECOGNIZED UNTRUTHFULNESS OF THE FACTS FURNISHED EARLIER. IN THE PRESENT CASE, SINCE BOTH THE NECESSARY CONDITIONS TO REOPEN THE ASSESSMENT HAVE BEEN DULY FULFILLED, SUFFICIENCY OF THE REASONS IS NOT TO BE GONE INTO BY THIS COURT. INFORMATION FURNISHED AT THE TIME OF ORIGINAL ASSESSMENT, WHEN BY SUBSEQUENT INFORMATION RECEIVED FROM THE PRINCIPAL DIRECTOR OF INCOME TAX (INVESTIGATION), AHMEDABAD, ITSELF FOUND TO BE CONTROVERTED, THE OBJECTION TO THE NOTICE OF REASSESSMENT UNDER SECTION 147 OF THE IT ACT MUST FAIL. 12. THUS, IN THE LIGHT OF FOREGOING RULING OF HONBLE SUPREME COURT, AND HONBLE JURISDICTIONAL HIGH COURT, THE SUFFICIENCY OF MATERIAL AT THIS STAGE I N DETERMINING WHETHER COMMENCEMENT OF PROCEEDINGS U/S 147(A) WAS VALID, WHAT WAS TO BE SEEN WAS ONLY THE PRIMA FACIE MATERIAL; THE SUFFICIENCY OR CORRECTNESS OF THE MATERIAL WAS NOT A THING TO BE CONSIDERED AT THAT STAGE. THE HON`BLE SUPREME COURT IN THE CASE OF PHOOL CHAND BAJRANG LAL V. ITO [1993] 203 ITR 456 (SC) HELD THAT ONE OF THE PURPOSES OF SECTION 147 IS TO ENSURE THAT A PARTY CANNOT GET AWAY BY WILLFULLY MAKING A FALSE OR UNTRUE STATEMENT AT THE TIME OF THE ORIGINAL ASSESSMENT AND WHEN THAT FALSITY COMES TO NOTICE, TO TURN AROUND AND SAY: 'YOU ACCEPTED MY LIE, NOW YOUR HANDS ARE TIED AND YOU CAN DO NOTHING.' IT WOULD BE A TRAVESTY OF JUSTICE TO ALLOW THE ASSESSEE THAT LATITUDE. 13. FURTHER, THE HON`BLE SUPREME COURT IN THE CASE OF CIT V. RAJESH JHAVERI STOCK BROKERS (P) LTD. [2007] 161 TAXMAN 316 (SC) , LAID DOWN M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 11 OF 16 THAT 'IF THE ASSESSING OFFICER HAS CAUSE OR JURISDICTION TO KNOW OR SUPPOSE THAT INCOME HAS ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE 'REASONS TO BELIEVE' THAT AN INCOME HAS ESCAPED ASSESSMENT. THE SAID EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSESSING OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR INCLUSION. THE FUNCTION OF THE ASSESSING OFFICER IS TO ADMINISTER THE STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN IN-BUILT IDEA OF FAIRNESS TO TAXPAYER'. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE AO HAS NOT EXAMINED THE RETURN OF INCOME, THOUGH FILED BY HIM, DOES NOT HOLD WATER WHEN THE AO HAD IN POSSESSION THAT ACCOMMODATION ENTRIES PROVIDED BY M/S.MAYUR EXPORT IS TOWARDS BOGUS PURCHASES AS ADMITTED BY SHRI BHAWARALA JAIN. FURTHER, THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF MANVANY BROTHERS (SUPRA) IS DISTINGUISHABLE, AS IN THAT CASE, THE ISSUE WAS SET-ASIDE TO TRIBUNAL, HENCE NOT ATTAINED FINALITY. 14. WITH REGARD TO THE CLAIM OF THE ASSESSEE THAT NOTICES UNDER SECTION 148 OF THE ACT MENTIONS, THAT THE APPROVAL IS TO BE OBTAINED MEANS THAT THE AO WAS AWARE FOR APPROVAL AND THUS NECESSARY APPROVAL HAS BEEN OBTAINED FROM THE COMPETENT AUTHORITY. 15. IN THE LIGHT OF RATIO AS LAID DOWN BY ABOVE DISCUSSED JUDGMENTS, WE FIND THAT THE AO WAS NOT REQUIRED TO ASCERTAIN THE FINAL FACTS FOR INITIATING PROCEEDINGS U/S.147 READ WITH SECTION 148 OF THE ACT. M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 12 OF 16 THEREFORE, THE CONTENTION AND ARGUMENTS RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE NOT TENABLE IN LAW. ACCORDINGLY, THE VALIDITY OF REOPENING OF ASSESSMENT IS HELD TO BE SUSTAINABLE IN LAW, AND THEREFORE, UPHELD, ACCORDINGLY, FINDINGS OF CIT(A) ARE UPHELD. THIS GROUND OF APPEAL OF ASSESSEE THEREFORE DISMISSED. 16. GROUND 2 STATES THE LEARNED INCOME-TAX OFFICER HAS ERRED IN MAKING THE ADDITION OF RS.12,58,976/- ON ACCOUNT OF BOGUS PURCHASES. 17. FACTS APROPOS OF THIS GROUND ARE THAT THE ASSESSEE HAS OBTAINED AN ACCOMMODATION ENTRIES OF PURCHASE OF DIAMOND WORTH RS.12,18,357/- FROM M/S. MAYUR EXPORT, A BOGUS CONCERN OF BHANWAR LAL JAIN GROUP AS ADMITTED BY THEM IN STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT. THE AO ISSUED A SHOW CAUSE NOTICE DATED 27.02.2015 STATING THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF BHARWARLA JAIN GROUP IN TAKING ACCOMMODATION ENTRIES OF RS.12,18,357/-. THEREFORE, ASKED TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. IN RESPONSE TO ABOVE NOTICE THE ASSESSEE HAS NOT FILED ANY SUBMISSIONS. ACCORDINGLY THE AO ADDED THE SAME BY TREATING IT AS BOGUS PURCHASES FROM M/S.MAYUR EXPORT, A BENAMI CONCERN RUN BY SHRI BHANWARLAL JAIN. 18. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). THE CIT (A) OBSERVED THAT THE AO HAS RELIED ON STATEMENT OF M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 13 OF 16 BHANRWARL JAIN AND INVESTIGATION WING REPORT. THE LD. A.R. SIMPLY FILED WRITTEN SUBMISSIONS DURING APPELLATE PROCEEDING WITHOUT FILING ANY SUPPORTING EVIDENCE SUCH AS BILLS, CONTRA LEDGER AND CONFIRMATION OF SAID PARTY. BANK STATEMENT WORKING OF CLOSING STOCK, VALTN SALE BILLS. NEITHER THE ASSESSEE HAS PRODUCED SHRI BHAWARALA JAIN WHO HAS CLAIMED THAT THE SHRI JAIN HAS RETRACTED FROM HIS STATEMENT LATER ON. THE CIT(A) RELIED IN THE CASE OF CIT VS. LA MEDICA [2001] 250 ITR 575 (DEL) WHICH HAS REVERSED THE FINDINGS OF ITAT AND HELD THAT AMPLE EVIDENCE AVAILABLE TO CONCLUDE THAT SUCH PURCHASES WERE NOT MADE, THEREFORE, ALLEGED PAYMENT MADE BY THE ASSESSEE TO BE TREATED AS INCOME FROM UNDISCLOSED INCOME. MOST PROBABLY IN SUCH TYPE OF CASES, SURROUNDINGS CIRCUMSTANCES AND HUMAN PROBABILITY NEED TO BE GIVEN DUE COGNIZANCE. THE CIT (A) ALSO CITED DURGA PRASAD MORE 82 ITR 540 (SC) AND ACCORDINGLY UPHELD THE ACTION OF THE AO. 19. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THE COPIES OF TAX AUDIT REPORT, COPY OF PURCHASE BILLS FROM MAYUR EXPORTS, COPY OF PURCHASES BILLS OF OTHER PARTIES, COPY OF SALE BILLS COPY OF BANK STATEMENT BEFORE THE AO. THE AO NOT RAISED ANY DOUBT ON THIS WHICH SHOWS THAT THE ASSESSEE HAS MADE GENUINE PURCHASES. HENCE, ADDITION MADE BY THE AO NEEDS TO BE DELETED. 20. PER CONTRA, THE LD. SR. D.R. SUPPORTED ORDER OF LOWER AUTHORITIES. M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 14 OF 16 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS MADE PURCHASES OF RS.12,18,357/- FROM M/S. MAYUR EXPORT A BOGUS BENAMI CONCERN OF SHRI BHARWARLAL JAIN GROUP . THE ASSESSEE HAS FAILED TO PRODUCE THE SAID PARTY FOR VERIFICATION TO PROVE THE GENUINENESS OF PURCHASES. SHRI BHANWARLAL M. JAIN HAS ADMITTED IN HIS STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT DURING THE COURSE OF SEARCH AND SEIZURE OPERATION CONDUCTED IN THEIR CASE THAT THEY USED TO PROVIDE BOGUS ACCOMMODATION BILLS. THUS, THE AO HAS ADDED THE WHOLE AMOUNT OF RS.12,18,357/- AS BOGUS PURCHASES. THE ASSESSEE HAS DULY PRODUCED THE COPIES OF BILLS, INVOICES AND A PAYMENT IS MADE BY ACCOUNT PAYEE CHEQUES. THIS SHOWS THAT PURCHASES HAVE BEEN MADE, BUT MAY BE NOT FROM THE PARTY FROM WHOM PURCHASES BILLS HAVE BEEN OBTAINED. THE ONLY POSSIBILITY IS THEREFORE, IS THAT THE ASSESSEE MIGHT HAVE INFLATED THE PURCHASES, AS SALE HAS NOT BEEN DOUBTED BY THE AO. IN VIEW OF THIS MATTER, IT IS NOT JUST OR REASONABLE TO TREAT ENTIRE PURCHASES WHEN CORRESPONDING SALES HAS NOT BEEN DOUBTED BY THE AO. THERE CANNOT BE ANY SALES WITHOUT MAKING PURCHASES. WE ARE, THEREFORE, OF THE VIEW THAT IT IS A SIMPLE LOGIC THAT WHEN THE AO HAS NOT QUESTIONED THE SALES /STOCK THEN THERE IS NO LOGIC TO DISALLOW THE 100% BOGUS PURCHASES. IT IS OBVIOUS THAT THERE CANNOT BE ANY SALES WITHOUT PURCHASES. THE BOOK RESULTS OF THE ASSESSEE IS BETTER TO BOOK RESULTS OF EARLIER YEARS. THE M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 15 OF 16 BOOKS OF ACCOUNTS ARE AUDITED UNDER SECTION 44AB OF THE ACT AND NO ADVERSE COMMENTS POINTED OUT BY THE AUDITORS. QUANTITY RECORDS ARE MAINTAINED. THERE IS NO EVIDENCE THAT CASH RECEIVED BACK EXCEPT STATEMENT OF SHRI BHANWARLAL JAIN, WHICH IS GENERAL IN NATURE AND SAME WAS ALSO NOT MADE AVAILABLE TO THE ASSESSEE. HOWEVER, THERE IS NO CORROBORATING EVIDENCES THAT BILLS FROM THE IMPUGNED PARTY WERE AS PER MARKET VALUE AND PURCHASE COST REPRESENT FAIR MARKET VALUE. 22. WE FURTHER NOTICE THAT THE HON`BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAYANK DIAMONDS PVT. LTD. V. ITO [TAX APPEAL NO. 200 OF 2003] DATED 17.11.2014 HAS OBSERVED AS UNDER: 5. WE HAVE HEARD LEARNED ADVOCATES FOR BOTH SIDES AND PERUSED THE ORDERS PASSED BY THE CIT AS WELL AS THE TRIBUNAL. AS A RESULT OF HEARING AND PERUSAL OF RECORDS, IT IS BORNE OUT OF THAT THE AVERAGE PROFIT WHICH HAS BEEN CONSIDERED FOR THIS INDUSTRY IS AROUND 3 TO 7%. THE TRIBUNAL IN THE INSTANT CASE HAS DIRECTED ADDITION AT THE RATE 12.5%, WHICH IS IN OUR OPINION, IS ON HIGHER SIDE. LEARNED ADVOCATE FOR THE APPELLANT HAS FAIRLY CONCEDED THAT EXCESS 7% IS ON HIGHER SIDE AND THAT AT THE MOST 3% MAY BE APPLIED. IN THAT VIEW OF THE MATTER, GOING BY THE PECULIAR FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT ENDS OF JUSTICE WILL BE MET BY TAKING MEAN OF MAXIM AND MINIMUM OF THE PROFIT RATE WHICH COMES TO 5%. THEREFORE, WE THINK IT FIT TO DIRECT THE ASSESSING OFFICER TO APPLY 5% G.P. RATE AS THE RATE OF 12.5% IS DRASTICALLY HIGHER AND 1.03% IS DRASTICALLY LOWER. GROSS PROFIT RATE OF 5% IS THE AVERAGE RATE OF THE INDUSTRY AND WE THINK IT FIT TO MAKE ADDITION ON ACCOUNT OF 5% GROSS PROFIT RATE. THE ADDITION BE MADE ACCORDINGLY. WE THEREFORE, ANSWER THE QUESTION RAISED IN THE NEGATIVE I.E. AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 23. IT IS ALSO A FACT THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE PURCHASES BY NOT PRODUCING THE PARTIES IN QUESTION AND ADMISSION OF THE PARTY THAT THEY HAVE INDULGED IN PROVIDING BOGUS ACCOMMODATION ENTRIES. THEREFORE, IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES AND CONSIDERING THE NET PROFIT OF 5% AS THE AVERAGE RATE OF THE INDUSTRY AS M/S. V.KARAN GEMS /I.T.A.NO.706/AHD/2017/SRT /A.Y.:2007-08 PAGE 16 OF 16 OBSERVED BY THE HON`BLE JURISDICTIONAL HIGH COURT AND FOLLOWING THE JUDICIAL PRONOUNCEMENTS OF HON`BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAYANK DIAMONDS PVT. LTD. VS. ITO [TAX APPEAL NO. 200 OF 2003] DATED 17.11.2014; WE DEEM IT FIT TO RESTRICT THE ADDITION TO 5% OF TOTAL BOGUS PURCHASES OF RS.12,18,357/-. WE ORDER ACCORDINGLY. THE AO WILL WORKED OUT THE ADDITION ACCORDINGLY. THUS, GROUND NO. 2 OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26-04-2018. SD/- SD/- ( . . /C.M. GARG) ( . . / O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / SURAT: / DATED : 26 TH APRIL, 2018/OPM COPY SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT