ITO, Ward- 14(4), New Delhi V. Kross Diamonds Pvt. Ltd., New Delhi

ITA 8341/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9446 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 20-10-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Rejection of books of accounts
• Section: 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘H’: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.8341/DEL/2019 [Assessment Year: 2011-12] Income Tax Officer, Ward-14(4), Room No.305, Central Revenues Building, I.P. Estate New Delhi Vs M/s Kross Diamonds Pvt. Ltd. B-45/47 Basement, Connaught Place, New Delhi-110001 PAN-AADCK3002A Revenue Assessee Revenue by Shri Anuj Garg, Sr. DR Assessee by None Date of Hearing 05.09.2022 Date of Pronouncement 07.09.2022 ORDER PER SHAMIM YAHYA, AM, This appeal by the Revenue is directed against the order of the Ld. CIT(A)-5, New Delhi, dated 25.07.2019 pertaining to Assessment Year 2011-12. 2. The grounds of appeal read as under:- “1. That o the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition amounting to Rs.4,88,77,700/- made by the Assessing Officer on account of rejection of the books of the account of the assessee.” 3. Brief facts of the case are that the Assessing Officer found that the assessee was engaging in bogus entries operations. The 2 ITA NO.8341/DEL/2019 M/s Kross Diamonds Pvt. Ltd. assessment was reopened and the Assessing Officer made additions as under:- “The perusal of bank statement filed by the assesse company shows that huge cash has been deposited in its bank account with ICICI Bank A/c. No. 000705035085 and HDFC Bank A/c No. 16602320000024 and AXIS Bank A/c No./customer No. 838126785 and also received other transfer from Kritvi Enterprises Pvt. Ltd. as well as other companies and the same has been transferred to others accounts on the same day as reported by the Investigation wing of Kolkatta, Mumbai and Delhi in the case of Kritvi Enterprises pvt. Ltd., no details of these debit and credit entries was offered by the assesse company whereas the assesse was show caused on 13.11.2018 as under: The assesse company is engaged in the sales and purchase of diamond as in the earlier year. The case of the assesse company for the assessment year 2011-12 was reopened with the approval of CCIT on the basis of information received from ADIT(Inv)/U-II(1)/2013-14/143dated 10.01.2013(23.01.2013) with regard to suspicious transaction in the STR in a period of about two months from 01.01.2011 to 28.02.2011 and deposit of cash of Rs. 165,22,51,000/- in its bank account. Now the fresh information has been received from the DDIT Unit 6(4)(Mumbai) and DDIT Unit 4(2) (Kolkatta) that the credits followed by equivalent transfer debits are observed in the account. The value frequency of such transactions is very high hinting that the account is being probably used for rotation of funds. The origin of funds deposited in M/s Kritvi Enterprises Pvt. Ltd. and subsequent transfer to assesse company is suspicious and whether these are actual business transactions cannot be ascertained without examining these transactions. The account seems to have been opened by M/s Kritvi Enterprises Pvt. Ltd and M/s Millenium Trading co. primarily for routing of high value funds which needs to be examined. Since the credits and cash deposit followed by equivalent transfer debits are observed in the account of shell companies M/s Kritvi Enterprises Pvt. Ltd and M/s Millenium Trading co., to assesse company . The value frequency of such transactions is very high hinting that the account is being probably used for rotation of funds., the rationale behind routing such transactions is not known , whether these transaction are actual business transactions or not cannot be ascertained. The value frequency of such transactions is very high hinting that the account is being probably used for rotation of funds. The account opened by M/s Kritvi 3 ITA NO.8341/DEL/2019 M/s Kross Diamonds Pvt. Ltd. Enterprises Pvt. Ltd. seems to have been opened primarily for routing of high value funds to the assessee company M/s Kross Diamonds Pvt. Ltd. , The assesse company is one of the company who have received such entries in the past years and also from various credits from these shell companies to ultimately reduce its taxable income. The assesse company has also received an amount of Rs. 19800000/- from M/s Millenium Trading company therefore it is believed that the assesse company has entered into bogus transactions. Therefore to ascertain the genuineness and creditworthiness of the above transactions assessee summons were issued to directors of the assesse company on 04.12.2018 to Smt. Brij Bala Kapur and Sh. Satchit Kapur but no compliance has been made to these summons by the directors, the same has been apprised to A.R. of the assesse company and asked to produce the directors of the company , who himself has shown its inability to produce them and stated that they are not in the country since long , hence summons remained uncompiied. Further no reply to cash deposit in its own bank account and in the bank account of M/s Kritvi Enterprises and subsequent transfer to assesse company showing receipt and payments vice versa. Further the A.R. of the assesse company attended the office and filed its reply/objection on 12.12.2018 the same was Considered and copy of statement of Sh. Parvin Kumar Babulal Jain and contents of report of DDIT(inv) Unit-IV(4) Mumbai were provided to him whereas the reasons for reopening were also provided to him through this office letter dated 22.05,2018 and 07.09.2.018 and objection has been disposed off through this office order dated 12.12.2018 and case was fixed for 18.12.2018. In compliance to this no one has attended the office. Further, there were continuous cash deposits in by M/s.Kritvi Enterprises in Axis Bank and transferred to assesse company from the bank account of M/s.Kritvi Enterprises, therefore , without examining the source of cash deposits, the genuineness of the transactions cannot be verified , further, no details were filed by the assesse company relating to sale and purchase of diamonds with M/s Kritivi Enterprises, and their related bill therefore the transaction is not reliable hence, in absence of proper record of sale and purchase and source of cash deposit, the book of account on basis of which the assesse company has filed ledger account is not reliable in absence of bill and voucher of sale and purchase hence, rejected as per the provision of section 145(3) of the I.T.Act. 1961 . 4 ITA NO.8341/DEL/2019 M/s Kross Diamonds Pvt. Ltd. Further the gross profit of the assesse company in the current year as well in preceding year i.e. A.Y. 2010-11 and 2011-12 are as under: Particulars F.Y. 20-10-11 (A.Y. 2011-12) F.Y. 2009-10 (A.Y. 2010-11) Sales 9,775,540,12 6,775,564,560 Closing Stock 75,516,152 237,072,968 Total (A) 9,851,056,274 7,012,637,528 Opening Stock 237,072,968 1,147,204,165 Purchases 392,257,525 Imports 9,607,299,782 5,468,054,673 Total (B) 9,844,372,750 7,007,516,363 Gross Profit 6,683,524 5,121,165 (A-B) GP Ratio 0.068% 0.076% In view of above discussion and facts of the case the books of account of the assese company is not reliable and in the light of information received from Investigation Wing. On perusal of P &L account and balance sheet of the assessee company, it is found that the assessee has shown sales/Gross receipts as Rs 9,775,540,122/-, Opening Stock Rs 2.37,072,968/-, Purchases as Rs. 9,607,299,782/-, and Closing stock of Rs . 75,516,152/-. The assessee has also mentioned sundry creditors of Rs 141,682,230 /-. Since the company M/s. Kritvi Enterprises Pvt. Ltd. is operated by persons who have admitted that they are engaged in the business of giving cheque entries, the transactions made by M/s. Kross Diamonds Pvt. Ltd. (PAN AADCK3002A) with M/s. Kritvi Enterprises Pvt. Ltd. are also not genuine and prima-facie bogus in nature. Further bank statement and ledger account filed by the assesse company it can only be inferred that these transactions are in the form of sale and purchase. On perusal of the bank statement of M/s. Kross Diamond Pvt. Ltd. with AXIS Banks (Account No. 223010200017860 ) it is observed that the assessee has received money from Kritvi enterprises Pvt. Ltd as well as from other companies too and huge cash has also been deposited in these bank accounts i.e. AXIS Banks (Account No. 223010200017860 and 7010200053677 ), and ( HDFC Banks A/c No. 16602320000024) and other banks, are prima facie not genuine sales and purchase in the absence of books of accounts as well the in absence of bill and vouchers of sale and purchase and details of sundry 5 ITA NO.8341/DEL/2019 M/s Kross Diamonds Pvt. Ltd. creditors i.e their name and addresses, further the pattern of debit and credit made in its bank accounts and immediate transfer of these funds also indicating that the assesse company is providing entries and rotating the entries as well as cash deposits in bank accounts within the number of shell companies involved in such type of transactions to hide the source/origin of cash deposits. In view of above facts and circumstances of the case and financial statement as mentioned above the average rate 0.5% is applied in view of G.P. ratio declared by the company, as prevalent in such type of transaction where commission is charged on total turnover of the assesse company i.e. Rs. 977,55,40,122 X 0.5 % = 4,88,77,700 /-, is treated income of the assesse company for the year under consideration. Since the assesse company has deposited huge cash in its bank account and the same has been transferred to other parties on the same is also the pattern of entry operators seems to be one of the chain of entry provider therefore the average rate has been adopted as in earlier year. Since the assessee has not discharged its onus in respect of the above. As such, this amount of Rs. 4,88,77,700 /- is held to be unexplained income and added to the income of the assessee company.” 4. Upon assessee’s appeal, the Ld. CIT(A) granted the relief to the assessee on merits but he did not adjudicate the issue of reopening as under:- 7.3 The AO has treated this transaction with Kritvi Enterprises Pvt. Ltd. (KEPL) as bogus sales/purchases, but no such sales/purchases has been found in FY 2010-11. The total purchase has been shown at Rs. 960,72,99,782/- which was from two companies at Dubai and imports have been made. The ledger account of KEPL in the books of appellant reveals that there are frequent transfer of funds, but this is not arising out of any sales or purchases which is stated to be short term loan in normal course from similar trade company. This was received and repaid through cheques. Therefore, it is not proved conclusively that this transaction is arising out of any sales or purchases, which is bogus. The appellant has made total sales of polished diamonds amounting to Rs. 977,55,40,120/- which includes the sale to M/s Millenium Trading Co. for Rs. 12,38,00,325/- for the year under consideration. Appellant has raised bills and payments have 6 ITA NO.8341/DEL/2019 M/s Kross Diamonds Pvt. Ltd. been received through banking channels. There is no allegation regarding bogus sales to the said company. Therefore, it cannot be said that this transaction is bogus or rotation of entry. 7.4 Further, for arguments sake even if it is considered as bogus purchases made from KEPL, then there will only be payments by appellant to it, however it is stated in the assessment order that appellant has received and paid money to KEPL, this also shows that these transactions are not emanating from any sales / purchases, therefore no question of bogus purchase arise. If there is bogus purchases, then why appellant will receive payment from KEPL. 7.5 In a case of bogus purchase, there has to be some bogus sales, corresponding to such bogus purchase. However neither bogus purchase nor bogus sales has been established. The appellant has provided details of stock and no infirmity pointed out by AO. Further, in the case of appellant all the purchases are from the parties at Dubai and imports have been made as per the due procedure. Therefore, it is not proved that the purchases are bogus. 7.6 It is also seen that after rejecting books of accounts, 0.5% of total turnover is treated as income of appellant, where alleged bogus transactions has been treated for providing bogus entries, looking to the frequent cash deposits in the account of appellant company. Here it is to be mentioned that AO could not substantiated that transactions with M/s KEPL relates to the bogus entry provided as no evidence brought on record. Further, working of commission @ 0.5% of sales is not supported nor any basis has been applied for the same, whereas the appellant has disclosed GP @ 0.068%. Simply on the basis of few transactions which is also not proved as bogus, the total turnover cannot be considered as bogus. 7.7 The books of account of appellant are duly audited. No infirmity pointed out in the details of stock of diamond nor in the books. Further, the finding of the investigation report are not conclusive and it only refers to high value transaction with prima-facie suspicion. No inquiries made independently by the AO to establish the bogus transactions nor any fact brought on record to prove that appellant is indulged in providing bogus entries and sales are bogus. Further, all the purchases are through imports, therefore, its genuineness cannot be questioned. If purchases are genuine, then sales cannot be considered as non-genuine or bogus entry given, only on the basis of certain cash deposits, which is stated to be out of sales made. Thus, AO has not brought any material nor any 7 ITA NO.8341/DEL/2019 M/s Kross Diamonds Pvt. Ltd. defect found in the books of appellant to substantiate the rejection of books of accounts. In the case of KEPL, since there is no purchase or sales, the question of providing sales bills etc does not arise. In the case of Millenium Trading Co. the appellant itself has disclosed sales and nothing adverse is brought on record. 7.8 Therefore, considering the facts and circumstance of this case and looking to the discussions made in foregoing paragraphs, it is seen that no cogent reasoning was given nor evidenced to reject books of accounts and no bogus purchases/sales are proved beyond doubt to say that it is only providing entry and therefore the addition on the total turnover of the appellant @ 0.5% which comes to Rs. 4,88,77,700/- is not tenable and directed to be deleted. These grounds of appeal are allowed. 8. Since the addition is not upheld, therefore there is no grievance to the appellant with respect to the proceedings u/s 148/147 of the Act and therefore this being now only academic in nature and hence infructuous. For the statistical purposes these grounds are treated as dismissed.” 5. Against the above order, the Revenue is in appeal before us. 6. We have heard the Ld. DR. None appeared on behalf of the assessee despite several notice. Two of the notices were returned unserved. Accordingly, we proceeded to adjudicate the issue by hearing the Ld. DR and perusing the records. 7. At the outset, we note that before the Ld. CIT(A), the issue of reopening was also there but he has not adjudicated the same as in his opinion after granting relief on merit, the issue of reopening is only academic. We note that Hon’ble High Courts have held that appellate authority has to decide all the issues before them as otherwise, there will be multiplicity of proceedings. Hon’ble Apex Court in the case of Agricultural Produce Marketing Committee Bangalore vs State of Karnataka has reiterated the same. We find that in this case the 8 ITA NO.8341/DEL/2019 M/s Kross Diamonds Pvt. Ltd. assessee has raised the issue of reopening before the ld. CIT(A) also but he has not adjudicated the same. In the interest of justice, we remit the issue of reopening to the file of the Ld. CIT(A). The Ld. CIT(A) shall decide the issue of validity of reopening and complete his appellate order, thereafter, both parties will have the liberty to file the appeal as deemed necessary. 8. In the result, this appeal by the Revenue is partly allowed for statistical purpose. Order pronounced in the open court on 07 th September, 2022. Sd/- Sd/- [ANUBHAV SHARMA] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated: 07.09.2022. f{x~{tÜ? f{x~{tÜ?f{x~{tÜ? f{x~{tÜ? Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi