Income Tax Officer, Ward 2(3)(8), Surat V. Legal Heir Lakshita Rajesh Jain, of Late Shri Rajesh Malamsingh Jain, Surat

ITA 86/SRT/2017

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8598 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2024
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 20-02-2024
• Assessment Year: 2007-2008
• Appeal Filed On: 05-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: FILING COGENT EVIDENCE; NO TDS CERTIFICATE WAS
• Keywords: Bogus purchase; Rule of consistency; TDS
• Section: 147; 148; 143(3); 73

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. 86/SRT/2017 (AY: 2007-08) (Physical Hearing) I.T.O., Ward 2(3)(6), Surat, Room No. 405, 4 th Floor, Anavali Business Centre, Adajan Hazira Road, Surat. Vs. Late Rajesh Malamsingh Jain, Through legal heir Lakshita Rajesh Jain, 104, Ujjwal Heights CHS Ltd., Goddev village, Pabhakar Dattu Marg, Bhayander (East), Mumbai-401105 (Maharashtra) PAN No. AFSPJ 8831 K Appellant/ Revenue Respondent/Assessee ITA No. 02/SRT/2020 (AY: 2008-09) I.T.O., Ward 2(3)(6), Surat, Room No. 405, 4 th Floor, Anavali Business Centre, Adajan Hazira Road, Surat. Vs. Late Rajesh Malamsingh Jain, Through legal heir Lakshita Rajesh Jain, 104, Ujjwal Heights CHS Ltd., Goddev village, Pabhakar Dattu Marg, Bhayander (East), Mumbai-401105 (Maharashtra) PAN No. AFSPJ 8831 K Appellant/ Revenue Respondent/Assessee Department represented by Shri Ravi Kant Gupta, CIT-DR with Shri Vinod Kumar, Sr.DR Assessee represented by None Date of hearing 21/02/2024 Date of pronouncement 21/02/2024 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by the revenue are directed against the separate orders of learned Commissioner of Income Tax (Appeals)-1, Surat [in ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 2 short, the ld. CIT(A)] dated 12/06/2017 and 25/10/2019 for the Assessment year (AY) 2007-08 and 2008-09 respectively. Certain facts in both the years are common, therefore, with the consent of parties both these appeals were clubbed, heard together and are being decided by this consolidated order to avoid the conflicting decision. For appreciation of facts, the appeal for the A.Y. 2007-08 in ITA No. 86/Srt/2017 is treated as a “lead case”. In this appeal, the Revenue has raised following grounds of appeal: “i) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 2,00,60,757/ - made on account of bogus purchase. ii) On the facts and in the circumstance of the case and in law, the Ld. CIT (A) erred in treating commission @ 0.50% on bogus purchase without appreciating the fact that during the course of assessment proceedings, it was noticed that for last many years the assessee has filed return of income in ITR Form -4 disclosing his business activity as trader in rough and polished diamonds. iii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in appreciating the fact that the concerns like M/s. Mihir Diamonds, M/s. Krishna Diam and M/s. Karishma Diamonds Pvt. Ltd. from which the assessee made the said purchases amounting to Rs. 2,01,61,565/were non-existent entities and they were used for providing bogus purchase bills to the assessee. The entire modus operandi of such bogus transactions was accepted in statement u/s. 132(4) of the Act by the respective key persons of Shri Gautam Jain Group in light of the various documents/evidences found and seized from their premises. Therefore, CIT (A) should have treated whole amount of these purchases as income of the assessee as assessee reduced his income to this extent by inflating his purchases to this amount in his P&L account. iv) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in holding commission income @0.50% on bogus purchase on the basis that proper books of accounts and stock register were maintained without considering the fact that neither these books of accounts were ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 3 submitted before the AO during the assessment proceedings nor during the appellate proceedings. v) On the facts and in the circumstances of the case and in Law, the Ld.CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld.CIT(A)-2 Surat may be set- aside and that of the Assessing Officer's order may be restored.” 2. Brief facts of the case are that the assessee being individual and proprietor of Sanman Exports, was engaged in dealing of diamonds, filed his return of income for A.Y. 2007-08 on 26/10/2007 declaring income of Rs. 1,51,590/-. The case of assessee was reopened in the month of March 2014 on the basis of information of Investigation Wing, Mumbai that in Gautam Jain and other group, a search was carried out on 03/10/2013 which resulted in collection of evidence that Gautam Jain and his associates was running a number of Benami concerns for providing accommodation entry to various parties in the form of bogus purchase, sale and unsecured loan. The assessee was one of the beneficiary of purchases shown from various concerned of Gautam Jain and company. Name of such entities consisting Mihir Diamonds, Krishna Diam P. Ltd. and Krishna Diamonds Pvt. Ltd. who have provided such accommodation entry of purchases aggregating of Rs. 2.01 crores to the assessee was forwarded to the assessing officer. On the basis of such information, the Assessing Officer after recording reasons under Section 147 of the Income Tax Act, 1961 (in short, the Act) issued notice under Section 148 of the Act on 29/03/2014. In response to notice under Section 148, the assessee filed his reply on 02/07/2014 ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 4 and submitted that return of income filed on 26/10/2007 may be treated as return in response to notice under Section 148 of the Act. The Assessing Officer thereafter issued statutory notice and proceeded for assessment. The assessee filed detailed objection on 22/12/2014 against reopening. The objection of assessee was rejected by the Assessing Officer on 09/02/2015 by way of speaking order. The Assessing Officer after rejecting the objection, issued detailed show cause notice that the assessee has shown purchases of Rs. 46,01,312/- from Mihir Diamonds, Rs. 43,83,884/- from Krishna Diam P. Ltd. and Rs. 1,11,76,369/- from Krishna Diamonds Pvt. Ltd. aggregating to Rs. 2,01,61,565/-. All these concern are Benami firms of Gautam Jain and his associate. The assessee was asked to substantiate aforesaid purchases. The assessee filed his reply dated 25/02/2015. The contents of reply is recorded in para 7 of assessment order. The assessee in its reply submitted that he is a commission agent for rough and polished diamond in Surat and making sale and purchase on behalf of diamond trader against which he has received commission. The transaction with these parties are genuine. The sales and purchase are recorded in his books of account. Such sale and purchase is recoded for the purpose of inventory and no trading is made for such material. The assessee is working in proprietory concern in the name of Sanman Exports. The assessee furnished audit report, books of account, ledger account, ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 5 computation of income and submitted that the purchases are not bogus and that the assessee has earned commission income from such parties. The contention of assessee was not accepted by Assessing Officer. The Assessing Officer recorded that the assessee has been filing his return of income as a trader in rough and polished diamond and while filing return of income, the assessee was shown nature of business as trader in ITR Form No. 4. The contention of assessee was rejected and the Assessing Officer by referring the modus operandi of entry provider, added the entire purchases shown from all three parties of Rs. 2.01 crores while passing the assessment order on 27/02/2015 under Section 143(3) r.w.s. 147 of the Act. 3. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before ld. CIT(A), the assessee challenged the validity of reopening of case as well as addition on merit. Before the ld. CIT(A), the assessee filed detailed written submission. The submission of assessee are recorded in para 5 of order of ld. CIT(A). In the submission, the assessee stated that the assessee is working as commission agent (Pucca Aadthiya) of rough and polished diamonds. Being the commission agent, he is earning only commission and no trading account was made. The Assessing Officer reopened the case on the basis of information of Investigation Wing without verifying the correctness of information and accepted vague information in a ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 6 mechanical manner. The reasons recorded were not correct. On merit, the assessee submitted that the relationship of assessee and the traders were agent and principal. The accounts of assessee were subject to audit. The assessee has obtained tax audit report and filed his return of income. The Assessing Officer has not pointed out any defect in the books of account. The book results were not rejected.] 4. The ld. CIT(A) on considering the submission of assessee, upheld the validity of reopening by holding that there was enough and sufficient material with Assessing officer while forming belief about escapement of income on the basis of information received from Investigation Wing. The ld. CIT(A) while upheld the validity of reopening, relied on the decision of Hon'ble Jurisdictional High Court in Peass Industrial Engineers Pvt. Ltd. Vs DCIT (2016) 73 taxmann.com 185 (Guj). On merit, the ld. CIT(A) granted substantial relief to the assessee by restricting the addition to the extent of 0.50% of the impugned purchases. The ld. CIT(A) held that the purchase bills were produced, stock tally is shown and payments were made by account payee cheque, entire purchases as bogus cannot be doubted when correspondence sales have not been doubted by Assessing Officer and that only profit margin embedded in the impugned purchases should be subjected to disallowance and not the entire purchases. The ld. CIT(A) held that the assessee has earned only commission income on ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 7 entire business transaction. Aggrieved by the order of ld. CIT(A), the revenue has filed present appeal before this Tribunal. 5. The assessee was served with the notice of appeal and has filed authority letter in the name of Rohit vijayvargia, Chartered Accountant, Partner of RMR & Company. Rohit Vijayvargia also filed an application dated 14/04/2021 that all communication in relation to the proceedings of this appeal be sent at his office address at B-203, Shri Hari Park, Near Center Point Building, Sagrampura, Surat-395002. However, on 21/01/2023 Aasiya Hafeji, C.A. from the office of Rohit Vijayvargia informed that they have filed application that the assessee has died on 03/12/2021 and after his death, the legal heir of assessee is not responding and that she may be withdraw their authority letter. On making such statement, the learned Authorised Representative (ld.AR) was directed to file proof of communication/letter if any that they have communicated the legal heir of assessee about the withdrawal of their authority or to intimate the status of appeal and the appeal was adjourned to 03/02/2023. On 03/02/2023, Rohit Vijayvargia appeared and reiterated that he intend to withdraw his authority letter. Again he was directed to inform the legal heir of assessee about withdrawal of his authority letter by way of registered letter and to file original postal receipt on record of this case. However such direction was not complied nor the death certificate of assessee was placed on record. To verify ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 8 such fact, the Assessing Officer was directed to verify the fact and file fresh Form-36 by impleading legal heir of assessee. The Assessing officer/department/revenue has filed revised Form-36 impleading Lakshita Rajesh Jain as legal heir of assessee. On filing fresh Form-36, notice to the legal heir of assessee was issued at the address profited in fresh Form-36. However, the notice sent through registered post was returned bank. Neither the legal heir of assessee nor their representative appeared, thus we left no option except to decide the appeal on the basis of material available on record. 6. We have heard the submissions of learned Commissioner of Income Tax-Departmental Representative (ld. CIT-DR) for the revenue and perused the material available on record. The ld. CIT-DR for the revenue submits that the case of assessee was reopened on the basis of information received from Investigation Wing, Mumbai that the assessee is beneficiary of accommodation entry provided by Gautam Jain and his group. The assessee is beneficiary of purchases shown from three such entities which was managed by Gautam Jain group. Gautam Jain group was merely providing entry without actual delivery of goods. No stock was found at the time of search at Gautam Jain group. The assessee being the beneficiary of such group has availed merely accommodation entry. The assessee during the assessment took a plea that he was mere a commission agent. Such plea was not ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 9 proved by assessee by filing cogent evidence, no TDS certificate was filed nor any agreement of commission agency was filed. The ld. CIT(A) accepted the contention of assessee that the assessee was a commission agent and restricted the addition to the extent of 0.50% impugned purchases shown from concerns of entry provider. The ld. CIT-DR for the revenue submits that in case of ITO Vs Rajesh Kumar Pamecha in ITA No. 87/Srt/2017, ITO Vs Mukesh Mahavirprasad Sen ITA No. 15/Srt/2020 and other cases, this combination in similar case, has restricted/enhanced the addition of bogus purchases to the extent of 6% of similar purchases. One of such order in Surya Impex in ITA 1378/Ahd/2017 has been confirmed by the Hon'ble Jurisdictional High Court in PCIT Vs Surya Impex (2013) 148 taxmann.com154 (Gujarat) and further SLP before the Hon'ble Supreme Court was rejected. Further in a series of decisions on similar facts and circumstances, 6% of purchases was ultimately upheld by this Tribunal. The ld. CIT-DR for the revenue submits that though he pray to disallow 100% of purchases. In alternative submission, the disallowance may be enhanced to 6% of the impugned purchases. 7. We have considered the submissions of ld. CIT-DR for the revenue and perused the material available on record. We also perused the certain documents filed by ld. AR Rohit Vijayvargia, when he was appearing on behalf of assessee. We find that the Assessing Officer in reopening ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 10 assessment, made addition of entire aggregate of purchases shown from three parties namely Mihir Diamonds, Krishna Diam P. Ltd. and Krishna Diamonds Pvt. Ltd.. The plea of assessee that the assessee was merely acting as a commission agent was rejected by Assessing Officer that in all earlier years, the assessee was showing himself as a trader. Before the ld. CIT(A), the assessee in its submission, repeated similar contention that the assessee was merely a commission agent and earned commission on such sale and purchase. We find that neither any detail on TDS of alleged commission was furnished nor any substantive evidence in the form of confirmation of parties or agreement/agency agreement was placed on record. We find that the ld. CIT(A) recorded that a profit element in similar bogus purchases can only be brought to tax. Despite the fact that the ld. CIT(A) restricted the addition to 0.50% without referring any material evidence available on record. We find that this combination in number of decisions wherein the purchases are shown from Gautam Jain, Bhanwarlal Jain or Rajendra Jain and Company, who were proved entry provider, similar addition was either restricted or enhanced to 6%. We further find a similar order was followed in the case of ITO Vs Rajesh Kumar Pamecha in ITA No. 87/Srt/2017, ITO Vs Mukesh Mahavirprasad Sen ITA No. 15/Srt/2020 and other cases dated 13/01/2023. Therefore, taking a consistent view, the order of ld. CIT(A) is modified and the disallowance ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 11 restricted to the extent of 0.50% is increased to 6% of the impugned purchases. We further find that in a similar case in PCIT Vs Surya Impex (supra) the Hon’ble Jurisdictional High Court affirms the decisions of this Tribunal on similar facts. Therefore, taking consistent view, the order of ld CIT(A) is modified and the assessing officer is directed to restrict the disallowance of purchases from there three parties be restricted to 6% of aggregate of purchase of Rs. 2.01 Crore. In the result, grounds of appeal raised by the revenue are partly allowed. 8. In the result, this appeal of the revenue is partly allowed. ITA No. 02/Srt/2020 for A.Y. 2008-09 9. We find that in this appeal, the revenue has raised similar ground of appeal except variation of addition. We also find that the facts of this appeal is identical to the facts and grounds as raised in ITA No. 86/Srt/2017 for A.Y. 2007-08, which we have partly allowed. Therefore, keeping in view the principle of consistency on similar set of facts, this appeal of revenue is also partly allowed with similar direction. In the result, grounds of revenue’s appeal are partly allowed. 10. In the result, both the appeals of revenue are partly allowed. Order announced in open court on 21 st February, 2024. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 21/02/2024 *Ranjan ITA No. 86/Srt/2017 ITO Vs Late Rajesh Malamsingh Jain through his legal heir Lakshita Rajesh Jain. 12 Copy to: 1. Assessee 2. Revenue 3. CIT 4. DR By order 5. Guard File Sr. Private Secretary, ITAT, Surat