Gujarat High Court
The Principal Commissioner Of Income ... vs Keshri Export on 4 September, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/743/2024 ORDER DATED: 04/09/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 743 of 2024
With
R/TAX APPEAL NO. 744 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX-1
Versus
KESHRI EXPORT
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Appearance:
MR RUDRAM TRIVEDI ADVOCATE WITH MRS KALPANA K RAVAL(1046)
for the Appellant(s) No. 1
MR B S SOPARKAR(6851) for the Opponent(s) No. 1
MRS SWATI SOPARKAR(870) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 04/09/2024
COMMON ORAL ORDER
(PER : HONOURABLE MR. JUSTICE NIRAL R. MEHTA) [1] The present Tax Appeals under Section 260A of the Income Tax Act, 1961 (for short, "the Act") are directed against the common order dated 28th June 2022 passed by the Income Tax Appellate Tribunal, Surat in ITA No.917/AHD/2017 (for short, "the Tribunal") for the Assessment Year 2008-09 and ITA No.761/SRT/ 2018 for the Assessment Year 2010-11 at the instance of the appellant - Revenue by raising the following substantial questions of law:
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NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined "1. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has justified in restricting the addition made by the AO from Rs.14,39,42,707/- being 100% to 6% of the bogus purchase without appreciating the facts that the assessee had failed to prove the genuineness of the transaction made with the concerns which was identified as bogus entities completely run by Shri Bhanwarlal Jain.
2. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has justified in restricting the addition from 100% to 6% made by the AO ignoring the fact that Shri Bhanwarlal Jain is engaged in the business of accommodation entries and hence AO was correct in concluding that the assessee was a beneficiary of the accommodation entry in guise of purchase.
3. Whether the facts and circumstances of the case in law, the Hon'ble Tribunal is right in giving decision by restricting the addition to 6% without considering the judgment of Gujarat High Court in the case of N.K. Industries Ltd. vs. DCIT in TA No. 240 to 242 of 2003 which has been upheld by the Hon'ble Apex Court in Special Leave to Appeal No. 769 of 2017 dated 16.01.2017, wherein the Hon'ble High Court decided that 100% of purchases from bogus parties was liable to be added in the hands of the Assessee, reversing the Page 2 of 11 Uploaded by CHANDRESH N. SIDDHAPURA(HC01109) on Thu Sep 12 2024 Downloaded on : Fri Sep 13 22:29:00 IST 2024 NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined decision of Hon'ble ITAT to restrict the addition to 25%.
4. Whether on the facts and circumstances of the case in law, the Hon'bes ITAT has justified in restricting the addition to 6% without considering the judgment of Calcutta High Court of in the case of PCTT vs. Premlata Tekriwal (143 taxmann.com 173) involving similar use of purchase of bogus concern to suppress profits wherein the court held that "since it was established that expenditure was unexplained / bogus, entire amount of bogus expenditure was to be added to income of Assessee.
5. Whether on the facts and circumstances of the case in law, the Hon'ble Tribunal is right in deleting the addition made by the AO on account of bogus purchase even though in the case of Mayank Diamonds Pvt Ltd [2014(11) TMI 812], the Hon'ble High Court has directed to make addition at the rate of 5% of the total turnover."
[2] The brief facts of the case can be stated as under:
[2.1] The assessee firm engaged in the business of import, processing, trading and export of diamond, had filed its return of income for the relevant assessment year on 24 th September 2008 and the regular assessment was completed on 22 nd December 2010 Page 3 of 11 Uploaded by CHANDRESH N. SIDDHAPURA(HC01109) on Thu Sep 12 2024 Downloaded on : Fri Sep 13 22:29:00 IST 2024 NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined under Section 143(3) of the Act determining total income at Rs.2,42,77,633/-.
[2.2] Subsequently, certain information from the Investigation Wing, Mumbai was received and the case was re-
opened under Section 147 of the Act and thus, the scrutiny assessment under Section 143(3) read with Section 147 of the Act was completed determining the total income at Rs.16,82,20,340/-
on 21st March 2016 by making addition of Rs.14,39,42,707/- on account of unverifiable purchase. The assessee has shown purchases of Rs.15,39,42,707/- taken from the following parties which are managed by Bhanwarlal Jain Group:
Sr. No. Name of the party PAN Amount (Rs.) 1 Impex Gems AHNPJ4936G 2,58,14,694/-
2 A2 Jewels AAAMFA7751J 1,19,79,917/-
3 Impex Gems AHNPJ4936G 2,09,63,618/-
4 Jewel Diam ABUPV3494J 2,05,40,629/-
5 Kothari & Co. ABXPK7967H 4,26,85,264/- 6 Little Diam AABFL1469R 1,18,66,927/- 7 Sankhala Exports P. Ltd. AASCS1855M 1,00,91,658/-
Total 15,39,42,707/-
[2.3] On the basis of information available on about the
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NEUTRAL CITATION
C/TAXAP/743/2024 ORDER DATED: 04/09/2024
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accommodation entries provided by Bhanwarlal Jain Group, the Assessing Officer finally concluded after rejecting the book result of the assessee firm attracting the provisions of Section 145(3) of the Act and made addition of 100% of the alleged bogus purchases.
[2.4] Being aggrieved by the aforesaid, the assessee preferred appeal before the CIT(A), Surat, who, vide order dated 31 st January 2017, partly allowed the appeal of the assessee and restricted additions /disallowances of purchases to 5% of the impugned / bogus purchases relying upon the decision of this Court in the case of M/s. Mayank Diamond Pvt Ltd reported in 2014(11) TMI 812(Guj).
[2.5] Being aggrieved by the aforesaid, the Revenue as well as the assessee preferred appeal before the Tribunal, vide its order dated 28th June 2022, sustained the addition at 5% of bogus purchase / accommodation entries on account of bogus purchase relying on the judgement of the Coordinate Bench of this Court in the case of Principal Commissioner of Income Tax 1 vs. Pankaj K. Choudhary [R/Tax Appeal No.617 of 2022 decided on 7 th March 2022].
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NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined [3] Being aggrieved by the aforesaid, the Revenue has approached this Court by way of these Tax Appeals. [4] Considering the facts of the case and the substantial questions, in our considered opinion, the questions so raised are already settled by the Coordinate Bench of this Court in the case of Pankaj K. Choudhary (supra) and thereby, the same cannot be said to be substantial in nature.
[5] The Tribunal, while passing the impugned order dated 28th June 2022, observed as under:
"6. Based on these facts, we note that issue involved in these appeals are squarely covered by the judgment of this Coordinate Bench in the case of Pankaj K. Chaudhary (in ITA No.1152/AHD/2017, for AY.2007-08, order dated 27.09.2021, wherein the Tribunal has sustained the addition @ 6% of bogus purchases / accommodation entries on account of bogus purchases.
7. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in group case in Pankaj K. Chaudhary (supra) vide order dated 27.09.2021. In this order, the Tribunal has inter alia observed as follows:
"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 Page 6 of 11 Uploaded by CHANDRESH N. SIDDHAPURA(HC01109) on Thu Sep 12 2024 Downloaded on : Fri Sep 13 22:29:00 IST 2024 NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined 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 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 Page 7 of 11 Uploaded by CHANDRESH N. SIDDHAPURA(HC01109) on Thu Sep 12 2024 Downloaded on : Fri Sep 13 22:29:00 IST 2024 NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined 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 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 Page 8 of 11 Uploaded by CHANDRESH N. SIDDHAPURA(HC01109) on Thu Sep 12 2024 Downloaded on : Fri Sep 13 22:29:00 IST 2024 NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined 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 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 @ 0.78% and net Profit @ 0.02% (page 11 of paper Page 9 of 11 Uploaded by CHANDRESH N. SIDDHAPURA(HC01109) on Thu Sep 12 2024 Downloaded on : Fri Sep 13 22:29:00 IST 2024 NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined 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 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. 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.
22. In the result the appeal of revenue is dismissed and the appeal of the assessee is partly allowed."
8. These appeals filed by the Revenue and Assessee, relate to Bhanwarlal Jain ground cases. The Assessing Officer made 100% addition of bogus purchases. On appeal by assessee, Page 10 of 11 Uploaded by CHANDRESH N. SIDDHAPURA(HC01109) on Thu Sep 12 2024 Downloaded on : Fri Sep 13 22:29:00 IST 2024 NEUTRAL CITATION C/TAXAP/743/2024 ORDER DATED: 04/09/2024 undefined Ld. CIT(A) restricted the addition to 5% of bogus purchases by following the judgment of Hon'ble Gujarat High Court in the case of M/s Mayank Diamond Pvt. Ltd. (2014) (11) TMI 812 (Guj.)."
[6] Keeping in mind the ratio laid down by the Coordinate Bench and the facts of the present case, questions raised in the present case are identical to the case of Pankaj K. Choudhary (supra), thus, we are unable to take a different than that of already taken by the Coordinate Bench of this Court in the case of Pankaj K. Choudhary (supra).
[7] In the result, present Tax Appeals deserve to be dismissed as the substantial questions of law proposed by the appellant - Revenue are answered and thus, no questions of law much less any substantial question of law arises in the present Tax Appeals. The present appeals being meritless are accordingly dismissed.
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