Bhatia Diamonds Pvt. Ltd. Vs ITO (ITAT Delhi)
Conclusion: Addition under section 69C on the basis of statement of third party without granting opportunity of cross-examination to assessee was not valid as it amounted to ivolation of principle of natural justice and against the law.
Held: During the course of search and seizure action, statement of Sh. R Jain and Sh. S Jain were recorded on oath wherein they admitted that the concerned controlled and managed by them were not doing any real trading in diamonds but indulged in paper transactions only. Shri R Jain also submitted that there were some independent parties in the market which were in requirement of unsecured loans against unaccounted cash which was also provided by their concerns. The issue involved in this case was that assessee-company had made bogus purchases from the following concerns managed and controlled by R Jain Group. AO noted that as the main person Sh. R Jain involved in this whole episode was not able to attend and substantiate his claim by way of evidence and submission before his AO, then it was not possible that assessee had made claims of the genuineness of the sale/purchases. Therefore, AO made the additions in the hands of assessee-company as the creditworthiness and genuineness of these transactions had not been proved by assessee. It was held assessee had considerable cogency that addition was made on the basis of statement of Sh. R Jain, but assessee was not granted the opportunity to cross examine Sh. R Jain which ground was also raised before CIT(A), who did not adjudicate the same, which was against the settled law. Since the impugned addition was made on the basis of statement without providing any opportunity to assessee to cross examine the same, was in violation of principle of natural justice and against the law. Thus, addition made by AO under section 69C was deleted.
FULL TEXT OF THE ITAT JUDGEMENT
The assessee has filed the appeal against the order dated 19.1.2018 passed by Ld. CIT(A)-33, New Delhi relevant to assessment year 2011-12 by raising as many as 07 grounds, but at the time of hearing, Ld. counsel for the assessee has only argued the ground no. 5 which is reproduced as under:-
“5. The Assessing Officer has erred on facts and in law forming a negative inference solely on the basis of extracts of statement by third parties without confronting the same to the assessee company and in total disregard to the provisions of law.”
2. Brief facts of the case are that assessee has not filed its return of income for the assessment year 2011-12. The case of the assessee was selected under section 147 of the Income Tax Act, 1961 (in short “Act”). Statutory notices u/s. 148/143(2)/142(1) of the Act were issued. In response thereto, the assessee filed its return of income on 18.5.2016 declaring NIL income for the AY 2011-12 and the AR of the assessee attended the assessment proceedings from time to time and filed necessary details. Shri Rajendra Jain, Shri Sanjay Choudhary and Shri Dharminchand Jain are some of the entry providers operating in Mumbai, indulged in providing accommodations entries in the nature of bogus sales and unsecured loans. The main allegation against the above mentioned groups were as under:-
i. Their concerns are engaged in merely paper transaction.
ii. In the name of their numerous concerns, they import rough and cut and polished diamonds for the other clients who do not want to show import in their own books. The physical delivery of the diamonds so imported is immediately handed over to these actual importers after clearance of the consignment by CHA.
iii. These concerns issue bills/ give accommodation entries for a commission to various parties who normally purchase diamonds in cash from undisclosed parties and need bills to show purchases against sales in their account.
iv. They provide accommodation entries of unsecured loans against cash.
2.1 The search action resulted in the collection of evidences and other findings which conclusively proved that the above mentioned persons, through a web of concerns run and operated by them, are engaged in providing accommodation entries in the nature of bogus unsecured loans and bogus sales / purchases. During the course of search and seizure action statement of Sh. Rajendra Jain and Sh. Surendra Jain were recorded on oath wherein they admitted that the concerned controlled an managed them are not doing any real trading in diamonds but indulged in paper transactions only and Shri Rajendra Jain also stated that if any concerns require bogus purchases bill for diamonds; however, our concerns have bogus stock of diamonds in out books of accounts, which are shown to be purchase / imported from foreign concerns. Therefore, the diamonds shown to be purchased / imported from foreign concerns by us are against shown to be sold to the independent concerns. These concerns take purchase bills from our concerns without actual delivery of diamonds. Further, payment made through cheques or RTGS, the cash components is generally settled by the key persons controlling the concerns, directly or indirectly by taking services of Angadia. Shri Rajendra Jain also submitted that there are some independent parties in the market which are in requirement of unsecured loans against unaccounted cash. The entries are usually for long period and the same gets reversed as and when such parties make payments through banking channels and take back the cash. The issue involved in this case is that M/s Bhatia Diamonds Pvt. Ltd. has made bogus purchases during the financial year 2010-11 relevant AY 2011-12 from the following concerns managed and controlled by Rajendra Jain Group:
