TMI Blog2016 (3) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee are allowed. Bogus purchases - Addition of 20% purchases made by the assessee during F.Y. 2005-06 pertaining to A.Y 2006-07 - HELD THAT:- On specific query from the Bench, the ld. DR could not bring to our notice any cogent or relevant material or evidence which may compel us to take a different view which could lead us to not to follow the decision of the coordinate benches of the Tribunal in the case of Unique Metal Industries [supra] and other relevant orders. We therefore, respectfully following the decision of the Tribunal in the case of Unique Metal Industries [supra] which deleted the addition as sustained by the ld. CIT(A) being 20% of the purchases made by the assessee during the relevant F.Y. Consequently, the grounds of the assessee on merits are also allowed. - ITA No. 1365/Del/2015, 1370/Del /2015, 1369/Del/2015, 1379/Del /2015, 1380/Del /2015, 1366/Del/2015 - - - Dated:- 23-3-2016 - Shri Chandra Mohan Garg, Judicial Member, And Shri L.P. Sahu, Accountant Member, Appellant by: Shri Ved Jain Shri Ashish Chadha, CA Respondent by: Shri Shravan Gotru, Sr. DR ORDER PER BENCH. The above captioned six ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in confirming the addition to the extent of 20% of such purchases, without there being any basis for the same. 7.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts in law in confirming that the firms M/s Vishnu Trading Company, M/S Shree Shyam Trading Company M/s Shree Bankey Bihari Trading Co. are not engaged in the actual business ignoring the fact that during the course of the search substantial inventory in respect of the material being purchased by the assessee were found which confirm the fact that this firm was doing actual business. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts in law in rejecting that the inference drawn by the AO merely on the basis of a statement that these firms are not in actual business is baseless and contrary to the facts on record. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts in law in rejecting the contention of the assessee in ignoring the fact that there being a complete tally of the quantity purchased and sold the allegation that the assessee has not made purchases cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopening of assessment, initiation of proceedings and issuance of notice u/s 147/148 of the Income-tax Act, 1961 ['the Act' for short]. The ld. DR further submi tted that the ld. CIT(A) was quite correct and justified in upholding the conclusion of the A O on legal issues as well as on merits. However, on a specific query from the bench, the ld. DR fairly submitted that the facts and circumstances of the case as well as rea sons recorded by the A O in the case of Unique Metal Industries Vs. ITO [supra] and other cases mentioned hereinabove, are quite synonymous and similar to the facts of the present case. 8. On a careful consideration of the rival submissions and perusal of material available on record, we observe that the AO initiated the assessment proceedings u/s 147 of the Act and issued notice u/s 148 of the Act by recorded the following reasons: Reasons for the belief that the income has escaped assessment in the case of M/s Karshni Metal Store the assessment year 2006-07 A letter bearing F.No. Addl.CIT /(Hq) /(Coord.) / Accommodation entry/2012-13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner of I.Tax, Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the list of accommodation entries provided by Shri Rakesh Gupta Shri Vishesh Gupta and Shri Navneet Jain Shri Vaibhav Jain pertaining to A.Y. 2006-07. It is noticed that the following accommodation entries have been taken by the assessee namely M/s Krishan Lal Gambhir Sons: S. No. Accommodation entry provided by Name of party to whom Accommodation entry is provided Amount of Accommodation entry 1. Shree Shyam Trading Co. M/s Karshni Metal Store ₹ 2,66,062 2. Vishnu Trading Co. M/s Karshni Metal Store ₹ 6,55,332 3. Shree Bankey Bihari Trading Co. M/s Karshni Metal Store ₹ 9,82,566 Total amount of entries ₹ 19,03,960 Since Sh. Rakesh Gupta Sh. Vishesh Gupta and Sh. Navneet J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by them. From the above facts it is apparent that the Assessing Officer at that point of time when he recorded the reasons was not having the copy of the statement or any other material in which these people have alleged to have provided accommodation entries to the assessee. This position gets also corroborated from the facts stated by the Assessing Officer himself in the reassessment order in para 3 page 5 which read as under:- Here it is pertinent to mention that in the intervening period, this office had conversations with the ACIT, Central Circle-10, New Delhi from whom vide this office's letter dated 23.07.2013, 02.09.2013, 14.10.2013, 06.11.2013, 22.11.2013, 09.12.2013 24.12.2013 and vide Joint CIT, Range-39, New Delhi's letter dated 16.12.2013, the following details/documents were sought:- (i) Copies of the statements recorded of Sh. Rakeh Gupta Sh. Vishesh Gupta dn Sh. Navneet Jain Sh. Vaibhav Jain in search/post search/assessment proceedings. (ii) Soft copies of the tatements recorded of Sh. Rakeh Gupta Sh. Vishesh Gupta dn Sh. Navneet Jain Sh. Vaibhav Jain in search/post search/assessment proceedings.\ (iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as escaped assessment. In the present case, on going through the reasons it is quite evident that the Assessing Officer was also not aware of the nature of the accommodation entries. In the reasons recorded he has simply mentioned the name of the party and the amount and nowhere has stated the nature of such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. This fact gets further supported from the sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item no. 7, whether the assessment is proposed to be made for the first time, the Assessing Officer has stated 'Yes', and in Column no. 7(a), whether any voluntary return had already been filed and in Column no. 8 (b), date of filing the said return 'NA' has been stated. Thus this is a clear case of non-application of mind by the Assessing Officer. It may also be relevant that on page 2 of the assessment order, the Assessing Officer himself has stated that in this case the return of income for the year under consideration was filed with this ward on 27.09.2006. These facts clearly demonstrate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. Resultantly, the initiation of proceedings under s. 147 and issuance of notice unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 148 12. In the case of CIT vs. SFIL Stockbroking Co. (2010) 325 ITR 285 (Del) also the Hon'ble High Court has quashed the reopening proceedings on the ground that from the reasons it is not discernible as to whether the AO has applied his mind to the information and independently arrived at a belief that income has escaped assessment. The Hon'ble Court has held as under:- The first sentence of the so-called reasons recorded by the AO is mere information received from the Dy. Director of IT (Inv.). The second sentence is a direction given by the very same Dy. Director to issue a notice under s. 148 and the third sentence again comprises of a direction given by the Addl. CIT to initiate proceedings under s. 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons : Thus, I have sufficient information in my possession to issue notice under s. 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above. From the above, it is clear that the AO referred to the information and the two directions as 'reasons&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven by the coordinate bench of the Tribunal in the order dated 28.10.2015 in the case of Unique Metal Industries [supra]. The relevant operative finding of the order of the Tribunal in the case of Radhey Shyam [supra] reads as under: 7. Now coming to the merit about the sustenance of the addition by the CIT(A) @ 20% of the purchases made by the assessee from Shri Bankey Bihari Trading Co., after hearing the rival submissions and going through the order of the Tribunal, I noted that this Tribunal vide its order dated 28.10.2015 in the case of Unique Metal Industries (supra), deleted similar addition by observing in para 27 as under: 27. As regards the addition of 20% sustained by the ld. CIT(A) I am of the view that since purchases are not bogus the addition on this account cannot be sustained. Even otherwise the addition of 20% on the facts and circumstances is apparently too high. The ld. CIT(A) having held that tax has to be levied on real income and the profit cannot be ascertained without deducting the cost of purchases from the sales as otherwise it amount to levy of tax on gross receipt, she ought to have applied' profit rate in this nature of trade. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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