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2016 (6) TMI 741 - GUJARAT HIGH COURT

2016 (6) TMI 741 - GUJARAT HIGH COURT - TMI - Reopening of assessment - Entitlement to exemption under section 10AA - applicability of Section 69C - bogus purchases - Held that:- Even if the expenditure of the so called bogus purchases is disallowed, the only effect it could have is to increase the profit of the assessee which in any case is exempt under section 10AA of the Act. Section 147 of the Act would be applicable where the Assessing Officer has reason to believe that income chargeable to .....

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out the sources of such explanation or part thereof or the explanation offered is not satisfactory, the amount covered by such expenditure or the part, as the case may be, would be deemed to be the income of the assessee for such financial year. The present is not a case where the assessee has incurred expenditure, but failed to offer explanation about the source of such expenditure. The source of expenditure in question was very much available since in the reasons recorded itself, the Assessing .....

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K PARIKH, ADVOCATE FOR THE RESPONDENT : MR SUDHIR M MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These petitions arose in similar background. They have been heard together and would be disposed of by this common judgment. For convenience, facts may be noted from Special Civil Application No.17935 of 2015. Petitioner is a partnership firm and is engaged in the business of manufacturing and export of diamond studded jewelery. Petitioner's manufacturing unit is s .....

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nder section 10AA as claimed by the petitioner. The petitioner challenged the order of assessment before the Commissioner (Appeals), who dismissed the appeal by order dated 14.09.2011. The petitioner's further appeal to Tribunal was however, allowed by an order dated 20.07.2012. The entire exemption under section 10AA of the Act was granted. We are informed that the Revenue challenged such order of the Tribunal in Tax Appeal No.898 of 2012, which was dismissed on 06.03.2013. 3. To reopen the .....

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the entities / individuals through a number of bogus concerns controlled either by him or his close associates who were only namesake proprietors/partners/directors. The said concerns were providing bogus sale entries (Purchase entry to the beneficiary entitles) for which they used to receive cheque. After that, cash was paid to the beneficiary entities after deducting commission etc. He had also provided a list of the said bogus concerns wherein the name Maridian Gems has been appeared. Such d .....

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e of passing the original assessment order. Further the statements of Bhanwarlal Jain and other associated persons were also not available with the Department which is crucial documentary proof of such bogus entry. Hence, entire bogus accommodation entries of the said purchases have escaped assessment. Thus, the assessee has accommodated bogus entires of above said purchases, which cannot be allowed. Thus, in the case of the assessee, income to that extent has escaped assessment on account of bo .....

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jected by the Assessing Officer by an order dated 10.09.2015. 5. On the basis of such facts, learned counsel for the petitioner raised following contentions. I. The reasons recorded by the Assessing Officer do not demonstrate any independent application of mind by her. Such reasons mechanically adopt the exercise undertaken by the investigating wing of Income tax department. In support of this contention, counsel relied upon following decisions. • In case of Pr. Commissioner of Income Tax4 .....

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The assessee enjoyed 100% exemption under section 10AA of the Act. Therefore, even if the Revenue's theory of bogus purchases by the assessee is established, the same can only result into disallowance of business expenditure, thereby increasing the assessee's profit. This in any case would have no tax implication since even such additional income would be exempt under section 10AA of the Act. In support of this contention, counsel relied upon following decisions. • In case of Baijn .....

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d before forming a belief that income chargeable to tax had escaped assessment. II. There was total non disclosure on part of the assessee of the illicit transactions of bogus purchases. Reopening of assessment even beyond period of four years from the end of relevant assessment year would therefore, be permissible. III. Counsel contended that additional income arising out of such bogus transactions would not qualify as business income and therefore, would not be exempt under section 10AA of the .....

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ounsel also relied on the decision of Division Bench of this Court in case of Yogendrakumar Gupta v. IncomeTax Officer, reported in 366 ITR 186. 7. Regarding the first contention of the counsel for the petitioner, we have perused the reasons recorded by the Assessing Officer for issuing notice for reopening. We have also perused the original file produced by the department. Relevant documents from the file were also shown to the counsel of the petitioner. In the reasons recorded itself, the Asse .....

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e seller would return the cash amount to the purchaser after retaining commission. Bhanwarlal Jain had also provided list of such bogus entities, one of them being Meridian Gems. The reasons further record that the assessee had also accepted bogus accommodation entries for purchase of goods worth ₹ 90.17 lacs from said Meridian Gems in order to inflate the purchases. 8. We notice that under letter dated 16.07.2014, the investigation wing of the income tax department had placed the entire r .....

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dly true that the reasons to be recorded before issuance of notice of reopening have to be those of the Assessing Officer alone. This however, does not mean that the Assessing Officer cannot rely on the exercise undertaken by other wings of the Government departments, if the material so collected through inquiry or investigation provides primafacie information, a tangible material; which enables the Assessing Officer to form a belief that income chargeable to tax has escaped assessment. There is .....

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formula of the manner in which, mind can be applied or shown to have been applied. The same may be gathered from the reasons recorded and other contemporaneous material on record. In this context, we are satisfied that it was the decision of the Assessing Officer, based on the materials collected by the investigation wing that she recorded the reasons to form a belief that income chargeable to tax had escaped assessment, which led her to issue notice of reopening. 9. The second contention of the .....

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case, the entire income of the assessee being tax exempt, even if the stand of the department as reflected in the reasons recorded is correct and ultimately established, there would be no additional tax burden on the petitioner. To put it simply, the question being posed is where is the escapement of income chargeable to tax ? 11. In this context, we may revisit the modus operandi adopted by the petitioner as alleged by the department. According to the department, the petitioner had shown purch .....

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of the matter, even if the department is correct, all that would be done even if the assessment is permitted, is to disallow the expenditure of ₹ 90.17 lacs. Correspondingly, the income of the assessee would increase by the said sum of ₹ 90.17 lacs. However, if the entire income is exempt under section 10AA of the Act, there would be still no tax implication. With this background in mind, we had noted the history of petitioner's claim for exemption under section 10AA of the Act w .....

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