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TMI Blog2017 (4) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax (Appeal) erred in confirming addition of Rs. 2997908/- on account of gross profit @ 12.50% on alleged bogus purchases of Rs. 23983261/- to the total income of the Appellant. Provisions of the Act ought to have been properly construed and regard being had to facts of the case no such addition should have been made. 2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming conclusion of the Assessing Officer that purchases made by the appellant to the tune of Rs. 23983261/- is bogus and non genuine. Reasons assigned by him are wrong and insufficient to support such conclusion. 3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in estimating rate of gross profit of 12.50% on alleged bogus purchases over and above gross profit declared by the appellant on such purchases. Reasons assigned by him are wrong and insufficient to justify such rate of gross profit of 12.50% 4. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming validity of initiating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 which was duly served on the assessee. In response to notice u/s 148 of 1961 Act , the assessee submitted that original return of income filed by the assessee on 25th September, 2009 u/s 139(1) of 1961 Act may be treated as return filed in response to notice u/s. l48 of 1961 Act. Reasons recorded by the AO prior to issue of notice u/s 148 of the Act were also provided by the AO to the assessee. The assessee filed objections for the reopening of the assessment vide letter dated 02.06.2014 which were disposed off by the A.O. vide letter dated 06.05.2014. The A.O. while disposing off objections to re-opening observed that as per records of the Sales tax department there were 28 parties from whom the assessee had made hawala transactions who were involved in bogus billing. It was observed by AO that these parties just issue bills for commission without actual supply of goods. In an sworn Affidavit Cum Declaration filed before Sales Tax Investigation Branch, Mumbai and in deposition before the Assistant Commissioner of Sales tax, Investigation Branch, Mumbai ,the directors of the said 28 entities have admitted of issuing only invoices for sake of entry without delivery of goods, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale and purchases giving name, address and the amount etc. . The assessee filed the details and from the details , the A.O. observed that the details were exactly matching with the information available with the A.O. Notices u/s.133(6) of the Act were issued by the AO to all the above 28 parties. All these notices except one notice were either returned un-served or were not replied to. Only one party namely M/s Ranakpur Sales Corporation, categorically stated that they have not supplied any material to the assessee concern. The assessee was confronted with the same whereby the assessee was asked to produce the parties and also file the documents to substantiate the claim of purchase and stock register, particulars of the transporter, medium of transport, date of transport, transport voucher, octroi post records and payment particulars etc.. The assessee submitted that an affidavit signed before the sales tax authorities cannot be relied upon. It was submitted that the Revenue has treated these parties as hawala operators because these dealers have not paid taxes collected to VAT department. These dealers were raided by VAT authorities and their dealership was cancelled. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to customer as evidence although it stated in its reply that said documents are being filed. The assessee in nutshell submitted that a mere affidavit filed by a person cannot in itself be an evidence. It was submitted that the assessee was victimized for the fault of the other parties. The sales were not disputed by the Revenue as without a purchase how there can be sales. It was submitted that there was no cash deposit in the bank and the payments have been made by the assessee to selling parties by account payee cheques. It was also submitted that all purchase and sale transactions are supported by tax invoice , delivery challans , lorry receipts etc.. The assessee submitted that notice u/s 133(6) of the Act returned back due to change in the address and also there is a five year gap between the date when transactions took place and the time when notice u/s 133(6) of 1961 Act was issued. The A.O., however, rejected the contentions of the assessee and observed that M/s Ranakpur Sales Corporations has categorically stated that they have not supplied any material to the assessee company. The AO observed that the assessee did not asked for cross examination of Ranakpur Sales Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or brokers before the AO for verification and enquiry. The AO held that since the assessee had made sales which were duly quantitatively reconciled by the assessee with purchases , the AO held that purchases were made by the assessee but the same were made at low price from grey market and to cover deficiencies in documents, invoices were obtained from these 28 suppliers who issued bogus bills to the assessee without supplying any material. Thus, the AO held that the assessee failed to prove the onus cast upon it to prove that purchases to the tune of Rs. 2,39,83,261/- made by the assessee were genuine purchases , which were held by the AO to be bogus purchases as no material was supplied to the assessee by these suppliers which material in-fact was purchased from grey market at lower price which led to higher margin of profits which need to be estimated and added to the income of the assessee. The AO relied upon decision of ITAT, Ahmedabad in the case of Vijay Proteins Limited v. ACIT (1996) 58 ITD 428(Ahd.) and other decisions. Thus, the A.O. made gross profit additions @ 12.5% over the total purchases of Rs. 2,39,83,261/- which was held to be non-genuine , which addition came t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment was getting time barred, the assessment was framed. No opportunity was granted to the assessee before framing assessment and no cross examination was allowed, was the contention of the assessee before the tribunal. The A.O. did not doubt the investment made in the purchases by the assessee . Our attention was specifically drawn to page 16 of the assessment order passed by the AO. The issue now is with regard to application of GP ratio as to what is the reasonable rate of GP ratio to be applied which is fair, reasonable, rational and honest so far as assessee is concerned. The A.O. has estimated GP ratio of 12.5% of alleged bogus purchases while no credit is given for declared GP ratio. It is submitted that notice u/s 133(6) of 1961 Act were issued by the AO to all 28 parties but the same were un-served except in one case , wherein the said party deposed against the assessee and admitted that they were engaged in accommodation entries and have only provided accommodation entry to the assessee. The said party namely Ranakpur Sales Corporation , thus, responded to notice u/s 133(6) of the Act whereby they confirmed that they have not supplied material and merely issued invoic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature Hotels (P) Ltd. v. ITO (2011) 338 ITR 0051 (Delhi HC) 2. Eveready Industries India Limited v. JCIT (2000) 243 ITR 0540(Gau. HC) 3. Varshaben Sanatbhai Patel v. ITO, Special Civil Application NO. 12873 , 12875 OF 2014, ORDERS DATED 13/10/2015(2015) 282 CTR 00705(GUJ.HC) 10. We have carefully considered the rival submissions and also perused the material available on record. We have also carefully gone through the case laws relied upon by the both parties as well written submissions filed by the assessee. We have observed that the assessee is engaged in the business as supplier in ferrous and non-ferrous metals. We find that the assessee filed its return of income with Revenue on 25th September, 2009 which was processed by the Revenue u/s 143(1) of the Act on 24th January, 2011. Thus, no scrutiny assessment u/s 143(3) r.w.s. 143(2) of 1961 Act was framed by Revenue while originally processing return of income which was processed u/s 143(1) of 1961 Act. The case of the assessee was re-opened by the AO u/s 147 of 1961 Act by issue of notice dated 25.03.2014 u/s 148 of 1961 Act, which was re-opened within four years from the end of assessment year. The reasons for re-opening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was received by the AO which clearly indicted assessee to be beneficiary of bogus purchase entries to the tune of Rs. 2,39,83,261/- from 28 bogus entry providers which formed the reasons to believe by the AO in forming an opinion that income has escaped assessment and the information so received by the AO has live link with reasons to believe that income has escaped assessment, wherein the Revenue recorded reasons to believe based on afore- stated incriminating tangible and material information indicting assessee that income of the assessee has escaped assessment and the assessment need to be re-opened u/s 147 of 1961 Act based on such material and tangible incriminating information indicting assessee. At this stage there has to be a prima-facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the hilt. Thus, at this stage , there has to be prima-facie satisfaction of the AO based on tangible and material incriminating information in his possession leading to reasons to believe that income of the assessee has escaped assessment . That is in a subsequent stage when assessment is being framed u/s 143(3) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 (SC), wherein Hon'ble Supreme Court vide orders dated 23-05-2007 has held as under : "11. It is to be noted that substantial changes have been made to section 143(1) with effect from June 1, 1999. Up to March 31, 1989, after a return of income was filed the Assessing Officer could make an assessment under section 143(1) without requiring the presence of the assessee or the production by him of any evidence in support of the return. Where the assessee objected to such an assessment or where the officer was of the opinion that the assessment was incorrect or incomplete or the officer did not complete the assessment under section 143(1), but wanted to make an inquiry, a notice under section 143(2) was required to be issued to the assessee requiring him to produce evidence in support of his return. After considering the material and evidence produced and after making necessary inquiries, the officer had power to make assessment under section 143(3). With effect from 1-4- 1989, the provisions underwent substantial and material changes. A new scheme was introduced and the new substituted section 143(1) prior to the subsequent substitution with effect from 1-6-1999, in clause (a), a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of the Assessing Officer to proceed under section 143(2). That right is preserved and is not taken away. Between the period from 1-4-1989 to 31-3-1998, the second proviso to section 143(1)(a), required that where adjustments were made under the first proviso to section 143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from 1-4-1998, the second proviso to section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till 1-6-1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between 1-4-1998 and 31-5-1999, sending of an intimation under section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word "intimation" as substituted for "assessment" that two different concepts emerged. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 248 (Delhi). It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from 1-6-1999, except as provided in the provision itself, the acknowledgement of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgement is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any "assessment" is done by them ? The reply is an emphatic "no". The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. 14. Additionally, section 148 as presently stands is differently couched in language from what was earlier the position. Prior to the substitution by the Direct Tax Laws (Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s-sarily amount to disclosure within the meaning of this section." 16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(1) had been issued. 19. Inevitable conclusion is that High Court has wrongly applied Adani Exports case (supra) which has no application to the case on the facts in view of the conceptual difference between section 143(1) and section 143(3) of the Act. 20. Learned counsel for the respondent submitted that other points are available to be raised. Since no other point was urged before the High Court, we find no reason to examine if any other point was available. The appeal is allowed without any orders as to costs." Thus, we hold that reopening is valid and legal in the instant case as the ratio of decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited(supra) is directly and squarely applicable to the facts of the instant case, as in the instant case also no assessment was originally framed u/s 143(2) r.ws. 143(3) of 1961 Act while the return of income was originally processed u/s 143(1) of 1961 Act , and hence no opinion was formed by the AO as processing u/s 143(1) of 1961 Act cannot be said to be an assessment and hence there is no question of change of opinion in the instant case. The re-opening was also done within four years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng based on factual matrix of the case. The tangible and material incriminating information so received by the AO from DGIT(Inv.), Mumbai which in turn was based on information received from Maharashtra Sales Tax Authorities incriminating assessee to be beneficiary of Hawala transactions being recipient of bogus accommodation entries from 28 entry operators to the tune of Rs. 2,39,83,261/- which is based on deposition and admission of these entry providers before other Government authority being Maharashtra VAT authorities is so obvious that to say that the AO has not applied his mind to reach satisfaction in forming reasons to believe that income of assessee has escaped assessment to initiate re-opening u/s 147 of 1961 , is too far-fetched and such contention of the assessee is out-rightly rejected. There is live link between material and tangible incriminating information received by the assessee and formation of reasons to believe that income of the assesse has escaped assessment in the instant case under appeal before us. The decision of Hon'ble Gujarat High Court in the case of Varshaben Sanatbhai Patel v. ITO (supra) relied upon by the assessee is distinguishable wherein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of material as these entities were engaged in providing accommodation entries only without supplying any material, which in turn was also supported by deposition's by way of affidavit/statements of these 28 hawala entry providers. While, we are conscious that the reassessment notice should not have been routinely issued, at the same time, the nature of power is wide enough that when there is an escapement of income and the Revenue has information ruling that this escapement is also relatable to suppression of material facts (which could include false claims), the power to reopen concluded assessment can validly be exercised . This contention is supported by decision of Hon'ble Delhi High Court in the case of Principal CIT v. Paramount Communication Private Limited (2017) 79 taxmann.com 409(Delhi) . Thus, Respectfully following the decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited(supra), we hold that re-opening of the assessment as done in the instant case by the AO u/s 147 of 1961 was valid and legal which is upheld by us , and the contentions of the assessee are , hereby, rejected. No contrary decision of Hon'ble Apex Court is brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition before the Assistant Commissioner of Sales tax, Investigation Branch, Mumbai ,the directors of the said 28 entities have admitted of issuing only invoices for sake of entry without delivery of goods. The Directors of the said 28 entities stated in their sworn affidavit that they had only supplied bills on receipt of cheques and later on cash was withdrawn from banks and after deduction of agreed commission, balance money was returned in cash to the assessee. The details of the aforesaid bogus parties from whom the assessee is stated to have purchased material are as under:- ASHTAVINAYAK SALES AGENCY AFWPN2169J 2008-09 21,194 STELCO STEEL INDUSTRIES AFYPJ0025K 2008-09 371,948 RELIANT METAL CORPORATION ALAPR6303A 2008-09 468,667 PADMAVATI METAL &ALLOYS AFSPJ4124P 2008-09 556,674 JINESH METAL CORPORATION ARDPK1291P 2008-09 48,140 RATNAJYOTI METAL & TUBES PVT. LTD AADCR3441A 2008-09 135,742 ANIKET STEEL PVT. LTD. AAGCA0417J 2008-09 779,845 RELIABLE METAL (INDIA) AJNPD6596Q 2008-09 957,436 TYSON STEEL AND TUBES PRIVATE LIMITED AACCT9481B 2008-09 1,131,749 VIGNESHWAR IMPEX ARDPK1294J 2008-09 1,133,295 RISHAB METAL (INDIA) AACPJ6417C 2008- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of transportation details. It was observed that the assessee has not submitted confirmations from these parties nor transportation details of the material purported to be purchased from these suppliers were furnished . Statement of purchase and sales showing name of the supplier and customers, date of purchase and sales , quantity purchased and sold to show one to one co-relation between purchases and sales were submitted by the assessee before the AO. The assessee also submitted VAT audit report. It was submitted that sales are fully vouched and without purchases, there cannot be sales and hence all purchases are genuine. The stock register for full year and ledger copy of the suppliers were also submitted and the assessee was able to quantitatively reconcile the sale and purchase of material. The assessee has also made the payments for these purchases through cheque for which evidence has been produced. It was submitted that there was no cash deposit in the bank and the payments have been made by the assessee to selling parties by account payee cheques. . It was held by authorities below that since the assessee had made sales which were duly quantitatively reconciled by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation who appeared before the AO in response to notice u/s 133(6) of 1961 Act and deposed against the assessee by confirming that bogus bills were issued by them in lieu of commission while no material was supplied against bogus invoices raised by them. The right of cross examination is not absolute. The assessee has to first discharge its primary onus cast under law and if the same stood duly discharged which is not rebutted by authorities , but despite that then also the authorities proceed to put assessee to prejudice solely relying on the basis of incriminating statement recorded of third party at the back of the assessee, then certainly the right to cross examination the said third party whose incriminating statement recorded at the back of the assessee is relied upon by authorities to prejudice the assessee will become absolute. But in the instant case , primary onus cast on the assessee itself did not stood discharged by the assessee as discussed above. The A.O. made gross profit additions @ 12.5% over the total bogus purchases of Rs. 2,39,83,261/- , which were held to be non-genuine by the authorities below, which addition came to Rs. 29,97,908/- which addition was conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer further held that the assessee has shown bogus purchases in order to reduce the Gross Profits. 7. In appeal, the Commissioner of Income-tax (Appeals) upheld most of the findings of the Assessing Officer, but reduced the Gross Profit from 40 per cent to 35 per cent. 8. In further appeal, the Tribunal had given further relief to the assessee and reduced the Gross Profit rate to 30 per cent. 9. The counsel for the assessee has submitted before us that the income- tax authorities wrongly held that appellant has shown bogus purchases, and the books of account were wrongly rejected. 10. In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of account, cogent reasons have been given by the income-tax authorities for doing so, and we see no reason to take a different view. 11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitraril ..... X X X X Extracts X X X X X X X X Extracts X X X X
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