TMI Blog2017 (4) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... AO u/s 147 of 1961 was valid and legal which is upheld by us , and the contentions of the assessee are , hereby, rejected. The books of accounts were not rejected u/s 145(3) of 1961 Act by the Revenue . In the immediately preceding year i.e. assessment year 2008-09, the assessee earned GP ratio of 4.3% on total turnover, while for the year under consideration GP ratio earned was 5.45%. Thus end of justice will be met in this case if GP ratio of 12.5% on alleged bogus purchases is added to income of the assessee against which credit for the declared GP ratio on the alleged bogus purchases will be granted by the AO after verification by the AO because of failure of the assessee to come forward to discharge primary onus cast upon him as detailed above for which assessee is to be blamed and in the midst of afore-stated un-rebutted allegation against the assessee and non discharge of primary onus, the declared lower GP ratio of 5.45% in the instant previous year under appeal cannot be accepted. Thus, in nut-shell we are inclined to adopt GP ratio of 12.5% on alleged bogus purchases in the instant case which in our considered view is fair, reasonable and rational keeping in view fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax (Appeals) erred in confirming validity of initiating proceeding under section 147 of the Act by issuing notice under section 148 of the Act. The initiation of proceeding under section 147 of the Act and issuance of notice under section 148 is bad in law and contrary to the provisions of the Act and liable to be cancelled /annulled. 5. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming order made under section 143(3) rws 147 of the Act by the learned Assessing Officer which is illegal, bad-in-law, ultra vires and without allowing reasonable opportunity of the hearing, without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant and therefore same is liable to be annulled. 6. The learned assessing officer erred in charging interest under section 234A, 234B, 234C and 234D of the Act. 7. The appellant crave leave to add, amend , alter and/or vary any of the grounds of appeal before or at the time of hearing. 3. At the outset learned counsel for the assessee submitted that the assessee did not wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted of issuing only invoices for sake of entry without delivery of goods, were the observation of the AO. 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 A.O. observed that the statements of the hawala dealers were recorded under oath by the sales tax authority during survey action conducted in their premises and they have confessed to have issued bogus bills in lieu of fixed commission and the assessee company is one of the beneficiaries who has obtained bogus purchase bills amounting to ₹ 2,39,83,261/- during the previous year relevant to assessment year 2009- 10 from these twenty eight bogus parties as detailed below :- ASHTAVINAYAK SALES AGENCY AFWPN2169J 2008-09 21,194 STELCO STEEL INDUSTRIES AFYPJ0025K 2008-09 371,948 RELIANT METAL CORPORATION ALAPR6303A 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 256,513 PRIYA STEEL CORPN AKCPD1838M 2008-09 530,244 VANDNA METAL SYNDICATE AEWPJ3208B 2008-09 833,173 POOJA STEEL ALLOYS ACSPC2231P 2008-09 1,369,290 NAVODAY TRADE IMPEX PVT LTD AACCN3641F 2008-09 2,024,972 VISHESH STEEL SUPPLIERS AXVPS3398H 2008-09 3,586,202 The assessee was asked by the AO to furnish details of 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order. The assessee has also sought cross examination of the parties who have given statement against the assessee. The assessee was also issued a fresh show cause letter dated 19.09.2014, whereby the assessee was specifically asked to produce original bills and vouchers, all original documentary evidence of movement of goods for verification, details and documentary evidence of delivery challans, vehicle numbers, weighment slips, details of godowns, details of octroi payment etc. . However, the assessee did not produce the original documents before the A.O. . The assessee also did not file documents for showing movement of goods from supplier to assessee and from assessee 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 accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch documents have been filed by the assessee. It was observed by the AO that out of 28 parties, 27 parties have not responded to notices u/s 133(6) of 1961 Act issued to them. Moreover, the assessee was absolutely silent about M/s Ranakpur Sales Corporations which has completely denied having supplied any goods or materials to the assessee company. The assessee has not furnished the required complete details, documents and evidences. 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 . The assessee also failed to produce suppliers, transporters 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir statements/affidavits that they were not involved in actual delivery of goods and had given accommodation bills showing that they have sold the goods wherein only paper invoice was issued while no material was delivered . It was submitted that originally no scrutiny assessment was framed u/s 143(3) of the Act while the return of income was only processed u/s 143(1) of the Act. The assessment was re-opened within four years from the end of assessment year by issue of notice u/s 148 of 1961 Act, dated 25-03-2014. It is submitted that no independent enquiry has been made by the A.O. and the AO merely relied upon the information received from VAT department. Only at the fag end of the period when the assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Vijay Proteins Ltd. v. CIT (2015] 58 taxmann.com 44 (Guj) wherein Hon ble Gujarat High Court affirmed the additions to the tune of GP rate of 12.5%. 9. The ld. Counsel for the assessee, in the rejoinder, relied upon the decision of the Tribunal in the case of M.M. Ratnam v. ITO in ITA No. 540/Mum/1996 for A.Y. 1989-90 and submitted that the assessment cannot be re-opened. The A.O. has admitted that the investment in purchases were not doubtful and hence there is no question of applying Section 69C of 1961 Act as the source is accepted. The ld. Counsel also submitted that written submissions are placed before the tribunal which should be considered by tribunal. The ld. Counsel for assessee also relied upon the decisions as submitted in case laws /paper book placed in file bur specifically our attention was drawn to following case laws:- 1. Signature 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 submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir agreed commission . The assessee was stated to be one of the beneficiaries of these bogus entries of purchase of material from these 28 hawala entry operators in favour of the assessee to the tune of ₹ 2,39,83,261/- , wherein the assessee made alleged bogus purchases to the tune of ₹ 2,39,83,261/- through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavits made before the Sales Tax Department that they were involved in issuing bogus purchase bills without delivery of any material. There is a list of 28 such parties wherein the assessee is stated to be beneficiary of bogus purchase bills to the tune of ₹ 2,39,83,261/-. Thus, tangible and material incriminating information was received by the AO which clearly indicted assessee to be beneficiary of bogus purchase entries to the tune of ₹ 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i based on information received from Maharashtra Sales Tax Department wherein bogus accommodation entry providers have deposed and admitted before Sales Tax Authorities that they are engaged in providing accommodation entries wherein only bogus bills were issued for sale of material in lieu of commission wherein no material is actually supplied by these accommodation entry and the cheque amount was returned back to the beneficiaries in cash after deducting their commissions. The assessee is stated to be beneficiary in the said list of having allegedly received entries from 28 bogus accommodation entry providers to the tune of ₹ 2,39,83,261/-. The original return was processed u/s 143(1) of the Act, and thus no opinion was formed and hence there is no change of opinion. Reliance is placed on the decision of Hon ble Supreme Court in the case of ACIT v. Rajesh Jhaveri, (2007) 291 ITR 500 (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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible on the basis of information available in the return but not claimed in the return and similarly (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief. 13. One thing further to be noticed is that intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2). Though technically the intimation issued was deemed to be a demand notice issued under section 156, that did not per se preclude the right 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability upon the tax payer . In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to 1-4-1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D.K. Jain J) in Apogee International Ltd. v. Union of India [1996] 220 ITR 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) e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). Explanation 1.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where income chargeable to tax has been under assessed; or (b) where such income has been assessed at too low rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income- tax Act, 1922 (11 of 1922); or (d)where excessive loss or depreciation allowance has been computed. Explanation 2.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not neces-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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. 18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for re-opening of the assessment was sufficient to form reasons to believe by the AO that income has escaped assessment, as the assessee was specifically incriminated in the said information having received bogus accommodation entries for purchases to the tune of ₹ 2,39,83,261/- from 28 bogus entry providers being hawala traders providing accommodation purchase bills without actual delivery of material . In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information exposing un-truthfulness of information furnished in return of income filed with Revenue. We are of the considered view that on the basis of information received and if the assessing officer is satisfied that reasonable ground exists to believe, then in that case the power of the assessing authority extends to re-opening of assessment, which in the instant case the conditions are duly met for re-opening 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 Maharas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maharashtra Sales Tax Department that there are 28 entities through whom assessee made bogus purchases 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. Similarly , in the case of Eveready Industries India Limited(supra), the genesis of the additions are the statement of a common director that certain payments made by tax-payer were accommodation entries, while the re-opening was done by AO where there was no definite or specific material before the AO to come to conclusion that income has escaped assessment , while in the instant case before us there were definite tangible and material incriminating information before the AO based on information received from the DGIT(Inv) , Mumbai which is backed with information from Maharashtra Sales Tax Department that there are 28 entities through whom assessee made bogus purchases 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/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was stated to be one of the beneficiaries of these bogus entries of sale of material by these 28 hawala entry operators in favour of the assessee to the tune of ₹ 2,39,83,261/- , wherein the assessee made alleged bogus purchases to the tune of ₹ 2,39,83,261/- through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavits made before the Sales Tax Department that they were involved in issuing bogus purchase bills without delivery of any material. There is a list of 28 such parties wherein the assessee is stated to be beneficiary of bogus purchase bills to the tune of ₹ 2,39,83,261/-. It was observed by AO that these parties just issue bogus bills in lieu for earning 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AFYPB6058G 2008-09 1,351,280 WEL STEEL (INDIA) AHZPD3657L 2008-09 2,651,855 TAKSHIL TRADING PVT. LTD. AABCT5406H 2008-09 112,829 RAJESHWARI TRADING PVT. LTD AACCR7829M 2008-09 2,569,340 RANAKPUR SALES CORPORATION BABPS6817D 2008-09 198,640 ELECON IMPEX PVT LTD AABCE6233E 2008-09 246,395 NAVRATAN METAL IMPEX AAIHM5090A 2008-09 256,513 PRIYA STEEL CORPN AKCPD1838M 2008-09 530,244 VANDNA METAL SYNDICATE AEWPJ3208B 2008-09 833,173 POOJA STEEL ALLOYS ACSPC2231P 2008-09 1,369,290 NAVODAY TRADE IMPEX PVT LTD AACCN364 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee with purchases , the 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 ₹ 2,39,83,261/- made by the assessee were genuine purchases , which were held by the authorities below 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 2,39,83,261/- , which were held to be non-genuine by the authorities below, which addition came to ₹ 29,97,908/- which addition was confirmed by the learned CIT(A). . In such circumstances ,GP ratio needs to be estimated which definitely involved some estimation/guess work but the said estimation/guess work should be fair , honest and rational keeping in view factual matrix of the case and cannot be arbitrarily applied at the discretion of authorities . We have gone through the case laws relied upon by the assessee. Reference is drawn to decision of Hon ble Supreme Court in the case of Kachwala Gems v. JCIT (2007) 288 ITR 10(SC) , wherein Hon ble Lordships held as under : 4. The facts of the case are in a short compass. The appellant-assessee deals in precious and semi-precious stones. In the course of assessment, the Assessing Officer noticed the following def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the income-tax authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. No costs. The authorities below in the instant case did not made any industry comparisons to arrive at fair , honest and rational estimation of GP ratio , rather applied GP ratio of 12.5% on alleged bogus purchases which estimation was in addition to the normal GP ratio declared by the assessee in return of income filed w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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