TMI Blog2017 (9) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... . This proposition is supported from honourable jurisdictional High Court decision in the case of Nikunj Eximp Enterprises [2013 (1) TMI 88 - BOMBAY HIGH COURT]. However the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. In such circumstances of the case a 12.5% disallowance out of the bogus purchases would meet the end of justice, following the Hon’ble Gujarat High Court’s decision in the case of Simit P. Seth [2013 (10) TMI 1028 - GUJARAT HIGH COURT]. Accordingly, direct that the disallowance in this case should be restricted to 12.5% of the bogus purchases. - Decided partly in favour of assessee. - I.T.A. Nos. 497, 499 And 500/Mum/2017 - - - Dated:- 17-8-2017 - SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER For The Appellant : Shri Bhupendra Shah For The Respondent : Shri V. Jananrdhanan ORDER Per Shamim Yahya, A. M.: These are appeals by the assessee against the order of Commissioner of Income Tax (Appeals)-42, Mumbai ( CIT(A) for short) dated 19.09.2016 for the concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the assessee for AYr. 2007-08 u/s: 143(3) r.w.s. 147 of the Income Tax Act, 1961 Shri Arun Kumar Agarwal, produced various details before me along with copy of sale bills and delivery challans with regard to the transactions made with the assessee during the year, A.Y. 2007-08. Further, in his statement u/s. 131 given on oath, he again admitted that the books of accounts were damaged due to rain. On further asking about the source of books of accounts and documentary evidences produced by him even after the books were damaged, he maintained that he had kept his audited books in a soft copy with his accountant Shri Bharat Mody. But during his statement given to the Investigation wing of the department he could not produce any proof regarding Shri Bharat Mody even after ample time given to him. It is therefore clear from his statement given to me on 22.1.2015 that even if he had kept his books of account in soft copy regarding which Mr. Arun Kumar Agarwal specified in the statement dated 22.01.2015 regarding the nature of books kept in soft copy that they had the audited books (they had the back-up of the Trio Software in which has all our transaction entries) . However, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The original return of the assessee had only been processed u/s. 143(1) of the Act. It is required to be noted that even the definition of 'assessment' u/s. 2(8) of the Act does not include 'processing'. The law is thus very clear that u/s. 143(1) only a processing is done and it is not an assessment. In the case of Assistant Commissioner of Income-tax v Rajesh Jhaveri Stock Brokers (P.) Ltd 291 ITR 500 (SC) the Supreme Court noted that substantial changes have been made to section 143(1) with effect from June 1, 1999. The Supreme Court noted that in the case before it and under the first proviso to section 143(l)(a) the only adjustments possible to be adjusted were, (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction allowance or relief, which was prima facie admissible 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 148 at its threshold. ( b) Shree Bajrang Commercial Co. (P.) Ltd. [2004] 269 ITR 338 (Cal.). ( c) CIT v. Nova Promoters Finlease (P) Ltd [2012) 342 ITR 169 (Delhi). In this case the question as whether at stage of issuing notice under section 148 merits of matter are not relevant and Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment? The answer was given in the affirmative. It is seen that in this connection the following observations of the Supreme Court in the case of Income-Tax Officer. Cuttack and Others Vs. Biju Patnaik (1991) 188 ITR. 247 are very relevant:- It is undoubtedly true that the notice does not prima facie disclose the satisfaction of the two conditions precedent enjoined under section 147(a), but in the counter affidavit filed by the Income tax Officer in the High Court, he stated all the material facts. The respondent had inspected the record and the record also bears out the existence of the material facts. The proceedings drawn up which are abstracted earlier also show that the Income tax Officer had applied his mind to the fact on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y details the AO could not initiate assessment proceedings merely on the basis of information supplied by DGIT(Inv). This claim of the assessee is baseless. In the case of Varshaben Sanatbhai Patel (supra) the High Court had noted that the reasons recorded by the AO does not mention that the information has come to his possession from the office of the DGIT(Inv.). In fact the reasons recorded in Varshaben case have been quoted in extenso by the High Court for all the years involved and they all read like this: (1) On verification of details available on records. it is noticed that assessee has made Bogus Purchase of ₹ 30.65,639/-, during the financial year 2008-09 i.e. A.Y. 2009-10. By claiming bogus purchases in the trading and P L Ale as an expenses. the assessee has shown less profit to the extent of the amount of Bogus Purchases. (2) In view of the above facts of the case. I have reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the I. T. Act, 1961 to the extent of ₹ 30.65.639/- for the A.Y. 2009-10. The High Court noted that a perusal of the reasons recorded reveals that the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons recorded Under the circumstances, on the basis of the material on record, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment, inasmuch as, the formation of belief of the Assessing Officer is not based upon the details available on record, but on the material made available by the DGIT (Inv.), Mumbai which is an external source. Under the circumstances, it cannot be said that the requirements of section i47 of the Act are satisfied, inasmuch as, the belief of the Assessing Officer is not based upon the material on record, but on some other material from an external source which does not find reference in the reasons. As is clear on a plain reading of the reasons recorded, except for the assertion that there were bogus purchases, the Assessing Officer has not refer-red to any material on the basis of which he proceeded to invoke the provisions of section 147 of the Act. The assertion made by the Assessing Officer is a bare one, without any reference to the material on the basis of which he made such assertion. For the above reasons the High Court in Varshaben Sanatbhai Patel case had quashed the notices u/s.148 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arun Paper Iron Traders ADKPA5263C 2006-07 4,80,637 Total 4,80,637/- Therefore, I have reason to believe that income to the extent of ₹ 4,80,637/- has escaped assessment for A.Y. 2007-08 within the meaning of section 147 of the Act in this case. In order to tax the said income, notice u/s 148 is being issued to reopen the assessment u/s 147. Issue notice u/s 148 of the Act. 8.7 The above reasons recorded are different and specific. The source of the information has also been given in detail by the AO. Therefore the Varsaben Sanatbhai Patel case (supra) is not applicable on facts. Further the Gujarat High Court itself has held in the case of Peass Industrial Engineers Pvt Ltd vs. DCIT in SLA No. 3249 of2016 Dated 0.5/08/2016. In this case the facts were similar to the case of the present assessee. In the Peass case the reasons recorded by the AO were: 1. The assessee is engaged in the business of manufacturing of textile machinery and spare parts. The assessee has filed his return of income on 30/09/2009 declaring total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen assessment. From the reasons which are recorded, it clearly emerges that the petitioner is the beneficiary of those entries by Kayan brothers, who are well known entry operators across the country and this fact has been unearthed on account of the information received by DGIT Investigation Branch and therefore, it cannot be said in any way that even if four years have been passed, it is not open for the Authority to reopen the assessment. In the present case, there was independent application of mind on behalf of the assessing authority in arriving at the conclusion that income had escaped assessment and therefore, the contentions raised by the petitioner are devoid of merits. Dealing with the contentions of the petitioner that the information received from DGIT, Investigation Branch, Ahmedabad; can never be said 'to be additional information. We are of the opinion that the information which has been received is on 26.3.2015 from the DGIT, Investigation Branch, Ahmedabad, whereby it has been reveale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of cheques from parties against bogus bills for sale of material, later on withdrew cash from their bank accounts which was returned to beneficiaries of bogus bills after deduction of their agreed commission. The Assessee was stated to be one of the beneficiaries of these bogus entries of sale of material from hawala entry operators in favour of the assessee wherein the assessee made alleged bogus purchases 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/affidavit 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 such parties wherein the assessee is stated to be beneficiary of bogus purchase bills. 10. From the above, I find that tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant. Hence, I do not find any infirmity in the same. Accordingly, I uphold the order of the Ld. CIT(A) on the issue of reopening. Since, the issue has been decided on the basis of the Hon'ble Apex Court decision, the other ca e laws referred by assessee are not supporting the assessee's case. 12. As regards, merits of the addition upon consideration of the facts of the case, I find that overwhelming evidence have been referred by the authorities below that the impugned purchases are bogus. That documents submitted regarding actual movement of the goods have been found to be dubious. In these circumstances learned departmental representative has referred to Hon ble Gujarat High Court decision in the case of tax appeal no. 240 of 2003 in the case of N. K. Industries vs. Dy. CIT, order dated 20.06.2016, wherein hundred percent of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. The special leave petition against this order alongwith others has been dismissed by the honourable apex court vide order dt. 16.1.2017. 13. However, I find that this is not an appeal by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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