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Tubes India Versus The Asst. CIT, Circle 19 (3) , Mumbai And Vice-Versa

2017 (12) TMI 532 - ITAT MUMBAI

Bogus purchases - estimating of profit - Held that:- When the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) that 12.5% disallowance out of the bogus purchases serves the interest of justice. Simply because the .....

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f ld. Commissioner of Income Tax (Appeals), pertaining to the assessment year 2009-10 to 2011-12. 2. The common grounds of appeal in assessee s case read as under: (1) On the facts and in law, the Ld. CIT (A) erred in upholding re-opening of assessment completed u/s 143 (3) of the Act, solely on the basis of list of suspicious dealers uploaded on website of Sales Tax Dept., without proving that alleged bogus parties have actually provided accommodation entries to appellant. (2) On the facts and .....

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sustaining addition estimated @ 12.5% on the alleged bogus purchases, on the ground that the motive of obtaining bogus bills was to suppress true profit without reducing the G P already earned on such purchases. (4) On the facts and in law and without prejudice to above grounds of appeal, the Ld. CIT (A) erred in sustaining an addition to the extent of 12.5% of the alleged bogus purchases without reducing the GP already shown by the appellant on the alleged bogus purchases. 3. The common ground .....

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tnership firm, engaged in the business of trading in ferrous and non-ferrous metal pipes and tubes. The return of income for the year under appeal was filed declaring total income of ₹ 72,22,654/-. The assessment u/s.143(3) of the Act was completed assessing the total income at ₹ 73,65,740/-. Thereafter, information was received that the assessee is one of the beneficiaries of the accommodation entries in the form of purchase bills. On the basis of tangible material available, the As .....

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Trading, M/s Goodluck Metals and M/s Khush Impex P Ltd. Out of which there is no response to the notice issued u/s. 133(6) of the Act in the case of M/s Shiv Industries and in the other cases, said notices were returned undelivered by the postal authorities. Further, Assessing Officer observed that the parties TIN matched with the information received from the Sales Tax Department with regard to the hawala operators available in public domain on the website of the Sales Tax Department of Governm .....

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at the same time objected the reassessment proceedings stating that the assessment was completed u/s 143(3) of the Act, where the purchases were examined and requested not to make any addition in respect of bogus purchases in the reassessment proceedings u/s 147 in respect of alleged parties on the basis of the information received from the Sales Tax Department. Assessing Officer without accepting the submissions and contentions of the appellant, concluded that the assessee did not purchase any .....

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h peak represents the amount of undisclosed cash that has been utilized in this arrangement and income to the said extent has escaped the assessment and added the same to the total income assessed as per the order passed u/s 143(3) r.w.s. 147 of the Act. 7. Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals) challenging both the validity of reopening and merits of the addition. 8. The ld. Commissioner of Income Tax (Appeals) confirmed the reopening .....

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rmation received during the assessment proceedings of the A.Y. 2010-11 with regard to the accommodation entries from some parties to inflate purchases. 2.5.5 Section 147 of the Act confers jurisdiction on the Assessing Officer to reopen assessment subject to the conditions laid down therein. The relevant provisions of section 147 of the Act are as under: 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, s .....

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where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment - for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 .....

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re on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment. 2.5.7 The facts of the present case are now tested in the light of the aforesaid provisions of sec. 147 as applicable to the year under consideration. On verification of details placed on record, it is found that the notice under section 148 of the Act for the assessm .....

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by the postal dept. with the remarks 'not known', 'left', 'unclaimed, etc. The assessee has been unable to produce these parties or prove genuineness of purchases made from them including the transport details, delivery challans etc. This indicate that the assessee had adopted a modus operandi to decrease its true profits by inflating its expenses including purchase expenses by taking accommodation entries from such parties. The records of the assessee for this A.Y. also reve .....

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8101V Laxmi Trading 221626 Total 6120823 2. On the basis of the aforesaid tangible material available with me now, I have reason to believe that income chargeable to tax, as indicated by the accommodation bills for purchases to the tune of ₹ 61,20,823/- from the aforesaid parties has escaped assessment for the A. Y. 2009-10 within the meaning of section 147 of the IT. Act, 1961. A notice u/s. 148 r.w.s. 147 is therefore, being issued to re-assess such income and also any other income charg .....

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ior to issue of notice under sec 148, assessment was made under sec 143(3). In such case for reopening the assessment which was finalized u/s 143(3) of the Act, the conditions are the income chargeable to tax should have escaped assessment by reason of failure on the part of the assessee either (i) to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148, or (ii) to disclose fully and truly all material facts necessary for his asses .....

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under different expenditure heads like miscellaneous expenses, telephone expenses and conveyance expenses on adhoc basis. As could be seen from the assessment order, the issue of information about the accommodation entries was noticed during the course of assessment proceedings for the A.Y. 2010-11. In view of this position, the issue of bogus purchases were not the issue in the original assessment and purchases were not verified. On the date of recording reasons, new material in the form of new .....

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d the same is a new information, and tangible' material has been received by the Assessing Officer and was available with him at the time of recording reasons, and also nothing on record suggests that the material filed by the appellant along with the return and available on record indicate that the issue was verified during the course of original assessment proceedings, the notice under section 148 of the Act having been issued within four years from the end of the relevant assessment year .....

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the bogus purchase. 10. Against the above order of ld. Commissioner of Income Tax (Appeals), the assessee is in appeal before the ITAT. 11. We have heard both the counsel and perused the records. As regards the reopening of the assessee, on a careful consideration, we note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for .....

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ere issued without delivery of goods, in consideration for commission. These, accommodation entry providers, on 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 assess .....

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purchase bills. 12. From the above, we find that tangible and cogent incriminating material were received by the Assessing Officer which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the Assessing Officer that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On this incriminating tangible material information, a .....

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ny assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the AO has cause or justification to know or suppose (hat 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 AO should have finally ascertained the fact by legal statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As obs .....

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e only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co, (P.) Ltd. (1996) 217 ITR 597 (Supreme Court): Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (Supreme Court). 13. The above discussion and prec .....

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ote that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were being used by certain parties to obtained bogus bills. The assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. The credibility of information relating to reopening remains un-assailed. In such factual scenario .....

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t overwhelming evidence that the provider of these bills is bogus and nonexistent. 15. The Sales Tax Department in its enquiry has found the parties to be providing bogus accommodation entries. The assessing officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee has not been able to produce any of the parties. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances .....

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f Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC) and CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC). In the present case, the assessee wants that the unassailable fact that the suppliers are non-existent and, thus, bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of Hon ble Apex Court decisions. 16. In these circumstances, the learned Departmental Representative has referred to Hon ble Gujarat High Court decisi .....

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