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M/s. Sejal Gems Pvt. Ltd. Versus Dy. CIT, Central Circle -1 (2) , Mumbai

2018 (1) TMI 396 - ITAT MUMBAI

Validity of reopening and sustaining disallowance of 2% of bogus purchase - Held 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 information so received by the AO has live link with reason to believe that income has escaped assessment. On these incriminating tangible material info .....

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ion of documents for purchases cannot controvert overwhelming evidence that the provider of these bills is bogus and nonexistent. - 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 confi .....

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.A. No. 3872/Mum/2017 - Dated:- 5-1-2018 - SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER For The Appellant : None For The Respondent : Ms. N. Hemalatha ORDER Per Shamim Yahya, A. M.: This appeal by the assessee is directed against order of the ld. Commissioner of Income Tax (Appeals)-47, Mumbai dated 31.03.2017 and pertains to assessment year 2010-11. 2. The issue raised is that ld. Commissioner of Income Tax (Appeals) erred in upholding the validity of reopening and sustaining disallowance of 2% of bogu .....

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owing parties to the extent of amount mentioned against their names:- S.No. Name of the Party Amount (Rs.) 1. Aastha Impex 10,13,041/- 2. Navkar Diamonds 57,39,581/- 3. Pankaj Exports 98,02,433/- Total 1,65,85,055/- 4. It was also noticed that the entire bogus nature of the transactions had been admitted by Shri Bhanwarlal Jain in his statement recorded u/s. 132(4) of the Act. Since the assessee had not physically purchased any goods from the above bogus sellers, it was believed that the expendi .....

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of 2012) wherein the action of the Assessing Officer in re-opening the assessment had been upheld. 5. During the course of re-assessment proceedings, the Assessing Officer took into information received from the DGIT(Inv.), Mumbai that the assessee had obtained bogus accommodation bills from various entities/concerns floated by Shri Bhanwarlal Jain, an alleged bogus biller as observed by the Assessing Officer in Para-2 of the assessment order. However, the said notices were returned unserved by .....

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he assessee which had not been disclosed to the department even after enquiry. Considering full facts of the case and in light of the facts and evidences gathered by the DGIT(Inv), Mumbai through independent enquiries, the Assessing Officer concluded that the entire amount covered under such purchases could not be taxed but the profit element embedded therein would be subject to tax. Therefore, it was held that the addition on account of non-genuine purchases from the above-mentioned parties agg .....

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f the assessing officer in reopening but sustained addition of only 2% of the bogus purchase. 8. As regards the reopening, the ld. Commissioner of Income Tax (Appeals) held as under: 4.3.1 I have considered the submissions of the appellant and perused the materials available on record including copies of the judicial decisions relied upon by the appellant. The issue for adjudication is whether the A.O. was justified in reopening the assessment u/s.147 of the Act and whether, while doing so, ther .....

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e been unearthed in the course of search and seizure action carried out by the Department in the case of Shri Bhanwarlal Jain Group. This shows that the reopening of assessment was based not on subjective opinion or suspicion of the AO but on concrete and credible information received from the Investigation Wing. It is well-settled that the sufficiency or correctness of the material is not a thing to be considered at this stage. It has only to be seen whether there was prima facie some material .....

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of genuineness of purchases made from the said 3 parties escaped the attention of the AO while making the earlier assessments u/s.143(3) of the Act on 28.02.2011. There is nothing to indicate that any query was raised or any information was sought by the then AOs in regard to the purchases made from said 3 parties during the course of assessment. In other words, the issue was not under consideration at all in the course of said assessment. When the matter was not examined by the AO in such asses .....

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e Assessing Officer has applied his mind and taken a conscious decision on particular matter in issue and not where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment. Following the same legal principle, it cannot be said even in the instant case that there was any application of mind on part of the AO on this issue at the time of previous assessments and, therefore, the reopening of said assessment in these circumstances cannot be sa .....

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ding that the requirements of section 147 were fully satisfied in the present case. In view of the above discussion, I do not find any error or infirmity in the action of the AO in reopening the assessment of the appellant for the A.Y. under consideration based on the above information received from the Investigation Wing and proceeding to reassess the income escaping assessment on this count. 9. On merits, the ld. Commissioner of Income Tax (Appeals) noted that: It is noticed from the record th .....

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nothing but accommodation entries without any actual movement or delivery of goods. 10. However, the ld. Commissioner of Income Tax (Appeals) sustained only 2% of the bogus purchase as addition. 11. Against the above order of ld. Commissioner of Income Tax (Appeals), the assessee is in appeal before the ITAT. 12. I have heard both the counsel and perused the records. As regards the reopening of the assessee, on a careful consideration, I note that in this case information was received by the As .....

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and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were 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 commissio .....

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ey 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. 13. 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 information so rec .....

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on 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax 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 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 h .....

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tiation stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issue of notice, the 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.) .....

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of the Hon ble Apex Court decision, the other case laws referred by assessee are not supporting the assessee s case. 15. As regards the merits, I find 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. Base .....

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ctual scenario, it is amply clear that the assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills is bogus and nonexistent. 16. 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 no .....

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es cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon ble Apex Court decision in the case of 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 H .....

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cumstances, the 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 vide order dated 20.06.2016, wherein 100% 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. It was expounded that when purchase bills have been found to be bogus, 100% disallowance was required. The spe .....

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