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2018 (2) TMI 266

return of income u/s. 143(1) of the Act and no scrutiny assessment u/s. 143(3) was framed by the Revenue . The Ld. DR did not objected to dismissal of the grounds of appeal being ground no.1 and 2 raised by the assessee challenged the reopening of the assessment u/s. 147 of the Act. Thus, keeping in view the factual matrix of the case we are inclined to dismiss the ground raised by the assessee being ground no. 1 and 2 challenging the reopening of the concluded assessment u/s. 147 of the Act. - The possibility of assessee buying the material actually from grey market at lower rates and obtaining corresponding bills from the said parties namely AVI Export and Rajeev Impex to reconcile the quantitative records and books of accounts cannot be ruled out . Under these circumstances , we are inclined to confirm aforesaid well reasoned appellate order of the Ld. CIT-A which aimed to make additions to the income by estimating profits embedded in the said alleged bogus purchases which profits the assessee gained by obtaining material from grey market at lower rate while obtaining bills from these parties namely AVI Exports and Rajiv Impex to reconcile records and books of accounts. - .....

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mmissioner has been taken for the reasons for initiating reassessment proceeding' which is supplied to the assessee. 1.3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the initiation of the reassessment proceeding even when the Ld. Assessing Officer erred in solely relying on the information of the investigation wing, Mumbai. The AO had not conducted any independent enquiry before issue of notice under section 148 of the Act. Hence, the Assessing Officer had no reason to believe that any income chargeable to tax has escaped assessment. 2. Assessment order is invalid for the reason that the procedure laid down by the hon'ble Supreme Court in the case of GKN driveshaft. (India) Ltd. 259 ITR 19 has not been followed: 2.1 On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the assessment order even when the Assessing Officer has not followed the procedure laid down by the hon'ble Supreme Court in the case of GKN driveshaft. (India) Ltd. 259 ITR 19 (SC). 3. Wrong addition on account of unexplained expenditure u/s 69C of the Act amounting to ₹ 77,70, 765/- : 3.1. On the .....

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et profit of 12.5% of the total purchase particularly when he has accepted that the Ld. AO has wrongly rejected the books of accounts 5. The appellant craved leave to add, alter or amend any of the aforementioned ground or grounds of appeal, which are without prejudice to each other, as and when an occasion may arise at the time of hearing. 3. The grounds of appeal raised by the Revenue in the memo of appeal filed with the tribunal in ITA No. 3133/Mum/2016 read as under:- On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting entire addition of ₹ 93,45,409/-on account of bogus purchases. (ii) On the facts and in the circumstances of the case and in law, the Id. CIT (A) has erred in not considering that the addition was made on the basis of information received from the DIT(Inv.) and Sales Tax Department, Maharashtra with regard to bogus purchases made by the assessee from dealers without supply of actual goods. (iii) On the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in not considering that the hawala dealers have admitted on oath before the Sales Tax Authorities that they have not sold any material to .....

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ncluded assessment u/s. 147 of the Act. We order accordingly. 5. Now , we proceed to decide the appeals filed by the Assessee and the Revenue on merits . The brief facts of the case are that the search and seizure action u/s. 132 of the 1961 Act was carried out by the DGIT(Inv), Mumbai on 3rd October , 2013 in Shri. Rajendra Jain Group cases wherein statement on oath was recorded by Revenue of Shri. Rajendra Jain during the course of search and seizure operations u/s 132 that his companies/entities were involved in providing accommodation entries like bogus purchases, sales, unsecured loans, share capital etc.. The A.O observed from the information received from DGIT(Inv.), Mumbai that the assessee is also beneficiary who has obtained accommodation entries to the tune of ₹ 77,70,765/- through M/s. AVI Exports , one of the group concerns of Shri. Rajendra Jain Group, during the impugned assessment year under consideration. The AO invoked provisions of Section 147/148 after recording reasons to reopen the assessment as the income had allegedly escaped assessment. The notice dated 24-3-2014 u/s 148 was issued by the AO which was beyond four years from the end of the assessment y .....

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maintained which were audited by tax auditors u/s 44AB. It was submitted that the said party might not have replied as verifications are conducted in the month of February 2015 while the purchases relates to F.Y 2006-07 and thus the matter is very old . It was also submitted that the A.O has not rejected the sales made by the assessee and assessee has maintained complete quantity wise details of stock and stock register. It was submitted that quantitative reconciliation of the stock was submitted and no defect is pointed out by the AO in the said stock reconciliation . The assessee submitted that the overall GP ratio is 14.69% and while on these disputed transactions GP ratio is 14.3% and the tax auditor has not made any adverse comments on the transactions entered into by the assessee and the books of accounts maintained by it. It was submitted that if additions as were made by the AO are sustained then it will lead to unrealistic G.P ratio of 63.68% and net profit ratio of 53.9% which is unrealistic and impossible to achieve. It was submitted that goods were purchased based upon H Form issued from Sales Tax Department and were meant for export only . it was also submitted that pu .....

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no scrutiny assessment u/s 143(3) was framed by the revenue . It was submitted that notices u/s 148 were issued on 26.03.2014 which is after 4 years from the end of the A.Y. . On merits, the Ld. Counsel for the assessee argued for the deletion of the additions to the tune of 12.5% being profits estimated of the alleged bogus purchases as sustained by the Ld. CIT-A . It was submitted that it was merely on the basis of statement on oath of Shri. Rajendra Jain recorded during course of search u/s 132 conducted by Revenue against Rajendra Jain Group cases , the additions have been made. It was submitted that the A.O had made the additions without any evidence on record . It was submitted that merely because one of the parties namely M/s. Rajeev Impex from whom purchases were made to whom notices u/s. 133(6) were issued by the AO has not replied to the said notice , the books of accounts were erroneously rejected u/s. 145(3) . It was submitted that no addition can be sustained and prayer is made by learned counsel for the assessee for deletion of the additions as were sustained by learned CIT(A). The Ld. DR on the other hand relied upon the order of the A.O and the pressed for sustaini .....

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he Revenue based upon statement on oath of Shri. Rajendra Jain recorded by Revenue during the course of search proceedings u/s. 132 conducted against Shri Rajendra Jain group cases wherein he admitted that his concerns inter-alia including AVI Exports are engaged in providing bogus accommodation entries wherein only accommodation bills were issued for sale, purchase etc without actually supplying any material physically and the assessee was also beneficiary of the accommodation entry by way of bogus purchase bills to the tune of ₹ 77,70,765/- from AVI Exports wherein the assessee merely obtained accommodation bills towards purchases without actually getting the material physically . The assessee had conceded the legal ground so far as challenge to reopening of the assessment u/s 147 is concerned. The A.O issued notices u/s. 133(6) to AVI Exports as well as Rajeev Impex from whom the assessee had allegedly made purchases . AVI Exports submitted replies along with the copy of the ledger account of the assessee in its books , books of accounts, copy of PAN card, copy of sale bill, confirmation but M/s Rajeev Impex never replied to the notices issued by the AO u/s. 133(6). The as .....

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any change in any accounting policy. The books of accounts are audited under section 44AB of the I T act, 1961. The entire tax audit report is already submitted before AO during assessment proceedings. There were no adverse remark by Tax Auditor. 6.3 It is clear that when the Assessing Officer does not accept the assessee's method of accounting then he has to resort to the provision of sec. 145(3) for computation of income. The Karnataka High Court in the case of Karnataka State Forest Industries Corpn. Ltd. Vs. CIT (1993) 201 ITR 674 has held that the assessing officer's power under section are not arbitrary and he must exercise his discretion and judgement judicially. A clear finding is necessary before invoking the provision sec.145(3) of the I T Act. The Assessing officer has not been able to point out any defect or mistake or error in the books of accounts. He accepted the sales receipts. The Assessing officer has to bring on record the material on the basis of which he has arrived at the conclusion with regard correctness or completeness of the accounts of the assessee or the method of accounting employed by it. The Assessing officer has simply rejected on the basis .....

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a placed before it, the Hon'ble Tribunal noted that the entire cloth of 1,02,514 metres was sold during the year and therefore, accepted the assessee's contention that finished goods purchased by the appellant may not be from the parties shown in the accounts but from other parties. In view of this the Hon‟ble ITAT was of the view that only profit margin embedded in such purchases would be subjected to tax. The Hon'ble Tribunal relied on its earlier in the case of M/s. Saket Steel Traders v. ITO (ITA No. 2801/Ahd/2008 dated 20.05.2008) and also made reference to the decision in the case of Vijaya Protein v. CIT 58 ITD 428 (Ahd.). On appeal by the department the Hon'ble HC of Gujarat, dismissed the appeal. The head note is as under: Income from undisclosed sources - Assessment - Assessee trading in finished fabrics - Whether purchases themselves bogus -Whether parties from whom such purchases were made bogus-questions of fact - Tribunal finding assessee did purchase cloth and sell finished fabrics - Not entire purchase price but profit element embedded in purchases liable to tax- Income tax Act, 1961. The assessee for the assessment year 2005-06 was engaged in .....

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ssessing Officer made additions to the income of the assessee on account of inflated purchase price of oilcakes. The Commissioner (Appeals) held that 25 per cent of the value of the purchase price was not genuine and the addition made by the Assessing Officer was accordingly restricted to 25 percent of the amount paid to the parties from whom the assessing officer had disallowed the entire purchases. On cross appeals by the assessee and the revenue the Tribunal confirmed the order of the Commissioner (Appeals.) The assessee sought modification of the order on the ground that the tribunal had failed to consider various pieces of evidence enumerated by it in the application. The Tribunal rejected the application holding that there was no apparent error or record which would permit the Tribunal to undertake review of its own order. On a reference to the High Court Held that the finding of the Assessing Officer had been accepted by the Commissioner (Appeals) an the Tribunal that the apparent sellers who had issued sale bills were not traceable. The goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases were shown to have be .....

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held that the assessee had made purchases from other parties in the open market. Therefore he retained 30 percent of the purchases cost at the probable profit of the assessee. He reduced the additions from ₹ 41,04,903/- to ₹ 12,31,471/- and deleted the balance of ₹ 28,73,432/-. While doing so he deleted the addition of ₹ 5 lakhs as made by the assessing Officer on the ground that the addition on account of bogus purchase had already been made. The Tribunal was of the opinion that twelve and half percent of the disputed purchases should be retained in the hands of the assessee as business profits. On appeal to the High Court : Held dismissing the appeal that the Commissioner (Appeals) believed that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. That being the position, not the entire purchase price but only the profit element embedded in such purchases could be added to the income of the assessee. In essence the Tribunal only estimated the possible profit out of purchases made through non genuine parties. The estimation of rate of profit return must necessarily vary with the nature of business .....

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ails from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded. There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Born). To this extent I am in view with the appellant, if appellant has fulfilled its onus making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers have not appeared before the A.O. or not complied with the notice u/s.133(6) of the Act. There is a considerable time gap between the period of purchase transaction and period of scrutiny proce .....

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rom the said parties namely AVI Export and Rajeev Impex to reconcile the quantitative records and books of accounts cannot be ruled out . Under these circumstances , we are inclined to confirm aforesaid well reasoned appellate order of the Ld. CIT-A which aimed to make additions to the income by estimating profits embedded in the said alleged bogus purchases which profits the assessee gained by obtaining material from grey market at lower rate while obtaining bills from these parties namely AVI Exports and Rajiv Impex to reconcile records and books of accounts. The profits estimated by the learned CIT(A) appears to be reasonable keeping in view factual matrix of the case and in such type of cases, fair estimation of profits is required to be made which requires some guess work and in our considered view, the estimation made by learned CIT(A) is reasonable and fair as it could not be said to be arbitrary or excessive to call for interference by us and more-so estimation made by learned CIT-A is backed by judicial precedence as is found mentioned in learned CIT(A) appellate order . The learned CIT(A) has rightly relied upon the orders of the Hon ble Courts as is contained in his appe .....

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ed 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 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 .....

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