TMI Blog2017 (9) TMI 1761X X X X Extracts X X X X X X X X Extracts X X X X ..... eveals that the A.O was absolutely aware that it was a case of reopening and not as that of a fresh assessment u/s 147. The approval as contemplated per the mandate of proviso of Sec. 151(1) had not been obtained from the appropriate authority, failing which the very issuance of the notice u/s 148 and the framing of the reassessment u/s 147 r.w.s. 143(3) cannot be sustained and is liable to be quashed. Now when the assessee had substantially discharged the Onus as was cast upon it to prove the genuineness and veracity of the purchases made from the aforesaid supplier parties, therefore, no part of such purchases were liable to be disallowed in the hands of the assessee. We thus not being persuaded to accept the scaling down of the addition by the CIT(A) from 12.5% to 5% of the aggregate value of such purchases, which to our considered view is not supported by any rhyme or reason, thus, set aside the order of the CIT(A) and hold that no addition/disallowance of any part of the purchases claimed by the assessee to have been made from the aforementioned supplier parties was called for in the hands of the assessee. The Ground of Appeal No. 2 wherein the additions made by the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial facts necessary for the purpose of assessment. 1.4 On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in not appreciating the fact as well as law that the proceedings under sec.148 is itself bad in law, void ab-initio, illegal and liable to be quashed. 2. As regard disallowance of ₹ 33,73,126 as unexplained expenditure in respect of 5% of ₹ 6,74,62,523/- of purchases made by the appellant company. 2.1. The learned CIT(A) erred in law and on facts in confirming addition to the extent of ₹ 33,73,126 being 5% of ₹ 6,74,62,523, out of the total addition of ₹ 94,86,917 on account of unexplained expenditure in respect of purchases made by the appellant company. 2.2 The Learned CIT(A) has erred in confirming the action of Assessing Officer in treating the alleged purchases of ₹ 7,58,95,339 made by the appellant company as unexplained expenditure merely on the basis of the suspicious and surmises without any independent inquiry and verification. 2.3. The Learned CIT(A) has erred in confirming the action of Assessing Officer in relying on the statement of Pravin Kumar lain with respect to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trading (I) P. Ltd. ₹ 2,98,29,406/- 2. JPK Trading (I) Ltd. Rs.1,91,92,659/- 3. Newplanet Trading Co. P. Ltd. ₹ 2,68,73,274/- Total Rs.7,58,95,339/- 3. The A.O observed that Shri. Praveen Jain who controlled, managed and operated the aforesaid companies had admitted in his statement recorded on oath under Sec. 132(4) that he had indulged in providing accommodation entries and that the aforesaid companies were paper companies with no real business transactions. It was further observed by the A.O that the directors of the aforesaid companies had also admitted in their respective statements given on oath that they were merely dummy directors and used to sign different papers for nominal consideration given by Sh. Praveen Jain and were unaware of the place of operation, books of accounts and the business carried out by the concerns of which they were directors/proprietors. However, the A.O after perusing the stock records and the copies of the sale bills placed on record by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been issued beyond the period of 4 years from the end of the relevant assessment year, without there being any failure on the part of the assessee company to disclose fully and truly all material facts necessary for the purpose of assessment, therefore, also declined to accept the same. 5. The CIT(A) further deliberating on the addition of ₹ 94,86,917/- sustained by the A.O, observed that it remained as a matter of fact that the assessee despite being afforded sufficient opportunity by the A.O had however failed to substantiate the genuineness and veracity of the purchases which were claimed by the assessee to have been made from the aforesaid supplier parties. The CIT(A) further observed that during the course of the assessment proceedings, the A.O in order to verify the genuineness of the purchase transactions had issued notices u/s 133(6) to the aforementioned supplier parties and had deputed his inspector to serve the same on them, however, as neither of the parties were found at the respective addresses mentioned in the bills, therefore, the said notices remained unserved. That during the course of the appellate proceedings it was averred by the assessee that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuineness of the purchases claimed to have been made from the aforementioned supplier parties along with the bank statements of the said respective parties were not filed before the A.O during the course of the assessment proceedings, therefore, held that the same could not be admitted as additional evidence. The CIT(A) observed that the description of the products mentioned in the sale bills were quite general and could not be irrebutably identified as the same item which was shown by the assessee to have been ultimately sold. That it was further observed by the CIT(A) that the aforementioned parties were found to be operating from the premises of certain entities which were controlled by Sh. Praveen Jain. The CIT(A) finding lapses in the conduct of the assessee to prove the genuineness and veracity of the purchase transactions under consideration, observed that neither the assessee had placed on record documents showing transport of goods, nor had produced the respective parties for examination before the A.O. The CIT(A) in the backdrop of the aforesaid facts was persuaded to be in agreement with the view of the A.O that the assessee had not made any genuine purchases from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssailed the validity of the assumption of jurisdiction by the A.O u/s 147 of the Act . The Ld. A.R. took us through the Reasons to believe on the basis of which the reassessment proceedings for the year under consideration had been initiated (Page 3 of APB ). It was submitted by the Ld. A.R. that a bare perusal of the Reasons to believe revealed that the A.O had merely referred to the information received from the Investigation wing of the income tax department, and dispensing with the statutory requirement of independent application of mind to the material as was there before him, had initiated the impugned reassessment proceedings in the hands of the assessee. It was submitted by the Ld. A.R. that it was a clear case of assumption of jurisdiction by the A.O u/s 147 of the Act on the basis of borrowed satisfaction , which was not sustainable in the eyes of law. The Ld. A.R in order to drive home his aforesaid contention relied on the judgment of the Hon ble High Court of Delhi in the case of Signature Hotels P. Ltd. Vs. ITO and Anr. (2011) 338 ITR 51 (Del). The Ld. A.R. further assailed the validity of the reassessment framed by the A.O on the ground that as in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase before the Hon ble High Court, in the case of the present assessee the sanction which as per the mandate of law was to be issued by the Commissioner of Income Tax, was however obtained from a lower authority, viz. Additional Commissioner of Income Tax. The Ld. A.R in order to fortify his aforesaid contention that the sanction of the appropriate authority before issuing the notice u/s 148 was an indispensable statutory requirement, therein relied on the judgment of the Hon ble High Court of Delhi in the case of CIT Vs. SPL S Siddhartha Ltd (2012) 345 ITR 223 (Del). The Ld. A.R further to buttress his aforesaid contention, also placed reliance on the order of the Hon ble High Court of Bombay in the case of DSJ Communication Ltd. Vs. DCIT, Circle 2(1) and Anr. (CWP No. 722 of 2011, dt 13.09.2012). 8. The Ld. A.R. adverting to the merits of the case submitted that both of the lower authorities had proceeded with on the premises that the assessee had not made purchases of the goods under consideration from the aforementioned parties, but had procured the same from the open/grey market. The Ld. A.R. in the backdrop of the aforesaid facts as had weighed in the mind of the lower a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was afforded to the assessee to cross examine the said party; (ii) the statement of Sh. Praveen Jain stood retracted; and (iii) that no cash trail was established by the A.O to support his conclusion, however, in the backdrop of the aforesaid material facts, he instead of fairly concluding that no addition was liable to be sustained in respect of the purchases which were made by the assessee from the aforementioned parties, viz. (i) M/s Ostwal Trading (I) P. Ltd.; (ii) M/s JPK Trading (I) P. Ltd.; and (iii) M/s Newplanet Trading Co. P. Ltd., had however most arbitrarily sustained the addition to the extent of 5% of the aggregate value of such purchases in the hands of the assessee. It was submitted by the Ld. A.R that now when the assessee had duly discharged the Onus in respect of proving the genuineness and veracity of the purchases made from the aforementioned parties, therefore, no addition was liable to be sustained in the hands of the assessee. Alternatively, it was submitted by the Ld. A.R that even if it was to be presumed, though not admitted, that the assessee had failed to discharge the Onus in respect of the veracity of the purchase transactions under consideration, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation available on record, the assessee company has obtained accommodation entries in the form of bogus purchases during F.Y. 2006-07 relevant to A.Y. 2007-08 from Shri Pravin Kumar Jain and his group companies as mentioned below : Sr. No. Name of the Party Amount of investment (in Rs.) 1. Ostwal Trading (I) P. Ltd. Rs. 2,98,29,406/- 2. JPK Trading (I) Ltd. Rs.1,91,92,659/- 3. Newplanet Trading Co. P. Ltd. ₹ 2,68,73,274/- Total Rs.7,58,95,339/- 3. In view of the above facts, I have a reason to believe that the income to the tune of ₹ 7,58,95,339/- has escaped assessment. 4. The case is required to be reopened under Section 147 of the Income Tax Act, 1961. Sanction may kindly be accorded u/s 151 for issue of notice u/s 148. Sd/- (Jitendra Pawar) Income Tax Officer-9(3)(3), Mumbai Encl: Case records of A.Y. 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef to facilitate initiation of the reassessment proceedings also remains beyond scrutiny of the appellate authorities on the qualitative grounds, who can to the most verify the existence of the nexus between the material available on record and the formation of the belief by the A.O. We are of the considered view that in the present case the satisfaction of the A.O in the impugned Reasons to believe is found to be glaringly absent, pursuant whereto we are unable to uphold the validity of the very initiation of the reassessment proceedings on the said count itself. We would not hesitate to observe that borrowed satisfaction of an authority making available the material/information, which is merely referred to by the A.O without independent application of mind, can by no means be substituted by the satisfaction of the A.O himself. We find that our aforesaid view is fortified by the judgment of the Hon ble High Court of Delhi in the case of Signature Hotels P. Ltd. Vs. ITO and Anr. (2011) 338 ITR 51 (Del), wherein the Hon ble High Court observing that as the A.O had while recording the reasons merely referred to the information received from the Director of Income Tax that cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the term .Reopening Approval/05 cases of ITO 9 (3)(3)/2013-14, dated 21.03.2014 . , and as such had absolutely lost sight of the fact that in discharge of the statutory obligation of obtaining the sanction, a wrong authority who was not vested with the jurisdiction to grant the approval in the case of the present assessee was being approached. Be that as it may, it remains as a matter of fact that the approval as contemplated per the mandate of proviso of Sec. 151(1) had not been obtained from the appropriate authority, failing which the very issuance of the notice u/s 148 and the framing of the reassessment u/s 147 r.w.s. 143(3) cannot be sustained and is liable to be quashed. We find that our aforesaid view stands fortified by the judgments of the Hon ble High Court of Bombay in the case of Ghanshyam K. Khabrani Vs. ACIT and Ors. (2012) 346 ITR 443 (Bom) and DSJ Communication Ltd. Vs. DCIT, Circle 2(1) and Anr. (CWP No. 722 of 2011, dt 13.09.2012). Still further, we find that a similar view had also been arrived at by the Hon ble High Court of Delhi in the case of CIT Vs. SPL S Siddhartha Ltd (2012) 345 ITR 223 (Del). We thus in the backdrop of the facts of the case read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notices issued to them u/s 133(6) could not be served upon them. However, we are of the considered view that not finding of the said supplier parties by the Inspector of Income tax on 26.02.2015, i.e. about 8 years after the expiry of the year in which the purchases were made by the assessee, cannot in isolation form a basis for dislodging the purchases claimed by the assessee to have been made from them. We are further of the view that in the backdrop of the circumstances attending to the facts of the case, viz. information received from the investigation wing, Mumbai, that the assessee was a beneficiary of the accommodation entries provided by Sh. Praveen Jain through various companies and firms controlled, managed and operated by him and his associates, which included the aforesaid supplier parties, would undoubtedly raise serious doubts as regards the genuineness and veracity of the purchases made by the assessee from the said respective concerns. However, now when the CIT(A) had observed that Sh. Praveen Jain had subsequently under oath retracted from his earlier statement, which observation of the CIT(A) had neither been specifically assailed before us by the revenue, nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal before him, or not, however, the exercise of such powers by him are circumscribed by a set of circumstances contemplated in Rule 46A, which needless to say, has to be exercised by him in a judicious manner. We are of the considered view that the affidavits of the supplier parties which the assessee had submitted before the CIT(A) by way of additional evidence goes to the very root of the issue under consideration and only supports the authenticity of the purchases made by the assessee from the said supplier parties. We have given a thoughtful consideration to the issue under consideration and are of the considered view that as the assessee could not obtain the confirmations of the supplier parties till the culmination of the assessment proceedings, therefore, it can safely been concluded that the assessee was prevented by a sufficient cause for producing the said documentary evidence by way of additional evidence before the CIT(A). We thus being of the considered view that the additional evidence furnished by the assessee with the CIT(A), in all fairness should have been admitted by him, therefore, set aside the declining on the part of the CIT(A) to consider the affirma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the supplier parties after the lapse of a substantial time period of more than 8 years from the end of the year in which it had made purchases from the said respective parties, in the backdrop of the cumulative perusal of the documentary evidence placed on record by the assessee, thus, cannot conclusively prove that the assessee had not made any genuine purchases from the said respective parties. We thus are of the considered view that now when the assessee had substantially discharged the Onus as was cast upon it to prove the genuineness and veracity of the purchases made from the aforesaid supplier parties, therefore, no part of such purchases were liable to be disallowed in the hands of the assessee. We thus not being persuaded to accept the scaling down of the addition by the CIT(A) from 12.5% to 5% of the aggregate value of such purchases, which to our considered view is not supported by any rhyme or reason, thus, set aside the order of the CIT(A) and hold that no addition/disallowance of any part of the purchases claimed by the assessee to have been made from the aforementioned supplier parties was called for in the hands of the assessee. The Ground of Appeal No. 2 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, wherein the latter assailing the order of the CIT(A) had raised before us the following grounds of appeal : The following grounds of appeal are without prejudice to one another: 1. As regards the notice of Reassessment u/s. 147/148 of Income-Tax Act. a. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in reopening u/s 148 of the Income Tax Act of the assessment which was completed u/s. 143(3) of the Income Tax Act,1961. b. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Assessing Officer in reopening the case u/s 148 of the IT Act on the basis of the statement of third party, without considering the facts and circumstances of the case. c. The Learned CIT(A) has erred in confirming the action of Assessing Officer in issuing notice u/s 148 beyond the limitation period of 4 years from the end of the relevant assessment year as there is a no failure on a part of the appellant firm to disclose fully and truly all material facts necessary for the purpose of assessment. A notice dated 30.03.2015 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. Delete the addition of ₹ 1,68,656 on account of unexplained expenditure in respect alleged purchased from suspicious dealer being 5% of ₹ 33,08,518. c. Any other relief your honor may deem it. 4. Appellant craves leave to add, alter, amend or delete any of the above grounds of appeal . 20. Briefly stated, the facts of the case are that the assessee company had e-filed its Return of income for A.Y. 2008-09 on 30.09.2008, declaring total income of ₹ 52,66,780/-. The return of income filed by the assessee was processed as such u/s 143(1) of the Act . The A.O was in receipt of information from the Investigation wing of the department that the assessee as a beneficiary had taken accommodation entries and booked bogus purchases through various companies and firms which were controlled, managed and operated by one Sh. Praveen Jain and his associates during the year under consideration, viz. A.Y. 2007-08, as under: S.No. Name of the Party Amount Involved 1. Casper Enterprises Pvt. Ltd. (Earlier known as Ostwal Trading (I) P. Ltd.) ₹ 37,22,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is allowed in terms of our aforesaid observations. 24. The assessee had not raised any contention in respect of the validity of the reassessment proceedings as had been assailed before us by way of Ground of appeal No. 1. We thus dismiss the Ground of Appeal No. 1 as not pressed. 25. The Ground of Appeal No. 3 is disposed of in terms of our observations recorded hereinabove. The Ground of Appeal No. 4 being general in nature is dismissed. 26. The appeal of the assessee is partly allowed in terms of our aforesaid observations. ITA No. 1042/Mum/2017 AY: 2007-08 27. We shall now take up the appeal of M/s Tangent Furniture Pvt. Ltd. for A.Y. 2007-08. The assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal : 1. The following grounds of appeal are without prejudice to one another: 1. As regards the notice of Reassessment u/s. 147/148 of Income-Tax Act. 1.1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in reopening u/s 148 of the Income Tax Act of the assessment which was completed u/s. 143(3) of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified and the same may be deleted. 2.5. The Learned CIT(A), further, failed to the appreciate that the Ld. A.O. has neither rejected the books of accounts of the Appellant nor pointed any discrepancies in the same. The Ld. A.O. also accepted the sales made during the year. Hence, the estimated addition in the said circumstances is unjustified and the same may be deleted. 3. Appellant prays that, a. Set aside the reassessment order passed u/s 143(3) r.w.s 147 of the Income Tax act. b. Delete the addition of ₹ 12,52,331 on account of unexplained expenditure in respect alleged purchased from suspicious dealer being 5% of ₹ 2,50,46,633. c. Any other relief your honor may deem it. 4. Appellant craves leave to add, alter, amend or delete any of the above grounds of appeal 28. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of retail trading of furniture items had e-filed its Return of income for A.Y. 2007-08 on 27.10.2007, declaring total income of ₹ 65,79,279/-. The return of income filed by the assessee was processed as such u/s 143(1) of the Act . The case of the assessee was thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,24,16,070/- of the assessee for the year under consideration, leading to a consequential addition of ₹ 37,86,241/- in the hands of the assessee. 30. The CIT(A) after deliberating on the contention of the assessee in the backdrop of the facts of the case observed that out of the three parties, purchases were claimed by the assessee to have been made from two parties, while for there was a sale transaction in respect of the third party. The CIT(A) though restricted the addition in respect of the purchases in respect of the aforementioned two parties, viz, (i) M/s JPK Trading (I) P. Ltd; and (ii) M/s Ostwal Trading (I) P. Ltd, and thus worked out the impugned purchase transactions at an amount of ₹ 2,50,46,633/- (net of sales tax). The CIT(A) being of the considered view that profit margin of 5% of the aforesaid purchase transactions aggregating to ₹ 2,50,46,633/- would be justified in the case of the present assessee, therefore, restricted the addition/disallowance to an amount of ₹ 12,52,331/-. 31. The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. We find that as the facts and issue involved in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
