TMI Blog2015 (10) TMI 2753X X X X Extracts X X X X X X X X Extracts X X X X ..... s also not aware of the nature of the accommodation entries. In the reasons recorded he has simply mentioned the name of the party and the amount and nowhere has stated the nature of such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. From sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item no. 7; whether the assessment is proposed to be made for the first time, the Assessing Officer has stated 'Yes', and in Column no. 7(a), whether any voluntary return had already been filed and in Column no. 8 (b), date of filing the said return 'NA' has been stated. Thus this is clear case of non-application of mind by the Assessing Officer. The reopening of the assessment is without application of mind and examination of the facts and accordingly the reopening is held to be invalid and accordingly the same is quashed. Bogus purchases - addition to 20% of the purchases as profit earned by the assessee on these purchases by CIT-A - HELD THAT:- The purchases and sales were within the walled city of Delhi where the transportation is by manual driven can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice under section 148 after recording the reasons on 28.3.2013. The Assessing Officer thereafter completed the reassessment whereby an addition of ₹ 13,85,309/- was made by holding that the purchases made by the assessee are bogus. 3. Aggrieved by the order of the Assessing Officer, the assessee came in appeal before the learned CIT(A). It was contended by the assessee that the reopening of assessment is bad in law. It was further contended that the addition made by the Assessing Officer is unsustainable as the assessee has maintained complete books of accounts and in the absence of any defects pointed out therein, no addition could be made. The learned CIT(A) vide impugned order dated 22.12.2014 upheld the action of the Assessing Officer of reopening theassessment. On the issue of addition of entire purchases of ₹ 13,85,309/-, the learned CIT(A) held that the sale made by the assessee have been accepted as genuine by the Assessing Officer and accordingly entire purchases cannot be disallowed keeping more particularly the fact that the payments for the purchases have been made from disclosed sources. The learned CIT(A) was of the view that the total sales cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition to the extent of 20% of such purchases, without there being any basis for the same. 7. (i) On the facts and circumstances of the case, the [earned CIT(A) has erred both on facts in law in confirming that the firms ws Vishnu Trading Company, M/S Shree Shyam Trading Company M/S Shree BankeyBihari Trading Co. are not engaged in the actual business poring the fact. that during the course of the search substantial inventory in respect of the material being purchased by the assessee were found which confirm the fact that this firm was doing actual business. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred both facts in law in rejecting that the inference drawn by the AO merely on the basis of a statement that these firms are not in actual business is baseless and contrary to the facts on record. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts in law in rejecting the conlen.tion of the assessee in ignoring the fact that there being a complete tally of the quantity purchased and sold the allegation that the assessee has not made purchases cannot be sustained. 9. On the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Assessing Officer was having the balance sheet and profit and loss account of the assessee. He ought to have first considered the facts of assessee s case with that of with the information received by it. Only after having applying his mind the Assessing Officer ought to have recorded the reasons. It is a case of non-application of mind and the Assessing Officer reopened the assessment merely on the basis of the direction received from the highe authorities. 6.2 It was further contended that the Joint Commissioner has also nol applied its mind as is evident from the approval given. He has also not looked into the facts of the case so as to have a reason to believe that income has escaped assessment. It was further stated that the above facts can be corroborated from the assessment order itself whereby the Assessing Officer himself has stated that he was not having copy of the statement and other information at the time of recording reasons which was important for him to apply his mind while forming belief of income escaping assessment. In this regard attention was invited to para 3 on page 5 of the assessment order where the Assessing Officer has stated that post reopeni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of reopening of the assessme only a prima facie view has to be taken and there need not be any conclusiv evidences. It was funher submitted that name of the assessee was appearin in the list of the accommodation entries provided and hence Assessing Officer was well within his power to reopen the asSessment. The learned DR further submitted that the learned CIT(A) was justified in rejecting this ground of the assessee. In support thereof the learned DR placed reliance on the judgment of the Hon'ble Supreme Court in the case of Rajesh Jhaveri stock Brokers (P) Ltd.291 ITR 500. 7. I have perused the assessment order, order passed by the learned CIT(A) as well as the paper book. It will be relevant to refer to the reasons Recorded by the Assessing Officer and the approval of the Joint Commissioner of Income Tax which reads as under:- Reasons for the belief that the income has escaped assessment in the case of M/s. unique Metal Ind. For the assessment year 2006-07. A letter bearing F.No. Addl. CIT/(Hq)/(Coord.)/Accommodation entry/2012-13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner of I. Tax, Delhi-I, New Delhi herein forwarding lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dn Sh. Navneet Jain Sh. Vaibhav Jain pertaining to A. Y. 2006-07, it is noted that the following accommodation entries have been taken by the assessee namely M/S Unique Metal Industries:- Sl. No. Accommodation entry provided by Name of party to whom accommodation entry is provided Amount of Accommodation entry 1 Shree Shyam Trading Co. M/S Unique Metal Industries ₹ 2,44,399/- 2 Vishnu Trading Co. M/S Unique Metal Industries ₹ 8,12,542/- 3 Shree BankeyBihari M/S Unique Metal Industries ₹ 3,28,368/- Total amount of entries= ₹ 13,85,309/- Since Sh. Rakeh Gupta Sh. Vishesh Gupta dn Sh Navneet Jain Sh. Vaibhav Jain during the course of assessment proceedings u/s 153A of I. Tax Act have admitted that they have given accommodation entries to the parties whose lists have been provided by them to the ACIT, Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any other material in which these people have alleged to have provided accommodation entries to the assessee. This position gets also corroborated from the facts stated by the Assessing Officer himself in the reassessment order in para 3 page 5 which read as under:- Here it is pertinent to mention that in the intervening period, this office had conversations with the ACIT, Central Circle-10, New Delhi from whom vide this office's letter dated 23.07.2013, 02.09.2013, and 14.10.2013, 06.11.2013, 22.11.2013, 09.12.2013 24.12.2013 and Vide Joint CIT, Range-39, New Delhi's letter dated 16.12.2013, the Following details documents were sought:- (i) Copies of the statements recorded of Sh. Rakeh Gupta Sh. Vishesh Gupta dn Sh. Navneet Jain Sh. Vaibhav Jain in search/post search/assessment proceedings. (ii) Soft copies of the tatements recorded ofSh. Rakeh Gupta Sh. Vishesh Gupta dn Sh. Navneet Jain Sh. Vaibhav Jain in search/post search/assessment proceedings. (iii) Hard copy ofassessment orders passed in these cases for A. Y. 2006-07 (iv) Soft copy of assessment orders passed in these cases for A. Y. 2006-07 (v) Any other detail/document you may dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he name of the party and the amount and nowhere has stated the nature of such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. This fact gets fufther supported from the sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item no. 7; whether the assessment is proposed to be made for the first time, the Assessing Officer has stated 'Yes', and in Column no. 7(a), whether any voluntary return had already been filed and in Column no. 8 (b), date of filing the said return 'NA' has been stated. Thus this is clear case of non-application of mind by the Assessing Officer. It may also be relevant that on page 2 of the assessment order, the Assessing Officer himself has stated that in this case the retum of income for the year under consideration was filed with thig ward on 27.09.2006. These facts clearly demonstrate that the return was with the same ward and at the time of recording of the reasons for reopening the assessment, the Assessing Officer has not looked at the return and in a mechanical way, on receipt of the letter from the CIT, Central-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed What is mentioned is that these companies were used as conduits. The same has not b en referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted Resultantly, the initiation of proceedings under s. 147 and issuance of notice under s. 148 are hereby quashed. 11. Similarly in Signature Hotels (P) Ltd. vs. ITO (2011) 338 ITR 51 (Del) the Hon 'ble Court has also quashed the reopening of the assessment on the ground that the AO did not independently apply his mind to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation and independently arrived at a belief that income has assessment. The Hon'ble Court has held as under:- The first sentence of the so-called reasons recorded by the AO is mere information received from the Dy. Director of IT (Inv.). The second sentence is a direction given by the very same Dy. Director to issue a notice under s. 148 and the third sentence again comprises of a direction given by the Addl. CIT to initiate proceedings under s. 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons : Thus, I have sufficient information in my possession to issue notice under s. 148 in the case of M/S SFIL Stock Broking Ltd. on the basis of reasons recorded as above. From the above, it is clear that the AO referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under s. 148. These cannot be the reasons for proceeding under s. 147/148. The first part is only an information and the second and the third parts of the beginning para of the so-called reasons are mere directions. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be assumed to have been eamed by the assessee over and above what has been declared on such purchases and accordingly she has restricted the addition to 20% of the purchases as profit earned by the assessee on these purchases. 17. It was contended by the learned AR that the action of the learned CIT(A) in estimating the profit at 20% of the purchases is untenable. It was contended that the action of the Assessing Officer in rejecting the books of accounts and holding that the purchases are bogus is legally untenable. In the present case the Assessing Officer as well as learned CIT(A) has relied upon the statement of these persons without even verifying the facts and without allowing assessee an opportunity to cross examining these persons. The Assessing Officer and learned CIT(A) have considered the statement of these persons as a gospel truth, ignoring the fact that these persons, in order to save their own skin, have made such statement and got scot free by getting taxed on a small percentage on accommodation charges. The Assessing Officer as well as learned CIT(A) has ignored the most important aspect that these persons were engaged in the scrap trade. It is not a case wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of survey. These were the sheets which were prepared by the so called alleged accommodation entry providers to save their own skin and hence the same cannot be relied upon and make the sole basis for making addition in the hands of the assessee. 20. It was further submitted that the statement of these persons has been used against the assessee without providing opportunity of cross examination. These persons, as per this statement, are the witnesses of the Revenue and as such onus was upon the Revenue to produce these persons for cross examination. In this regard it was further submitted that the Assessing Officer has gone wrong in shifting onus on the assessee for cross examination. My attention was invited to the assessment order page 16, where these persons have not appeared before the Assessing Officer despite summons being issued by the Assessing Officer. Adverse inference cannot be drawn against the assessee because of non-appearance of these persons consequent to the summons issued by the Assessing Officer. On the contrary, the non-appearance by these persons for cross examination supports assessee s stand that the purchases were genuine and that is why in order to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty sold by it. The learned AR further submitted that the observation made by the learned CIT(A) in this regard are factually incorrectly particularly keeping in view the fact that she herself has stated that the allegation of the Assessing Officer on bogus purchases by making an observation that the dealing is not free from any doubt. 21. On the issue of estimation of profit at 20% the learned AR submitted That the learned CIT(A) has gone wrong in applying the rate of 20%. It was submitted that the VAT applicable on scrap is 4% and the assessee has paid the VAT as is evident from the sales and purchase invoices and accordingly the learned CIT(A) has indulged into surmises by making an observation that assessee would have saved something on the VAT. It was further submitted that the sales and purchases have been made at the prevalent market rate and there is no adverse finding given by the Assessing Offcer regarding understatement of sales or overstatement of the purchase consideration. In the absence of any adverse finding regarding the value of the sales, the learned CIT(A) was not correct in enhancing the profit by 20%. On the issue of invoking provision of section 40A(3) it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed reliance on the statement of Sh. Rakesh Gupta and Sh. Vishesh Gupta and Sh. Naveenet Jain Sh. Vaibhav Jain. Admittedly these statements were recorded at the back of the assessee. Though the copy of the same was provided to the assessee but an opportunity of cross examination has not been allowed to the assessee. The Assessing Officer in this regard has stated that he has issued summons to these persons repeatedly but these persons have not appeared nor has filed the desired details and documents. In the absence of their cross examination and also in the absence of furnishing desired details and the documents it will not be appropriate to substantiate the addition on the basis of the statement. On examination of facts it also transpires that these persons were in the trade of scrap, the same business in which the assessee is enaged. A survey was carried out on these persons and during the course of the survey it is not the case of the department that they were not found not carrying on the same businesS. On the contrary there is evidence on record that these persons were not only in the business of scrap but also stock of scrap was also found with them. 25. The departrnent h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion between the purchases and the sales And the same is fully documented. Thus the AO as well as learned CIT(A) Was not correct in drawing adverse inference against the assessee on this account, I further note that the learned CIT(A) while giving a finding that the purchases are bogus has placed much reliance on the statement of these persons. As discussed hereinabove the statement of these persons cannot be taken on the face of it in view of the surrounding facts. These persons were definitely in the trade. These persons have not appeared before the Assessing Officer despite repeated summons being issued. Had these persons were clean and wanted to stand by their statement given before the Assessing Officer and the affidavit filed, there was no reason for these persons to not to appear and to stand by their statement. I am also of the view that the CIT(A) was not justified in drawing adverse inference on the basis of the transportation. As rightly pointed by the learned AR that these were local movements. The purchases and sales were within the walled city of Delhi where the transportation is by manual driven cans and the charges for the same are debited under the head cartage. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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