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TMI Blog2023 (7) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... ,18,024 on the ground of alleged lower GP shown during the year. It is, therefore, submitted that the reassessment made by the AO be held to be bad-in-law and the consequential assessment made be cancelled. WITHOUT PREJUDICE TO THE ABOVE, 2. In the CIT (Appeals) further erred in confirming the addition of Rs. 2,41,18,024 made by the A.O on the ground of alleged lower GP of 10.75% as against the G.P. of 15.25% in the immediately preceding year without ensuring the compliance/non-compliance of the pre-conditions prescribed u/s 145(1) or the accounting standards or policies notified u/s 145(2) of the Act. It is submitted that the addition of Rs. 24118024/- made on the ground of lower GP is bad-in- law and on facts of the case as the purchases and sales are supported by quantitative records and the rejection of books of account by the A.O. is also not in accordance with the provisions of section 145(3) of the Act and consequently, the same be deleted and that the assessment may be directed to be modified accordingly. 3. That the CIT(Appeals) further erred in confirming the disallowance in respect of the Employees' contribution to P.F. and ESI aggregating to Rs.85004/- on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of regular books of accounts are carried out by Dinesh Parekh, who is a brother of Shri Suresh Parekh, who is a master mind behind the Hawala racket. Similarly, statement of Shri Kiran Patil, proprietor of M/s. Param Trading Company was recorded on 11.07.2012 in which he categorically stated that he received salary from Shri Dinesh Parekh and he is not aware of any activities carried out under the name of M/s. Param Trading Company and the business activities of M/s. Param Trading Company are being looked being looked after by Shri Suresh Parekh and Shri Dinesh Parekh and he is only a name lender. Shri Suresh Parekh submitted a list of beneficiaries to whom such bills were issued and cash was returned back against cheque received from such beneficiaries towards bills issued. Accordingly, the Assessing Officer formed the view that assessee had debited bogus purchases / expenses from the aforesaid two parties i.e. M/s. Param Trading Company and M/s. RHEEM Tradelink Pvt. Ltd. amounting to Rs. 21,31,49,900/-. Accordingly, since Assessing Officer was of the view that the assessee had debited bogus purchases / expenses from these parties, as is evident from statements recorded of such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words 'reason to believe' cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he covers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, Assessing Officer is not required to base his belief on any final adjudication of the matter. The func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings that he has found out. Therefore, unless it is shown that the Assessing Officer never enquired into the matter at all or that he never honestly believed that a mistake has been made, the result of his investigation and initiation of the proceedings under section 147 cannot be challenged on the ground of want of jurisdiction. The Assessing Officer has to determine the facts and the law in order to give him jurisdiction to proceed and if in the determination of this he goes wrong, proper remedy for the assessee would be to go up in appeal and to have the case referred to the High Court under the provisions of the Act. A writ of prohibition under article 226 could not be issued against the Assessing Officer in such cases. In the instant case from the first assessment it appeared to the Assessing Officer, while making an order in respect of the assessment year 1993- 94, that the amount of taxable income in the form of capital gains in respect of the transfer of the land which was treated as stock-in-trade on 19-9-1990, in favour of the firm and the tax payable thereon not being ascertained, there was escapement of income. Since the Assessing Officer at the first assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rror committed in the first assessment was wrong, the only remedy would be by way of an appeal against his ultimate order and not by a writ of prohibition; for, the Assessing Officer had not assumed jurisdiction not vested in him, but had merely exercised jurisdiction, the existence of which is necessarily involved by the scope of his functions under the Act, pursuant to the said provision of section 147. In view of the facts noted above, it was utterly impossible to say that there was no evidence of primary facts upon which the Assessing Officer might apply his mind and exercise his power and proceed further under the said provision. It was not for the High Court in exercise of its extraordinary jurisdiction under the Constitution, to examine the sufficiency of the reason which led the Assessing Officer to believe that the income had escaped assessment. Under the circumstances, there was no merit in the petition and the same was dismissed." Considering the facts discussed herein above, reassessment notice and order passed by Assessing Officer is valid order and this ground of appeal of the Appellant is dismissed." 6. The assessee is in appeal before us against the order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings. In the case of Raymond Woolen Mills Ltd. vs. ITO 236 ITR 34 (SC), the Hon'ble Supreme Court held that what was to be seen was whether there was prima facie material on the basis of which the department could reopen the case. The sufficiency or correctness of the material was not a thing to be considered at this stage. The Supreme Court held that it could not strike down the reopening of the case in the instant facts and it would be open to the assessee to prove that the assumption of facts made in the notice was erroneous. In the case of Kedarnath Babbar vs. ACIT 139 taxmann.com 129 (Delhi), the Delhi High Court held that where Assessing Officer on perusal of tax evasion petition received from investigation observed that significant sums from over draft account of petitioner was being transferred to the petitioners is not as interest free loan and interest expenses incurred on said over draft was being fraudulently claimed as revenue expenditure to reduce taxable income of the petitioner, since there was prima facie material on record for reopening assumption, issue of reopening notice was justified. In view of the above judicial precedents, the legal pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Param Trading Company and M/s. Rheem Tradelinks Pvt. Ltd. with the assessee, the same were only accommodation entries and in respect of such bills issued, no physical goods were sold to the assessee and further there was no physical movement of goods. In the assessment order, the Assessing Officer observed that it cannot be denied that the assessee had made purchases and had also made sales in respect of certain educational books etc. However, what is doubtful is that such purchases were not made from the aforesaid two parties i.e. M/s. Param Trading Company and M/s. Rheem Tradelinks Pvt. Ltd. The Assessing Officer was of the view that in the facts it was found that the parties were either withdrawing cash after routing some cheques through the above mentioned parties and cash were withdrawn from this account. In short, the cheque payments made by the assessee are finally withdrawn in cash and the some are handed over to the assessee. Accordingly, the Assessing Officer held that the assessee has failed to prove that the purchases made from M/s. Param Trading Company and M/s. Rheem Tradelink Pvt. Ltd. are genuine. This assertion is also supported from the fact that while the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly considered the Assessment Order and the submission filed by the Appellant. The Assessing Officer has referred to information received from The ADIT (Inv.) Unit-III, Kolhapur, vide letter dated 15/05/2014, has intimated that during the course of investigation in respect of cash transactions, certain parties were indulging in Hawala Business. It is found that Assessee Company has obtained bogus bills from Param Trading and Rheem Tradelinks and in turn it has stated to sold to Maharashtra Prathmik Shikshan Parishad, Sarva Shiksha Abhiyan at its various centers. During the course of such investigation, the statement of master-mind of hawala racket Shri Suresh Parekh was recorded. Statements were also recorded Shri Yogesh Maruti Koli, Director of Rheem Tradelink Pvt. Ltd. who in his statement, recorded on 13/07/2012, in reply to Q. No. 5, categorically stated that he is only a name lender and all the business activities including maintenance of regular books of account are carried out by Shri Dinesh Amrutlal Parekh, brother of Shri Suresh Amrutlal Parekh who is master-mind behind the hawala racket. Similarly, statement of Shri Kiran Rajgonda Patil, Prop M/s. Param Trading Co. was rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purchases and sales from the above parties is also very intriguing and complicated. As stated above, the purchases were made from Sangli and the assessee had transported the goods all the way from Sangali to Ahmedabad only for a check and such goods again transported all the way from Ahmedabad to Nasik, Jalgon, Nandurbar, Kohlapur etc. all the stations are in and around Sangli. This all have been done by the appellant for the reason known to him. The facts of the case clearly points to what the A.O. has been dealing in the relevant para of his assessment order. 3.8. The assessee has shown transactions with the entry provider only during the year which resulted in lower G.P. of 10.75%. As stated above, the purchases shown to have been made from Param Trading Company and Rheem Tradelink Pvt. Ltd. amounting to Rs. 21,30,49,900/- which is almost 40% of the total turnover are found to be bogus in nature by the AO. Considering the fact that the assessee has made sales to the government authority, it was held by the A.O. that the purchases shown to have been made from Param Trading Company and Rheem Tradelink Pvt. Ltd. is to inflate the purchases or to reduce the real profit earned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for allowing cross examination to Appellant and addition made without such cross examination cannot be sustained in view of decision of Hon'ble Gujarat High Court in the case of Chartered Speed Pvt. Limited (Tax Appeal No. 126 of 2015, referred supra). The Appellant has also argued that it is engaged in trading and printing of booklets and sales made out of above referred purchases are accepted by Assessing Officer as such and held as genuine sale, corresponding purchase cannot be treated as non- genuine. Even the Tax Audit Report also gives details of opening stock, inward quantity, closing quantity and sales quantity, which are not disputed by Assessing Officer. Once books of account of Appellant are accepted as such, addition of bogus purchase cannot be made. The appellant made a request for admitting the additional evidences under Rule 46A of I.T. Rules, stating that during the course of assessment proceedings, the appellant was unable to submit certain details. The appellant requested to get these verified by AO as the same was not available at the time of assessment proceedings. The same has been admitted as additional evidence in the interest of the natural justice a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome disallowance are required. For similar facts the Hon'ble ITAT Ahmedabad in the case of Gujarat Ambuja Export Ltd Vs. ACIT in IT(SS)A 123, 124 & 481/Ahd/2012 dtd. 17.4.2013 has confirmed the disallowance of such purchases and subsequently this was confirmed by the Hon'ble Gujarat High Court in Tax Appeal No,845/A/2013 vide order dtd.10.2.2014. Thus considering the decisions, it would be fair and reasonable to make the G.P. at 15.25% as taken by the A.O. by applying the G.P. at 15.25% the G.P. works out to Rs. 8,19,18,213/- as against the same the assessee has shown G.P. at Rs. 5,78,00,189/-, the difference of Rs. 2,41,18,024/- is added to the total income. Thus, the addition made by the A.O. of Rs. 2,41,18,024/- is confirmed. The ground of the appellant is dismissed. 10. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) confirming the addition in the hands of the assessee. Before us, the Counsel for the assessee primarily reiterated the arguments which were taken by the assessee before the lower authorities. The Counsel for the assessee submitted that from the facts / evidences placed on record it is evident that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Investigation Department. In this regard, the Hon'ble Calcutta High Court made the following observations in its order:- "The report submitted by the Investigation department could not be thrown out on the grounds urged on behalf of the assessees. The assessees have not been shown to be prejudiced on account of non- furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (Investigation) of all the States of the country. It is thereafter the concerned Assessing Officers have been informed to consider as to the bona fideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department had stated the modus operandi of rigging the prices of penny stocks and generation of capital gain / trading loss therefrom, had to be given due weightage. We further observe, the Pune ITAT in the case of Shri Dinesh Kumar (HUF) vs. ITO 149 taxmann.com 98 (Pune Tribunal) has made the following observations on the reliance which needs to be placed on the report submitted by the Investigation Wing. The relevant extract of the ruling are reproduced below for ready reference:- "9. We also find that Hon'ble Supreme Court in the case of Mc Dowell & Co. v. CTO [1985] 22 Taxman 11/154 ITR 148/47 CTR 126 has given a strong verdict against any such arrangements by stating that "colourable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of taxes by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. In view of Hon'ble Apex Court's verdict, and after examining the entire arrangement as appearing in the facts of this case, it is held that this is merely a colourable device for claiming bogus long term capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase had to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record, an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. The majority opinion after considering surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim about the amount being her winning from races, was not genuine. It could not be said that the explanation offered by the appellant in respect of the said amounts had been rejected unreasonably and that the finding that the said amounts were income of the appellant from other sources was not based on evidence." 15. Now coming to the facts of the instant case, we observe that the Investigation Wing of the Department after detailed enquiry and after taking the statement of various Hawala operators on record and on the basis of evidence furnished by such Hawala operates, had come to the conclusion that the assessee had made bogus purchases from the two parties i.e. M/s. Param Trading Company and M/s. Rheem Tradel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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