LEELABEN KANTILAL PAREKH,MUMBAI vs. INCOME TAX OFFICER WARD 20(2)(1), PIRAMAL CHAMBER, MUMBAI

The present appeal has been filed by the assessee challenging the impugned order dated 27/06/2023, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2011–12.

2. In this appeal, the assessee has raised the following grounds:–

“The Grounds of Appeal mentioned hereunder are without prejudice to one another:-

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 “1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals), NFAC erred in confirming the addition u/s 69C of Rs.10,29,788/- on account of Purchases made from M/s International Trade Agency, without appreciating that said purchases are genuine purchases beyond doubt and supported by sufficient materials, full quantitative stock records have been maintained, all the goods purchased from said party have been backed by corresponding sales which are accepted to be genuine.

2. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals), NFAC erred in confirming the addition with respect to the purchase made from M/s International Trade Agency only because a section 133(6) notice was not delivered/return back.

3. The appellant craves leaves to add, to delete or amend any of the above grounds of appeal at the time of hearing.”

3. Vide application dated 06/12/2023, the assessee filed the following revised grounds of appeal:-

“The Grounds of Appeal mentioned hereunder are without prejudice to one another-

1. The notice issued u/s 148 after obtaining satisfaction of Pr. CIT is bad in law since there was no scrutiny assessment under 143(2) or no prior 147 assessment was done and therefore case is covered u/s 151(2) and therefore the appropriate authority for obtaining the satisfaction was Joint Commissioner of Income Tax. In view of Judgment rendered by Hon'ble Jurisdictional Bombay High Court in case of Aquatic Remedies (P) Ltd. 406 ITR 545 the notice issued U/s 148 is bad in law and consequently assessment mace pursuant to the same needs to be quashed.

2. On the facts and circumstances of the case, the Commissioner of Income Tax Appeals) ought to have appreciated that the reason to believe is formed based on information received from the office of DDIT (Investigation). There is no independent application of the mind, which is not in conformity with the requirement of provisions of section 147 and therefore the order passed pursuant to the same needs to be quashed

3. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals), NFAC erred in confirming the addition u's 69C of Rs 10.29 788 ora Purchases made from M/s International Trade Agency without appreciating that said purchases are genuine purchases beyond doubt and supported by sufficient materials, full quantitative stock records have been maintained, all the goods purchased from said party have been backed by corresponding sales which are accepted to be genuine.

4. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals). NFAC erred in confirming the addition with respect to the purchase made from M/s International Trade Agency only because a section 133(6) notice was not delivered/return back.

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 The appellant craves leaves to add, to delete or amend any of the above grounds of appeal at the time of hearing.”

4. In the aforesaid application, it is submitted that the ground no.1 and ground no. 2 are legal grounds which go to the root of the matter. Accordingly, the assessee sought admission of these grounds in view of the decision of the Hon’ble Supreme Court in NTPC v/s CIT, [1998] 229 ITR 383 (SC). From the perusal of ground no. 1 and ground no. 2, raised by the assessee vide aforesaid application dated 06/12/2023, we find that the assessee has challenged the issuance of notice under section 148 in the absence of approval under section 151 of the Act from the appropriate authority under the Act. Further, the assessee has alleged that there was no independent application of mind by the AO while recording the reasons for reopening the assessment. Since the issues raised by way of revised grounds are legal issues, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon’ble Supreme Court in NTPC (supra).

5. The brief facts of the case pertaining to the issue raised vide revised ground no.1, as emanating from the record, are: The assessee is an individual and for the year under consideration e-filed her return of income on 17/09/2011 declaring a total income of Rs. 6,32,210. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, on the basis of information received from the office of DGIT (Investigation), Mumbai that the assessee is a beneficiary of bogus purchase activity, the proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued on 29/03/2018. As per the information received from DGIT Page | 3

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 (Investigation), Mumbai, M/s International Trade Agency has given bogus purchase bills to the assessee without actual transaction between them. During the hearing, the learned Authorised Representative (“learned AR”) by referring to the reasons recorded for reopening the assessment submitted that the sanction under section 151 for issuing notice under section 148 of the Act was granted by the Principal Commissioner of Income Tax (“PCIT”)-20, Mumbai instead of Joint Commissioner of Income Tax, who was the appropriate authority under the Act. Accordingly, it was submitted that since the sanction to issue notice under section 148 of the Act has not been granted by the appropriate authority, therefore reopening of assessment is unsustainable. On the contrary, the learned Departmental Representative (“learned DR”) by referring to the provisions of section 151 of the Act, as applicable at the time of issuance of notice under section 148 on 29/03/2018, submitted that PCIT, inter-alia, was the appropriate authority for the grant of sanction for issuance of notice under section 148 of the Act.

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 assessment under section 147 of the Act, forming part of the paper book on page 2, we find that the AO obtained the sanction required under the provisions of section 151 of the Act prior to the issuance of notice under section 148 of the Act. The only dispute raised by the assessee vide aforesaid revised ground of appeal is that the said sanction has not been granted by the appropriate authority, which in the present case is the Joint Commissioner of Income Tax and instead the same has been granted by the PCIT, who under the facts and circumstances of the present case was not authorised to grant the approval under section 151 of the Act.

7. Before proceeding further, it is pertinent to note the provisions of section 151 of the Act at the time of issuance of notice on 29/03/2018 under section 148 of the Act. Section 151 of the Act, as existed during the assessment year 2017-18, i.e. at the time of issuance of notice under section 148 of the Act, is reproduced as under:-

“Sanction for issue of notice 151. (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. (3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.”

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 8. Therefore, from the perusal of aforesaid provisions of section 151(1) of the Act, it is evident that in cases where four years have lapsed from the end of the relevant assessment year, Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner of Income Tax are empowered to grant the sanction if they are satisfied on the reasons recorded by the AO that it is a fit case for issuance of notice under section 148 of the Act. Whereas, sub-section (2) of section 151 of the Act deals with cases where notice under section 148 of the Act is to be issued prior to the expiry of the period of four years from the end of the relevant assessment year. Since, in the present case, notice under section 148 of the Act was issued after the expiry of four years from the end of the relevant assessment year, therefore we are only concerned with sub-section (1) of section 151 of the Act, according to which PCIT is empowered to grant the sanction.

“Sanction for issue of notice. 151. (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 [by an Assessing Officer, who is below the rank of Assistant Commissioner [or Deputy Commissioner], unless the [Joint] Page | 6

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice] :

Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of [Joint] Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the [Joint] Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.]

[Explanation.—For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.]”

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 under the old section 151, the approval by Joint Commissioner of Income Tax was required, whereas under the provisions of section 151, as stood at the time of issuance of notice under section 148 of the Act, approval of PCIT is required for issuance of notice under section 148 by the AO after the expiry of four years from the end of the relevant assessment year. Therefore, insofar as the requirement of granting sanction under section 151 prior to issuance of notice under section 148 of the Act is concerned, the same has not changed and even in the assessment year 2017-18 the said jurisdictional requirement continues under the provisions of the Act. The only change is the authority who has been empowered to grant the approval under section 151 of the Act.

“6. Section 151 is in the nature of procedural law. Power to invoke section 147 undoubtedly is subject to issuance of notice under section 148. The manner of issuing such a notice and the requirements to be complied with, with regard thereto, are contained in section 151. If, therefore, an Assess- ing Officer contemplates initiating proceedings under section 147and before he does so since he has to issue a notice under section 148, the requirements as contained in section 151 have to be complied with. These procedural requirements are relatable either to the nature of the original assessment order [whether it was passed under section 143(3) or section 147 or whether it was passed otherwise] and how much period has elapsed between the passing of the original assessment order and initiation of reassessment proceedings under section 147. The law as it presently stands, therefore, has to be pressed into aid to apply the aforesaid procedural requirements for invoking section 147 and, thus, for issuing notice under section 148, the Assessing Officer is supposed to look at the law as it presently stands and apply the same. He has not to go back to a law which stood at a point of time when the original assessment order was passed. Obtaining the approval of a superior officer is procedural in nature. Whether the approval of the Board is to be obtained or that of the Joint Commissioner is not substantive in nature. Therefore, for the purpose of obtaining the approval, the Assessing Officer has to apply the law as Page | 9 Leelaben Kantilal Parekh ITA no.2926/Mum./2023 it stands on the date when he decides, by recording his reasons, to invoke section 147 and, thus, decides to issue notice under section 148. For doing this, he has not to look at the law which stood at a point of time when the original assessment order was passed.

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 relied upon by the learned AR are factually distinguishable. Accordingly, revised ground no. 1 raised by the assessee is dismissed.

“Reason for reopening recorded u/s 147 of the IT Act.

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 various assessees who have taken bogus/hawala/accommodation entries from certain parties to inflate the purchases, resulting in reduction of taxable profit. From the perusal of the aforesaid information, the AO noted that the assessee is one such party and has obtained bogus/hawala purchase bills/entries from the entity named International Trade Agency. Accordingly, the AO recorded the reasons for reopening that income chargeable to tax as indicated by the accommodation bills for purchase to the tune of Rs. 10,29,788 has escaped assessment within the meaning of section 147 of the Act.

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 paragraph, relevant details about the alleged bogus transaction of the assessee were identified. In the last paragraph, the AO has clearly identified the escapement of income, and the satisfaction of the AO is recorded. Thus, there was a “tangible material” on the basis of which the AO applied his mind independently. Hence, it is not correct to state that reopening has been made without independent application of mind by the AO. Thus, when new and tangible material in the form of a report from the DGIT (Investigation), Mumbai was received, we are of the view that the reassessment proceedings were validly initiated. Accordingly, revised ground no. 2 raised by the assessee is dismissed.

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 out the whereabouts of the said party, however it was reported that the said party was not available at the address mentioned in the PAN database of the ITD system. Further, on enquiry in the neighbourhood, it was found that the said party never existed at the given address. The report of the Ward Inspector was brought to the notice of the assessee and the assessee was asked to produce the party for verification and also to produce the stock register, in and out register, delivery challan, lorry receipts, etc. The assessee was also asked to show cause as to why the purchases made from the aforesaid entity should not be treated as bogus and added to the total income of the assessee. However, in the absence of any response from the assessee, the AO vide order dated 30/11/2018 passed under section 143(3) read with section 147 of the Act held that the assessee has taken accommodation entries in the form of bogus purchases. Accordingly, the AO made the addition of Rs. 10,29,788 under section 69C of the Act. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the addition made by the AO under section 69C of the Act.

Leelaben Kantilal Parekh ITA no.2926/Mum./2023 claim of the assessee that all the payments were made by account payee cheque. However, we find that before the lower authorities, the assessee was unable to produce the parties. Even before us, no such detail is available on record. Therefore, from the material available on record it is evident that the assessee has failed to prove the genuineness of the purchases made from the supplier. However, at the same time, the Revenue has not doubted the sales declared by the assessee. Further, it cannot be doubted that without the purchase of material, the assessee cannot carry out the sales. Therefore, it appears to be a case of bogus bills arranged from the aforesaid entity and material purchased from somewhere else at a lower cost. Thus, we are of the considered view that entire bogus purchases cannot be added in such a case. We are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. Therefore, in view of the above findings, we deem it appropriate to restrict the disallowance to 10% of the disputed purchases. We find that the same is also in line with the judgment of the Hon’ble jurisdictional High Court in PCIT vs Paramshakti Distributors Ltd. in of 2017 decided on 15/07/2019. As a result, revised grounds no. 3 and 4 raised by the assessee are partly allowed.