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Income Tax Appellate Tribunal, “SMC” BENCH,
Before: KULDIP SINGH & SHRI AMARJIT SINGH
Appellant by : Shri. Rahul Hakani Respondent by : Shri. Ajay Singh Date of Hearing 12.10.2023 Date of Pronouncement 30.10.2023 आदेश / O R D E R PER AMARJIT SINGH :-
The present appeal filed by the assessee is directed against the order passed u/s 250 of the Income Tax Act, 1961 ([hereinafter “the Act”] by the Learned Commissioner of Income Tax (Appeals)- 20 [hereinafter „the CIT(A)‟] dated 31.03.2016 for A.Y. 2010-11.
Grounds of appeal
of the assessee are as under: REOPENING IS BAD IN LAW P a g e |
2. AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) 1) The learned CIT(A) erred in confirming the validity of reopening of assessment u/s 148 without appreciating that reopening notice was issued on borrowed satisfaction and without any independent application of mind by the Assessing Officer and hence reopening of assessment is bad in law. 2) The learned CIT(A) erred in confirming the validity of reopening of assessment u/s 148 without appreciating that the Assessing Officer wrongly assumed jurisdiction to reopen as income escaping assessment did not exceed Rs 1,00,000/- as alleged bogus purchase of Rs 2,00,000/- was not claimed as a deduction u/s 37 but was capitalised and hence reopening of assessment is bad in law. 3) The learned CIT(A) erred in confirming the validity of reopening of assessment u/s 148 without appreciating that the Assessing Officer has not obtained sanction to reopen in accordance with Section 151 and hence reopening of assessment is bad in law. DISALLOWANCE OF RS 2,00,000/- U/S 37. 4) The learned CIT(A) erred in confirming addition made by Assessing Office u's 37 of Rs 2,00,000/- being alleged bogus purchase from M/s Jainam Trade Corporation though appreciating that Assessee has not claimed any deduction of said Rs 2,00,000/- u/s 37 and hence the disallowance of Rs 2,00,000/- may be deleted. 5) The learned CIT(A) erred in confirming addition made by Assessing Office us 37 of Rs 2,00,000/- being alleged bogus purchase from M/s Jainam Trade Corporation without appreciating that said transaction is genuine as payment is made through banking channels, purchase is proved by documentary evidence and hence the disallowance of Rs 2,00,000/- may be deleted.
P a g e | 3 AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) Without prejudice to Ground No 4 & 5, the learned CIT(A) erred in confirming addition made by Assessing Office u's 37 of Rs 2,00,000/- being alleged bogus 6) purchase from M/s Jainam Trade Corporation without appreciating that entire purchases cannot be added and hence the addition may be restricted to only the profit embedded in the purchases. 7) The learned CIT(A) erred in confirming addition made by Assessing Office u/s 37 of Rs 2,00,000/- being alleged bogus purchase from M/s Jainam Trade Corporation without providing cross examination of said party thereby violating principles of natural justice and hence the disallowance of Rs 2,00,000/- may be deleted. ADDITION U/S 37- RS 13,56,104/- 8) The learned CIT(A) erred in confirming addition made by Assessing Office u/s 37 of Rs 13.56,104/- being 20% of Rs being purchases of February and March 2010 without appreciating that the addition was ad-hoc, same was based on conjectures and surmises, assessee had declared reasonable gross profit and had duly justified the various discrepancies and hence the addition of Rs. 13,56,104/- may be deleted. 9) Without prejudice to ground No 8, the learned CIT(A) erred in confirming addition made by Assessing Office u/s 37 of Rs 13,56,104/- being 20% of Rs 67,80,069/- being purchases of February and March 2010 without appreciating that the addition was on a very higher side and hence the addition may be reduced. 10) The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal
3. Fact in brief that return of income declaring total income at ₹ 9,17,572/- was filed on 29.09.2010. The return of income was P a g e | 4 ITA No. 2305/Mum/2023 AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) processed u/s 143(1) of the Act. Subsequently, the case was reopened u/s 147 of the Act, after recording the reason and notice u/s 148 of the Act was issued on 12.03.2015. The assessment was reopened on the basis of communication received from the office of DGIT Mumbai that as per the information received from the Sale Tax Department assessee had obtained entries of bogus purchases from the following Jainam Trade Corporation – PAN: APUPS9556G - FY. 2009-10 – ₹ 2,00,000/-
During the course of assessment as required by the Ao, the assessee had furnished the copies of bills and ledger accounts of M/s Jainam Trade Corporation. However, the AO stated that the assessee had neither produced the party nor the listed address of the party.
The AO stated that the name of the above suppliers was listed as a entry providers in the office web-site of the Maharashtra Sale Tax Department. In view of the above fact and circumstances the AO observed that the assessee had failed to substantiate its claim of purchases of ₹ 2 lacs, therefore, during the course of assessment the AO has treated aforesaid claim of purchases of ₹ 2 lacs made by the assessee from M/s Jainam Trade Corporation P a g e | 5 AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) as bogus transactions. Therefore the same was disallowed u/s 37(1) of the Act. 6. During the course of assessment the AO also stated that the assessee had not produced bills and vouchers for the purchase of raw materials, therefore, 20% of the total purchase expenditure of ₹ 67,80,069/- for the period of 01.02.2010 to 31.03.2010 amounting to ₹ 13,56,014/- was disallowed and added to the total income of the assessee. The assessee filed appeal before the ld. CIT(A). Ld. CIT(A) has disallowed the appeal of the assessee. 7. During the course of appellate proceedings before us at the outset, the Ld. Counsel referred page. No. 44 of the paper book comprising reason from reopening the assessment u/s 147 of the Act and submitted that in the reason recorded the AO has mentioned that as per the information received from the Sale Tax Authority M/s Jainam Trade Corporation was used for the purpose of issuing bills of accommodation entries. The Ld. Counsel further submitted that the AO has categorically mentioned in the reason recorded that assessee has reduced its taxable profit by obtaining bills of bogus purchases to the amount of ₹ 2 lacs from the said party without actual delivery of goods. The Ld. Counsel pointed out that the AO has reopened P a g e | 6 AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) the assessment merely on the basis of information received from the Sale Tax Department without considering actual fact that assessee has not debited ₹ 2 lacs to its profit and loss account, since the assessee has incurred only capital expenditure as a part of the plant and machinery installed in the newly constructedpremises of the assessee company. The ld. Counsel submitted that reopening of the case on the basis of incorrect satisfaction with material on record is not valid.
On the other hand the Ld. DR submitted that the case was rightly reopened on the basis of information received from the Sale Tax Department that assessee has obtained accommodation entries from M/s Jainam Trade Corporation. The Ld. DR supported the order of the lower authorities.
Heard both the sides and perused the materials on record. During the course of appellate proceedings before us. the Ld. Counsel has discussed the reopening of the assessment. The AO has reopened the assessment on the basis of information received that assessee has obtained accommodation entries to the amount of ₹ 2 lacs from M/s Jainam Trade Corporation to reduce its taxable profit. The extract of reason recorded is reproduced as under:- REASONS FOR RE-OPENING OF ASSESSMENT U/S 147 OF THE INCOME TAX ACT, 1961.
P a g e | 7 AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) The return of income in this case for AY. 2010-11 was filled by the assessee on 29.09.2010 declaring total income at Rs. Nil. The same was processed u/s. 143(1) of the Income Tax Act, 1961 on 15.04.2011 An Information available on record shows that, the director/ Partner/ Proprietor of following Company/Firm/Proprietorship have stated before the Sales Tax Authorities, Mumbai during the course of enquiries conducted and evidence gathered by them that these entities are used only for the purpose, of issuing bills and giving accommodation entries. The details of these companies/ Firms/Proprietorship are as under Sr. No. Name of the PAN F.Y. Amount of Purchase Party Transactions 1. Jainam Trade APUPS9556G 2009-10 2,00,000/- Corporation Total 2,00,000/- In this regard, further enquiries were conducted by the DGIT (INV), Mumbai and a list of beneficiaries from such Hawala Parties were prepared and circulated through the erstwhile CIT- 9, Mumbai. The names of the above mentioned party/parties are also appearing in the list of Hawala Operators made available on the official website of the sales tax department, Maharastra. On pecusal of details received regarding beneficiaries, it was noticed that during the year the assessee M/s CHHEDA SPECIALITIES FOODS PVT. LTD. entered in to purchase transactions with the above mentioned party/parties. From the information it was noticed that the above mentioned parties have only issued bills to the assessee with out actual delivery of goods and actual transactions. Therefore, it is proved that the assessee's books of accounts are not reliable and the assessee has entered into bogus purchase transactions to reduce the P a g e | 8 AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) taxable profit. The total of such bogus purchase works out to Rs. 200,000/- In the view of the above facts, I have a reason to believe that income chargeable to tax amounting to Rs. 200,000/- has escaped assessment, within the meaning of provision of section 147 of Act, 1961- 1961.
The AO has reopened the assessment on the basis of the material that the assessee had entered into purchase transaction with the aforesaid party without actual delivery of goods to reduce its taxable profit during the year under consideration. However, it is undisputed fact that assessee has not entered into the transaction of ₹ 2 lacs as a revenue expenses of purchases to reduce its profits. Actually, the assessee had entered into the transaction of capital expenditure which was not debited to the P&L account, therefore, the assessee had not reduced its taxable profit. We have gone though the copies of invoice bill, copies of machinery account and copies of ledger accounts of the parties placed in the paper book showing that amount of ₹ 2 lacs was capitalized in the books of account of the assessee. It is evident from the copies of ledger account of Jainam Trade Corporation that assessee had incurred such expenses for purchasing of Machinery Manor which was installed in its new factory. The assessee has also filed copies of machinery account demonstrating that the aforesaid expenditure was shown in the P a g e | 9 ITA No. 2305/Mum/2023 AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) machinery accounts. During the course of appellate proceedings before us the Ld. Counsel has also placed reliance on the decision of the Hon‟ble Jurisdictional High Court in the case of PCIT-5 v/s Shodiman Investment Pvt. Ltd. (2018) 93 taxmann.com 153 (Bom.) wherein the Hon‟ble High Court held that reopening notice has to be issued by the AO on his own satisfaction and not on borrowed satisfaction. As per the aforesaid decision, the AO is required to link material with the reason recorded. In the case of PCIT v/s Meenakshi Overseas Pvt. Ltd. [395 ITR 677] in this order the Hon‟ble High Court of Delhi held that where the reason failed to demonstrate link between the tangible material and form of reason to believe income of escaped assessment then consequently reassessment is unjustified. Following the decision of Hon‟ble High Courts we consider that in the case of the assessee the AO had reopened the case on wrong assumption without linking the material with the relevant existing facts of the case. In view of the above facts and findings we consider that proceeding u/s 148 of the act is not valid, therefore, we quash the notice issued u/s 148 of the Act. Since, we have quashed the reopening of assessment, therefore, other grounds of appeal are not required any P a g e | 10 AY 2010-11 Chheda Specialities Foods Pvt. Ltd. Vs ITO 12(1)(4) adjudication and the same left open. Therefore, the appeal of the assessee is allowed. 11. In the result the appeal of the assessee is allowed.