SHRI SURESH CHAND NAHATA,JAIPUR vs. INCOME TAX OFFICER, WARD-1-1, JAIPUR

ORDER

PER VIJAY PAL RAO, JM

‘’1. For that the ld. CIT(A) have grossly erred under the facts and circumstances of the case in upholding the issuance of notice u/s 148 merely on the basis of doubt and suspicion and without having reason to believe.

3.2 The ld.AR of the assessee in his written submission submitted that the solitary ground on which the reassessment proceedings were initiated was the statement of some person named Shri Rajendra Jain, during the search and seizure proceedings by the Investigation Wing, Mumbai who admitted his indulgence in providing the accommodation entries. The liabilities of tax. Therefore, in the absence of any evidence which gives a reason to believe that certain income has escaped assessment, the reopening of the assessment is bad in law and liable to be quashed.

3.3 On the other hand, the ld. DR has submitted that the AO has reopened the assessment on the basis of the information received from the Investigation Wing, Mumbai. The ld. DR further submitted that the AO during the course of assessment proceeding found that the assessee claimed purchases from the parties which were only issuing accommodation bills and were not having any stock available with them.

The reopening was done only after properly recording the reasons and following the due process of law. The ld. DR relied on the order of the Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. vs ITO, 236 ITR 34 and submitted that sufficiency or correctness of the material is not a thing to be considered at this stage of reopening. Thus the ld. DR relied on the order of the ld. CIT(A) qua this issue.

3.4 We have considered the rival submissions as well as the relevant materials available on record. In the case of the assessee, there was no original assessment u/s 143(3) of the Act but the return filed by the received information as well as statement recorded by the Investigation Wing, Mumbai during search and seizure operation in case of Shri Rajendra Jain, Shri Sanjay Choudhary group and Shri Dharmichand Jain group of Mumbai on 03-10-2013. The assessee claimed to have purchased Diamond from the concerns of Shri Rajendra Jain, Group, therefore, based on the information received from Investigation Wing, Mumbai, there was a prima facie material to form the belief that income assessable to tax has escaped assessment. The ld. CIT(A) has considered this issue in para 3.1.2 as under:-

3.1.2 Determination: (i) I have duly considered the submissions of the appellant, assessment order and the material placed on record. The appellant has challenged the reopening of the case u/s 148 of the Act. The appellant contended that the reopening was based on the statement of Shri Rajendra Kumar Jain which cannot be the basis for reopening of the case. From the assessment order, it is noted that the AO reopened the case on the basis of information coupled with follow up investigation. The appellant was claiming purchase from parties which were only issuing accommodation bills and were not having any stocks available with them. The reopening was done after properly recording the reasons and following the due procedure of law. The appellant is challenging the sufficiency of the reasons recorded which cannot be entertained. (ii) It may be mentioned that the Courts cannot look into the sufficiency of the reasons recorded by the AO for reopening the assessment u/s 147 of the Act. Reliance is placed on the decision of Hon'ble Apex Court in the case of 5 Shri Suresh Chand Nahata vs ITO , Ward-1(1), Jaipur ‘Raymond Woollen Mills Ltd. Vs ITO [1999] 236 ITR 34 (SC), wherein it was held by their lordship that: "In this case, we do not have to give final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed." (iii) In the case of Ms Amit Polyprints (P.) Ltd. Vs DCIT 94 taxmann.com 393 [2018] (Gujarat), it was held by the Hon'ble High Court of Gujarat that: "Where reassessment proceedings were initiated on basis information received from Investigation wing that assessee had received certain amount from shell companies working as an accommodation entry provider, reassessment could not be held unjustified"

( i v ) I n t h e c a s e o f M / s J a y a n t S e c u r i t y & F i n a n c e L t d 9 1 taxmann.com 181[2018] (Gujarat), it was held by the held by the Hon'ble High Court of Gujarat that: "initiation of reassessment proceedings on basis of information received from Investigation wing that assessee had received certain amount as a loan from a company, working as entry operator and earning bogus funds to provide advances to various person, was justified" (v) In the case of Rakesh Gupta Vs CIT 93 taxmann.com 271 [2018] (Punjab & Haryana), it was held by the Hon'ble High Court of Punjab & Haryana that:

6 Shri Suresh Chand Nahata vs ITO , Ward-1(1), Jaipur “Where Assessing Officer received information from Principle Director of Income Tax (Investigation) that assessee had received bogus loss from, his broker by client code modification, reassessment on basis of said information was justified" (vi) In the case of ACIT Vs Rajesh Jhaveri Stock Brokers (P.) Ltd [2007] 161 Taxman 316 (SC) /291 ITR 500 (SC)/ [2007] 210 CTR 30 (SC),it was held by the Hon'ble Apex Court that: “So long as the conditions of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings, even when intimation under section 143(1) has been issued ADAM EXPORTS v. DCI-111999] 240 ITR 224 (Guj) distinguished." (vii) In the case of R.K. Malhotra ITO Vs Kasturbhai Lalbhai [1977] 109 ITR 537 (SC), it was held by the Hon'ble Apex Court that: "The intimation which the Income-tax Officer received from the audit department would constitute "information" within the meaning of section 147(b)" (viii) Therefore, in view of the above discussion, it is held that the AO was justified in reopening the case of the appellant for the year under consideration u/s 147 of the Act and was having reason to believe that income had escaped assessment. Hence, this ground of appeal is hereby rejected.’’ Accordingly, in the facts and circumstances of the case, we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue. Thus Ground No. 1 of the assessee is dismissed.

4.1 The Ground Nos. 2 and 3 of the assessee are regarding the rejection of books of account u/s 145(3) of the Act and addition of Rs. 2,15,936/-. assessee wherein the ld.AR of the assessee has asserted that purchases were made from M/s. AVI Exports against proper invoice and payments made by the assessee. The assessee is maintaining regular books of account with stock register. Therefore, the said purchases cannot be held to be bogus merely on the basis of the statement of Shri Rajendra Jain wherein he has made a general statement of his indulgence in providing bogus accommodation entries of sales and purchases but not made an allegation of particular transaction with the assessee. Therefore, the assessee has contended that the basis of rejection of books of account is only a presumption and surmises and not any actual defect in the books of account.

4.3 On the other hand, the ld. DR has relied on the orders of the lower authorities and submitted that once the purchases are found to be bogus then the books of account of the assessee cannot be accepted as giving true state of affairs of the assessee and accordingly the AO has rightly rejected the books of account of the assessee.

4.4 We have considered the rival submissions as well as the relevant materials available on record. At the outset, we note that though the AO ld. CIT(A) has considered the addition in terms of Section 145(3) r.w.s.

144 of the Act and tested the results of the assessee in terms of average g.p. declared by the assessee in the preceding years. The ld. CIT(A) has given the details of the average g.p. and arrived to the conclusion that if the income is estimated based on the average g.p. on the turnover of the assessee then it would be more than the addition made by the AO.

Accordingly, the ld. CIT(A) has restricted the addition to the extent of the amount which was made by the AO. The relevant findings of the ld. CIT(A) at para 3.2.2 (xi) of his order is as under:-

3.2.2…..(xi) Thus, in view of the above judicial pronouncements, after rejection of books of accounts, the past history of the appellant has to be seen, for estimating the profit of the appellant. During the appellate proceedings, the appellat was required to submit its trading results for the last few years, which were submitted and reproduced as under:- Asstt.Year Turnover Gross Profit G.P. Rate 2008-09 36442382.50 3980389.84 10.92% 2009-10 35776809.00 3427241.50 9.58% 2010-11 45224862.97 3800513.41 8.40% Total 117444054.47 11208144.75 9.54%

(xii) It may be mentioned that in the case of CIT Vs Vaibhav Gems Ltd. [2014] 112 DTR 84 (Raj), it has been held by the Hon'ble High Court of Rajasthan that while the past history becomes the relevant basis but if the AO wishes to tinker with the basis of past records, then some flaw has to be found by the 9 Shri Suresh Chand Nahata vs ITO , Ward-1(1), Jaipur AO in making some addition and, in toe instant case under consideration, the purchases to the tune of Rs. 8563,745/- was found to be bogus/unverifiable, which is about 1.92% of the total purchases of Rs. 4,48,73,893/- declared by the appellant. As purchases to the extent of 1.92% were not verifiable during the assessment proceedings and bills were obtained through accommodation entry providers which definitely results in higher GP rate. The higher gross profit will also take into account of the irregularities committed by the appellant in obtaining accommodation entries. The gross profit of 8.40% for the year under consideration is less than the average gross profit of 9.54%. As the turnover of the appellant has increased, the GP ratio is bound to be moderate. However, the fact that there was defect in reporting purchase from parties who are in the business of providing accommodation entries needs to be factorize in estimating the book results. The AO has made an addition of Rs. 215936/- on account of bogus purchase. This addition results in GP ratio of 8.88% which is still far below the average GP rate of 9.54%. In view of the totality of facts and circumstances of the case, no interference is called for and the addition made by the AO is sustained.’’ Therefore, if the income of the assessee is estimated as per well settled proposition of law being the past history of the g.p. declared by the assessee and average of past history as the basis of the estimation then the addition on account of low g.p. for the year under consideration would have been more than the addition made by the AO. Accordingly, we do not find any error or illegality in the impugned order of the ld. CIT(A).

Thus Ground No. 2 and 3 of the assessee are dismissed.

Order pronounced in the open court on 04 /03/2020.