SUNIL PATODIA (HUF),RAMWALDI, KALBADEVI RD. MUMBAI vs. DCIT-CC-7(2), MUMBAI, AAYAKAR BHAWAN,MUMBAI
IN THE INCOME-TAX APPELLATE TRIBUNAL “K(SMC)”
BENCH, MUMBAI
BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
Sunil Patodia (HUF)
Fadia Building No. 3, Caval
Cross
Lane
4
Ramwaldi,
Kalbadevi Road, Mumbai –
400 002, Maharashtra v/s.
बनाम
Deputy
Commissioner of Income Tax, Central Circle –
7(2),
Aayakar
Bhavan,
Mumbai
–
400020,
Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AATHS7949R
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी
Appellant by :
Shri Prateek Jain,AR
Respondent by :
Shri Bhagirath Ramawat, (Sr. DR)
Date of Hearing
30.09.2025
Date of Pronouncement
10.11.2025
आदेश / O R D E R
PER PRABHASH SHANKAR [A.M.] :-
The present appeal arising from the appellate order dated
02.09.2024 is filed by the assessee against the order passed by the Learned
Commissioner of Income-tax, Appeal, CIT(A) 49, Mumbai [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 147
r.w.s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”]dated 19.05.2023 for the Assessment Year [A.Y.] 2018-19. P a g e | 2
A.Y. 2018-19
Sunil Patodia(HUF)
The grounds of the appeal are as under: 1. On the facts and circumstances of the Appellant's case and in law the Ld.CIT(A) erred in confirming the action of ld. A.O in reopening the assessment u/s 147 by issue of notice u/s 148 which is merely due to change of opinion and therefore t he re- opening is bad in law. 2. On the facts and circumstances of the Appellant's case and in law the Ld.CIT(A) erred in confirming the action of ld. A.O. in holding the purchase transaction as non-genuine, merely on the basis of third party's statement, for reasons stated in the impugned order or otherwise. 3. On the facts and circumstances of the Appellant's case and in law the Ld.CIT(A) erred in confirming addition of Rs. 8,06,619/ - on account of alleged bogus purchases, for reasons stated in the impugned order or otherwise. 3. In ground no.1 the assessee has contested the validity of the reopening the assessment u/s 147 of the Act by issue of notice u/s 148, stating it to be merely due to change of opinion and therefore the re- opening is bad in law. 4. We find that the ld.CIT(A) has exhaustively dealt with the matter. It is stated that based on the reasons recorded, the AO reopened the case on the basis of certain report from the DGIT(Inv.) that the assessee had received accommodation entry in the form of bogus purchase from the entities controlled and managed by one Sri Gopal Bhattar. Thus, the reopening was based on tangible material. Placing reliance on various court decision and more specifically on Rajesh Jhaveri Share Brokers P.Ltd 291 ITR 500(SC),Raymond Woolen Mills 236 ITR 34-35(SC),
P a g e | 3
A.Y. 2018-19
Sunil Patodia(HUF)
Nikunj Exim Exports P.Ltd 48 Taxman 20(Bom), he concluded that there was no infirmity in the reassessment proceedings, and dismissed the ground in this regard.
4.1 As stated earlier, we find that of Sri Gopal Bhattar in his statement recorded u/s.131 of the Act, accepted that this company was not doing any actual business and was providing bogus bills/accommodation entries to various beneficiaries and information was passed on that the assessee had taken accommodation entry from entities controlled by him. Thus, it is evident that the department was in possession of fresh information which led the AO to arrive at reasons to believe necessary to invoke the provisions of section 147 of the Act. The Hon’ble Delhi High Court in the case of AGR Investments Ltd. vs.
Addl. CIT (Del) 333 ITR 146 held that that where Assessing Officer had specific information from DDIT (Investigation) as regard transactions entered into by assessee company with a number of concerns which had made accommodation entries and they were not genuine transactions, it could be said that there was material on basis of which notice under section 148 of the Act could be issued. Also in the case of CIT vs. Nova Promoters & Finlease (P) Ltd (ITA No. 342
of 2011) dated 15.02.2012, the Hon'ble Delhi High Court, held that as long as there is a 'live link' between the material which was placed
P a g e | 4
A.Y. 2018-19
Sunil Patodia(HUF) before the AO at the time when reasons for reopening were recorded, proceedings u/s 147 would be valid. The Court also held- “We are aware of the legal position that at the stage of issuing the notice u/s 148 the merits of the matter is not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment.”There is indeed a live link between the information which was available with the AO and his formation of belief that income had escaped assessment.
4.2 It is a settled law that sufficiency of such information cannot be gone into while deciding the issue of validity or reopening. In view of discussed facts of the case and judicial pronouncements on the issue of the reopening of case u/s 147 and issuance of notice u/s 148 of the Act, by the AO, we are of the considered opinion that the AO had sufficient
‘reason to believe’ for reopening of the case u/s 147 by issuing notice u/s 148 of the Act. We may also place reliance on the case of Central
Provinces Manganese Ore Company ltd. (191 ITR 662 SC), wherein the Apex Court interpreted the word “reason to believe”. It was held that, the words “reason” in the phrase “reason to believe” in section 147 of the Act, would mean cause or justification. If the AO has cause or juri iction to know or suppose that income has escaped assessment, he can be said to have reason to believe that income has escaped
P a g e | 5
A.Y. 2018-19
[236 ITR 832], the hon’ble court while interpreting the term 'reason to believe', held that, the word “reason to believe” cannot mean that the AO should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and, if he likes, from any information that he receives. If he discovers 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 of the Act 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, the AO is not required to base his belief on any final adjudication of the matter”.
His formation of belief is not a judicial decision but an administrative decision. It does not determine anything at the initial stage, but the AO has a duty to proceed so as to obtain, what the taxpayer was always
P a g e | 6
A.Y. 2018-19
Sunil Patodia(HUF) bound to pay if the increase is justified at all. The decision to initiate the proceedings is not to be preceded by any judicial or quasi-judicial enquiry. His reasoning may be the result of official information or his own investigation or may come from any source that he considers reliable. His reason is not to be judged by a Court by the standard of what the ideal man would think. He is the actual man trusted by the legislature and charged with the duty of forming of a belief for the mere purposes of determining whether he should proceed to collect what is strictly due by law, and no other authority can substitute, its standard of sufficient reason in the circumstances, or his opinion or belief for his.
Unless the ground or material on which his belief is based, is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. What is, therefore, to be ascertained is, whether the alleged reason really existed, and if it did, whether it was so irrational as to be outside the limits of his administrative discretion with which the AO is invested so as to be really in disregard of the statutory condition.......”.
4.3 In view of the settled principle of law as propounded by the Apex Court as well as by high courts and considering the contention of the reasons recorded for reopening and further clarification of the information made by the revenue, we are of the view that, the Assessing
P a g e | 7
A.Y. 2018-19
Sunil Patodia(HUF)
Officer himself was satisfied with regard to the information and other materials on record, he formed an opinion that, the income had escaped assessment. Therefore, when the information was specific with regard to transactions of accommodation entries entered into by the assessee and the AO had applied his independent mind to the information and upon due satisfaction, led to form an opinion that, the impugned transaction was chargeable to tax has escaped assessment, which facts suggests that, there is live link between the material which suggested escapement of income and information of belief. Under the circumstances, we are satisfied that, there was enough material before the AO to initiate proceedings under section 147 of the Act.
4.4 In the light of the foregoing reasons and considering the facts and circumstances of the present case, we have no hesitation to hold that it could not be said that there was no material or grounds before the AO and the assumption of juri iction on the part of the AO under Section 147 of the Act to reopen the assessment by issuing impugned notice under Section 147 of the Act is without authority of law, which render into the notice unsustainable. Therefore, the assessee failed to make out a case of invalid assumption juri iction u/s 147 of the Act. Therefore, ground no. 1 of the appeal is dismissed.
P a g e | 8
A.Y. 2018-19
Sunil Patodia(HUF)
Ground nos. 2 and 3 pertain to merit of the addition made.In the instant case, the only point of contention is the addition made in respect of certain alleged bogus purchases made from one SVG Style & Textile Company Pvt. Ltd. amounting to Rs 1,67,69,639/-. 6. Briefly stated facts are that the return of income was filed by the assessee declaring total income of Rs.18,51,070/- for the relevant year and the case was reopened u/s. 147 based on information received from the Office of DDIT (Inv.) Mumbai that one Shri Gopal Bhattar, Director of M/s. SVG Style & Textile Company Pvt. Ltd. In his statement recorded u/s.131 of the Act, he accepted that this company was not doing any actual business and was providing bogus bills/accommodation entries to various beneficiaries. Further, it was found that assessee was one of the beneficiaries to whom bogus bills had been issued. In the assessment order, the AO has also incorporated a statement of Shri Gopal Bhattar. Finally, he made an addition after applying Gross Profit rate of 12.5% on purchases made amounting to Rs 1,67,69,639/- from this entity, which worked out to Rs. 20,96,205/-. 7. In the subsequent appeal, the ld. CIT(A) following the judgment of the Hon'ble Bombay High Court in the case of PCIT vs. Mohammad Haji Adam & Co., reported in 103 taxmann.com 459 and P a g e | 9 A.Y. 2018-19
Sunil Patodia(HUF)
Nikunj Eximp Enterprises (P) Ltd., reported in 35 taxmann.com 384
and catena of other decisions of the Tribunal, observed that the addition could be made to the extent of profit element only as done by the AO.
However, he noticed that as per the gross profit working submitted by the assessee, the GP shown on the sales made out of non-genuine purchases was 8.25%. He considered gross profit of the preceeding year at 13.06%. Accordingly, on applying the ratio of the juri ictional High
Court in the case of Mohommad Haji Adam & Co (Supra), he restricted the addition to the extent of gross profit of 4.81%, being the difference of above figures resulting into addition confirmed to the extent of Rs
8,06,619/-.
8. The ld.AR has vehemently contested the addition inter alia claiming that the ld.CIT(A) in the preceding assessment year on identical findings deleted entire addition made on similar line. Per contra the ld.DR relied on the orders of authorities below.
9. We have heard both the parties and also perused the relevant finding given in the impugned orders. The ld. AO had applied GP rate of 12.5% on the purchases. The ld.CIT(A) following the judgment of the Hon'ble Bombay High Court held that the GP rate on purchases which have been accepted to be genuine is to be applied on alleged bogus
P a g e | 10
A.Y. 2018-19
Sunil Patodia(HUF) purchases. The assessee to prove the genuineness of the purchases made from the party filed various details before the AO. The ld.AR has submitted that in the appeal for the AY 2017-18, the ld.CIT(A) on the same set of facts allowed full relief to the assessee. The ld.DR on the other hand has relied on the orders of authorities below. It is also submitted that comparison with the appellate order for AY 2017-18 is misplaced and incorrect.
9.1 We find that the AO himself has made addition to the extent of only the profit element therein. The ld.CIT(A) after taking into account the gross profit rate of preceding year restricted the disallowance to the extent of 4.81% only against 12.5.% adopted by the AO. It appears from the appellate order of AY 2017-18 that though the ld.CIT(A) deleted the addition in toto but the same was based on the same logic as applied in the impugned order by taking into consideration gross profit rate on genuine and non-genuine purchases respectively. Evidently, such conclusion has been accepted by the assessee as it did not contest it further. Therefore, conclusion drawn by the ld.CIT(A) cannot be considered to be unreasonable considering all the relevant facts and the circumstances of the case. We do not find any infirmity therein .In so far as the reliance placed on ITAT decision in the P a g e | 11
A.Y. 2018-19
Sunil Patodia(HUF) case of Patodia Filaments P. Ltd ITA No.5696-99/Mum/2024 is concerned, we find that same to be distinguishable on facts. Accordingly, the addition made is upheld dismissing the grounds of appeal.
10. In the result, assessee's appeal is dismissed.
Order pronounced in the open court on 10/11/2025. NARENDER KUMAR CHOUDHRY
PRABHASH SHANKAR
(न्याययक सदस्य /JUDICIAL MEMBER)
(लेखाकार सदस्य/ACCOUNTANT MEMBER)
Place: म ुंबई/Mumbai
ददनाुंक /Date 10.11.2025
Lubhna Shaikh / Steno
आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयुक्त / CIT
4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT,
Mumbai
5. गार्ड फाईल / Guard file.
सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt.