SAMIR PATODIA (HUF),FADIA BUILDING ,RAMWADI, MUMBAI vs. DCIT-CC-7(2),MUMBAI, AAYAKAR BHAWAN,MUMBAI

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.

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

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 appellant 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 whichhad 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. Further, in the case of CIT vs. Nova Promoters & Finlease (P) Ltd (ITA No.

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 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 147of the Act, would mean cause or justification. If the AO has cause or 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 mayultimately 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

3 In view of the settled principle of law as propounded by the Apex Court as well as by high court and considering the contention of P a g e | 7 A.Y. 2018-19 Samir Patodia(HUF) the reasons recorded for reopening and further clarification of the information made by the revenue, we are of the view that, the Assessing 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, impugned purchase 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 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

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 alleged bogus purchases made from one SVG Style & Textile Company Pvt Ltd. amounting to Rs 1,69,43,029/-.

The return of income was filed by the assessee 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, 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 is 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 1,69,43,029/-from this entity which worked out to Rs. 21,17,879/-.

In the subsequent appeal, the ld. CIT(A) following the judgment of the Hon'ble Bombay High Court in the case of PCIT vs.

The ld.AR has vehemently contested the addition. Per contra the ld.DR relied on the orders of authorities below.

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 purchases.

1 We find that the AO 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 5.31% only against 12.5.% adopted by the AO. We do not find any infirmity therein. In so far as the reliance placed on ITAT decision in the 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.

In the result, assessee's appeal is dismissed.