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Facts
The assessee's case for AY 2018-19 was reopened based on information that certain parties had issued bogus invoices. The Assessing Officer (AO) made an addition on account of recalculation of net profit based on party-wise sales and purchases. The CIT(A) restricted the addition.
Held
The Tribunal held that the AO was not justified in making additions based on the rationale of reopening when no addition was made on the specific issue of bogus invoices. Furthermore, the AO's calculation of net profit by excluding VAT from purchases was found to be erroneous, as the assessee followed an exclusive system of accounting. Therefore, the addition sustained by the CIT(A) was not justified.
Key Issues
Whether the AO is justified in making additions beyond the scope of reasons for reopening when no addition was made on those grounds, and whether the AO's method of calculating net profit by excluding VAT was correct.
Sections Cited
147, 144B, 148, 148A(b), 149(b), 151(ii), 145A(ii), 271B, 274, 44AB, 69
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI SUNIL KUMAR SINGH
O R D E R
PER AMARJIT SINGH, ACCOUNTANT MEMBER:
This appeal of the assessee for the assessment year 2018-19 is directed against the order dated 03.10.2024 passed by the ld. Commissioner of Income-tax (Appeal), NFAC, Delhi.
2. Grounds of appeal raised by the assessee are as under:
“1. Not deciding the following grounds of appeal raised while filing the appeal in Form
35. I. The learned assessing officer erred in a. passing the assessment order u/s 147 r/w section 144B. When, the notice issued u/s 148 dt.7.4.22 is bad in law, since, • The alleged income is not represented in the form of an asset, expenditure, an entry in the books [refer section 149(b)] • It was issued [after proceedings u/s 148A(b)] without granting a personal interview and resolving the objections raised thereon.
• The reason for which the assessment was reopened does not persist i.e. no invoices for purchases were received from the referred parties. (*)
• The information on which the AO has relied on for issue of notice u/s 148 itself is incorrect and baseless.
• The notice was not issued in terms of section 151(ii) i.e. issued without obtaining sanction from the specified authority.
(*) instead of this ground, the learned CIT(A) justified the reopening proceedings (ignoring the other grounds) on the basis of “reason to believe” while the ground for appeal never doubted “reason to believe”.
Commenting (at para 5.3.4 of the order) as “under the circumstances, in view of the facts of the case, the AO is directed to restrict the addition to the extent of Rs.2,66,68,077/- being alleged purchases made from M/s. Cannonball Trading Pvt Ltd, which are established as non-genuine purchases.” When your appellants had made no purchases from the said Cannonball Trading Pvt Ltd.
3. Computing the net profit of the business in terms of section 145A(ii) i.e. grossing up the sales by adding the VAT levied on sales while ignoring the grossing up of purchases by VAT levied on purchases.
Adding a sum of Rs.88,12,534/- to sales which in reality is in the nature of reimbursement against the expenditure incurred by your appellant, from the principal for the expenses incurred on their behalf.
Ignoring the correct computation of profit in terms of section 145A(ii) filed with the memo of appeal in Form 35 and also as an attachment with the executive summary filed [as desired by CIT(A)] after the Video conferencing.
Confirming penalty proceeding for notice issued u/s 274 r.w.s. 271B / dismissing the ground no. 3, i.e. “issuing penalty notice u/s 274 r.w.s. 271B” when it is evident from the income tax website that the tax audit report u/s 44AB was uploaded by the tax auditor and confirmed by your appellant.”
“1. The National Faceless Appeal Centre, Delhi (hereinafter referred to as 'NFAC') has failed to appreciate that the notice issued to reopen and the subsequent assessment order are bad in law and void ab initio as no addition has been made on the issues raised in the reasons provided in the notice issued under section 148A(b) of the Act. Hence, the notice issued under section 148 of the Act and the assessment order passed under section 147 r.w.s. 144B of the Act are bad in law therefore, deserves to be quashed and set aside.
2. The NFAC is not justified in passing the impugned order dated 03.10.2024 without appreciating that the assessment order passed under section 147 r.w.s. 144B of the Act is unlawful as the Ld. A.O. lacked the jurisdiction to assess or reassess issues other than the issues in respect of which proceedings were initiated. Thus, the said assessment order passed making without making any additions as per the reasons for the initiation of those proceedings is arbitrary, unsustainable and therefore, bad in law.
The NFAC failed to appreciate that the assessment order under section 147 r.w.s. 144B of the Act is in contravention of the law laid down by the Hon'ble Bombay High Court in CIT v. Jet Airways (1) Ltd. [2011] 331 ITR 236 (Bombay) and hence, the said assessment order is illegal and is bad in law.
4. The Appellant craves leave to add, amend alter and/or debut any of the Grounds of Appeal
.”
4. Fact in brief is that return of income declaring total income of Rs. 3,47,910/- was filed on 29.09.2018. The case was reopened by issuing of notice u/s 148 of the Act on 07.04.2022. The case was reopened on the basis of reasons recorded that information was received from CGST Authorities that M/s. Germanium Trading Pvt. Ltd. and M/s. Gannonball Trading Pvt. Ltd. were engaged in issuing bogus invoices and assessee was one of the beneficiary of bogus invoices/loan from the said parties in the form of bogus invoices of Rs. 1,07,68,328/-.
M/s. Milan Agency A.Y. 2018-19 5. However, during the course of assessment, the assessing officer noticed that as per party wise sales, the assessee had declared total sales amounting to Rs. 36,24,13,765/- whereas in the trading of profit and loss account, the assessee had shown total sales of Rs. 33,24,60,256/-. In respect of purchases, the assessing officer noticed that as per party wise detail, the assessee had shown total purchases to the amount of Rs. 34,89,13,119/- whereas the purchases declared in the trading account was to the amount of Rs. 32,77,88,333/-. The AO was of the view that the assessee had shown the sale amounting to Rs. 36,24,13,765/- and purchase amount at Rs. 32,77,88,333/- as shown in the trading account. Therefore, the AO calculated the net profit of Rs. 2,87,64,189/- and after reducing the net profit of Rs. 3,47,910/- already shown by the assessee, the amount of Rs. 2,87,64,189/- was added to the total income of the assessee.
6. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has directed the assessing officer to restrict the addition to the extent of Rs. 2,66,68,077/- of the purchases made from M/s. Cannonball Trading Pvt. Ltd.
Before us, the ld. Counsel in respect of additional ground filed vehemently contended that no addition has been made on the issues raised in the reason provided in the notice issued u/s 148A(b) of the Act. He further made reliance on the decision of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. (2011) 331 ITR 336 (Bombay). The ld. Counsel also filed paper book comprising copies of details and submission filed before the M/s. Milan Agency A.Y. 2018-19 lower authorities. He submitted that as per accounting standard, the assessee was following an exclusive system and accordingly VAT collection and VAT liability and payment was accounted separately and was not formed part of P&L A/c and the lower authorities has not disputed the details and documentary evidences furnished.
On the other hand ld. DR supported the order of lower authorities.
Heard both the sides and perused the material on record. The case of the assessee was reopened on the basis of information from the CGST Authorities that M/s. Germanium Trading Pvt. Ltd. and M/s. Cannonball Trading Pvt. Ltd. have issued bogus invoices and the assessee has received such bogus invoices. The assessee was asked to submit the detail in respect of bogus invoices of Rs. 1,07,68,326/- received from the above entities and was also asked to show cause and explain by such bogus invoices of Rs. 1,07,68,328/- shall not be treated as unexplained money u/s 69 of the Act. However, the AO has not made any discussion verification and examination of this issue in the assessment order. On the other hand, the AO has made addition of Rs. 2,84,16,279/- on account of recalculation of the net profit on the basis of party wise sale amount of Rs. 36,24,13,765/- furnished by the assessee and purchase amount of Rs. 32,77,88,333/- shown n the trading account of the assessee. It is noticed that without any reason the AO has ignored the corresponding party wise purchase amount of Rs. 34,89,13,119/- to the party wise sale and also not considered M/s. Milan Agency A.Y. 2018-19 the sale amount of Rs. 33,24,60,256/- shown in the trading account. The AO has also not controverted the relevant material submitted during the course of assessment proceedings that the VAT paid on purchases as well as VAT collected on sales was separately accounted and not passed through P&L account. In respect of additional ground of appeal on the validity of order passed u/s 147 r.w.s. 144B of the Act, we have perused the the decision of Hon’ble Jurisdictional High Court in the case of Jet Airways (I) Ltd., 331 ITR 236 (Bombay) 2010 wherein held that effect of section 147 is that the AO has to assess or reassess such income that has escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. Since in the case of the assessee the AO had not made addition on the issue of bogus invoices as alleged to be obtained from M/s. Cannonball Trading Pvt. Ltd. and M/s. Germanium Trading Pvt. Ltd. on the basis of which the case was reopened as escaped assessment therefore following the decision of Hon’ble Jurisdiction as discussed supra, the AO is not justified in making the other addition as discussed above in this order.
10. On merit of the addition, we also noticed that AO has not controverted the detailed submission filed by the assessee demonstrating that it had followed exclusive system of accounting as per which both sales and purchases were accounted in the trading of P&L A/c by excluding VAT etc. Therefore, we do not find any merit in the action of the assessing officer of taking the gross M/s. Milan Agency A.Y. 2018-19 sales as shown in the party wise detail filed by the assessee and taking the corresponding purchase amount shown in the trading and P&L A/c without taking the similar detail of party wise purchases submitted by the assessee. Therefore, we find merit in the submission of the assessee and consider that addition sustained by the ld. CIT(A) is not justified. Accordingly, ground no. 3 of the appeal of the assessee is allowed.
Since, we have allowed the additional ground of appeal and ground no. 3 of the main grounds of appeal therefore other grounds of appeal filed become academic and left open.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21.02.2025.