DCIT 15(2)(2), MUMBAI vs. M/S PREMIER SUPPLIES & SERVICES P LTD, NAVI MUMBAI

O R D E R PER S. RIFAUR RAHMAN (AM)

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., the material within the stipulated time and accordingly the order was cancelled and the assessee company had demanded the return of the advance money. MCPL had returned ₹.8.54 cores out of the above said ₹.10.80 Crores. Out of the balance outstanding MCPL has returned ₹.1.6 crores during the Financial Year 2010-11. It was submitted that still balance of ₹.2.26 crores is yet to be recovered from them.

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., 6. Aggrieved assessee preferred an appeal before the Ld.CIT(A) – 24, Mumbai and before him assessee filed detailed submissions vide letter dated 26.07.2019, for the sake of clarity it is reproduced below: - "A. The appellant has received its own money back At the outset we would like to state that Ld. AO has completely missed out the important facts while passing the assessment order. The fact that the appellant had given an advance of Rs. 10.80 crore to M/s. Manorath Commercial (p) Ltd. in March 2008 for the purchase of 2 Automation PLC machines and the appellant has received Rs.6.94 crore from the M/s. Manorath Commercial (p) Ltd. during the FY.2009-10. This fact was not disputed by the department during the relevant assessment year and department accepted the returned income of the assessee. Therefore, it can be said that appellant has given advance on the basis of purchase order (mentioning all the terms and conditions of transaction) and because M/s. Manorath Commercial has not been able to provide delivery of Automation PLC, appellant has to cancel contract and it started following up from the party for refund of advance money paid. So, after one year or so appellant started receiving amount of advance paid by it. Hence, in our case the question of capability of party to do transaction does arise because appellant is just getting the money it has actually paid during the previous assessment years. The appellant has made all payment through banking channel and thereafter received it through banking channel and all this transaction was related to ordinary course of business activity of appellant. Therefore, if we see on the basis of rationalism and prudency, appellant has only received his own money back and such transaction is already accepted in previous year. Therefore, in our case the question of proving the capability and creditworthiness of party does not arise because the source of money in the first leg of transaction which was paid as advance is genuine and thereafter receiving that money only should also be considered as true and correct. Hence, the question of legality of transaction and its source do not arise in our case. Since the Ld. AO has not given any adverse comments regarding return of advance of Rs.6.94 crore, hence it can be concluded that (A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., the Ld. AO has treated this receipt as genuine receipt and Ld. AO has considered this transaction legal in earlier assessment year. Hence, if this part of the receipt is treated as genuine, then how can the other part of the receipts be considered as bogus. During the course of assessment proceedings the appellant has submitted various details regarding the said transaction to prove its genuineness, like; Copy of Ledger account of Manorath Commercial (p) Ltd.  Bank Statements.  Confirmation of account from M/s. Manorath Commercial (p)  Ltd. Ld. AO after receipt of these details had not asked any new details for the transactions. The Ld. AO had not made any adverse comments regarding the above said details as submitted by the appellant. But in the Assessment order the Ld. AO is mentioning that the appellant had not submitted any details as asked for like purchase order, contract note, make of the machine, purpose of the purchase of the machine. In this regard, we would like to state that, the impugned transaction of the appellant is genuine business transaction and the appellant can provide any information which your honor feels reasonable to prove the genuineness of the transaction. The appellant further submitting the following details which had not submitted before the Ld. AO and which is important for the case are: Copy of Purchase order, Details of the make of the machine, Letter of communication with Delta Steel Company Ltd.(Nigeria), Copy of civil suit for damages filed against Mumbai based company, Purchase Order given by Delta Steel (Nigeria) for supply of Automation system, Communication letters between Premiere Supplies and M/s. Manorath Commercial Pvt. Ltd. Since the above documents was not filed in the assessment proceedings, the same shall be treated as additional Evidences. We request your honour to kindly accept these additional evidences as the same is very crucial for the matter of the appellant and those documents were not asked by the Ld. AO in the reassessment proceedings.

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., B. Ld. AO has framed his opinion by looking into some fragments of the entire transaction and do not placed reliance on the transaction as a whole It is beyond one's imagination how out of the full series of transaction only a part of transaction is termed as "bogus" and that too on the basis of information received from investigation wing. The appellant has not done any vague transaction because purchase and sale or export of electronic machineries or heavy machines is in the ordinary course of its business activities. During the course of its regular business, the appellant had given some business advance to M/s. Manorath Commercial (p) Ltd, part of that advance was returned in FY 2009-10 and some part in 2010-11. It is really unreasonable and fallacious to treat a part of the transaction as bogus merely because of some search and seizer operations made by Investigation wing. Therefore, if we look into the logical premise of the whole issue, it can be said that either the whole transaction should be considered as bogus or full transaction should be treated as genuine and merely questioning the legality of the part of transaction is irrational and groundless. C. Transaction undertaken by the appellant is its "ordinary course of business activity" In this regard, we would like to provide brief description of the business of appellant. The appellant is a esteemed merchant trading company cum export house. It is Supplier of Raw Material, Castable Parts (Molds), Mechanical Parts, Heavy Machinery Plants, Electric Products and Rolling Mill Rolls. The appellant is a renowned export house and eams prosperous revenue essentially from exports. The turnover of the appellant in preceding years is mentioned below S.No. Financial Year Turnover (Sales) in Cr. (Rs.) 1. 2007-08 56.44 2. 2008-09 130.94 3. 2009-10 44.18 4. 2010-11 30.48 Therefore, as a part of its business activity, appellant had placed an order to purchase automation PLC, a brief description about the functioning of this machine is given below: An automation PLC (Programmable Logical Controller) is an industrial computer used for automating factory manufacturing units. It aids in creation of internal logic for factory and assembly line programming. Just like any (A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., commercial computer, a PLC essentially runs on a 'Central Processing Unit or CPU. Similarly, it also has a power supply, programming device, input devices (buttons and switches) and output devices (indicator lights, relays and signaling columns). The PLC is commonly used in civil appliances like washing machines and refrigerators, and for controlling traffic signals and elevators. They are used in many industries to monitor and control production processes and building systems. Hence, it can be seen that above equipment is in line with the business activities performed by the appellant. On perusal of above documents, it is quite clear that the transaction undertaken by the appellant is purely a business transaction. D. The appellant had dealt in identical transactions in the past During the course of assessment proceedings, the appellant has stated the Ld. AO the appellant had also dealt in the identical type of machinery in the past, but the Ld. AO had not considered the arguments of the appellant. Before your honour we are now submitting copy of the documentary evidences which proves that the appellant had dealt the identical transactions in the past. It includes copy of PO, Purchase and Export Sale Invoice of that machinery. Since the same has not been submitted before the Ld. AO, it will be treated as additional evidence. This detail is important to prove the genuineness of the transaction and hence I request your honour to kindly accept the adda evidences. Ld. AO erred in reopening assessment solely on the basis of the report of Investigation Wing & without any independent application of mind. The reopening is proposed only at the instance of information received from ADIT (Inv.), Ahmadabad and it seems that there is no independent application of mind by Assessing officer for reopening of this assessment. As per section 147 of the Income Tax Act, it is the assessing officer who should have reason to believe that income has escaped assessment. Therefore, in the absence of independent satisfaction of assessing officer that income has escaped assessment, the reopening of assessment is bad in law. We rely on the following case decisions in this regard:

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., Akshar Builders & Developers WP No.14490 OF 2018 (Bombay) Facts:- In this case assessee is a partnership firm. For A. Y. 2011-12 assessee filed its return of income and the was accepted by the department u/s 143(1). Thereafter, Ld. AO received some information from Investigation wing (Ahemdabad) that M/s Akshar Builders have received amount of cash from M/s Mudra Real estate as M/s Akshar Builders was also co partner in project of construction '4-D square' in Gandhi Nagar Road, Ahemdabad. Director of M/s Mundra Real estate also stated during recording of statement u/s 131 of the Income Tax Act that M/s Akshar Builders was also co developer in the project of 4- D square'. Hence Ld. AO made addition in income of the amount Rs. 3,54,82,000/- on receiving information that M/s Akshar Builders has received such amount in cash from M/s Mudra Real estate. Then the matter travelled to High Court. Held:- In this case after considering the fact that the Firm M/s Akshar developers (AD) referred in the report of investigation is not related to assessee as the name of assessee partnership firm is Akshar builders and developers (AB&D). So it was held by Hon'ble High Court that : 6. It is thus emerges from the record that the Assessing Officer has merely acted upon the information submitted to him by the investigation wing that there is material to suggest that Mudra had paid cash amount to AB&D whereas, the material collected during the survey against Mudra prima facie suggests such cash payment to AD. This would demonstrate total lack of application of mind on the part of the Assessing Officer. If he had perused the material supplied to him by the investigation wing, he would have immediately noticed that material referred would suggest cash payment to AD and not AB&D i.e. the present petitioner."

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., 8. Petition is disposed of accordingly." CIT vs. SFIL STOCK BROKING LTD [325 ITR 285 (Delhi HC)] Reassessment-Reason to believe-Reopening on directions of superior officers So called reasons recorded by the AO for reopening assessee's assessment comprises mere information received from Dy. Director of IT (Inv.) followed by directions of the very same officer and the Addl. CIT to initiate proceedings under s. 147-These cannot be the reasons for proceeding under s. 147/148 From the so- called reasons it is not at all discernible as to whether the AO has applied his mind to the information and independently arrived at a belief on the basis of the material before him that income had escaped assessment Proceedings under s 147/148 rightly quashed by Tribunal- No substantial question of law arises for consideration. CIT vs. Smt. Vinita Jain [163 TAXMAN 325 (Del. HC)] Section 147 of the Income-tax Act, 1961 Income escaping assessment General - Assessment year 1997-98 - Whether there must be reason to believe warranting issuance of a notice under section 148 by Assessing Officer, if there are no reasons, then entire foundation for initiating proceedings is bad and notice initiating proceedings must be quashed - Held, yes Whether after a foundation based on information is set up, there must still be some reasons which warrant holding of a belief so as to necessitate issuance of a notice under section 148-Held, yes - Whether mere statement of facts in form of a report is not a substitute for reasons that are required to be recorded before issuing a notice under section 148- Held, yes CIT vs. Meenakshi Overseas Pvt. Ltd. [2017 (5) TMI 1428- Del. HC] Reopening of assessment - reasons to believe - Held that: In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'.-the initiation of the proceedings under Section 147/148 to reopen the assessments for the AYS in question does not satisfy the requirement of law. The question framed is (A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., answered in the negative, i.e., in favour of the Assessee and against the Revenue. Where reassessment was resorted to on basis of information from DIT(Investigation) that assessee had received accommodation entry but and there was no independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified. Harikishan Sunderlal Virmani vs. DCIT [88 taxmann.com 548 (Gujarat)] Section 147 of the Income-tax Act, 1961 - Income escaping assessment General (Illustrations) - Assessment year 2009-10 - Reopening of assessment beyond four years on basis of information received from external source, viz., Principal Director of Income Tax (Investigation), was not justified when there was no allegation of assessee's failure to disclose truly and fully material facts necessary for assessment [In favour of assessee] On the basis of the information received from another agency, there cannot be any reassessment proceedings. However, after considering the information/material received from other source, the Assessing Officer is required to consider the material on record in case of the assessee and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon information received from other source, there cannot be any reassessment for the verification. In view of the above settled legal position, we request your good self to quash and set aside the reassessment proceedings. F. Addition of Income cannot be made by solely relying on third party information and without any corroborative evidence Inspite being asked the copy of the statement of these 3d parties, the Ld. AO has not provided the copy of the same. There may be a possibility that the Ld. AO was not having copies of those statements or any other details. If this is right then it means that the Ld. AO has solely relied on the Investigation wing report and not applied his mind or not made independent enquiry about the claim of the appellant. It is again gross violations of rules.

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., Mere entries in the accounts of the third party or statement made by third party were not sufficient to prove that the assessee is indulged in such transactions. We are relying on following case decisions: Amar Singh vs ITO 53 TTJ 692 (Delhi): Where no incriminating documents were found in the premises of the assessee firm but some incriminating papers were found in the premises of the other firm, the addition made on the basis of such papers as found in the premises of another firm was not justified. Kishanchand Chelaram 125 ITR 713 (SC): In this case, Hon'ble Supreme Court had given a principle that Burden of proof was on the department to prove that amount in dispute belongs to the assessee. If the department does not came with material evidence to prove the same, then the same amount cannot be added as undisclosed income of the assessee. ACIT vs Lata Mangeshkar: 97 ITR 696 (BOM) In this case, the assessee, who is an acknowledged play-back singer, disclosing professional receipts of Rs.1,43,650/- Rs. 1,38,251/- and Rs. 1,19,850/ respectively, which were principally based upon the diaries which were maintained by the assessee in which proper entries were made in respect of receipts received by her for the professional work done by her as a play-back singer. From the diaries, M/s.Ghanekar & Co., a firm of chartered accountants, used to write regular accounts. The assessee had produced confirmatory letters from all the producers regarding the correctness of payments shown to have been made by them. ACIT vs. Prabhat Oil Mills 52 TTJ 533 (Ahmadabad) In this case a diary was seized from the premises of a third party which indicated the alleged unrecorded sales made to the party by the assessee. The AO relied only on the entries of the said diary and did not bring on record any corroborative material to prove that such sales were made outside the books. It was held that mere entries in the accounts of third parties were not sufficient to prove that the assessee indulged in such transactions. G. Ld.AO had no 'reason to believe' that income has escaped assessment and notice issued u/s.148 based on suspicion is bad in law and without jurisdiction.

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., This ground is covered in favour of the appellant by the decisions of jurisdictional High Court. PELICAN PORTFOLIO SERVICES PVT. LTD. vs. ITO [97 CCH 142 (Bom. HC)] In this case assesses had filed return and same was processed u/s. 143(1), In the Notice of Reassessment, it was contended that Assessee had evaded tax through Client Code Modification (CCM) in share transactions and create fictitious losses as assessee had failed to disclose fully and truly all material facts necessary for its assessment in terms of provisions of section 147. Hon'ble High Court has observed that "reasons as recorded did not indicate any reason to believe that income chargeable to tax had escaped assessment-Reasons, as recorded hereinabove, merely indicate that there was client code modification which lead to non genuine loss-Reasons did not indicate, how aforesaid facts led to AO having reason to believe that income chargeable to tax had escaped assessment Therefore, prima facie there was absence of link between information obtained and escapement of income chargeable to tax-Thus, reasons, as recorded, did not prima facie indicate reasons to believe that income chargeable to tax had escaped assessment-Contention on behalf of Revenue that this would be done at time of assessment, did not satisfy jurisdictional requirement of AO having reason to believe that income chargeable to tax had escaped assessment at time of issuing the impugned notice. M/s. Coronation Agro Industries Ltd. vs. DCIT 2017 (1) TMI 904 (Bombay HC) Reopening of assessment basis for forming the belief-We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and/or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to (A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., conclude that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. In the above view, prima facie, we are of the view that the impugned notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment. Decided in favour of assessee. H. Decisions relied by the Ld. AO is distinguishable on following grounds In the assessment order, Ld. AO has provided various case laws to contend the issue and also mentioned some self made fundamental tests for applying the provisions of section 68 (unexplained cash credit) of the Act. Ld. AO also mentioned few case laws out of which one of the case law is of apex court in case of Navodya Castle (P) Ltd. vs CIT 230 Taxman 268 (SC), to emphasize upon the three fundamental tests. Here, we want to submit to your honor, that invoking section 68 and applying the above fundamental test does not worth reliance in our case, the Ld. AO had erred in applying section 68. The principles arising out of above mentioned case laws are not relatable in our case. Our case is simply a matter of taking back one's own money. In this case assessee company has received share application money through bogus transactions and due to this they hide all party movement of money involved in that transaction, such conduct arises suspicion in the mind of Ld. AO and hence he checked not only the identification of but also creditworthiness of parties but in our case appellant has totally disclosed every aspect of its transactions and also explained flow of money between the parties which relates to the ordinary course of business. So appellant is only receiving the advance paid to the party. Therefore, it is genuine transaction and does not require any suspicion. Therefore, Case laws relied upon in the assessment order is not relevant in our case. I. Invocation of section 68 in our case, is not correct as per the prevailing provisions of section 68 at the time of relevant financial year Ld. AO in our case, by invoking provisions of section 68 made addition of income without keenly viewing the prevalent provisions of section 68 of the Act. Full Text of Section 68 as per Finance Act 2010 is explained as under:

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., "Cash credits 68. Where any sum is credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the "[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." Hence, it can be seen that asseesee is required to explain the nature and source of sum received by it but Ld. AO has invoked section 68 not on the basis of law prevailing in the relevant financial year but Ld. AO has invoked section by referring into other conditions like identity of creditor, creditworthiness of the creditor and genuineness of the transactions and such conditions were not mentioned in the section earlier. In our case, appellant has explained the source of funds through which it has paid advance as the appellant is export house and was earning substantial revenue during preceding years and has also offered profits in its books. Thereafter, appellant has received refund of advance money. Hence, in our case there is no question of invoking extended version of the section which was not applicable in the appellant's case. In regard to above, we would also like to state that, phraseology of section 68 clearly explains that absence of satisfactory explanation about cash credit but does not mentions the capability and creditworthiness of other parties involved in the transaction, in our case appellant has explained his capability to perform transaction also in case of CIT vs Smt. P.K. Noorjahan 237 ITR 570 (SC), has similar phraseology employs the word "may" and not "shall". Thus, the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of assessee. Ld. AO should also look into corroborative evidence before applying section 68 in any case. We also place reliance on following case laws in this regard: CIT vs Expo Globe India Ltd., (2014) 361 ITR 147 (Del) The provisions of section 68 held not applicable where the share application money and its source had been satisfactorily been explained being a finding of fact

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., Sarogi Credit Corporation v. CIT, (1976) 103 ITR 344, 349- 50 (Pat) The Assessing Officer's rejection, not of the explanation of the assessee, but of the explanation regarding the source of income of the depositor, cannot by itself lead to any inference regarding the non-genuine or fictitious character of the entries in the assessee's books of account. Hence, it at can be easily inferred that Ld. AO has applied those conditions and provisions of section 68 of the Act which is not at all applicable in the appellant's case."

7. After considering the detailed submissions, Ld.CIT(A) dismissed the jurisdictional issue on reopening of assessment and however, with regard to addition u/s. 68 of the Act he deleted the addition considering the facts on record that the assessee has received back, part of its own money paid as advance for purchase of assets in the Financial Year 2007-08, due to cancellation of the purchase order, assessee has received back ₹.6.94 crores during the Financial Year 2009-10 and during this assessment year assessee has receive ₹.1.6 crores, this fact is not disputed by the Assessing Officer and perusal of the record also reveals that nothing contrary to this has been established by the Assessing Officer.

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., 1. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of Rs.1,60,00,000/ made under section 68 of the I.T.Act. 2. "The appellant prays that the order of the Ld CIT(A) on the above grounds be set aside and that of the AO be restored." 3. "The applicant craves leave to add, amend or alter any grounds or add new ground, which may be necessary".

(A.Y. 2011-12) M/s. Premier Supplies & Services Pvt. Ltd., facts were brought to notice of the Assessing Officer and Assessing Officer rejected the same and proceeded to make the additions merely relying on the investigation report without any independent application of mind and further, he applied suspicion and preponderance of probability and proceeded to make additions invoking provisions of section 68 of the Act. Since the facts are very clear that assessee has received its own money from the defaulted supplier and may be the supplier having an account with Central Bank of India it does not mean that the transactions can become doubtful. We are in agreement with the findings of the Ld.CIT(A) and accordingly, we deem it fit and proper not to interfere with the findings of the Ld.CIT(A). Accordingly, grounds raised by the revenue are dismissed.

Order pronounced in the open court on 03rd August, 2022.