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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM
PER PRASHANT MAHARISHI, AM:
In ITA No. 1064/Mum/2019 filed by the assessee raising following grounds of appeal: -
“1. On the facts and circumstances of the case and in law Hon'ble Commissioner of Income Tax (A) erred in confirming validity of re-opening of the assessment under section 147 on the ground or grounds as stated in the appellate order or otherwise.
On the facts and circumstances of the case and in Law the ld. Commissioner of Income Tax (Appeals) (referred as CIT(A)) erred in confirming the ex parte order passed by the Assessing Officer (referred as AO) on the ground or grounds as contained in the appellate order or otherwise.
On the facts and circumstances of the case and in law the Ld. CIT (A) erred in confirming the addition on account of disallowance of expenditure of Rs. 11,29,59,517/- by adopting estimated G.P. Ratio of 12.5% of purchases on the ground or grounds as contained in the appellate order or otherwise.
The Appellant crave leaves to add, amend, alter, modify and or withdraw any of the above grounds of appeal, which are without prejudice to one another.”
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to restrict the disallowance to 12.5% of the total expenditure debited by the assessee of Rs.94.89Crs., on account of purchase disallowed by the Assessing Officer without appreciating the fact that the purchase shown by the assessee are bogus purchase from sister concern."
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to restrict the disallowance to 12.5% of the total expenditure debited by the assessee of Rs.94.89Crs., disallowed by the Assessing Officer without considering the Apex Court decision in the case of M/s. N.K Proteins(SLP No.769 of 2017) wherein Hon'ble Apex Court has concluded that once a findings of fact has been given that entire purchases shown on the basis of fictitious invoices and debited in the P&L account are established as bogus, restricting the addition to a certain percentage goes against the principles of section 68 and 69C of the I.T Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to delete the addition made u/s.68 of the IT Act, 1961 on account of unproved unsecured loans from M/s. Global Paper Impex Pvt. Ltd., of Rs.3,58,07,576/- ignoring the fact that the assessee failed to prove the creditworthiness of the said creditors.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to delete the addition made u/s.68 of the I.T Act, 1961 on account of unproved unsecured loans from Shri Nemchand J. Gala of
The appellant craves leave to amend or alter any ground or add new ground which may be necessary.”
Facts extracted from assessment and appellate order, it is found that assessee is a company who did not file its return of income, and notice under Section 142(1) of the Act was issued on 30 September 2011. In response to that assessee filed return of income on 18th September, 2012 at a loss of ₹1,82,82,029/- .
Subsequently, notice under Section 148 of the Act was issued on 27th March, 2014 for reasons recoded by the ld AO shows that :-
i. There was a tax evasion petition from Department of Central Investigation Bureau of Investigation, Anti Corruption Bureau, Mumbai vide letter dated 27 December 2011. It states that the CBI has investigated and concluded that assessee’s books of account are manipulated and fabricated to suit the personal purposes and diversion of funds for personal purposes. The Chief promoter of reliable group of companies Mr. Nemachand Gala has used Assessee Company. The allegations were;
a. Last return of income of above company is not filed for last two to three years.
b. In All books of accounts, fabrication and manipulation are done at address of company.
c. Company is engaged in manufacturing and financial statements were showing business loss.
d. Entries are recorded on adhoc and arbitrary basis without supporting document
f. Books of accounts till 31st March, 2011 are not recorded and are in process of manufacturing
g. Intentional loss with deliberate intention to default the bank and avoiding the liabilities is the main business of the company
h. Diversion of the funds of the bank
i. Directors and their families acquired huge personal wealth.
j. Significant benami properties acquired in Gujarat
Therefore, ld AO noted that as assessee has not filed return of income, notice under Section 148 of the Act was issued. Ld AO issued several notices. However, nobody turned up and therefore, final show cause notice was issued on 27 February 2015 and there was no response. Accordingly, ld AO passed assessment order under Section 144 read with section 147 of the Act at Total Income of Rs ₹105,85,28,778/- by making following three disallowances / additions:-
i. Expense claimed under various heads disallowed of ₹94,89,69,104/-.
ii. Receipts credited to the bank account of ₹94,49,009/- was added as income
iii. Loan liability outstanding added under Section 68 of the Act of ₹ 11,83,92,694/-.
Assessee preferred the appeal before learned CIT (A) challenging disallowances/additions on the merits as well as against reopening of assessment under Section 147 of the Act. Learned CIT (A)
a. out of the disallowance of the expenses of ₹94,89,69,104/- confirmed the disallowance of ₹11,29,59,517/- and deleted the balance disallowance of ₹83,60,91,587/-.
b. Out of the addition of ₹94,49,009/- because of receipts credited to the bank account deleted the addition.
c. On account of addition u/s 68 of The Act of loan liability of ₹11,83,92,694/-, the addition was deleted. He noted that bank loans of ₹6,91,91,053/- cannot be added under Section 68 of the Act and in other accounts in 11 unsecured loan accounts same are opening balance and further there is no movements by way of credit or debit in 9 accounts, therefore, whatsoever is the credit during the year are very meager. With respect to two accounts he held that in those accounts identity , creditworthiness and genuineness of transaction is proved and therefore, he deleted the addition of ₹11,83,92,694/-.
Therefore, on the reopening of the assessment confirmed by the learned CIT (A) and on disallowance of expenditure confirmed, assessee is in appeal. The learned Assessing Officer is in appeal on the issue of deletion of disallowances/ addition by the learned CIT (A).
On the appeal of the assessee, learned Authorized Representative on the issue of reopening submitted that;
i. Assessee has filed return of income, which is recorded in the assessment order itself. Further, wrong facts are mentioned in the reasons recorded and merely, based on tax evasion petition, the learned Assessing Officer has reopened the assessment. Therefore, reasons to belief are based on borrowed satisfaction.
iii. Mere intimation by the CBI i.e. third party information cannot be the basis of the reopening of the assessment. For this proposition, he relied on the decision of Hon'ble Supreme Court in case of Anirudhsinhji Karansinhji Jadeja v. State of Gujarat, (1995) 5 SCC 302 and Hon'ble Bombay High court in case of Principal Commissioner of Income-tax-5 vs Shodiman Investments (P.) Ltd 422 ITR 337 where it is held that Where Assessing Officer had issued a reassessment notice on basis of intimation from DDIT (Inv.) about a particular entity entering into suspicious transactions, this was clearly in breach of settled position in law that re-opening notice has to be issued by Assessing Officer on his own satisfaction and not on borrowed satisfaction.
iv. On the issue of disallowance, he submitted that assessee has shown a turnover of 91 crores and has claimed expenses of ₹94.89 crores. The learned Assessing Officer has disallowed various expenditure but has taxed the income of the assessee of ₹91 crores.
v. On the disallowance confirmed by the LD CIT (A), he submitted that the accounts are audited and therefore, the disallowance could not have been confirmed by the learned CIT (A). He further submitted that the gross profit chart of the assessee also do not support the confirmation of any addition.
The learned Departmental Representative on the appeal of the assessee supported the order of the learned CIT (A).he submitted that
a. On the issue of reopening of the assessment, he submitted that assessee has not filed return of income and even otherwise, there is no assessment made u/s 143 (3) of the act , therefore, reopening has been validly confirmed.
b. With respect to the argument of the assessee, that there is no addition on the reason recorded under Section 147 of the Act. It was stated that all the additions made by the learned Assessing Officer are based on the reasons recorded, therefore, the decision of the Hon'ble Bombay High Court in case of Jet Airways (supra), do not apply to the facts of the case.
c. He submitted that reopening has been validly initiated by the learned Assessing Officer.
d. On the various disallowances, he supported order of the LD AO and stated that assessee has not given any details to the assessing officer. Therefore, no fault can be found with that order.
We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also perused the paper book filed by the assessee containing 222 pages, which also included the submission made, by the assessee during the remand proceedings.
Now we first come to the appeal of the assessee on the issue of reopening. The appellant is a company engaged in the business of manufacturing and trading of industry papers. The assessee has not filed its return of income on or before the due date u/s 139 (1) of the Act . Subsequently, notice u/s 142 (1) was issued on 4/10/2011 which was responded by filing the return of income on 18/9/2012 declaring loss of Rs 1,82,82,029/–. Subsequently notice u/s 148 of the income tax act was issued on 27/3/2014. On 26/9/2014 assessee submitted a letter stating that original return filed on 18/9/2012 in response to notice u/s 142 (1) may be considered as return filed in response to notice u/s 148 of the act. The reasons
a. It is an admitted fact that assessee has not filed any return of income u/s 139 (1) of the act. Therefore notice u/s 142 (1) of the act was issued to the assessee on 30/9/2011 which was served on assessee on 4/10/2011. This notice was complied on 18/9/2012 by filing the return of income. Thus it is clearly shown that that notice issued u/s 142 (1) of the act was complied with after one year. Thus, it cannot be said that assessee has filed any return of income. Assessee has also not shown that in the notice issued u/s 142 (1) of the act learned assessing officer has granted time to the assessee to
b. As assessee has not filed any return of income for the impugned assessment year, the allegations made in the tax evasion petition forwarded by Central investigation bureau is correct that assessee has not filed the last return of income for at least 2 to 3 years. Even before us it was not shown that assessee has filed any return of income for the earlier years. It was also not shown before the learned CIT – A. Therefore, it is evident that for this assessment year as well as for earlier years no return of income is available with the income tax department.
c. Further, the allegations that the books of accounts are not maintained in the regular course of business of the assessee as alleged in tax evasion petition can also be inferred from the fact that before the assessing officer assessee did not submit any information.
d. The assessee was also issued show cause notices for penalty proceedings u/s 271F as well as show cause notice u/s 276 CC. Despite this, the assessee did not produce relevant details before the assessing officer.
e. Even the basic information like audited annual accounts as well as the tax audit report was not filed. It was also the statement of the assessee that company is closed since last five years and banks have taken possession of the property and there are no activities.
g. Further, for last several years no information is available on the file of the learned assessing officer with respect to the company and its activities, no fault can be found with the assessing officer that he did not carry on any enquiry before issuing a notice u/s 148 of the act.
h. As there is no information with respect to the filing of the return by the assessee company, tax evasion petition on any enquiry by Central bureau of investigation, Mumbai the learned that AO was having a reason to believe that income has escaped assessment.
i. Further, at the time of issue of notice, the adequacy of such reasons cannot be tested. Had that been the case, there would not have been any requirement of making an assessment subsequently. Thus, it is clear that the learned assessing officer is not required to establish escapement beyond any doubt at all at the time of issue of notice u/s 148 of the act.
j. The learned CIT (A) has followed the decision of the honourable Bombay High Court in case of ECGC versus additional CIT in writ petition number 502 of 2012 dated 11/1/2013 wherein the honourable Bombay High Court upheld the reopening of the assessment following the decision of the honourable Supreme Court in assistant Commissioner of income tax versus Rajesh Jhaveri stockbrokers private limited.
k. Further, the investigation made by the Central bureau of investigation is a tangible material available with the assessing officer.
m. With respect to the reliance on the decision of the honourable Bombay High Court in case of Jet Airways (supra), it is apparent that the learned assessing officer has made the addition/disallowances based on reasons recorded by him. Even the CIT – A has also upheld part of the addition/disallowances on such reasons. Therefore, reliance on that decision does not help.
In view of this, we do not find any infirmity in the order of the learned CIT – An in upholding the validity of the reopening of the assessment. Accordingly, ground number 1 of the appeal of the assessee is dismissed.
The learned authorised representative did not press grounds number two of the appeal, did not advance any argument, therefore, it is dismissed.
Ground number 3 is with respect to the disallowance confirmed by the learned CIT – A of ₹ 112,959,517/–. Before the learned assessing officer assessee did not produce any information therefore the learned assessing officer disallowed a sum of ₹ 948,969,104/– being various expenditure debited to the profit and loss account. On appeal before the learned CIT – A relief of ₹ 83,60,09,587/– was granted and the balance disallowance of ₹ 112,959,517/– was confirmed. The learned CIT appeal noted that the major items of the expenditure is a purchase of paper from the sister company specialty
In the result, appeal filed by the assessee is dismissed.
Now we come to the appeal of the learned assessing officer wherein as per ground number 1 and 2 of the appeal are with respect to the restriction of the disallowance of various expenditure by the learned CIT – A to 12.5% of the total bogus purchases made by the assessee. As we have already dealt with this issue in ground number 3 of the appeal of the assessee, for the same reasons that we did not find any infirmity in the order of the learned CIT – A, both these grounds are dismissed.
Ground number 3 and 4 are with respect to the deletion of addition u/s 68 of the act. The briefly fact shows that total addition of liability standing in the books of accounts of the assessee of ₹ 118,392,694/– has been added by the learned assessing officer u/s 68 of the income
We also find that if there are only opening balances in the account and no credit during has been made in these accounts, in absence of any credit during the financial year, the provisions of Section 68 cannot be applied. This has also been deleted rightly by the learned CIT appeal.
However, the grievance of the AO is that the learned CIT – A has erroneously deleted the addition of ₹ 35,807,576/– being credit during the year with respect to the global paper Impex private limited. We find that the global paper Impex private limited is a sister concern where the opening balance in the account was ₹ 28 lakhs and credit during the year were ₹ 35,807,576/– and debited in the account of Rs 2, 49,84,201/– resulting into a closing balance of Rs. 1,36,23,375/–. This is challenged as per ground number 3 that sum of ₹ 35,807,576/– received from this company added by the learned assessing officer u/s 68 of the income tax act should have been upheld by the learned CIT – A. With respect to this account, the learned CIT – A held that assessee has produced the copy of account which shows that the money is transferred from the cash credit account of UCO bank of assessee to global paper Impex private limited and thereafter the money is received back from that party. He noted that these kind of circular transactions are repeated. He also noted that the ultimate source of fund remains the cash credit account maintained in UCO bank.
As per ground number 4 was found that Mr. Nemchand J Gala had the opening credit balance of ₹ 6,969,166/–, ₹ 8,12,600/– was received during the year, ₹ 136,500/– is repaid during the year
On careful consideration of the order of the learned CIT – A we find that global paper Impex private limited has deposited a sum of ₹ 35,807,576/– with the assessee during the year. On this sum the provisions of Section 68 of the income tax act applies, assessee is required to prove the genuineness of the transaction of the sum credited in the books of accounts of the assessee. Assessee has merely submitted income tax return acknowledgement for assessment year 2009 – 10 of the above party wherein the loss of ₹ 35,446,940/– is shown. Further, during the course of remand proceedings only the annual accounts of global paper Impex Ltd were produced by letter dated 28/9/2017. We find that merely producing the confirmation does not prove the genuineness of the loan transaction. Even the finding of the learned CIT – A does not show that how assessee has proved the genuineness of the about transaction, the credit becomes more doubtful when during the course of proceedings before the lower authorities it is established that assessee engaged into only circular trading with the sister concern.
Further with respect to the credit of Nemchand J Gala, the learned CIT – A has deleted the addition stating that he is one of the promoter/director of the entire group and therefore he is identity and genuineness of the transactions are not in doubt. We failed to understand that how this finding has been arrived at by the learned CIT – A as there is no evidence available on record. Merely because a person is a promoter/director of the group, the genuineness of the
In view of this we find that the findings of the learned CIT – A cannot be sustained. Accordingly, the amount credited in the account of global Impex paper private limited and Mr. NJ Gala are required to be added u/s 68 of the income tax act as assessee has failed to prove the genuineness of the transaction. In view of this ground number, 3 and 4 of the appeal of the learned assessing officer are allowed.
In the result, appeal filed by the assessee is dismissed and appeal of the learned assessing officer is partly allowed.
Order pronounced in the open court on 26. 07.2022.
Sd/- Sd/- (KAVITHA RAJAGOPAL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)
Mumbai, Dated: 26. 07.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai