SATELITE TRADE IMPEX PRIVATE LIMITED,MUMBAI vs. CIRCLE 5(3)(1), MUMBAI

On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in upholding the reopening of assessment u/s 147 of the Act merely on the basis of information form investigation.

This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the reopening of assessment u/s 147 of the Act. In this regard Ld. AR appearing on behalf of the assessee, reiterated the same arguments as were raised by him before the revenue authorities and also relied upon his written submissions the contents of which are reproduced here in below:

For reopening of the completed assessment, the Ld AO has relied on the information of investigation wing Thane. In this regard it is vehemently submitted that the reason recorded for reopening is bad in law and the order passed pursuant thereto needs to be quashed forthwith in view of the following reasons and facts. The reasons recorded are reproduced hereunder:

The office has received the information from the ITO (Inv.), Unit-IV, Thane on 27.03.2019 in which the office has stated that M/s. Satellite Trade Impex Pvt. Ltd. (PAN: AAKCS6556L) is one of the beneficiary of M/s. Supreme Multitude Pvt. Ltd. However the nature of activities of M/s. Supreme Multitude Pvt. Ltd. is of suspicious nature. Prima facia it appears to be a shell company and is a non filer. The share capital is Rs. 1 Lakh and there is no business activity of the said company. Also the company has not been found existing at its address as per ROC.

We now discuss the provisions of said section alongwith our reply in support of validity issue of notice as under:

1 "The expression "has reason to believe" used in section 147 is very significant and important The belief formed by the AO must not be arbitrary or irrational. It must be based on reasons and cannot merely be on pretence. Circumstances in which belief is formed for escapement of income must actually exist and must not deem to exist. Reason to believe must be honest and not based on suspicion, gossip, rumor or conjecture. It is a settled position of law that though the power conferred under section 147 of the Income-tax Act for reopening the concluded assessment is very wide, the said power cannot be exercised mechanically or arbitrarily

2 Hon'ble Supreme Court in case of ITO V/s. Lakshmani Mewal Das (1976) 03 ITR 437 (SC) held that "the powers of ITO

3 From the perusal of reasons recorded your honour will appreciate that there are no sufficient reasons for reopening of assessment hence it is clear that the Ld AO has initiated proceeding under section 147 based on suspicion and mere pretence and not on any reasoned ground or belief. The so called act of the Ld AO is beyond juri iction as discussed by the Hon'ble higher authorities in the following decisions:

4 Considering the above cases and the ratio laid down therein, Your Honour will appreciate that the Assessing Officer has failed to establish that the assessee did not disclose fully and truly all material facts.

Absence of independent application of mind and absence of tangible material: It is the foremost requirement of law that for reopening of assessment/ completed assessment the Assessing Officer must apply his mind on the material coming in its 7 Satelite Trade Impex Pvt Ltd, Mumbai possession in order to establish the belief that assessable income of the assessee has escaped to assessment. A perusal of the reasons recorded it can be seen that the reopening of the assessment has been done simply on the basis of information received from Investigation Wing. From the reasons recorded it is evident that Ld AO has neither applied his mind independently nor he has brought on record any cogent material/evidence suggesting application of own mind to it & recorded satisfaction that there was reason to believe that income has escaped to assessment. A reading of reasons recorded it is abundantly clear that the Assessing Officer is not in possession of any material/evidence to justify that he had reason to believe for reopening of completed assessment. He only possesses information received by him from ITO(Inv.). Thane and reopened the completed assessment. In absence of any clinching evidence/material the reopening is bad in law and asturbing the completed assessment le bombay out hereinbefore views are covered by the decision of Juri ictional Hon'ble Bombay High 382 11R 93 wherein the court held as under:

In view of our discussion in this judgment and for the reasons stated herein, the notice issued under section 148 of the Act cannot be sustained. Rule is acordingly made absolute and the Writ Petition is granted in terms of prayer clause (a).

Secondly Ld Assessing Officer's belief that income chargeable to tax has escaped assessment relating to assessment year under consideration viz Assessment Year 2012-13 is based on information and statements and no material has been brought on record in the assessment order that there was any material which came to the notice of the department due to which the income chargeable to tax has escaped to assessment, on account of failure on the part of the assessee to disclose fully and truly all material facts. The live link or close nexus, which should be there between the material and the belief which the AO has formed regarding the escapement of the income in the impugned case is missing. Since the Ld AO has not brought on record any valid reason for initiation of reassessment proceeding the same is not valid. Support is taken from the following judgments:

Reopening on Borrowed Information: Without prejudice to the above it is further submitted that the very basis of reopening and consequent assessment is invalid for the reason that reopening has been made on the basis of information received from third

On the contrary, Ld. DR appearing on behalf of the respondent relied upon the orders passed by the revenue authority.

We have heard the counsels for both the parties and perused the material placed on record, judgements cited before us and the orders passed by the revenue authorities.

From the records, we noticed that the case has been reopened by the AO on the basis of credible information received from the Investigation Wing of the Income-tax department that assessee was a ‘beneficiary of accommodation entries’ in the form of bogus purchases of Rs.33,00,000/- lakhs from M/s. Supreme Multi Trade Private Limited, which is a non-filer and is a shell company. It is worth mentioning here that the outcome of the investigation prima-facie indicates that the transaction was not genuine and even otherwise investigation wing is also one of the organ of the income tax department and they had shared the information with the AO during the discharge of their official duties. Hence presumption of correctness is attached to such information. Moreover, there was no scrutiny assessment and assessee failed to disclose fully and truly all the material facts at the time of filing return of income. Therefore, in such circumstances credible information received from the investigation wing was ‘sufficient’ to reopen the case and cannot be held to be without any material basis. Therefore considering the totality of the facts and circumstances, as discussed by us above, this ground raised by the assessee stands dismissed.

In this regard, Ld. AR appearing on behalf of the assessee, reiterated the same arguments as were raised by him before the revenue authorities and also relied upon his written submissions. The contents which are reproduced here in below:

On the basis of information received from Investigation wing the Ld AO reopened the case of the assessee & issued notice u/s 142(1) of the Act & asked to submit various details mentioned therein, which were duly supplied to him, Thereafter the Ld AO asked us to submit details in respect of purchases made from Supreme Multitrade Pvt Ltd. during the year under consideration. In response to the same we submitted all the details asked for viz Name of the party, Address of the party, Ledger a/c, confirmation, Delivery challan, Stock register etc. in respect of purchases made. Inspite of our submitting all the details the Ld AO doubted the purchases made from hereinabove party amounting to Rs.33,00,000/- and treated the genuine purchases as bogus by merely relying on the information of ITO (Inv.), Unit- IV, Thane.

A perusal of the evidences submitted during the course of assessment proceedings Your Honour will admit and appreciate that assessee has provided all the details proving identity & genuineness of goods purchased creditors and the goods. The contention of the Ld AO that purchases made are bogus is incorrect because of the following further facts:

That in respect of all the purchases made and utilization thereof proper records are maintained.

That all the purchases are duly recorded in the regular books of account maintained.

In respect of purchases made from Supreme Multitrade Pvt Ltd. following documentary evidences were submitted to the Ld AO:

That there is not even a single evidence that assessee has received cash back against the payment made. 7. That the assessee has made all payments by account payee cheques and the suppliers have deposited the said cheque in their account. Similarly in respect of sale, a/c payee cheque have been received and the same have been deposited in assessee's Bank a/c conclusively prove the genuineness of the purchases and sales made by it.

That the goods so purchased have been entered in the material inward register and there is corresponding sale. Hence the ordinary rule of law is that apparent state of affairs is true unless the contrary is proved.

All purchase made are supported by respective bills which are duly entered in register maintained for purchases made and have been paid by a/c payee cheques.

Here it will not be out of place to mention that no sales could have been effected if there were no corresponding purchases. A sale could be made only if the goods were available with assessee. It is also pertinent to mention here that corresponding sales have not been doubted by the Ld AO.

During the year under consideration assessee has offered GP of 1.3% and NP of 0.25% which is legitimate and reasonable. Further the corresponding sale on which the assessee has earned GP are not at all in doubt hence the unwarranted additions on account of treatment of genuine purchases as unexplained will lead to absurd result. i.e. the GP will rise to 4.01% which is unheard in this particular industry.

Further, we wish to bring to the kind attention of Your Honours that the Ld AO, during the course of assessment proceedings and in the assessment order, has not doubted or disputed the above evidences placed before him by the assessee. Thus assessee has discharged its onus by providing all the relevant details.S

On the contrary, Ld. DR relied upon the orders passed by the revenue authorities. 9. We have heard the counsel for both the parties and perused the material placed on record, judgements cited before us and the orders passed by the revenue authorities.

From the records, we noticed that after initiating re- opening and during the course of assessment, all the required documents called for by the AO were submitted by the assessee, more particularly the names of parties from whom purchases have been made, complete addresses of the respective parties, ledger account, confirmation of accounts, delivery challans, stock register etc., in respect of purchases made.

And on perusal of the evidences submitted by the assessee during the course of assessment proceedings, we noticed that all the details proving the identity and genuineness of the goods purchased were provided by the assessee. We also took note of the fact that during the year under consideration the assessee purchased goods worth Rs. 8,65,89,605/- and sold the same for the total consideration of Rs. 8,77,54,281/- and out of the total purchases goods worth Rs.33,00,000/- was from Supreme Multi Trade Private Limited. All the purchases have been duly recorded in the regular books of accounts more particularly in respect of purchases made from Supreme Multi Trade Private Limited submitted.

Sample copy of purchase Bills 2. Delivery Challan 3. Corresponding sale bills copy 4. Ledger A/c copy of purchase party in assessee’s books 5. Copy of confirmation 6. Copy of stock register

From the records, we found that all the payments were made through account payee cheques either for purchase or for sale of the goods and no contrary evidence has been brought on record by the AO that assessee had received cash back against the payments made.

We further appreciate that goods so purchased have been entered in the material inward register and there are corresponding sales. Therefore, we can fairly consider that all the above documents prove the genuineness of purchases and sales while keeping in mind the ordinary rule of law that “apparent state of affairs is true, unless the contrary is proved”

One more important aspect of the present case is that no sales could have been effected if there were no corresponding purchases and the fact of the matter is that corresponding sales have not been doubted by the AO. even none of the documents/evidences placed on record as detailed above have been doubted or disputed. Thus, we can safely believe that assessee has discharged his initial onus by providing all the relevant details.

The AO simply relied upon the information received from the investigation wing and neither the said information or statement was shared with the assessee nor anything was brought on record to Controvert or prove the said purchases made by the assessee as in genuine and before coming to adverse conclusion, the AO did not provide any opportunity to cross examine on whose statement or information the AO relied. Which in our view is violation the principles of natural justice and thus the additions based on such statements are not sustainable in law. On this proposition we placed reliance is placed on the following decisions:

We are of the view that, when once assessee has provided all the documentary evidences to prove the transactions carried out to be genuine, then in that eventuality the burden shifts upon the AO to disprove the same and without disproving the same the AO cannot treat the transactions as in genuine merely on the basis of ‘suspicion and surmises’ as held by Hon’ble Supreme Court held as under:

Omkar Sahay Mohemmad Sail 37 ITR 151 (SC) 2. Kishanchand Chelaram Vs. CIT 125 ITR 713 (SC) 3. Umacharan Shaw & Bros. 37 ITR 271 at page 272 (SC)

Hence, in our considered view the additions under such a circumstances are not sustainable. Further the Ld AO relied on the third party statements and stated that it is a mere accommodation entry and treated the genuine purchases as ingenuine in our view the addition based merely on statement are not sustainable as held in the following decision:

अपीलाथ / The Appellant 2. थ / The Respondent. 3. संबंिधत आयकर आयु / The CIT(A) 4. आयकर आयु(अपील) / Concerned CIT 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मुबई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, सािपत ित ////

उप/सहायक पंजीकार ( Asst.