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 assessee filed its return of income on 28.09.2012 declaring total income at Rs.3,18,645/-

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. The quantum of transaction of M/s. Satellite Trade Impex Pvt. Ltd. (PAN: AAKCS6556L) in A.Y. 2012-13 with M/s. Supreme Multitude Pvt. Ltd. is of Rs.33 Lakhs. Thus I have reason to believe that income of Rs.33,00,000/- chargeable to tax has escaped assessment for F.Y. 2011-12 within the meaning of section 147 of the Income Tax Act. Before proceedings further it is worthwhile to first discuss the provision of said section which reads as under: Income escaping assessment. "147. If the [Assessing] Officer [has reason to believe] that any chargeable to tax has escaped assessment for any assessment year, he income may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant

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 Reasons recorded for re-opening of the assessment does not mention whether income has escaped to assessment. It just says that Information has been received from Investigation Wing that the purchases made from M/s Aadi Impex and M/s Kalash Enterprises are mere an accommodation entry. However, during the course of assessment proceedings all details related to purchases made such as Confirmation, Copy of Return of Income filed, copy of PAN card, sample bill copy, affidavit etc of the purchase creditors were duly provided to the Ld AO which he found to be genuine. Inspite of that Ld AO treated the purchases as non genuine merely on suspicion, which is not permissible for reopening of completed assessment. In this connection support is taken from the following decision:

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 to reopen assessments though wide are not plenary. The words of statute are "reason to believe" and not "reason to suspect".

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: a In CIT vs. Kelvinator of India Ltd. [2010] 1 Taxmann 27 the Hon'ble Apex Court has held that "Where the Assessing Officer has reason to believe that income has escaped assessment, it confers juri iction to re- open the assessment. Therefore, post-1st April, 1989, power to re- open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" falling which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re- open assessments on the basis of "mere change of opinion", which cannot be per se reason to re- open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re- assess. But re-assessment has to be based on fulfilment of certain pre- condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. b. "The Hon'ble Delhi High Court has held in the case of Bawa Abhay Vs. DCIT 253 ITR 83 that the crucial expression u/s 147 of the Act is "reason to belief" It contemplates existence of reasons on which the belief is founded not merely a belief in the existence of reasons inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. The Hon'ble Calcutta High Court has held in the case of Berger Paints India Ltd. v. Assistant Commissioner of Income-tax, 266 Hon'ble Patna High Court has held in the case of Commissioner of Income-tax v. Agarwalla Brothers, 189 ITR 786(Pat) that it is only the recorded reasons which can indicate why the AO was made to believe that the income has escaped assessment for the relevant assessment year. It is not authorized to refer to any other reason even if it can be otherwise inferred and/or gathered from the reports. The Hon'ble Allahabad High Court has also held 77 that w/s 147 of the Act the words "has reason to believe" and not "reason to suspect". ITAT Delhi Bench T™™ in the case of ACIT vs. Star Ferro Alloys Pvt. Ltd. 90 ITD 63 has held that proceedings_w/s 147 of the Act could not be resorted to for making roving inquiries.

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 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 cov ered by the decision of Juri ictional Hon'ble Bombay High 382 11R 93 wherein the court held as under: .....In the facts of the present case, dividend received by the Petitioner does not arise from the transfer of units of the mutual fund but arises by virtue of the fact that those units were held by the Petitioner. In fact, on the transfer of the units of the mutual fund, the Petitioner had sustained a loss for which it claimed a deduction which was initially disallowed by the Assessing Officer in the block assessment proceedings and which order of the Assessing Officer was overturned by the ITAT by its order dated 28th February, 2006 in WP2665.07.docx. We are therefore clearly of the view that the Assessing Officer could have no reason to believe that the dividend income earned by the Petitioner from the aforesaid three mutual funds had escaped assessment. As stipulated in section 10(33) of the Act, the said income was exempt and therefore could not have been brought to tax. Thus the impugned notice is also without juri iction as the Assessing Officer could have had no reason to believe that income chargeable to tax had escaped assessment.

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: * Hon'ble Delhi High Court in case of Sarthak Securities Co (P) Ltd v ITO 195 Taxmann. 262 * VS Capital Services (P) Ltd VITO Delhi ITAT 316 Taxpundit.com * Pr CIT Vs G & G Pharma India Ltd * Further Hon'ble ITAT Agra in the case of M/s Dheeraj Hospital (P) Ltd v/s ITO 3(5) Hathras ITA NO 41/Agra/2017 & M/s Charan Singh Ice and Cold Storage (P) Ltd_v/s ITO 3(5) Hathras ITA NO 40/Agra/2017 has held that if the reasons recorded for reopening of assessment are based on borrowed satisfaction then the notice issued u/s 147 needs to be quashed as the same is illegal and void.

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 party and Ld AO has just copied the information as reason and formed the belief that income has escaped to assessment. The Ld AO has not applied his mind independently and merely relied on the information received and assumed that assessee has made alleged bogus purchases. In this regard we would like to draw Your Honour's attention to following judicial decisions wherein it is held that reopening on the basis of third_party/borrowed information is bad in law: ii) India Steamship Co.Ltd vs Jt CIT dated 11/02/2005 (Calcutta High Court). iv) M/S. Μagnum Forge And Machine vs Assessee on 24 December, 2014 (ITAT Pune)

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. Ground No. 2 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding an addition of Rs.33,00,000/- to the returned income as unexplained expenditure u/s 69C of the Act by treating genuine purchases made from M/s Supreme Multitrade Pvt Ltd as unexplained expenditure u/s 69C of the Income Tax Act, 1961 without assigning valid reason and the reason assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and rules made there under.

This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the additions of Rs.33,00,000/- made by AO u/s 69C 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 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: The assessee is a Pvt Ltd company engaged in trading of ferrous & non-ferrous metals and other related items

During the year under consideration assessee purchased goods worth Rs.- 8,65,89,605/- and sold the same for total consideration of Rs.8,77,54,281/-. Further during the year under consideration assessee purchased goods from Supreme Multitrade Pvt Ltd. worth Rs.33,00,000/- in addition to purchase from other parties. However, the Ld AO has alleged that total purchases of Rs.33.00.000/- was in the form of accommodation entries. The said view is correct as these were genuine purchases and the same were sold in the normal course of the business of the assessee.

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: Sample copy of Purchase Bills Delivery Challan Corresponding sale bills copy Ledger a/c copy of purchase party in assessee's books Copy of confirmation Copy of Stock Register Copy of the documents submitted to Ld AO are enclosed hereto at page no 50- 104 of the paperbook for your honour's perusal and consideration. 6.That there is not even a single evidence that assessee has received cash back against the payment made.

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.

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 and in this regard following documentary evidences were submitted.

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. 15 During the year under consideration, the assessee has offered GP of 1.3% and NP of 0.25%. Further the corresponding sales on which the assessee has earned GP are not at all in doubt, therefore the impugned additions on account of treating the same as unexplained will lead to an absurd result i.e the GP will rise to 4.01%.

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: a) The Hon'ble Supreme Court in the case of Andaman Timber Industries vs CCE 62 taxmann.com 3 (SC); 281 CTR 241 (SC) while dealing with the issue of violation of principles of natural justice for not providing the opportunity of cross examination of the witnesses whose statements were relied on by the AO has held in para 6 to 9 that once the assessee has disputed the correctness of the statement and wanted to cross examine the witness which was not given by the AO as well as Ld CIT(A), then the orders passed based on such statement are not sustainable in law. Followed by Hon'ble Delhi ITAT in Late Harbhajan Singh Makkar v ACIT dated 16/10/2019. b) The Hon'ble Delhi High Court in case of CIT v Ashwani Gupta, 322 ITR 396 (Delhi) while dealing with the issue of not providing the opportunity to cross examine the witnesses has held in para 5 to 7 that once there is violation of principles of natural justice inasmuch as seized material is not provided to the assessee nor is cross examination of the person on whose statement the AO relied upon, granted, then, such deficiencies would amount to denial of opportunity and consequently would be fatal to the proceedings. c) The Hon'ble Bombay High Court in the case of H.R. Mehta vs ACIT 387 ITR 561 (Bombay) has also considered the issue of not providing opportunity of cross examination in para 11 to 17 and held that the denial of opportunity to cross examine goes to the root of the matter and strikes at the very foundation of the assessment and, therefore, renders the assessment order passed by the AO not sustainable.

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:

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: a) S.P. Agarwalla alias Sukhdeo Prasad Agarwalla v. ΙΤΟ [1983] 140 ITR 1010 (Cal.) wherein it is held that a mere confessional statement by a third party (who is a lender of the assessee) that he was a mere name-lender and that all his transactions of loans were bogus, without naming the assessee as one who had obtained bogus loans, would not be sufficient to hold that the assessee's income had escaped assessment. b) Addition merely on third party statement - not justified as held in the case of CIT v. Concorde Capital Management Co. Ltd. 334 ITR 346 (Del) and Dr. R. L. Narang 174 Taxman 96 (Chd)(Mag). c) Saveetha Institute of Medical and Technical Sciences v. ACIT (2011) 012 ITR (Trib) 376 (Chen), wherein addition towards capitation fee allegedly collected by the institute was made solely on the basis of statements of students and staff recorded u/s 132(4) of the Act was made. Except for a note giving the breakup of number of students who were admitted under different quotes in various courses, there was no incriminating material as to the receipt of capitation fee. Referring to the Instruction F.No. 286/2/2003-IT (Inv.II) dated 10/03/2003, the addition made was deleted observing that admission made u/s 132(4) of the Act was not a valid piece of evidence. authorities in orders / judgments cited and relied upon by us, we are of the view that additions in the above case are uncalled for and therefore we direct the AO to delete the same.

In the result the appeal filed by the assessee stands allowed. Order pronounced in the open court on 25.02.2025. (GIRISH AGRAWAL) ACCOUNTANT MEMBER (SANDEEP GOSAIN) JUDICIAL MEMBER Mumbai, Dated 25/02/2025 KRK, PS आदेश की प्रतिलिपि अग्रेषित/