DINESH SHRIVALLABH RATHI,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 3,, PUNE

obtaining signature of the concerned ld. AR. Such grounds are therefore,

dismissed as not pressed. In so far as the cases in which such a ground

7 Bogus purchases group

has been pressed, those can be further sub-divided into two parts, viz.,

one where the challenge to the reassessment has been laid generally and

two where there is specific challenge to the reassessment depending

upon the peculiar facts of the case. In so far as the general challenge to

the initiation of reassessment proceedings is concerned, we will deal

with the same in a common manner immediately hereinafter. For the

specific challenge to the initiation of reassessment proceedings, we will

deal with them separately.

Officers (AO) got information from Sales Tax Department that the

concerned assessees received fake purchase bills from hawala dealers,

which details have been given in the respective assessment orders. For

the cases in which assessments had already been completed or the time

to take up assessments u/s 143(3) had expired, the AO issued notices

u/s.148 of the Income-tax Act, 1961 (hereinafter also called `the Act’).

After entertaining and disposing of the objections from the concerned

assessees, wherever raised, the respective AOs made additions @ 100%

of bogus purchases in most of the cases. The ld. CsIT(A) in some cases

confirmed the addition at 100%, whilst in others it was reduced to 5%,

7.15%, 12.50%, 15%, 20%, 23% and 25% of the amount of bogus

8 Bogus purchases group

purchases respectively. Aggrieved thereby, the assessees as well as the

Revenue have come up in appeals before the Tribunal.

material on record. First we deal with the disposal of objection to the

initiation of reassessment proceedings of the first category, namely,

where the objection has been raised generally.

Department about the concerned assessees being beneficiaries of fake

accommodation entries from hawala dealers. The contention of the

assessees in such general cases that reassessment on the given basis is

wrong, in our considered opinion, is completely unfounded.

(1999) 236 ITR 34 (SC) has held that there should be reason to believe

about the escapement of income at the stage of initiation of reassessment

proceedings. Sufficiency or correctness of such material cannot be

considered at that stage. The Hon’ble Apex Court has held in ACIT vs.

Rajesh Jhaveri Stock Broker (P) Ltd. (2007) 291 ITR 500 (SC) that :

`The word "reason" in the phrase "reason to believe" would mean cause

or justification. If the AO has cause or justification to know or suppose

that income had escaped assessment, it can be said to have reason to

believe that an income had escaped assessment. The expression cannot

9 Bogus purchases group

be read to mean that the AO should have finally ascertained the fact by

legal evidence or conclusion’. Explaining the position further, it laid

down that: `at the initiation stage, what is required is "reason to believe",

but not the established fact of escapement of income. At the stage of

issue of notice, the only question is whether there was relevant material

on which a reasonable person could have formed a requisite belief.

Whether the materials would conclusively prove the escapement is not

the concern at that stage. This is so because the formation of belief by

the AO is within the realm of subjective satisfaction.’

Hon’ble Supreme Court in Phoolchand Bajrang Lal and Anr vs. ITO

and Anr (1993) 203 ITR 456 (SC), in which the AO’s jurisdiction to

initiate reassessment was challenged. Repelling the assessee’s

arguments, the Hon’ble Supreme Court held that an ITO acquires

jurisdiction to reopen assessment under s. 147(a) r/w s. 148 only if on

the basis of specific, reliable and relevant information coming to his

possession subsequently, he has reasons which he must record, to

believe that by reason of omission of failure on the part of the assessee

to make a true and full disclosure of all material facts necessary for his

assessment during the concluded assessment proceedings, any part of his

income, profit or gains chargeable to income-tax has escaped

10 Bogus purchases group

assessment. He may start reassessment proceedings either because some

fresh facts come to light which were not previously disclosed or some

information with regard to the facts previously disclosed comes into his

possession which tend to expose the untruthfulness of those facts. In that

case, the ITO was held to have rightly initiated the reassessment

proceedings on the basis of subsequent information, which was specific,

relevant and reliable.

the AO initiated the reassessment on the basis of some information

indicating the assessee as a beneficiary to accommodation entry. The

assessee challenged the initiation of reassessment by way of a writ.

Dismissing the petition, the Hon’ble jurisdictional High Court held that

at the stage of initiation of reassessment, the AO is not required to have

conclusive evidence that income chargeable to tax has escaped

assessment. As the reasons recorded for reopening established a link

between the material available and the conclusion reached by the AO for

reopening the assessment, the Hon’ble High Court refused to interfere

by observing that the expression `reason to believe’ cannot be read to

mean that the AO should have finally established beyond doubt that

income chargeable to tax has escaped assessment. Similar view has been

taken by the Hon’ble Gujarat High Court in Pr. CIT VS. Laxmiraj

11 Bogus purchases group

Distributors Pvt. Ltd. (2019) 410 ITR 495 (Guj) and the SLP filed by

the assessee against such judgment has since been dismissed in (2018)

405 ITR (St) 27.

concerned AOs received information from the Sales Tax Department

about the details of accommodation entry providers and the assesses had

also recorded purchases from such hawala entry providers. There was a

close nexus between the report of the Sales tax Department and the

formation of belief by the Assessing Officer about the escapement of

income of the assessee for the year(s) under consideration. Such

information was specific, not general or vague. Thus, it is abundantly

clear that receipt of such an information was sufficient enough for the

Assessing Officer to initiate the reassessment. In our considered

opinion, no exception can be taken to the view canvassed by the

Assessing Officer(s) in initiating the reassessment on this score. The

ground(s) taken by the assessees in challenging the initiation of

reassessment proceedings in general way are thus dismissed.

of addition(s) on the basis of bogus purchase bills received by the

assessee(s) as accommodation entries from hawala dealers. It is seen that

the issue of bogus purchases has recently come up for consideration

12 Bogus purchases group

before the Hon’ble Bombay High Court in Pr.CIT Vs. Mohommad Haji

Adam & Co. Vide its judgment dated 11-02-2019 in ITA No.1004 of

2016 and others, the Hon’ble jurisdictional High Court has held that no

ad hoc addition for bogus purchases should be made. It laid down that

the addition should be made to the extent of difference between the

gross profit rate on genuine purchases and gross profit rate on hawala

purchases. Such case specific details are not readily available with the

respective ld. ARs or the ld. DRs for facilitating the calculation of gross

profit rates of genuine and hawala purchases. Under these

circumstances, we set-aside the impugned orders and remit the matter to

the file of the respective AOs for applying the ratio laid down by the

Hon’ble jurisdictional High Court in the above noted case and

recompute the amount of additions, if any, after allowing a reasonable

opportunity of hearing to the assessee.

are fully/partly allowed for statistical purposes.

challenge to the initiation of reassessment is a case specific and peculiar

to its own facts in contrast to the general challenge as discussed above or

the appeals in which the ratio of the Hon’ble jurisdictional High Court

in the case of Pr.CIT Vs. Mohommad Haji Adam & Co (supra) is not

13 Bogus purchases group

applicable in view of the fact that the goods purchased through hawala

entries have been consumed in manufacturing and not sold as such. Both

the sides have admitted, and rightly so, that in such cases, the judgment

in Mohommad Haji Adam & Co (supra) cannot be applied.

Ms.Archana P. Sangai - ITA No.1881/PUN/2017 & CO No.31/PUN/2019

and accordingly deleted the addition in question on account of bogus

purchases. The Revenue has challenged the quashing of the

reassessment and the assessee in her Cross Objection has also

challenged the initiation of re-assessment proceedings by the AO on the

ground that the assessee was not supplied reasons to believe u/s.148 of

the Act despite specific request.

26-06-2014. The assessee filed return in response to notice u/s.148 on

13-11-2014 and requested the AO to furnish the reasons recorded for

issuing notice u/s.148. The assessment was taken up by means of notice

u/s.142(1) dated 23-09-2015. The assessment order was passed on 04-

03-2016. The assessee challenged the initiation of reassessment

proceedings before the ld. CIT(A) contending that despite the specific

request made by the assessee for supply of reasons, the AO failed to

furnish the same. Relevant discussion has been made on pages 3

14 Bogus purchases group

onwards of the impugned order. The ld. CIT(A) called for a report from

the AO on the written submissions filed by the assessee assailing non-

supply of reasons to believe. The AO vide his report dated 29-03-2017,

as discussed on page 5 of the impugned order, relied on some

mentioning in his notice about the contents of the reasons. The crux of

the matter is that the reasons were not supplied to the assessee. Based

on this factual position, the ld. CIT(A) held the initiation of assessment

order to be bad in law.

material on record, it is found as an admitted position that the assessee

was not supplied the reasons which led to the issuance of notice u/s.148

of the Act. The Hon’ble Bombay High Court in Bayer Material Science

Pvt. Ltd. Vs. DCIT (2016) 382 ITR 333 (Bom.) has quashed the initiation

of reassessment in the absence of the AO supplying the reasons to the

assessee despite specific request. Recently, the Hon’ble jurisdictional

High Court in Formento Resorts & Hotels Pvt. Ltd. Vs. ACIT vide

judgment dated 30-08-2019 in ITA No.63/2007 has also quashed the

reassessment on the ground that the reasons were not supplied to the

assessee despite the request.

15 Bogus purchases group

mistake was committed by the AO in the instant case as well. The

assessee specifically requested the AO to supply the reasons which led

to the issuing of notice u/s.148. The AO, without supplying the reasons,

proceeded to make the reassessment. Respectfully following the

precedents of the Hon’ble jurisdictional High Court, we uphold the

setting aside and quashing of the initiation of reassessment proceedings

and the resultant assessment order.

the assessee is also dismissed as having become infructuous.

M/s. Prima Pvt. Ltd. - ITA No.1951/PUN/2017

on account of bogus purchases. Here also, the AO made addition at

100% of the amount of bogus purchase bills, which was sustained by

the ld. CIT(A) at the same level.

In view of the judgment of Hon’ble jurisdictional High Court in the case

of Pr.CIT Vs. Mohommad Haji Adam & Co. (supra), the matter requires

reconsideration. However, the factual position in the instant case is a

little different. The Hon’ble jurisdictional High Court in the above

matter has dealt with a situation in which the purchases made through

16 Bogus purchases group

bogus bills were sold as such and the Hon’ble High Court directed to

compute the normal profit as well as profit arising from hawala

transactions and then directed to make addition towards bogus purchases

on account of difference between such two profits rates. However, in

the facts of the extant case, the purchases made through hawala entries

have not been sold as such. Such purchases, being, of raw material,

have been consumed and gone into the manufacturing of products by the

assessee thereby losing identity of separate purchase price and the

corresponding sale price. Both the sides have fairly admitted that the

ratio of the Hon’ble jurisdictional High Court in the case of Pr.CIT Vs.

Mohommad Haji Adam & Co. (supra) cannot be applied to the facts of

the instant case.

Tribunal has disposed off a group of cases on such an issue before the

afore referred verdict of the Hon’ble High Court. Vide the lead order in

the case of M/s. Chhabi Electricals Pvt. Ltd. and others Vs. DCIT dated

28-04-2017 in ITA No.795/PUN/2014 and others, the Tribunal has made

certain categories. Findings in respect of category No. IV of the said

order, which is germane to the instant appeal, are as under:

“IV. The next instance is the case of goods which have been admittedly sold by the hawala dealer and has been received by the assessee, who in turn had maintained quantitative details and also evidence of its movement i.e. transportation details and quality control details of consumption of the said material or exact details of sale of the same

17 Bogus purchases group

consignment through same transporter directly to the party, then the total purchases cannot be added in the hands of assessee. However, since the purchases are made from the grey market, some estimation needs to be made in the hands of assessee. The Tribunal in M/s. Chetan Enterprises Vs. ACIT (supra) has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases, over and above the GP shown by the respective assessee.”

Pvt. Ltd. and others (supra), which both the sides agree to be applied for

the instant case, we hold that the addition should be sustained on the

amount of hawala purchases @10% plus the normal GP rate shown by

the assessee for the year under consideration. We, therefore, set aside

the impugned order and remit the matter to the file of AO for re-

computing the amount of addition accordingly.

Chandrasekhar A. Joshi -ITA No. 53/PUN/2017&2991/PUN/2016:

initiated the reassessment and made the addition at the rate of 100% of

bogus purchases. The ld. CIT(A) restricted the addition to 12.5%. Both

the sides are in appeal.

are concerned, the position is similar to the cases discussed above in

general manner.

18 Bogus purchases group

by contending that the assessment order requires to be quashed because

the AO did not confront the assessee with the adverse material used for

making the addition. This was strongly controverted by the ld. DR, who

stated that the assessee chose to remain absent during the course of

assessment proceedings which led to the passing of the assessment order

u/s.144 r.w.s. 147 of the Income-tax Act, 1961.

the AO failed to provide opportunity of cross examination and confront

the assessee with the adverse statements of the alleged hawala dealers.

The ld. AR put forth that in the absence of the AO following the

principles of natural justice, the addition was liable to be deleted. In

support of such a contention, she relied on the judgment dated 02-09-

2015 of the Hon’ble Supreme Court in the case of Andaman Timber

Industries Vs. Commissioner of Central Excise, Kolkata-II (2015) 62

taxmann.com 3 (SC) and certain other decisions.

case rendered in the content of Central Excise is that some of the

products manufactured were sold to dealers against which the assessee

filed declaration showing the particulars of the goods at which those

were sold ex-factory. The Revenue found that there was price difference

19 Bogus purchases group

between the goods sold at ex-factory and delivery basis in comparison to

the goods which were sold to the buyers from their depots. Investigation

was carried out. Statements of two buyers were recorded. The assessee

was called upon to explain as to why the price at which the goods were

sold to the customers from the depots may not be the basis for

determining the value for the purpose of Excise duty. It was submitted

that on the same ground proceedings were taken earlier which resulted in

favour of the assessee by the decision of the Tribunal. The assessee also

questioned the correctness of the two witnesses and demanded right to

cross-examine them. The adjudicating authority passed the order

confirming the demand in the show cause notice. The Tribunal rejected

the assessee’s ground of not allowing cross-examination. When the

matter finally came up before the Hon’ble Supreme Court, it observed

that not allowing cross-examination of the witnesses, whose statements

were the basis of the order, was a serious flaw, which made the order

nullity. In reaching this conclusion, the Hon’ble Court observed that on

an earlier occasion also when the matter came before this Court, the

matter was sent back to the Tribunal. From the above factual panorama

of Andaman Timber Industries (supra), it is clear that it was a second

round of proceedings in which the assessee was repeatedly denied

opportunity of cross-examination. Further, the assessee specifically

requested the adjudicating authority to allow cross-examination, which

20 Bogus purchases group

was denied. It was under such circumstances that the Hon’ble Supreme

Court held that the order passed by the Central Excise Adjudicating

authority was null and void.

firstly, we are in the first round of the proceedings and not the second

round. Secondly, the assessee in the instant case never requested the AO

to confront it with the witnesses or allow cross examination of the

witnesses who had deposed against the assessee. What to talk of seeking

cross examination, the assessee chose to adopt a non-cooperative

attitude and did not appear at all, which led to the passing of the

assessment order u/s 144 of the Act. Under such circumstances, it is

clear that the ratio decidendi in the case of Andaman Timber Industries

(supra) is not applicable to the facts of the instant case.

334 ITR 262 (SC) through the judgment rendered by three Hon’ble

Judges and that too in the context of Income-tax, as against the judgment

rendered in the case of Andaman Timber Industries (supra) delivered by

two Hon’ble Judges in the context of Central Excise, was confronted

with a situation in which the Hon’ble High Court set-aside the order of

assessment on the ground that no opportunity of cross-examination was

granted. Overturning the view of the Hon’ble High Court, the Hon’ble

21 Bogus purchases group

Supreme Court held that: “At the highest the High Court should have

directed the AO to grant an opportunity to the assessee to cross-examine

the concerned witness”. As a consequence of that, the Hon’ble Supreme

Court set-aside the judgment of the Hon’ble High Court by holding that

: `In the circumstances, we are of the view that the High Court should

not have quashed the assessment proceedings vide impugned order’ and

accordingly remitted the matter to lower authorities for disposal on

merits.

359 ITR 129 (Delhi), following M. Pirai Choodi (supra), has restored

the matter in the absence of the AO granting opportunity to cross-

examine the witnesses, which formed the basis for addition.

(2018) 404 ITR 433 (Madras) considered both the judgments of Hon’ble

Supreme Court, namely, Andaman Timber Industries (supra) and M.

Pirai Choodi (supra) and decided similar issue raised through question

no.2 in favour of the Revenue by holding that the Tribunal was not right

in deleting additions made in the block assessment on the ground that no

opportunity to cross-examine was granted, when no such opportunity

was ever sought at any time.

22 Bogus purchases group

for not allowing cross-examination. The Hon’ble Supreme Court in G.

Mahesh Babu Vs. Pr. CIT (2018) 407 ITR 14 (St.) dismissed the

assessee’s SLP against the judgment dated 6.1.2017 of the Hon’ble

Telangana and Andhra Pradesh High Court in I.T.T.A. Nos. 226 and 208

of 2016 whereby the Hon’ble High Court held that an order of

assessment passed on the basis of material gathered behind the

assessee’s back and not supplied to the assessee with an opportunity to

rebut, would not be void ab initio, and could be rectified through an

order of remand.

C.M.No.10774/2019, the assessee specifically raised before the Hon’ble

Delhi High Court the issue of denial of opportunity of cross

examination. The Hon’ble Delhi High Court vide judgment dated 08-

03-2019 held that the addition was valid.

the assessee relying on Andaman Timber Industries (supra), pleaded for

quashing of the order for non granting of opportunity of cross-

examination. The Hon’ble Himachal Pradesh High Court did not accept

such a plea of the assessee and affirmed the order of the Tribunal

upholding the order passed u/s 263 of the Act.

23 Bogus purchases group

Promotions P. Ltd. Vs. ACIT in ITA No.1489 of 2013, vide its judgment

dated 13-07-2015 considered a situation in which addition was made

without granting opportunity to the assessee to cross-examine the

deponents who had deposed against the assessee. The Tribunal held that

no cross-examination was called for in the facts as were obtaining in the

case. The Hon’ble High Court, noting that there was a breach of

principles of natural justice, held that : `In view of the above, we set

aside the order of the Tribunal and restore the issue to the Assessing

Officer for fresh disposal after following the principles of natural

justice.’

relied on certain material, for which cross-examination was not afforded

to the assessee for its own fault. It is not a case that the AO lacked

jurisdiction to proceed with the assessment. It is further not a case that

the AO made the addition on his whims and fancies and without there

being any material to substantiate the same. Per contra, it is a case of

making the addition on the basis of relevant evidence but simply using

the same without granting opportunity to cross examine. Thus it is an

irregularity coming in the otherwise valid and lawful proceedings. Such

an irregularity in not allowing an opportunity to cross examine the

24 Bogus purchases group

witnesses, who deposed against the assessee, can be regularized if the

assessment proceedings are brought back to the stage at which the

irregularity stepped it. Similar view has been taken by the Pune Benches

of the tribunal in the case of Thermax Ltd. vs. DCIT (ITA No.

512/PN/2014) vide its order dated 13.09.2019. We, therefore, set aside

the impugned order to this extent and remit the matter to the file of the

AO with a direction to first confront the assessee with the adverse

material and allow an opportunity to cross examine, if desired, before

deciding the issue on merits.

M/s. Viraj Steels - ITA Nos. 2307 & 2308/PUN/2017 - A.Y. 2009-10 : ITA Nos. 2989 & 2591/PUN/2017 – A.Y. 2010-11

A.Y. 2009-10 : 39. The facts and circumstances on merits are similar to those

discussed above. The AO got information from the Sales tax Department

that certain parties were engaged in issuing hawala bills. The assessee

was also found to have recorded bills from such parties. The AO

initiated reassessment and made addition at 100% of the bill amounts.

The ld. CIT(A) reduced the addition to 12.5%.

proceedings. The facts, material for determination of the reassessment

25 Bogus purchases group

issue, are that original assessment in this case was completed u/s.143(3)

on 30-12-2011. In finalizing the assessment, the AO made enquiries

from 10 suppliers by means of notices u/s.133(6). Some of the enquiries

were made through Inspector as well. The notices sent u/s.133(6) came

back unserved/not replied. Such suppliers were not found existing at the

addresses given by the assessee. In view of these facts, the AO held that

the books of accounts were not properly maintained. Rejecting such

books of accounts, he applied 9% profit rate as against 2.99% declared

by the assessee which resulted into certain addition.

assessee obtained hawala bills and recorded accommodation entries to

the tune of Rs.22,25,73,556/-. Such information was received from

Sales Tax Department unearthing the racket of hawala dealers who had

issued fake bills to the traders. The assessee had also recorded

purchases from such list of hawala operators. Based on such

information, the AO initiated assessment proceedings and finalized the

assessment.

assessment and examined genuineness of purchases, could not have

initiated reassessment proceedings on the same issue.

26 Bogus purchases group

correct. During the course of original assessment proceedings, the AO

simply examined certain purchases recorded by the assessee. Notices

u/s. 133(6) were issued to 10 suppliers which were returned unserved. It

is in that backdrop of the facts that the AO proceeded to complete the

assessment by estimating income at 9%. However, it was after the

completion of the assessment u/s.143(3) that the AO got specific

information about the assessee having received accommodation bills

from hawala entry operators to the tune of Rs.22.25 crores. It is on the

basis of such tangible information coming to the AO after the

completion of the original assessment that he initiated reassessment

proceedings. In our considered opinion, the factual panomora as

obtaining during the course of original assessment proceedings and the

information coming into existence after the completion of assessment

proceedings leading to initiation of reassessment proceedings, is quite

different. In the course of the original assessment proceedings, the AO

examined the genuineness of all expenses and purchases recorded in the

books of account in a general manner. It was only pursuant to the

specific information received from the Sales Tax Department unearthing

the racket of hawala dealers, who had issued fake purchase bills to

various traders including the assessee, that the reassessment was taken

up. In our considered opinion, the assessee cannot claim quashing of

27 Bogus purchases group

reassessment by contending that it was a case of ‘change of opinion’

from the one formed at the stage of completion of original assessment

proceedings. We, therefore, reject the contention on this ground.

reassessment by submitting that the AO did not confront the assessee

with the material gathered by the Sales Tax Department on which the

addition was based. It was, therefore, submitted that the reassessment be

quashed.

on record, we find that similar issue has been dealt with by us supra

while disposing of the appeal in the case of Chandrasekhar A. Joshi in

ITA Nos.2991/PUN/2016 & 53/PUN/2017. In that case also, the

contention of the assessee was that the addition should be deleted

because the adverse material was not confronted to the assessee nor any

opportunity of cross examination was allowed. The facts and

circumstances of the instant case are mutatis mutandis similar except to

the effect that whereas in that case the assessee did not appear before the

AO but in the instant case the assessee did appear before the AO.

However, the fact of the matter remains that non-confronting the adverse

material is simply an irregularity which cannot lead to quashing of the

28 Bogus purchases group

assessment. Adopting the same raison d’etre as discussed supra, we

dismiss this contention of the assessee as well.

made the addition @100% of bogus purchases. The ld. CIT(A) reduced

it to 12.5%. Both the sides are in appeal before the Tribunal.

Respectfully following the judgment in the case of Pr.CIT Vs.

Mohommad Haji Adam & Co. (supra), we set-aside the impugned order

on this issue and remit the matter to the file of AO for deciding

accordingly.

statistical purposes and that of the Revenue is allowed for statistical

purposes.

A.Y. 2010-11

proceedings for this year by contending that the AO did not allow

adequate opportunity to file writ petition against his order disposing the

objections raised by the assessee.

for escapement of income on 22-01-2014 about his receiving

information from Sales Tax Department qua unearthing the racket of

29 Bogus purchases group

hawala dealers who had issued fake purchase bills to various traders

including the assessee. The assessee wrote a letter dated 28-02-2014 to

the AO, whose copy has been placed at page 18 of the paper book,

submitting that the original return filed by it may be taken as return filed

in response to notice u/s.148. Such a letter was received by the AO on

3.3.2014. It was further requested vide the same letter to provide a copy

of reasons for issuing notice u/s.148 so as to enable it to file objections.

The AO supplied the reasons on 02-03-2015 as has been recorded in his

letter dated 23-03-2015, a copy of which has been placed on page 77 of

the paper book. On receipt of such reasons, the assessee filed a letter

raising objections against the initiation of reassessment, which was filed

with the AO on 09-03-2015. The AO disposed of such objections by

means of his order passed on 23-03-2015. Then, the assessment order

was passed on 27-03-2015 making addition on account of bogus

purchases. The view point of the assessee is that the AO did not afford

opportunity to the assessee for filing writ petition against his order

disposing of the objections and hurriedly completed the assessment

within a period of 4 days from the date of his order disposing the

objections.

jurisdictional High Court in Asian Paints Ltd. Vs. DCIT (2008) 296 ITR

30 Bogus purchases group

90 (Bom.) in which it has been held that the AO should not proceed

further in the matter for a period of 4 weeks from the date of service of

order rejecting the objections of the assessee so that remedy could be

sought from the High Court. At the same time, it is equally relevant to

note another judgment of the Hon’ble jurisdictional High Court dated

01-02-2019 in Cenveo Publisher Services India Ltd. Vs. Union of India

(2019) 104 CCH 0108 Mum-HC in which it has been held that : `The

fact that in this case the petitioner raised objections promptly after

withdrawing the petition from this Court, would not in any manner

dilute the fact that it was on the ground of the petitioner's conduct that

the Assessing Officer was left with little time to dispose of his objections

and thereafter complete the assessment before it becomes time barred.’

After noting the case of Asian Paints Ltd. (supra), the Hon’ble Court

held that : `The petitioner by its conduct destroyed this formula provided

by the Court in the case of Asian Paints (supra), making it impossible

for the assessing officer to wait for four weeks after disposal of

objections without running the risk of allowing the assessment to be time

barred.’

case where the assessee was not cooperating or the delay occurred due to

some fault of the assessee. Immediately on receipt of notice, the AO

31 Bogus purchases group

sought reasons on 03-03-2014. It was the AO only who waited for a

period of one year in communicating the reasons on 02-03-2015. The

assessee again promptly raised the objections within a period of one

week, namely, on 09-03-2015. The AO disposed of the objections of the

assessee by means of his order dated 23-03-2015 and completed the

assessment within a period of just four days on

27-03-2015. Going by the ratio in the case of Asian Paints Ltd. (supra),

we hold that the AO failed in giving appropriate time to the assessee to

file writ petition before the Hon’ble High Court against his order

disposing off the objections. Respectfully following the judgment in the

case of Asian Paints Ltd. (supra), which is squarely applicable in the

facts and circumstances of the instant case, we quash the resultant

reassessment order. Similar view has been taken by the Pune Benches of

the Tribunal in ITO Vs. Gagandeep Amarpal Maan Vs. in ITA

No.656/PUN/2017 vide its order dated 23-05-2018.

issue and the Departmental appeal is dismissed.

Rajesh U. Pardeshi - ITA No.2932/PUN/2017

was not pressed by the ld. AR, which is hereby dismissed.

32 Bogus purchases group

addition on account of bogus purchases.

Prima Pvt. Ltd. (ITA No.1951/PUN/2017) disposed off supra. Here also,

the assessee did not directly sell the goods purchased through hawala

transactions. These were consumed as raw material in manufacturing.

Following our view taken in M/s. Prima Pvt. Ltd., (supra), we set

aside the impugned order and remit the matter to the file of AO for re-

computing the amount of addition @10% plus the normal gross profit

rate shown by the assessee for this year on the bogus purchases.

DACS Electrosystems Pvt. Ltd. - ITA No.2835/PUN/2017

was not pressed by the ld. AR, which is hereby dismissed.

on account of bogus purchases.

Pvt. Ltd. (ITA No.1951/PUN/2017) disposed off supra. The assessee did

not directly sell the goods purchased through hawala transactions. These

were consumed as raw material in the manufacturing process.

33 Bogus purchases group

Following our view taken in M/s. Prima Pvt. Ltd., (supra), we set aside

the impugned order and remit the matter to the file of AO for re-

computing the amount of addition @10% plus the normal gross profit

rate shown by the assessee for this year on the bogus purchases.

ITA No.863/PUN/2018 – M/s. PNG Jewellery & Gems

reassessment proceedings apart from the confirmation of addition on

merits.

from the Sales Tax Department about the assessee having received and

recorded accommodation entries in its books of account. He, therefore,

initiated the reassessment proceedings and made the addition at the rate

of 100% of the amount of hawala entries, which came to be upheld in

the first appeal.

because the assessee was not allowed opportunity of cross examination

and the adverse material was not confronted. While disposing of the

appeal of M/s. Viraj Steels for the A.Y. 2009-10 supra, we have

dismissed such ground raised by the assessee. Since the facts and

34 Bogus purchases group

circumstances of the instant case are mutatis mutandis similar, we

dismiss this ground of appeal.

Hon’ble Bombay High Court in the case of Pr.CIT Vs. Mohommad Haji

Adam & Co. (supra), we set-aside the impugned order and remit the

matter to the file of the AO for applying the ratio laid down by the

Hon’ble jurisdictional High Court in the above noted case and

recompute the amount of additions, if any, after allowing a reasonable

opportunity of hearing to the assessee.

Renuka Auto Components India Pvt. Ltd. - ITA Nos.1659 & 1660/PUN/2018

reassessment proceedings were not pressed. The same are, therefore,

dismissed as such.

which was confirmed by the ld. CIT(A) as such. The assessee is

aggrieved by the confirmation of addition to this extent.

material on record. The ld. AR submitted that the entries recorded in the

books of account which have been treated by the Revenue as

35 Bogus purchases group

accommodation entries are in the nature of purchase of raw material

which have been consumed in the manufacturing process. It was,

therefore, submitted that there can be no ascertainment of separate profit

in respect of such bogus purchases and genuine purchases.

circumstances of this case are similar to those of appeal in the case of

M/s. Prima Pvt. Ltd. (supra). While disposing of that appeal, we have

held that the addition should be sustained @10% plus the normal GP

rate shown by the assessee for the year on the amount of hawala

purchases. Following the same, we set aside the impugned order and

remit the matter to the file of AO for re-computing the amount of

addition @10% plus the normal gross profit rate shown by the assessee

for this year on the bogus purchases.

purposes.

M/s. Saraswati Extrusion Pvt. Ltd. - ITA No.1716/PUN/2017

proceedings. Such ground is, therefore, dismissed.

information received from Sales Tax Department, noticed that the

36 Bogus purchases group

assessee had recorded bogus purchases to the tune of Rs.4,05,92,816/-

He, therefore, made addition @100% of bogus purchases. The ld.

CIT(A) allowed relief @95% of the bogus purchases and restricted the

addition to 5%.

dismissed by the Tribunal on account of low tax effect. It was, however,

pointed out that the tax effect in that case appeared to be more than the

stipulated amount of Rs.50.00 lakh.

the issue involved in this appeal is directly covered by the judgment of

Hon’ble jurisdictional High Court in the case of Pr.CIT Vs. Mohommad

Haji Adam & Co. (supra) in which the direction has been given to make

addition only at the differential rate of profit between the genuine

purchases and bogus purchases. In the given circumstances, we set-aside

the impugned order and remit the matter to the file of the AO for

deciding this issue in conformity with the discussion made above.

However, it is made clear that if subsequently the Revenue’s appeal is

recalled on filing of miscellaneous application by the Department on

account of tax effect being more than the amount of Rs.50.00 lakh, the

assessee will be at liberty to take remedial action for recalling of the

order in his case as well.

37 Bogus purchases group

Order pronounced in the Open Court on 26th September, 2019.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 26th September, 2019 सतीश आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. 3. The CIT(A) concerned 4. The CIT concerned िवभागीय �ितिनिध ,आयकर अपीलीय अिधकरण, पुणे “ए” / DR 5. ‘A’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 25-09-2019 Sr.PS 2. Draft placed before author 25-09-2019 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *