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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI S. RIFAUR RAHMAN, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-03, Mumbai dated 19.04.2017 for the assessment year 2010-11.
None- appeared for the assessee despite notices being served upon it and the mater being listed nineteens (19) times before and the matter is pending from 2017 onwards and no adjournment application has been brought to our notice, so we are inclined to decide the appeal ex-parte qua assessee. 3. The first ground of appeal of the assessee is against the action of the Ld. CIT(A) in upholding the reopening of the assessment u/s 147 of the Income Tax Act, 1961 (hereinafter “the Act”) holding it as valid in law thereby dismissing the legal issue raised by assessee challenging its validity.
4. The brief facts of the case are that the assessee had filed its return declaring total income of Rs.1,56,95,770/- under the normal provisions and the book profit u/s 115JB of the Act at Rs.5,62,54,912/. Later on the case of the assessee was selected for scrutiny u/s 143(3) of the Act and the scrutiny assessment order was passed on 31.12.2012 determining total income at Rs.1,78,75,374/-. Thereafter, the assessment was reopened by issuance of notice u/s 148 of the Act on 14.03.2014 (hereinafter the first re-opening) and consequent to it reassessment order was passed on 25.03.2015 determining total income at Rs.2,13,30,731/- after making gross profit (GP) addition @ 12.5% on the alleged non-genuine purchases at Rs.34,56,361/-. Thereafter again notice u/s 148 of the Act was issued after recording the reasons for reopening (second re-opening). Pursuant to the second re-opening, in response to notice, the assessee requested the AO to treat the return filed originally for the A.Y.2010-11 as return filed in response to the notice u/s 148 of the Act. The AO gave reasons recorded for second re-opening as under: - “In the instant case, an information was received from Dy. Director of Income Tax (1&Cl), Mumbai, with respect to tax evasion through client code Modification during F.V 2009-10 and it has been found that Shri Satish Rana, Proprietor of M / s Creative Enterprises has operated nearly 50. bank accounts in the name of various entities. In the statement recorded u / s 131 of the Act Shri Rana has admitted to have provided accommodation entries to various persons. From the bank accounts operated by the entry provider, Satish Rana, it has been found that one of the beneficiary who has obtained accommodation
RRC International Freight Services Ltd.. bills is RRC International Freight Services Ltd having PAN No. AACCR3533J. The details of accommodation entries obtained by RRC International Freight Services Ltd is as under:- Name of the Name of the entity Bank account of PAN of the Period beneficiary/bank to which payment the beneficiary Beneficiary a/c. is made and amount RRC International Rumeet Enterprises Union Bank of AACCR3533J F.Y.2009-10 Freight Services Rs.25,00,000/- India M/s. Marg Ltd. Fort, 2. Thus assessee's case clearly falls within the provisions of Explanation 2(c}{i) of section 147 as the income chargeable to tax has been under assessed. In view of the above, I have reason to believe that the income to the extent of 25,00,000/-chargeable to tax for AY. 2010-11 has escaped assessment in this case in terms of the provisions of section 147 of the IT Act. The tax effect comes to 7,72,500/-.”
The assessee objected to the reopening by filing the objections which has been reproduced by AO at page no. 3 to 7 of the re- assessment order dated 31.03.2016 and the assessee’s objection against the second re-opening was disposed of by AO which has also been reproduced by the AO in his order. And thereafter the AO had made addition of Rs.25 lakhs which according to him, the assessee has supposed to have paid to M/s. Rumeet Enterprises for purchase of goods and against whom [M/s Rumeet] notices u/s 133(6) issued by the AO has returned un-served with remark “not known”. Therefore, according to the AO since the assessee had made payment of Rs.25 lakhs to M/s. Rumeet Enterprises and the said party was not traceable in the addresses given in the invoices, the said transaction cannot be verified as to whether the expenditure claimed by the assessee to the RRC International Freight Services Ltd.. tune of Rs 25 lakhs was for business or not. Therefore, according to him since as per Section 37 of the Act, expenses can be allowed only if it is exclusively spend for the purpose of business, it cannot be allowed. Therefore, the AO made additions u/s 69C of the Act. Before the Ld. CIT(A), the assessee challenged the addition by raising the legal issue as to the validity of reopening of the assessment which was dismissed by the Ld. CIT(A) by holding as under: - “6.2 The appellant further submitted that the case was selected for scrutiny assessment u/s 143(3) of the Act. It had disclosed all the facts truly and fully at the time of original assessment. Thus initiation of reassessment proceedings beyond 4 years from the end of the relevant assessment year is not justified. The issue of notice by the ld. AO for the purpose of reassessment u/s 148 of the IT Act, 1961 is illegal & unjustified and consequentially the re-assessment order so passed liable to be cancelled. 6.3 I have given my careful consideration to the rival submissions, perused the material on record. Records revealed that the case was re- opened by issue of notice u/s 148 of the IT Act which was duly served upon appellant. The AO has followed the due procedure and reopened the case on the information available with him. He applied his mind and only after having belief that the appellant assessee has escaped assessment in view of the provision of section 148 of the IT Act, he reopened the case. Therefore, I did not see reason that he violated any statutory provision. So far as the merits of the additions are concerned, it will be dealt with in subsequent paragraphs and therefore, for the sake of brevity, it is held that both reopening and reassessment were infra vires. Since, the case is being taken up on merits, I am of the opinion that instead of putting emphasis on RRC International Freight Services Ltd.. technicalities we must look the case on merits and judicious view be taken. The AO has correctly invoked section 147, as the income has escaped as given in the reasons recorded before invoking section 148. In view of the above facts and circumstances of the case, I find no reason to interfere in the findings of the AO and hence Ground No.1 is dismissed.”
Aggrieved by the aforesaid action of Ld CIT(A), the assessee has challenged the dismissal of its legal issue. For that we have perused the assessment order and since none appeared for assessee, we could not go through the earlier reasons recorded for the reopening the original assessment i.e. first re-opening which led to the addition/estimation of G.P. @ 12.5% of the alleged non-genuine purchases at Rs.32,56,361/- [re-assessment order dated 25.03.2015] and thereafter again the reopening was resorted to by the AO i.e. second re-opening of the assessment by issuing notice on 17.03.2015 [after recording reasons for reopening (supra)] and consequently vide order dated 31.03.2016 the AO had added Rs.25 lakhs on account of disallowance of expenditure which assessee claimed to have incurred from M/s. Rumeet Enterprises. The main contention of the assessee in respect of the legal issue is that second reopening was the result of change of opinion. However to examine the same, we need to look into the reasons recorded for reopening the assessment [first time] which culminated in passing the re-assessment dated 25.03.2015. Since the assessee has not bothered to appear or moved any adjournment application we had no other alternative but to look into the reasons recorded by the AO in the instant case (supra). As per the reasons
RRC International Freight Services Ltd.. recorded by AO for re-opening second time, it reveals that the AO received information from Director of Income Tax (I & CI), Mumbai about tax evasion information through various entities operated by Shri Satish Rana, proprietor of M/s. S. Creative Enterprises. According to the information Shri Rana, operated nearly 50 bank accounts in the name of various entities. As per the AO, the department had recorded the statement of Shri Rana u/s 131 of the Act wherein he admitted that he was providing accommodation entries to various persons. And the investigation wing after going through the bank transaction carried out in the accounts operated by Shri Satish Rana found that the assessee has been provided with accommodation bills from his concern to the tune of Rs.25 lakhs in this finance year and therefore, the AO was of the opinion that Rs.25 lakhs has escaped assessment. According to us, there was information from the investigation wing that the assessee was a beneficiary of accommodation entry from an accommodation provider Shri Rana to the tune of Rs.25 lakhs. So there was this specific information based on which AO has based his reason to believe escapement of income. In order to appreciate the legal issue in the correct perspective [change of opinion] in the given facts of this case, it is difficult. That is mainly due to absence of the first reasons recorded to reopen the assessment which culminated in the first reassessment order dated 25.03.2015. However, after perusal of the order of the Ld. CIT(A) upholding the action of AO to re-open (second time) the same cannot be faulted for the simple reason that there was material before the AO which was the foundation on which he formed RRC International Freight Services Ltd.. his belief of escapement of income. So we confirm the order of the Ld. CIT(A) and dismiss the legal issue raised by the assessee.
Coming to the appeal of the assessee on merits, we find that in the first round of reopening which culminated in the re-assessment order dated 25.03.2015, the AO had reassessed the income of the assessee by making GP estimation @ 12.5% on the alleged non- genuine purchases at Rs.34,56,361/- and determining the total income at Rs.2,13,30,731/- in place of the original assessment framed u/s 143(3) at Rs.1,1,78,75,374/- (return of income filed by assessee reflects Rs.1,56,95,370/-). The AO’s case is that pursuant to the information from investigation wing, since assessee had dealt with M/s. Rumeet Enterprises which is a concern of Shri Satish Rana (Entry operator) and has shown purchases from it to the tune of Rs.25 lakhs and since he couldn’t verify the expenditure claimed by the assessee about this purchase from M/s. Rumeet, because the notices u/s 133(6) of the Act returned back un-served. So according to AO he couldn’t verify as to the genuineness of the expenditure of Rs.25 lakhs, he disallowed it. According to assessee, merely because the M/s. Rumeet Enterprises couldn’t be found in the address given in the invoice it cannot be a ground to disallow the entire expenses. And since the AO has not disturbed the sales shown by the assessee, (without rejecting the book) only the profit embedded in the purchases can be added. We note in this regard, that the assessee had produced the bills, and it is noted that the payment has been made by cheque to M/s Rumeet of Rs 25 Lakhs, and that AO/CIT(A) has not disturbed the sales shown by RRC International Freight Services Ltd.. the assessee, in such a scenario only the profit embedded in the purchases can be added. Therefore, we direct the AO to restrict the addition to 12.5% of Rs.25 lakhs. The appeal of the assessee is partly allowed for statistical purposes.