CHANDRASHEKHAR NATHALAL TRIVEDI,MIRA ROAD vs. ITO WARD 2 (5), THANE

These are the cross appeals filed by the parties against the order passed by the learned Commissioner of Income Tax (Appeals)-1, Thane [The LD CIT (A)] dated 06.09.2019 for Assessment Year 2010-11.

The learned Assessing Officer has raised the following grounds:-

Assessee has raised following grounds of appeals:-

Brief facts of the case shows that assessee is an individual, proprietor of M/s High Tech Engineers, engaged in the business of trading of commodities such as Iron and Steel Products and shares and securities. He filed his returned of income on 24.09.2010 declaring income of ₹3,24,686/-. The return was processed under section 143(1) of the Act.

Subsequently, ld AO received information from Director General of Income Tax (Investigation) and the Revenue Audit Party as Major Audit Objection. Information was that assessee was not assessed under section 143(3) of the Act on the basis of hawala purchases made from hawala operators amounting to ₹15,16,68,260/-related to receipt of accommodation entries from „Utkantha Group‟ through its entities who were engaged in intricate circular trading without actual sales and purchases. Thus, assessee is one of the beneficiaries of the accommodation entries. Moreover, Sales Tax Department, Maharashtra gave the names and address of certain persons who have provided entries of bogus purchase to a large number of taxpayers, assessee is also one of the beneficiaries. The providers of accommodation entries have also filed affidavit before Sales Tax Department stating that they have merely provided entries to these beneficiaries and

During the course of assessment proceedings, the assessee furnished the audited accounts, Tax Audit Report,

Learned AO also obtained affidavits of these parties from sales tax Department wherein they have affirmed that they have not done any business activity of sale or purchases but only issued hawala bills to the parties for which they have been paid commission. Therefore, The Assessing Officer came to the conclusion that the above purchases were not genuine and made addition of ₹26,25,58,657/- to the returned income of the assessee amounting to ₹3,24,686/- and passed an assessment order under section 143(3) read with section 147 of the Act on 06.12.2017 determining the total income of the assessee at ₹26,28,83,343/-.

The assessee aggrieved with the order preferred the appeal before the learned Commissioner of Income Tax (Appeals). The assessee challenged the reopening of the assessment, which was rejected. On the merits of the addition, the learned CIT(A) held that only 12.5% of the bogus purchases amounting to ₹3,28,19,832/- is required to be added, hence, he deleted the balance addition. Therefore, the appeal of the assessee is partly allowed.

Thus, both the parties are aggrieved with the above order of the learned CIT – A and has preferred these appeals. The assessee is aggrieved against the confirmation of action

Coming to the appeal of the assessee, the learned Authorised Representative placed on record a paper book containing 151 pages and also several judicial precedents against the reopening of the assessment as well as against addition confirmed by the learned Commissioner of Income Tax (Appeals).

The learned Authorised Representative submitted that the notice under section 148 of the Act was issued on 07.10.2016; however, it was received by the assessee only on 27.07.2017. He submitted the dispatch record placed at pages 2 and 3 of the assessee‟s paper book clearly shows that these dispatch details were pertaining to the notice issued under section 143(2) and 142(1) of the Act and not the notice issued u/s 148 of the act. Therefore, he submitted that in the present case, notice under section 148 of the Act could have been served within six years from the end of the assessment year i.e. up to 31.03.2017 but the notice was served only on 27.07.2017 and therefore, the assessment order consequently passed by the learned Assessing Officer without serving any notice u/s 148 of the Act within the time limit is liable o be quashed as non est.

Coming to the merits of the addition, he submitted that assessee has a business of trading in steel. The accounts of the assessee are audited under section 44AB of the Act. The assessee also maintains the quantitative details of the purchase and sale. He referred to „Schedule C‟ of the Tax Audit Report wherein the quantitative details are tabulated. He further referred to statement placed at page No. 56 onwards wherein the quantities purchased from the four alleged entities were shown which have been sold to one Bill power Limited. He also stated the month wise quantities of the purchases and sales of those quantities to the Bill power Limited. In the end, he referred to tabulation where the purchases from the alleged accommodation entries providers of ₹26,25,58,657/- which has been sold to Bill power Limited for ₹26,27,81,569/- and therefore, the assessee has shown the sale of the goods as well as the profit of ₹2,22,912/- on the above transactions. He supported the above facts by the copies of the bills of purchase of goods as well as sale of goods of those parties. He also referred to the bank statement where the purchases

On the issue of addition, he relied on the decision of Hon‟ble Supreme Court in the case of NK proteins Ltd. and Vijay Proteins Limited and Hon'ble Delhi High court in the case of La Medica and Arun Malhotra, where 100% addition is sustained of bogus purchases. He therefore submitted that as the order of the learned Assessing Officer is in conformity with law laid down by the Hon‟ble Supreme Court of India and therefore, the learned CIT (A) was not correct in restricting the addition to the extent of 12.5% of such purchases. Therefore, the order of the learned CIT (A) is required to be set aside.

The learned Authorised Representative in rejoinder submitted that the Hon‟ble Bombay High Court in Mohammad Haji Adam And Co. (supra) which is on identical facts has accepted the addition to the limited extent because of comparison of gross profit. He also stated that in this case, the Hon'ble Bombay High Court considered the decision of N K Industries Ltd. vs. Dy. CIT in Tax Appeal No. 240 of 2003 dated 20 June 2016 in Para No. 8. He further submitted that the decision of La Medica and Arun Malhotra of Hon.

On the issue of notice and satisfaction, he referred to the decision of Hon‟ble Delhi High Court in the case of PCIT Vs. N.C. Cables Ltd. (391 ITR 11) as well as on approval u/s 151 of the Act on decision of Hon‟ble Madhya Pradesh High Court in 231 Taxman 173. He specifically referred to the decision of the Hon‟ble Bombay High Court in the case of Smt. Kalpana Shantilal Haria Vs. ACIT dated 22.12.2017, wherein the approval granted without application of mind was held to be invalid. In view of the above facts and several judicial precedents of co-ordinate Benches, he submitted that the addition is not sustainable beyond what is stated.

The fact of the case lies in a very narrow compass. The return of income filed for Ay 2010-11 on 24/09/2010 was accepted under section 143(1) of the Act. Thereafter on the basis of information received from DGIT (Investigation), Revenue party and Sale Tax Authorities, the case of the assessee was reopened by issue of notice u/s 148 of the Act dated 07/10/2016 wherein it was alleged that the assessee has obtained accommodation entries to the extent of ₹26,25,58,657/- from four different parties. As the reopening was beyond four years, LD Assessing Officer recorded the reason that due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and hence notice under section 148 of the Act is initiated. Such reasons were recorded purportedly within time and approval was obtained on 03.10.2016 from the Pr. Commissioner of Income Tax-1, Thane. He recorded the approval stating that “I have gone through the reasons recorded. I am satisfied that it is a fit case for issue of notice under section 148. The proposal for issue of notice under section 148 is approved.”

Coming to the next argument of the learned authorised representative that the assessee has not been served the notice as there was no reference that notice u/s 148 of the act on

Coming to the other aspect of the reopening of the assessment where the assessee has challenged that the approval was mechanical; we find that the reasons recorded by the learned AO remain unassailed. The learned authorised representative could not show that there is any infirmity in the reasons recorded. The satisfaction has been recorded by the learned principal Commissioner of income tax as per performa at serial number 12 has clearly recorded his satisfaction which shows that he has gone through the reasons recorded by the learned assessing officer and then he is satisfied with the proposal of issuing notice u/s 148 of the income tax act and thereafter he granted his approval. Naturally, when reasons recorded are sound enough to stand on its own legs, clear, unassailable, manner or language of recording approval does not matter much. More so, as there is no specific manner and language of recording such approval prescribed by law, therefore approval granted if shows application of sound mind, deserves to be upheld. All decision cited before us shows flawed reasons and consequently approval also failed. In view of this, we are not in agreement with the argument of the learned authorised representative that the approval granted

Accordingly, ground number 1 of the appeal of the assessee is dismissed.

Now we come to the issue of merits and quantum of addition. The revenue has challenged the deletion of addition partly by the learned CIT Appeals raising five grounds of appeal whereas assessee in his appeal has challenged it as per ground number 2 of the appeal. On careful perusal of the information submitted before us, it is undisputed that assessee is engaged in business of trading of iron and steel products in the name of his proprietary concern M/s High-Tech Engineers. Assessee has maintained regular books of accounts, which are audited under the provisions of Section 44AB of the act. Assessee has also maintained quantitative details. During the year assessee has dealt in sheets and coils and MS plates of 92,84,983 kg of purchases amounting to ₹ 1,061,649,351/– and same number of quantity is sold for Rs. 106,53,63,184/– earning the gross profit of 0.35% and net profit of 0.02% thereon. Allegation shows that assessee has purchased material from four different parties who are Hawala traders amounting to ₹ 262,558,657/–. Assessee has shown that purchases from Messer‟s Candy filters (Bombay) private limited was of 4,57,756 kg amounting to ₹ 52,158,790/–, equivalent quantity has been sold to Bill Power Ltd at ₹ 52,206,397/–. Similarly 4,51,009 kg were purchased from City base multitrade private limited

The learned departmental representative further relied upon the decision of the honourable Delhi High Court in case of CIT Vs La Medica [2001] 117 Taxman 628 (Delhi)/ [2001] 250 ITR 575 (Delhi) however, in that decision it was not the case that the material purchased by the assessee has been sold to the third party and sales has been accepted by the revenue. In that case, raw material was purchased by the assessee and there was no correlation with the corresponding sales.

Coming to the last decision in the case of Vijay Proteins Ltd [2015] 58 taxmann.com 44 (Gujarat) where 25% of purchases were held to be income of the assessee for the reason of bogus purchases of raw material and there was no corresponding sales of the same raw material but of finished goods. Therefore, the above judicial precedent does not help the case of the revenue.

In view of the above facts and the decision of the honourable Bombay High Court on identical facts and circumstances, we direct the learned assessing officer to retain the addition in the hands of the assessee on account of the bogus purchases of ₹ 906,090 against the addition confirmed by ld CIT (A) of ₹ 32,819,832/–. Accordingly, ground number 2 of the appeal of the assessee is partly allowed.

In the result, appeal filed by the assessee is partly allowed and appeal filed by the learned assessing officer is dismissed.