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Income Tax Appellate Tribunal, DELHI “SMC-2” BENCH: NEW DELHI
Before: SHRI R.K.PANDA
This appeal filed by the assessee is directed against the order dated 11.03.2019 of Ld. CIT(A)-20, New Delhi relating to assessment year 2008- 09.
Facts of the case, in brief, are that the assessee is an individual and engaged in the business of metals scrap under the name and style of M/s Punjab Metal Store. He filed his return of income on 26.09.2008 declaring total income of Rs.1,56,005/-. Information was received from Ld. ACIT, Central Circle, Jhandewalan Extn., New Delhi that the assessee was engaged in obtaining accommodation entries of bogus purchases provided by Sh. Rakesh Gupta, Sh.Vishesh Gupta, Sh.Vaibhav Jain and Sh. Navneet Jain. The case of the assessee was re-opened by recording the following reasons and issue of notice dated 27.02.2015 u/s 148 of the Income Tax Act, 1961 (in short “Act”):-
“A letter bearing F.No.Addl.CIT/(Hq)/(Coord.)/Accommodation entry/2012-13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner) of I.Tax, Delhi-I, New Delhi therein forwarding letter bearing F.No.CIT(C)-II/2012-13/3898 dated 19.03.2013 received from the Commissioner of I.Tax, Central-II, New Delhi with a CD containing the details of accommodation entries provided by Sh.Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh.Vaibhav Jain in the shape of bogus purchases and directing this office to take necessary action as per section 148 in respect of entries pertaining to A.Y. 2006-07, which were going to be barred by limitation on 31.03.2013. The information provided by the CIT, Central- II, New Delhi vide his letter dated 19.03.2013 reads as under:- “Kindly find enclosed herewith letter dated 13.03.2013 of ACIT, Central Circle-10 duly forwarded by the Addl. CIT, Central Range-IV, alongwith its enclosures on the subject mentioned above.
2. The assessment of search cases of Sh.Rakesh Gupta, Sh.Vishesh Gupta, Sh. Navneet Jain & Sh.Vaibhav Jain are under process with the ACIT, Central Circule-10. During the assessment proceedings u//s 153A in the aforesaid cases, details regarding accommodation entries given by the above entry providers has been obtained by the Assessing Officer.
3. The list of accommodation entry recipients has been obtained from Sh.Rakesh Gupta and Sh.Vishesh Gupta. hard copy of the list is enclosed as Annexure A duly signed by Sh. Vishesh Gupta. The list gives the name of the firm which has provided the accommodation entry alongwith the name and address of the recipients of accommodation entry.
Sh.Navneet Jain & Sh. Vaibhav Jain has provided accommodation entry through thirty seven paper entities. The list of the firms giving accommodation entry is enclosed as Annexure- B. The list of accommodation entry recipients, has been obtained from Sh.Navneet Jain & Sh. Vaibhav Jain. It does not give year wise bifurcation. Hard copy of the list is enclosed as Annexure- C, duly signed by Sh.Vaibhav Jain. Thus the firms mention in the list “B” have provided accommodation entries to the firms mentioned in list “C”.
5. The self copy of the information in respect to annexure A, B & C is also enclosed.
The information of accommodation entry includes A.Y. 2008-09 also, which is a time barring year for taking action u/s 148.
This information is forwarded to you for early dissemination to various field offices in Delhi(Soft copy also enclosed).” It is evident from the assessment order passed by the ACIT, Central Circle-10, New Delhi on 28.03.2013 that Sh.Rakesh Gupta & Sh. Vishesh Gupta and Sh.Navneet Jain & Sh.Vaibhav Jain during the course of search proceedings in post search proceedings and in assessment proceedings u/s 153A of I.Tax Act admitted that they have given accommodation entries to the parties whose lists have been provided by them to the ACIT, Central Circle-10, New Delhi. Therefore, the assessment of the Firms/concerns/individuals for A.Y.2006-07, whose names were appearing in the said list of accommodation entries provided by Sh. Rakesh Gupta & Sh.Vishesh Gupta and Sh.Navneet Jain & Sh. Viabhav Jain were reopened u/s 147 of I.Tax Act and notices u/s 148 of I.Tax Act were issued.”
3. During the course of assessment proceedings, the Assessing Officer confronted the assessee regarding the statement of Sh. Vishesh Gupta recorded by ACIT, Central Circle-10, Jhandewalan, New Delhi wherein it has been admitted by him that besides his 05 firms and his father namely Sh.Rakesh Gutpa’s 5 firms and his brother Sh.Shashank Mittal, he was owning/managing/controlling M/s. Pasupati Enterprises, M/s. Om Agencies and M/s. Shree Bankey Bihari Trading Company. He had further stated that he was engaged in bogus purchase and issue of bogus purchase bills/accommodation entries on commission @ 0.25% to 0.50%. He had also explained the step-wise procedure for providing bogus bills/accommodation entries. This fact was again been confirmed/admitted by Sh.Rakesh Gupta, & Sh.Vishesh Gupta. The Assessing Officer issued summons u/s 131 of the Act to Sh.Rakesh Gutpa & Sh.Vishesh Gupta and their statements were recorded. After considering the reply of the assessee and the material available before him, the Assessing Officer concluded that purchase of Rs.19,74,026/- made from M/s Bankey Bihari Trading Company and M/s. Vishu Trading Company are bogus purchases obtained by the assessee following the procedure explained by Sh. Rakesh Gutpa & Sh.Vishesh Gutpa, at the time of recording of the statement before the Ld. ACIT, Central Circle-10, New Delhi on 04.02.2013 & 12.02.2013 respectively and before him on 19.02.2016 and for which no satisfactory explanation could be provided by the assessee.
4. Before the Ld. CIT(A), the assessee apart from challenging the addition on merit challenged the validity of the re-assessment proceedings. It was submitted that the Assessing Officer had issued notice u/s 148 of the Act with PAN nos. which related to the erstwhile partnership firm and which stands dissolved w.e.f. 31.03.2004. It was argued that the assessee has taken over the business w.e.f. 01.04.2004. Although this fact was already informed to the Assessing Officer during the assessment proceedings of Assessment Year 2006-07 vide reply dated 30.04.2013, however, the Assessing Officer passed the order in the name of the assessee despite the fact that the case of the assessee was never re-opened. Relying on various decisions, it was submitted that the completion of assessment in the name of the assessee when the case was not re-opened is bad in law.
So far as the merit of the addition is concerned, it was submitted that there is absolutely no material whatsoever with the Assessing Officer other than the so-called statements of the persons. The finding of the Assessing Officer that these persons are not engaged in the trade at all is contrary to the facts that emerged on the date of survey in the premises of the persons during which stock of scrap was found which is evident from the inventory of stocks prepared at the time of survey. It was argued that there is complete tally of the purchases and sales and each item of the scrap tally with the sales and purchases and, therefore, the Assessing Officer was not justified in ignoring this fact and making the addition by holding that the purchases are bogus. It was argued that the assessee has given quantitative details of purchases, sales, opening stock and closing stock. It was submitted that when sales were accepted by the Assessing Officer, the addition could not have been made on account of bogus purchases since without any purchases there cannot be any sales. Relying on various decisions, it was argued that the addition made by the Assessing Officer is not justified.
6. However, the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee. She not only upheld the re-opening of the assessment but also enhanced the addition to Rs.21,30,030/- as against Rs.19,74,026/- made by the Assessing Officer. While holding so, she held 5 | P a g e that the assessee must have earned profit out of the transactions and since expenses have already been claimed by him in his P&L A/c, therefore, profit on such transaction @ 20% of the purchases amounting to Rs.3,94,805/- had to be added to the total income of the assessee. Further, in this kind of accommodation entries commission @ 0.5% is paid to the accommodation entry provider which in the instant case comes to Rs.9,870/- She accordingly enhanced the income of the assessee to Rs.4,04,675/- i.e. (Rs.3,94,805/- + Rs.9,870/-).
7. Aggrieved by such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising following grounds:-
1. “On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eyes of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO despite the fact that the reassessment initiated on a non-existing entity and therefore reassessment proceedings are void ab initio. 3. On the facts and circumstances of the case, learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the initiation of the reassessment proceedings and the reassessment order are bad, both on the facts and in law and liable to be quashed, as the statutory conditions and procedure prescribed under the statute have not been complied with. 4. (i) On the facts and circumstances of the case, learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the AO are bad in the eyes of law, as the reasons recorded for the issue of notice under section 148 are bad in the eyes of law and are contrary to the facts. (ii) On the facts and circumstances of the case, learned CIT(A) has erred, both on facts and in law In rejecting the contention of the assessee that the reassessment order passed by the AO is bad and liable to be quashed as the same has been reopened on the basis of the reasons which are vague and have been recorded without application of mind on the part of the AO.
5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of an amount of Rs. 19,74,026/- on account of purchases made by the assessee treating the same as bogus invoking section 69C of the Income Tax Act.
6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in enhancing the income of the assessee by the amount of Rs.4,04,675/- on account of gross profit and commission paid for the above alleged amount. 7. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming that the firm M/s Vishu Trading Co. is not engaged in actual business, ignoring the fact that during the course of search on these firms substantial inventory in respect of the material being purchased by the assessee was found, which confirms the fact that these firms were doing actual business. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in rejecting that the inference drawn by the AO merely on the basis of a statement that these firms are not in actual business is baseless and contrary to the facts on record.
8. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee in ignoring the fact that the quantity purchased and sold being completely tallying, the allegation that the assessee has not made purchases cannot be sustained.
9. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the addition on account of bogus purchases, despite their being adequate material and evidences brought on record by the assessee before the AO to show that the purchases and sales were made in the regular course of business.
10. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the addition so made on the basis of material collected at the back of the assessee, is bad in law and liable to be deleted.
11. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in rejecting the contention of the 7 | P a g e
assessee that the addition made by the AO is untenable in the eyes of law, having been made without providing opportunity to cross examine the person on the basis of whose statement the allegations have been made against the assessee and without following the principles of natural justice. 12. The appellant craves the leave to add, amend or alter any of the grounds of appeal.”
8. Ld. Counsel for the assessee at the outset submitted that the case of the assessee is squarely covered in its favour by the decision of Tribunal in assessee’s own case for Assessment Year 2006-07 in order dated 02.12.2015 wherein the Tribunal has quashed the re- assessment proceedings initiated by the Assessing Officer and has also deleted the addition made by the Assessing Officer and sustained by Ld.CIT(A) on merit. He submitted that the Assessing Officer, in the instant case, has accepted the sales of the assessee and, therefore, there was no reason for holding that purchases are bogus. Relying on the following decisions, he submitted that under identical circumstances, the Co-ordinate Benches of Tribunal have deleted the additions made by the Assessing Officer on account of such bogus purchase where sales have been accepted.
* Unique Metal Industries v. ITO in dated 28.10.2015 * M/s Radhay Shyam and Co. vs ITO in iTA No. 1429/Del/2015 dated 30.11.2015 before SMC-1 Bench. * M/s Kishan Lal Gambhir & Sons v. ITO in ITA No.1516/Del/2015 dated 02.12.2015 before ‘F’ Bench * M/s Kakkar Bartan Store v. ITO in ITA No. 1380/Del/2015 dated 03.03.2016 * M/s Krishan Lal & Sons v. ITO in ITA No. 1379/Del/2015 dated 3.03.2016 8 | P a g e
* M/s Laxmi Dhatu Bhandar v. ITO in dated 23.03.2016 * M/s Karshni Metal Store v. ITO in ITA No. 1365/Del/2015 dated 23.03.2016 * M/s Kashmir Metals v. ITO in ITA No. 1366/Del/2015 dated 23.03.2016 * M/s Bhardwaj Metal (India) v. ITO in ITA No. 1370/Del/2015 dated 23.03.2016 * M/s Nayar Metal Co. v. ITO in ITA No. 1374/Del/2015 dated 31/03/2016 * Neeraj Rathore Prop. M/s Anjli Metal Overseas and Rajiv Jain Prop. * M/s Rajeev Metal Trading Co. v. ITO in ITA No. 059/Del/2017 And ITA No:-7061/Del/2017 dated 27.09.2018 * Jyoti Engineering Works, Sadhna Sharma, Ajay Sharma v. ITO in ITA No. 2719/Del/2018, ITA No. 2720/Del/2018, ITA No. 2721/Del/2018, ITA No. 2722/Del/2018 And ITA No. 2723/Del/2018 dated 26.09.2018 * Rajender Prasad Prop. M/s Priya Enterprises v. ITO in ITA No.7060/DEL/2017 dated 07.09.2018 * M/s Sapra Metal Co. v. ITO in ITA No. 2910/Del/2016 dated 09.3.2017.
9. He accordingly submitted that the addition made by the Assessing Officer and enhanced by the Ld. CIT(A) is liable to be deleted.
10. The Ld.DR on the other hand heavily relied on the orders of the Assessing Officer and Ld.CIT(A).
I have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld.CIT(A) and the Paper Book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find Assessing Officer, in the instant case, has made addition of Rs.19,74,026/- being bogus purchases made by the assessee from Shree Bankey Bihari Trading Company and M/s Vishu Trading Company. I find the Ld.CIT(A) upheld the initiation of re-assessment proceedings and also upheld the addition made by the Assessing Officer and further enhanced the income of the assessee by Rs.4,04,675/-. It is the submission of the Ld. Counsel for the assessee that the Tribunal in assessee’s own case for Assessment Year 2006-07 has quashed the re-assessment proceedings and has also deleted the addition on merit.
I find under identical circumstances the Tribunal in assessee’s own case for Assessment Year 2006-07 in order dated 02.12.2015 while deciding the validity of re-assessment proceedings and deleting the addition has observed as under:-
“Reasons for the belief that the income has escaped assessment in the case of M/s Krishan Lal Gambhir & Sons for the assessment year 2006-07 A letter bearing F.No. Addl.CIT/(Hq)/(Coord.)/Accommodation entry/2012- 13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner of I.Tax, Delhi-1, New Delhi therein forwarding letter bearing F.No. CIT(C)- II/2012-13/3898 dated 19.03.2013 received from the Commissioner of I.Tax, Central-II, New Delhi along with a CD containing the details of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta & Sh. Navneet Jain & Sh. Vaibhav Jain and directing this office to take necessary action as per section 148 in respect of entries pertaining to A.Y. 2006- 07, which is time barring on 31.03.2013. The information provided by the CIT, Central-II, New Delhi vide his letter dated 19.03.2013 reads as under: 1. “Kindly find enclosed herewith letter dated 13.03.2013 of ACIT, Central Circle-10 duly forwarded by the Addl. CIT, Central Range-IV, along with its enclosures on the subject mentioned above.
2. The assessment of search cases of Sh. Rakesh Gupta, Sh. Vishesh Gupta, Sh. Navneet Jain & Sh. Vaibhav Jain are under process with the ACIT, Central Circle-10. During the assessment proceedings u/s 153A in the aforesaid cases, details regarding accommodation entries given by the above entry providers has been obtained by the Assessing Officer.
The list of accommodation entry recipients has been obtained from Sh. Rakesh Gupta and Sh. Vishesh Gupta. Hard copy of the list is enclosed as Annexure A, duly signed by Sh. Vishes Gupta. The list given the name of the firm which has provided the accommodation entry along with the name and address of the recipients of accommodation entry. 4. Sh. Navneet Jain & Sh. Vaibhav Jain has provided accommodation entry through thirty seven paper entities. The list of the firms giving accommodation entry is enclosed as annexure-B. The list of accommodation entry recipients, has been obtained from Sh. Naveneet Jain & Sh. Vaibhav Jain. It does not give year wise bifurcation. Hard copy of the list is enclosed as annexure-C, duly signed by Sh. Vaibhav Jain. Thus, the firms mention in the list ‘B’ have provided accommodation entries to the firms mentioned in list ‘C’. 5. The soft copy of the information in respect to annexure A, B & C is also enclosed. 6. The information of accommodation entry includes A.Y. 2006-07 also, which is a time baring year for taking action u/s 148. 7. This information is forwarded to you for early dissemination to various field offices in Delhi. On examining the list of accommodation entries provided by Shri Rakesh Gupta & Shri Vishesh Gupta and Shri Navneet Jain & Shri Vaibhav Jain pertaining to A.Y. 2006-07. It is noticed that the following accommodation entries have been taken by the assessee namely M/s Krishan Lal Gambhir & Sons: S. No. Accommodation Name of party to whom Amount of entry provided by Accommodation entry is Accommodation provided entry 1. Shree Shyam M/s Krishan Lal Gambhir Rs. 4,05,860 Trading Co. & Sons 2. Vishnu Trading Co. M/s Krishan Lal Gambhir Rs. 3,52,461 & Sons Total amount of entries Rs. 7,58,321
Since Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain during the course of assessment proceedings u/s 153A of I.T. Act have admitted that they have given accommodation entries to the parties whose lists have been provided by them to the ACIT, Central Circle-10, New Delhi, therefore, it is fair to conclude that M/s Krishan Lal Gambhir & Sons, whose name is appearing in the said list, has taken accommodation entries from Shri Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07. Also the details of Income Tax Return filed by M/s Krishan Lal Ghambhir & Sons for A.Y. 2006-07 and processing done u/s 143(1) of I.Tax Act thereof were taken out from ITD System. Further, no scrutiny assessment was done in A.Y. 2006-07. Therefore, I have reasons to believe that income chargeable to tax amounting to Rs. 7,58,321/- for the F.Y. 2005-06 relevant to A.Y. 2006-07 has escaped assessment and it is a fit case for initiation of proceedings u/s 147 of the Act. Proposal in the prescribed form for the AY 2006- 07 (F.Y. 2005- 06) is submitted herewith for kind consideration and necessary approval u/s 151(2) of the I.T. Act, 1961 as the same is getting barred by limitation on 31/03/2013. If approved, notice u/s 148 of the act may be issued. Sd/- (Pawan Kumar Vashist) Income Tax Officer Ward 39(3), New Delhi
We found the issue regarding the validity of the reassessment is duly covered by the decision of this Tribunal in the case of Unique Metal (supra) and Shree Radheshyam & Company (supra) in which this Tribunal, vide orders dated 28/01/2015 and 30/11/2015 respectively, has quashed the reassessment proceedings. We also note that in these cases the ld. Assessing Officer had recorded similar reasons, and the party from which the assessee therein had made purchases were also same, as in the case of the present assessee. Therefore, respectfully following the decisions of this Tribunal in the case of Unique Metal (supra) and Shree Radheshyam and Company (supra), we quashed the reassessment proceedings.
Now coming to the sustenance of the addition by the ld. CIT(A) to an extent of 20% of the purchases made by the assessee, we note that the Tribunal, vide its order dated 30/11/2015 in the case of Shree Radheshyam & Company (supra) have deleted similar addition.
11. The Tribunal in the case of Shree Radheshyam & Company (supra), has followed the findings given in the order dated 28/11/2015 in the case of Unique Metal Industries (supra). This Tribunal has observed as under: 7. “Now coming to the merit about the sustenance of the addition by the CIT(A) @ 20% of the purchases made by the assessee from Shri Bankey Bihari Trading Co., after hearing the rival submissions and going through the order of the Tribunal, I noted that this Tribunal vide its order dated 28.10.2015 in the case of Unique Metal Industries (supra), deleted similar addition by observing in para 27 as under: “27. As regards the addition of 20% sustained by the ld. CIT(A) I am of the view that since purchases are not bogus the addition on this account cannot be sustained. Even otherwise the addition of 20% on the facts and circumstances is apparently too high. The ld. CIT(A) having held that tax has to be levied on real income and the profit cannot be ascertained without deducting the cost of purchases from the sales as otherwise it amount to levy of tax on gross receipt, she ought to have applied’ profit rate in this nature of trade. Estimating profit @ 20% by taking into consideration the or visions of section 40A(3) will not lead to determination of correct real income. Section 40A(3) is meant for a different purpose when the assessee has made purchases in cash. This provision cannot be applied in such cases. Once the purchases are held to be bogus then the trading results declared by the assessee cannot be accepted and right course in such case is to reject books of accounts and profit has to be estimated by applying a comparative profit rate in the same trade. Though there can be a little guess work in estimating profit rate but such profit rate cannot be punitive.”
12. Ld. DR even though vehemently relied on the order of CIT(A) as well as that of the Assessing Officer, could not bring to our knowledge any cogent material or evidence which may compel us not to follow the decision of this Bench in (supra) and ITA No. 1429/Del/2015(supra).
13. We therefore, respectfully following the decision of this Tribunal in the case of Unique Metal Industries (supra) and Shree Radheshyam & Company (supra), delete the addition as sustained by the ld. CIT(A) amounting to Rs. 1,10,845/-.
14. In the result, the appeal filed by the assessee is allowed.”
Since the facts of this year are identical to the facts of the case decided by the Tribunal in assessee’s own case for Assessment Year 2006- 07, therefore, respectfully following the decision of Tribunal in assessee’s own case for Assessment Year 2006-07, I quash the re-assessment proceedings and direct the Assessing Officer to delete the addition.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 20th January, 2021.