VASHISHT ALLOYS,NAHAN vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE, YAMUNA NAGAR, YAMUNA NAGAR

O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2010-11 arises out of an order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 31-07-2025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s.147 of the Act on 29-12-2017. The sole grievance of the assessee is confirmation of addition of AY: 2010-11 Rs.80.59 Lacs. The Ld. AR advanced arguments on legal ground as well as on merits and supported the case of the assessee. The Ld. AR assailed the reasons recorded by Ld. AO to reopen the case of the assessee. The Ld. Sr. DR also advanced arguments and supported the orders of lower authorities. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. Assessment Proceedings 2.1 The assessee is stated to be engaged in manufacturing of metal products. The regular return of income as filed by the assessee was assessed u/s 143(3) partially disallowing deduction u/s 80-IC. However, pursuant to the order of Tribunal, appeal effect order was passed on 23-09-2016 accepting the returned income. 2.2 Subsequently, the case was reopened and a notice u/s 148 was issued on 30-03-2017. A copy of the reasons recorded has been placed on record. Upon perusal of the same, it could be seen that the reopening is in the background of information received by Ld. AO from ADIT (Inv.), New Delhi. It was stated therein that upon perusal of bank statements of Shri Pawan Kumar Gupta, it was seen that an amount of Rs.825.73 Lacs was credited in the account of M/s Rima Trading Co. (proprietorship concern of Shri Pawan Kumar Gupta) which was immediately transferred to various accounts. M/s Vashishth Alloys (proprietorship concern of assessee) received Rs.80.59 Lacs from M/s Rima Trading Co. It was observed that once the amount was credited in the account of M/s Rima Trading Co., thereafter, equivalent amount AY: 2010-11 was transferred to various other accounts leaving a minimum balance in the account. Therefore, it was clear that Shri Pawan Kumar Gupta was involved in providing accommodation entries to various beneficiaries including M/s Vashishth Alloys. With a view to verify the information further, the case of the assessee was reopened and it was alleged that the income of Rs.80.59 Lacs was received as accommodation entry from M/s Rima Trading Co. and accordingly, income to that extent escaped assessment. The detail of sum so received by the assessee has been tabulated on Page-2 of the assessment order. The assessee failed to link up RTGS receipts with its sales proceeds. During the course of assessment proceedings, the assessee was directed to explain the nature of these payments. 2.3 The assessee furnished copy of account of M/s Everest International (proprietorship concern of Shri Suresh Kumar) who acted as consignment agent for the assessee. The said firm was stated to be paid commission apart from other expenses incurred by him on material handled on behalf of the assessee. The assessee raised 76 consignment invoices against the said party, the copies of which were furnished to Ld. AO. The assessee also furnished Copies of Form-F issued to the said party by the Sales Tax Authorities against which the material was sent to the consignment agent. The sales tax assessment order passed in the case of the assessee accepting consignment sale of Rs.415.53 Lacs by the assessee was also furnished. The amount as received from M/s Rima Trading Co. was credited to the account of M/s AY: 2010-11 Everest International. The assessee denied having knowledge / control of M/s Rima Trading Co. and Shri Pawan Kumar Gupta. Therefore, it was contended that the assessee could not be held liable for alleged accommodation entries. The assessee also sought cross-examination to prove its point. 2.4 However, Ld. AO disbelieved the version of the assessee in view of the fact that notices issued u/s 133(6) to M/s Everest International as well as to M/s Rima Trading Co. remain un-served. The Ld. AO also pointed out flaw in transportation details as well as in sales bills which was controverted by the assessee. Finally, rejecting assessee’s submissions and explanations, the credit of Rs.80.59 Lacs was treated as unaccounted income of the assessee and the assessment was framed. Appellate Proceedings 3.1 The assessee raised legal grounds and stated the reopening was beyond 4 years and it was incumbent upon Ld. AO to demonstrate that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. No such failure was identified or established in the reasons recorded. The case was already scrutinized in detail u/s 143(3) wherein the assessee furnished full and complete disclosure pertaining to sales, consignment transactions, ledger accounts and bank statements including RTGS receipts. The Ld. AO examined financial statements and no discrepancies were noted in the consignment sales or sale proceeds. The assessee discharged its AY: 2010-11 statutory obligation by placing all primary facts before the department and Ld. AO had full opportunity to draw any inferences on those facts. Therefore, the reopening was on mere change of opinion which was based on material already placed on record. It was further contended that Ld. AO acted mechanically on the information so received form investigation wing regarding alleged accommodation entries received from M/s Rima Trading Co. No independent enquiry or investigation was conducted by Ld. AO to verify the veracity or applicability of the said information to the assessee’s case. The Ld. AO did not seek any clarification, confirmation or documentary substantiation beyond the cryptic inputs received from the investigation wing. Such passive reliance on third-party intelligence would render the reopening invalid as it reflected merely a ‘reason to suspect’ rather than ‘reasons to believe’. 3.2 However, Ld. CIT(A) rejected the same on the round that Ld. AO reopened the case on specific tangible material placed before him by investigation wing. The information highlighted that M/s Rima Trading Co. was a concern with minimal commercial identity and financial credentials. It was engaged in routing large volume of funds through its bank in a layered, cryptic pattern with immediate remittances to various third-parties including the assessee. The receipt via RTGS by the assessee from such source without any explanation or documented business linkage constituted credible information warranting further scrutiny. The pattern of flow of funds in the account of M/s Rima AY: 2010-11 Trading Co., in the absence of a documented commercial relationship between the assessee and the said third-party, provided a strong prima facie case for reopening. The assessee’s claim that the receipts represented proceeds of consignment sales made to M/s Everest International were not substantiated by evidence of prior or subsequent dealing nor were the consignment supported by valid transport documentation. Several of the vehicles being cited were found to be non-commercial vehicles. All these facts lend credence to Ld. AO’s belief that the transactions lacked economic substance and warranted re-examination. The notice issued u/s 133(6) to both the entities were un-served and the assessee failed to furnish confirmation from either of these parties which would further support the conclusion that key links in the transaction chain remained un-verified and opaque. The Ld. AO could not be faulted for treating such lack of cooperation and evidentiary void as a ground for forming a belief that income chargeable to tax had escaped assessment. Finally, assessee’s challenge to reopening was rejected. 3.3 On merits, the assessee contended that it had no business dealing with M/s Rima Trading Co. In consignment arrangements, it would neither be unusual nor commercially acceptable for the ultimate buyer to remit payment directly to the consignor. Further, the assessee relied on invoice copies, ledger account of M/s Everest International, Form F issued by Sales Tax Authorities and a copy of assessee’s sales tax assessment order confirming the genuineness of the consignment AY: 2010-11 transactions. It was also stated that no cash was involved and all payments were received through banking channels only thereby negating the presumption of bogus payments. The attention was drawn to the fact that similar payments were received from other third-party buyers which were not questioned and the entire sales consideration from M/s Everest International was accepted except the amount received from M/s Rima Trading Co. which was nothing but selective application of suspicion without holistic assessment of the consignment agent. Thus, the addition was arbitrary, unsubstantiated and liable to be deleted. The assessee’s submissions were subjected to remand proceedings vide remand report dated 18-02-2019 and the assessee filed rejoinder against the same on 20-04-2019. 3.4 Upon careful consideration, Ld. CIT(A) observed that the primary issue was receipt of Rs.80.59 Lacs by the assessee from M/s Rima Trading Company, an entity with which the assessee categorically denied having any business dealings, agreement, or correspondence. But substantial amount was remitted by Rima Trading Co. on behalf of M/s Everest International who was projected as the actual buyer in the alleged consignment transaction. However, the assessee failed to provide any documentary linkage between Everest and Rima by way of contracts, payment instructions, commission agreements or communication trail to establish why and how Rima Trading Co. acted as an intermediary financier. Further, the round-figure nature of the RTGS payments, in clear mismatch with the invoice amounts, raised AY: 2010-11 legitimate doubts about the genuineness of the underlying trade. In addition, the transport records submitted by the appellant were riddled with inconsistencies and several of the vehicle numbers mentioned were found to correspond to non-commercial or invalid vehicles such as motorcycles and tractors. Even though revised vehicle details were furnished later on, no independent documentation or transporter confirmations were filed to substantiate those changes. This casts serious doubt on the movement of goods forming the foundation of the transaction. Moreover, attempts by the AO to verify the existence and functioning of M/s Rima Trading and M/s Everest International through Section 133(6) notices proved futile. All such notices were returned un- served, reinforcing the suspicion that these entities were either non- traceable or non-functional at the declared addresses. The non- cooperation of key counterparties and the absence of third-party confirmations further weaken the appellant’s case. The argument that similar consignment transactions with other parties were accepted without dispute does not exonerate the present transaction. Each transaction must be tested on its own factual matrix and in this case, the combination of lack of documentation, missing confirmations, invalid transport logistics and unverifiable counterparties makes this particular receipt highly suspicious and unsubstantiated. In light of the foregoing, it was finally held that the appellant has failed to discharge its onus under Section 68 of the Income-tax Act, 1961. The explanation offered by the assessee was not only inadequate but also lack any AY: 2010-11 commercial rationale expected in bona-fide trade transactions. The transaction, in its totality, lacked commercial substance and held to be a colorable device for introducing unaccounted funds into the books. Thus, the impugned addition was confirmed against which the assessee is in further appeal before us. Our findings and Adjudication 4. First, we take up the legal grounds assailing reopening of the assessment. Upon perusal of recorded reasons as placed in the paper- book, it could be seen that the reopening of the case is in the background of information received by Ld. AO from ADIT (Inv.), New Delhi. In the report, it was alleged that an amount of Rs.825.73 Lacs was credited in the account of M/s Rima Trading Co. (proprietorship concern of Shri Pawan Kumar Gupta) which was immediately transferred to various accounts. The assessee’s concern M/s Vashishth Alloys (proprietorship concern of assessee) is stated to be one of the beneficiaries to the extent of Rs.80.59 Lacs from M/s Rima Trading Co. The amounts so transferred by M/s Rima Trading Co. were alleged to be accommodation entries. However, there is no fact on record that the said credit represents assessee’s own unaccounted money. No exchange of cash is shown to have taken place between the assessee and M/s Rima Trading Co. It is another fact that the said amount has duly been credited by the assessee in the account of M/s Everest International to whom the assessee has made substantial consignment sales which has also been accepted by sales tax authorities. The other AY: 2010-11 transactions with M/s Everest International have already been accepted except to the extent of credit received from M/s Rima Trading Co. Pertinently, the assessee’s case was already scrutinized u/s 143(3) which attained finality by the order of Tribunal. During these proceedings, Ld. AO disturbed the claim made by the assessee u/s 80- IC which would show the financial statements including trading results were duly been examined by Ld. AO during the course of regular assessment proceedings. The assessee had furnished full and complete disclosure pertaining to sales, consignment transactions, ledger accounts and bank statements including RTGS receipts. The Ld. AO examined financial statements and no discrepancies were noted in the consignment sales or sale proceeds. The assessee discharged its statutory obligation by placing all primary facts before the department and Ld. AO had full opportunity to draw any inferences on those facts. On these facts, it was to be concluded that reopening was merely on ‘reasons to suspect’ rather than on ‘reasons to believe’ which is sine- qua-non to reopen the case of the assessee. In the absence of any information regarding cash exchange, the allegation of accommodation entry could not be established. The Ld. AO acted mechanically on the information so received form investigation wing regarding alleged accommodation entries received from M/s Rima Trading Co. However, no independent enquiry or investigation was conducted by Ld. AO to verify the veracity or applicability of the said information to the assessee’s case. Such passive reliance on third-party intelligence AY: 2010-11 would render the reopening invalid as it reflected merely a ‘reason to suspect’ rather than ‘reasons to belief’. Therefore, we would hold that reassessment proceedings had no underlying material leading to formation of belief of escapement of income. This being so, the assessment is liable to be quashed. We order so. Consequently, delving into the merits of the case has been rendered mere academic in nature. The assessee succeeds on legal grounds.