SAGAR INTERNATIONAL PVT LTD,DELHI vs. ITO WARD 7(2), NEW DELHI

This appeal by the Assessee is directed against the order of Ld.Commissioner of Income Tax(Appeals)-8, New Delhi dated 14.01.2019 for the assessment year 2006-07.

Ground No.1 to 5 relates to reassessment proceedings u/s.147 and issue of notice u/s.148 of the Act without Sagar International Pvt. Ltd., Vs. ITO, Ward-7(2), New Delhi,/ A.Y. 2006-07 Page 2 of 18 application of mind on the material provided by the Investigation Wing of the Department and giving mechanical approval of 151(2) of the Act with proper satisfaction and reasons and competent authority.

Briefly stated facts of the case are that the assessee is engaged in the business of manufacturing Aluminum in goods from Alluminium Scrap. The Assessing Officer(AO) had received an information from ACIT, Central Circle-10, New Delhi that the assessee was beneficiary of accommodation entries provided by Shri Rakesh Gupta, Shri Vishesh Gupta, Shri Navneet Jain and Shri Vaibhav Jain through bogus entries vide the concerns namely M/s.Shree Bankey Bihari Trading Co., M/s.Vishu Tradipng Co., and M/s. Shree Shyam Trading Co., amounting of Rs.50,67,260/-. The AO has scrutinized the audited accounts of the assessee for the year under consideration and found that the assessee had disclosed these transactions but the fact that the assessee company obtained accommodation entries from the aforesaid three parties controlled by Shri Rakesh Gupta, Shri Vishesh Gupta, Shri Navneet Jain and Shri Vaibhav was not disclosed.

Being aggrieved, the assessee carried the matter before the learned CIT(A) challenging the reassessment proceedings on the ground of non-application of mind by AO as he acted on Sagar International Pvt. Ltd., Vs. ITO, Ward-7(2), New Delhi,/ A.Y. 2006-07 Page 4 of 18 the information provided by the Asstt. Commissioner of Income Tax, Central Circle-10, New Delhi. However, the learned CIT(A) observed that the AO has given complete details of purchase on transaction in reasons recorded and therefore, it was held that the AO has independently applied his mind on the information provided by the other authority. Further, at the stage of recording reasons, no final findings is required to be given and only prima-facie belief is required to be reached by the assessing authority. The AO was correct in initiating reassert proceedings u/s.147 of the Act on the basis of information provided by the other authority. The learned CIT(A) also relied on the decision of Raymonds Woolen Mills Ltd., vs. ITO 236 ITR 4 (SC) and decision of jurisdictional Hon’ble Delhi High Court in the case of Paramount Communication Ltd., vs. PCIT 392 ITR 444 (Delhi) wherein it was held that information by the Investigation Wing or other authority is valid material for initiating reassessment proceedings. This decision of the Hon’ble Delhi High Court has been approved by the Hon’ble Supreme Court in 250 taxmann 100 (SC). The ld.CIT(A) further observed that since the assessee has participated in the Sagar International Pvt. Ltd., Vs. ITO, Ward-7(2), New Delhi,/ A.Y. 2006-07 Page 5 of 18 assessment proceedings which goes to prove that the assessee had effective knowledge of initiation of reassessment proceedings and therefore raising the ground of non-service of notice as appellate stage on the basis of some technical error in the address PAN is afterthought, accordingly the reopening of assessment was upheld.

Being aggrieved, the assessee filed this appeal before this Tribunal on the above aforesaid ground. The ld. Counsel for the assessee submitted before us that notice u/s.148 of the Act [PB-32] has been issued on the PAN: AAICS0816R which is allotted to a different entity situated in the state of Maharashtra with registered at Vardha that company registration no.145024 with date of incorporation of 12.03.2014 with different set of directors of which address is mentioned as FB/81, East Mohan Co-op Industrial Estate, Extension, Badarpur, Delhi whereas the assessee’s PAN is AAACS3043E is with address as BF/B-1, Mohan Co-operative Industrial Estate, Mathura Road, Badarpur, New Delhi.

Per contra, the ld.Departmental Representative(DR) submitted that as per provisions of section 292B the typographical error in the notice u/s.148 is not material ground for quashing the proceedings initiated in reopening of assessment. The ld.DR further submitted that as per provisions of section 292BB where the assessee has participated in the assessment proceedings which goes to prove that the assessee had effective knowledge of initiation of reassessment proceedings. Therefore, any material defect of notice being vague, non-specific are saved by the provisions of said section. The ld.DR, on merits submitted that the AO has given findings that the assessee has indulged in taking accommodation entries from the aforesaid impugned group of concerns which were admitted to be accommodation entry in the case of Unique Metal Industries(supra) and Tarun Metal Co., are distinguishable on facts as in these cases the Tribunal was presuming that the material was not available at the time of recording of reasons whereas in the instant case the AO has Sagar International Pvt. Ltd., Vs. ITO, Ward-7(2), New Delhi,/ A.Y. 2006-07 Page 8 of 18 duly verified the material information received by him with the audited books of accounts of the assessee. Therefore, these decisions are not applicable in the present case.

We have heard the rival submissions and perused the material available on record. We find that the notice u/s.148 was issued on 30.03.2013 in the name of the assessee at the address of FB/81, East Mohan Co-op. Industrial Estate, Badarpur, Delhi. However, there is typographical error in giving the address as FB/81 instead of BF/B-1 and mentioning of PAN. However, it is the fact that the notice u/s.148 was duly received by the assessee and the assessee vide letter dated 07.05.2013 [PB-33] has acknowledged the receipt of notice u/s.148 of the Act taking some objection regarding mentioning incorrect PAN address. Further, the assessee vide letter dated 25.04.2014 submitted before the AO that the original return of income filed on 15.11.2007 may be treated as return of income filed in response to notice u/s.148. The objections filed by the assessee were also disposed off by the AO vide separate order.

Ground No.6 relates to confirming addition of Rs.12,25,610/- being difference of average rate purchases from Sagar International Pvt. Ltd., Vs. ITO, Ward-7(2), New Delhi,/ A.Y. 2006-07 Page 12 of 18 alleged bogus parties with average rate of purchases from other parties ignoring the fact that the sales made by the appellant has not been doubted by the AO or ld.CIT(A).

Brief facts as emerged from the assessment record and appellate order are that the assessee has obtained accommodation entries / bogus purchases bills from M/s.Shree Bankey bihari Trading Co.,; M/s.Vishu Trading Co.,; M/s.Shree Shyam Trading Co., and M/s.Om Agencies amounting Rs.53,58,954/- which were admitted by the entry provider in their statement before the ACIT, Central Circle-10, New Delhi that they have provided bogus purchase accommodation entries from their aforesaid concerns.

Being aggrieved, the assessee carried the matter before ld.CIT(A) wherein it was contended that the aforesaid purchases were duly accounted in the books of accounts and Sagar International Pvt. Ltd., Vs. ITO, Ward-7(2), New Delhi,/ A.Y. 2006-07 Page 13 of 18 shown in the stock of register. The assessee has declared turnover of Rs.81.90 lakhs and filed copy of trading and profit and loss account and balance sheet were filed, it was reflected on the Return of Income. The assessee has also produced books of accounts, the audited accounts. The assessee purchased raw material of 99075 kg of Alluminium Scrap during the year. The assessee has was having opening stock of 13,284 kg which was used for manufacturing of Alluminium Ingots. During the year 10,5447 kg scrap was consumed to produce Alluminium silly of 93216 kg and by – product (Iron and Dross) of 14,085 kg. Therefore, the ld.CIT(A) was of the view that appellant had made the purchases of Alluminium scrap which shown to have been purchased from parties which are bogus or fictitious. Therefore, the ld.CIT(A) has inclined to accept the purchases but the amount adopted to Profit and Loss account on account of such purchases was reworked out by applying average rate of purchase in the name of bogus parties i.e. Rs.77.89 per KG whereas the average rate or purchase from other parties of Rs.60.08 per kg and thus there was overstatement of purchases of Rs.12,25,610/-.

Being aggrieved, the assessee filed this appeal before this Tribunal. The learned Counsel submitted that books of accounts of the assessee are audited. The assessee has shown purchases in terms of quantity. The assessee has shown opening stock, consumption of stock and material produced during the year under consideration which has been duly reflected in the stock register. Thus, the quantity of purchase are tallied. Further the AO and ld.CIT(A) has not doubted the sales made by the assessee. Therefore, the ld.CIT(A) was not justified in sustaining the addition on account of average rate of purchase from the accommodation and third party without rejecting books of accounts. It was further submitted that the assessee has disclosed Gross Profit @4.82% on total turnover of Rs.81.90 lakhs in comparison to preceding years of Gross Profit Rate of 1.92%, therefore the Gross Profit shown by the assessee is higher than the previous year [PB-101]. The ld.Counsel further placed reliance in the case of Unique Metal Industries Ltd., (supra) Tarun Metal Co., (supra) wherein the Sagar International Pvt. Ltd., Vs. ITO, Ward-7(2), New Delhi,/ A.Y. 2006-07 Page 15 of 18 addition made on account of bogus purchases of aforesaid parties were deleted.

Per contra, the learned Departmental Representative vehemently supported the order of the AO for deleting the addition of entire bogus purchases from the aforesaid parties.

In rejoinder to above, the ld.Counsel for the assessee submitted that the decision of N.K.Protein is distinguishable on the facts that in the said case a search was conducted leading to seizing recovery of cheques, vouchers of number of concerns along with books, blank purchase bills, books, letter heads from search, thus, there was suppression of profit which is not in the case of assessee where the assessee has shown at higher Gross Profit of 4.82% as compared to last year Gross Profit of 1.92%.

We have heard the rival submissions and perused the material available on record. We find that the assessee has made purchases of scrap of 53.58 lakhs from the aforesaid four parties, however, the parties have admitted in their statements that they have issued bogus purchase bills. Therefore, genuineness of the purchases were not proved. We, further find that the assessee has submitted copies of purchase bills issued by the aforesaid parties and payment is made by the account payee cheques. This shows that the purchases have been made, may not be from the party from whom purchase bills have been obtained. The only possibility is therefore, is that the assessee might have inflated the purchases as sales has not been doubted by the AO. We, further find that the books of accounts of the assessee are audited and details of closing stock purchases consuming and closing stock has been duly filed. The AO has added the entire bogus purchases whereas the ld.CIT(A) has reduced the same by working out the average rate or purchases as compared to other parties.

In the result, appeal of the assessee is partly allowed.

Order pronounced in the open court on 06-11-2019.