JAI PRAKASH SHAHANI,INDORE vs. INCOME TAX OFFICER - NFAC, DELHI

This appeal by the assesse is directed against the order dated

25.10.2023 of the Commissioner of Income Tax (Appeals), National

Faceless Appeal Centre, Delhi for A.Y.2014-15 which is arising from

the assessment order u/s 147 of the Act dated 31.03.2022 framed

by NFAC, Delhi.

“1. The Learned CIT(A) erred in dismissing ground nos. I to 6 raised before him challenging the very initiation of reassessment proceedings, thereby also erred in upholding the reassessment proceedings even when: (i) the Learned AO did not provided the exact, proper and signed 'reasons to believe as might have been recorded and only provided an abstract thereof and the abstract so provided was not having any document identification number (DIN). (ii) the regular assessment having been completed u/s 143(3) and there being no failure on the part of the appellant to disclose all material facts necessary for its assessment and the case having

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

reopened after four years from the end of the relevant assessment year. (iii)the underlying report and material on the basis which case was reopened was not provided to the appellant. That on the facts and in the circumstances of the case and in law the reopening proceedings so initiated and conducted renders the same as wrong and bad in law. 2. The Learned CIT(A) erred in not appreciating the contention that the reassessment proceedings carried out and the assessment order passed u/s 147 r.w.s. 144B was not in conformity with the provision of section 144B and in upholding the same as valid and legal. That on the facts and in the circumstances of the case and in law the proceedings conducted and the assessment order so passed is wrong and bad in law. 3. The learned CIT(A) erred in confirming the addition of Rs. 31,60,087/- made by the learned AO and also erred in enhancing the addition made by AO by Rs. 1,95,945/-(Rs.33,56,02/-less Rs. 31,60,087/-) without appreciating the facts of the case. That on the facts and in the circumstances of the case the addition made by the AO and also that enhanced by the Learned CIT(A) is patently wrong and uncalled for and is prayed to be deleted. 4. The learned CIT(A) erred in upholding the disallowance of Rs. 33,56,032/- made u/s 37 of the Act. That on the facts and in the circumstances of the case and in law, provisions of section 37 are not attracted at all in this case. 5. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arise.”

individual running proprietorship concern in the name of M/s

Jaiprakash Impex engaged in trading and manufacturing of iron

goods like iron tanks, rolled sheets etc. Original return of income

u/s 139(1) of the Act for Assessment Year 2014-15 e-filed on

29.11.2014 declaring income of Rs.7,68,510/-. The case selected

for scrutiny and assessment u/s 143(3) of the Act completed on

10.11.2016 by ITO Ward 3(2), Indore assessing income at

Rs.8,28,510/- after making addition of Rs.60,000/-. Subsequently

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

Ld. A.O based on credible information from DDIT (Investigation)-I,

Indore about Mr. Laxmichand Ahuja, Proprietor of M/s Garima

Enterprises where high value transactions were made in the bank

account for Financial Year 2013-14 and the funds received in the

bank account from various business concerns including M/s

Jaiprakash Impex (Proprietor Mr. Jai Prakash Shahani - the

assessee) issued notice u/s 148 of the Act on 30.03.2021. In

response to which the assessee e-filed the return on 28.4.2021

declaring income of Rs.8,28,510/- (same income as was assessed

u/s 143(3) of the Act) and requested for specific reasons for

reopening of the case along with requisite approval. Thereafter the

proceedings u/s 147 r.w.s. 144B of the Act were carried out and

during the course of proceedings Ld. A.O noticed that the total sum

of Rs.1,94,07,890/- received by M/s Garima Enterprises from M/s

Jaiprakash Impex. Ld. A.O observed that the assessee has

purchased goods from M/s Garima Enterprises and when the

details of the purchases were asked the assessee was able to

furnish the invoices amounting to Rs. 1,62,47,803/- and for the

remaining amount of Rs. 31,60,087/- assessee failed to furnish the

supporting documents as the matter was almost eight years old and

certain bills got misplaced. Ld. A.O concluded the reassessment

proceedings accepting the genuineness of purchases of

Rs.1,62,47,803/- and made disallowance u/s 37 of the Act for

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

unverifiable purchases at Rs.31,60,087/-. Income assessed at

Rs.39,88,597/-.

challenging the validity of notice issued u/s 148 of the Act and the

validity of reopening proceedings and also raised grounds on merits

but failed to succeed on any of the grounds.

legal grounds challenging the validity of notice issued u/s 148 of

the Act as well as validity of reassessment proceedings. She

submitted that the assessee’s case already got scrutinized u/s

143(3) of the Act vide order dated 10.11.2016 and all details of the

financial transactions carried out during the year were submitted to

the satisfaction of the Ld. A.O. Ld. A.O has examined the detail of

purchases as well as other expenses and after being satisfied with

the details, concluded the assessment proceedings making minor

additions. She submitted that the reopening has been made merely

on the basis of information received from Investigation Wing but

thereafter Ld. A.O failed to make independent application of mind

and verify the Income Tax Return and assessment records and

there was no proper reason to believe to reopen the assessment

proceedings. She also stated that the approval u/s 151 of the Act

is also mechanical in nature. She further stated that the reasons

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

on the basis of which the case of the assessee has been reopened

are regarding alleged bogus purchase transaction of

Rs.1,94,07,890/- escaped from levy of tax but Ld. A.O has finally

accepted the genuineness of the purchases made from M/s Garima

Enterprises to the extent of the copies of invoices furnished by the

assessee and only for the amount of purchases of Rs.31,60,087/-

for which the assessee failed to furnish the copies of invoices of the

bills, disallowance has been made u/s 37 of the Act for unverifiable

purchase. She stated that since the very basis on which the case of

the assessee has been reopened, no addition has been made by Ld.

A.O, therefore the reassessment proceedings are invalid and void

ab-initio and liable to be quashed. She referred to the following

decision in support of her contentions challenging the validity of

reopening proceedings:-

(i) Hon’ble High Court of Delhi in the case of Sabh Infrastructure Ltd Vs ACIT in W.P (C ) 1357/2016.

(ii) Hon’ble High Court of Delhi in the case of Saraswati Petro Chem P. Ltd Vs ITO in W.P (C ) 10802 of 2018.

decision of Coordinate Bench in the case of ACIT v Sharp Corp Ltd

161 taxmann.com 207 (Delhi) stating that disallowing part of the

purchases u/s 37 is wrong when the remaining purchase

transactions from the very same party are accepted as genuine.

She submitted that the books of accounts have not been rejected

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

and no discrepancy has been noticed in the books of accounts

during reassessment proceedings and therefore merely for non

submission of purchase bills impugned disallowance is uncalled

for.

that the reopening is valid because when the Ld. A.O called for the

information about the purchases, no details were filed from

assessee side as a result of which notice u/s 148 of the Act was

issued. So far as merits of the case are concerned he vehemently

argued supporting the finding of Ld. CIT(A).

before me. In this appeal the assessee has challenged the validity

of the reopening proceedings as well as challenging the addition of

Rs.31,60,087/- made by the Ld. A.O u/s 37 of the Act for

unverifiable purchases. I will first take the legal issue challenging

the issue of notice u/s 148 of the Act as well as the reassessment

proceedings. Undisputedly the assessee furnished its regular

return of income on 29.11.2014 u/s 139(1) of the Act declaring

income of Rs.7,68,510/- and the return was selected for complete

scrutiny by ITO Ward 3(2), Indore. Books of accounts were

produced and detailed submissions were filed. After examining the

book on test check basis and also going through the details filed,

Ld. A.O concluded the assessment proceedings u/s.143(3) of the

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

Act making lump sum addition of Rs.60,000/-. Thereafter notice

u/s 148 of the Act was issued for carrying out the reassessment

proceedings. Assessee duly submitted written submission in

response to the notice issued u/s 148 of the Act and when asked

following reasons recorded were supplied to the assessee:-

"The information has been received from DDIT(Inv.)-1, Indore. The Credible information was received to the effect that subject Shri Laxmichand Ahuja, Prop. of M/s Garima Enterprises was engaged in the business of Iron and Steel Scrap. High value cash transactions were made in the bank accounts of the subject during F.Y. 2013-14. In order to verify the said transactions, notices were issued to IDBI Bank calling for statements of bank account bearing no. 1102000047676 (M/s Garima Enterprises), 0001102000048383 (Jay Prakash Trading Company), 000165100007627 (M/s Jay Prakash Impex), 0001102000047898 (Mini Industries Ltd.), 0001102000046455 (Pragati Trading Co). 1040102000000213(MB Sales Corporation) for FY 2013-14 which were perused and placed on records. On perusal of ITBA, e-filing, ITS Data of departmental data base, the subject Shri Laxmichand Ahuja, Prop. of M/s Garima Enterprises filed his return of Income from AY 2013 14 & 2014-15. A summons dated 19/01/2021 was issued to the subject Shri Laxmichand Ahuja on the address given in the latest return filed but the same was returned unserved with remark "not resides at this address". Further, summons were also issued to other addresses available but reply was not received at this office. Therefore, summons was also issued to M/s Pooja Steels Pvt. Ltd., ShriArvind Trivedi (Prop. Pragati Trading), Basant Kumar Mindad (M/s MB Sales Corporation), Jai PrakashShahani (Prop. M/s Jai Prakash Impex), Mini Industries Ltd. calling for certified copy of ledger of transactions made with M/sGarima Enterprises, Prop. Laxmichand Ahuja.

Further, above mentioned parties were also asked to furnish evidence of transportation of goods on sample basis, if any. All the above mentioned parties did not furnish details of transactions made with the subject M/s Garima Enterprises. Account statement of A/c No. 0001102000047676 held with IDBI Bank, as mentioned in dissemination note for F.Y. 2013-14 was called for. On perusal of the account statement of the subject, it was noted that total credit in the Impugned bank account during F.Y. 2013-14 was Rs.14,18,93,188/- The credits were received from various parties through RTGS/NEFT During FY. 2013-14, total debits were Rs. 14,18,90,823/- out of these; withdrawals made in cash amounted to Rs.2,62,15,200/- during F.Y. 2013-14. Summons u/s 131(1A) was issued to the subject for furnishing the detail of banking transactions made by the subject during F.Y. 2013-14. Subject was also contacted telephonically and requested to submit reply/documents called for in the summons issued. But till date the subject has not submitted his reply. Therefore, conclusion is being drawn on the basis of material available on record.

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

On perusal of the account statement, it was noted that out of total credits, majority of the credits were made by RTGS/NEFT from other entities. Entities with whom subject has entered into financial transactions during F.Y.2013-14 are identified and depicted below- S.No Name of the Parties Sum of credit amount

1 JAIPRAKASH IMPEX 19407890 In view of the above facts, I have therefore, reason to believe that the assessee has not disclosed fully and truly all he material facts necessary for completing the assessment ofits income for the A.Y. 2014-15 due to which income of Rs. 1,94,07,890/- has escaped assessment within the meaning of provision of section 147 of the Act for the A.Y. 2014-15."

reasons recorded are not proper so much so that the Ld. A.O has

not examined the Income Tax Return filed by the assessee as well

as the assessment records. I observe that in the reasons recorded

alleges that bogus purchases of Rs.1,94,07,890/- has escaped the

assessment. Before alleging bogus purchases, Ld. A.O is certainly

expected to have levelled such allegation against the assessee after

detailed examination of records. Now the case before me is where

the assessee’s books of accounts have already been scrutinized and

audited financial statement along with all details stood furnished.

What was required from the Ld. A.O that once the information was

received from the Investigation Wing about the alleged transaction

of bogus purchase made by the assessee from M/s Garima

Enterprises, he has to take note of Income Tax Return filed by the

assessee and also the assessment records of the proceedings

carried out u/s 143(3) of the Act. Now for reopening the case u/s

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

147 of the Act where the assessee has already passed scrutiny

proceedings the burden on the Ld. A.O is to first bring on record

the material facts which has not been disclosed truly and fully by

the assessee in its Income Tax Return. Now the Ld. A.O has carried

out the reassessment proceedings and referred to the bank

transactions to which the assessee made payment to M/s Garima

Enterprises. Ld. A.O failed to note that complete details of the

bank statement stood already filed with the submissions dated

1.03.2016 given during the course of regular scrutiny proceedings.

Had Ld. A.O laid hands on these details prior to issue of notice u/s

148 of the Act then he would have certainly come to know that the

transactions reflected in the bank account are the same as are

referred in the information received from Investigation Wing and

already been disclosed in the Income Tax Return as well as

furnished in the scrutiny proceedings. At this juncture, I would

like to refer to the judgment of Hon’ble Apex Court in the case of

NDTV V/s DCIT (116 Taxmann.com 151) in which Hon’ble Court

held that when the assessee has disclosed all primary facts before

the A.O, it was not required to give any further assistance to the

Assessing Officer by disclosure of other facts. It was for the

Assessing Officer at this stage to decide what inference should be

drawn from the facts of the case. The Hon’ble court has also

observed that mere statement by the A.O that the assessee failed to

disclose all material facts in the reasons recorded is not sufficient

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

enough and does not suffice the legal mandate provided in the first

proviso to section 147. Rather, the A.O is under the obligation to

arrive at such conclusion that the appellant failed to disclose all

material facts necessary for assessment after applying his mind and

verification of the facts in categorical terms as to which material

fact was not so disclosed.

hand is alleging the escapement of income to the tune of

Rs.1,94,07,890/- for the alleged bogus purchase made from M/s

Garima Enterprises but finally after carrying out the reassessment

proceedings has accepted the genuineness of the purchase and has

not invoked Section 69C of the Act applicable for unexplained

expenditure and has concluded the proceedings only by making

minor disallowance u/s 37 of the Act for unverifiable purchase.

This subsequent observation of the Ld. A.O clearly indicates that

the exercise which the Ld. A.O was required to carry out prior to

issue of notice u/s 148 of the Act and also to arrive at a proper

reason to believe for non-disclosure of material facts at the end of

the assessee income has escaped to be taxed. I also find that

nature of addition made by Ld. AO is different from the nature of

addition alleged in the reasons recorded for reopening. Therefore in

the light of the decision referred (supra) and discussions made

above I am of the considered view that Ld. A.O has issued notice

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

u/s 148 of the Act without proper reasons to believe of escapement

of income and without proper application of mind and therefore the

alleged notice issued u/s 148 is illegal, bad in law and deserves to

be quashed. Accordingly the reassessment proceedings carried

thereafter are also illegal and therefore stands quashed. The

assessee succeeds on the legal issue raised in Ground No. 1 & 2.

though we have already quashed the reassessment proceedings and

no addition survives but still for academic purpose we would deal

with the merits of the case also. I find that the charge levelled

against the assessee was for escapement of income to the tune of

Rs.1,94,07,890/- for bogus purchases for the total of payment

made by the assessee to M/s Garima Enterprises towards

purchases. The assessee succeeded in satisfying the Ld. A.O about

the genuineness of the purchase of Rs.1,62,47,803/- with the help

of purchase bills. It means that the transactions of purchases

between the assessee and M/s Garima Enterprises have been found

to be genuine and the alleged addition is only with regard to the

non production of few bills of purchases from M/s Garima

Enterprises. It is interesting to note that the Ld. A.O has not

rejected the book results and there is no discrepancy noticed in the

gross turnover declared by the assessee. The assessee has already

been scrutinized u/s 143(3) of the Act in the first round of

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

assessment. But merely for non-furnishing of few purchase bills

addition has been made u/s 37 of the Act even when the payments

have been made through the banking channel and transactions are

confirmed from both the sides. I would like to place reliance on the

decision of Coordinate Bench in the case of ACIT Vs Sharp Corp Ltd

(supra) dealing with the identical issue where the Tribunal has held

as under:

“7. We find that the aforesaid factual findings and legal findings were not controverted by the revenue before cogent evidences. We find that the assessee in the instant case had duly discharged its burden by furnishing all the necessary documents to prove the veracity of the purchases from Kamal Kishore Mukesh Kumar to the tune of Rs 2,16,83,820/-. The goods purchased from the said supplier had been duly reflected in the stock registers maintained by the assessee and the same were sold by the assessee to RBRL Agro Commodities Ltd and Sharp Comtrade Ltd by making due reduction in the stock register to the extent of sales Hence the purchases and corresponding sales were duly matched by the assessee in the instant case Moreover, the sales made by the assessee is not doubted by the revenue and naturally the purchase made by the assessee cannot be doubted. The purchase made by the assessee from the said supplier had been duly reflected in the books of accounts and payments made for the same through account payee cheques out of disclosed sources of income. One more excruciating fact to be considered in the instant case is the ledger account of Kamal Kishore Mukesh Kumar as appearing in the books of the assessee company for the period 1.4.2011 to 31.3.2012, wherein it could be seen that total purchases made during the year by the assessee from the said supplier was Rs 2,62,54,071.60, out of this, the Id. AO is disputing the purchase made from this very same supplier only for the sum of Rs 2,16,83,820/-. How can the said supplier be genuine for the remaining supplies and be ingenuine only for the disputed supplies of Rs 2,16,83,820/-. Hence the entire case of the revenue falls flat.“

case I find that the assessee has been making purchases from M/s

Garima Enterprises regularly from past many years and for the year

under consideration there was opening balance in the ledger

account of M/s Garima Enterprises and thereafter regular

ITA No.524/Ind/2023 Jai PrakashShahani– A.Y 2014-15

purchases have been made to which payment have also been made

to M/s Garima Enterprises. Therefore questioning the genuineness

of the purchases for few purchase bills not found by the assessee

cannot lead to disallowance of expenditure in totality. I therefore set

aside the finding of Ld. CIT(A) and even on merits delete the

disallowance made u/s 37 of the Act at Rs.33,56,032/- (addition

made by A.O at Rs.31,60,087/- which was further enhanced by Ld.

CIT(A) by Rs.1,95,945/-) . Accordingly Grounds No. 3 & 4 raised by

the assessee on merits are also allowed.

Order pronounced in the open court on 29.04.2025.

Sd/-

(MANISH BORAD) Accountant Member

Date :29.04.2025 Dev/Sr. PS

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order

//TRUE COPY // Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore