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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: SH. R.K PANDA & SH. KULDIP SINGH
This appeal filed by the revenue is directed against the order dated 13.03.2015 of the PCIT (OSD) (Appeals)-8, Delhi relating to A. Y. 2010-11.
Facts of the case, in brief, are that the assessee is a private limited company and is engaged in the business of supply and installation of Central Air Conditioning Plant to their customers on contract basis. It filed its return of income on 15.10.2010 declaring total income of Rs.1,8807,790/-. The Assessing Officer completed the assessment u/s. 143 (3) determining the total income at Rs.1,93,47,891/-. Subsequently the Assessing Officer reopened the assessment u/s 147 of the IT Act and notice u/s. 148 dated 04.03.2008 was issued after recording following reasons :- “Information in respect of cases of non-genuine bills emanating out of VAT Department, Mumbai was received through the DIT (Inv)-I, Delhi’s letter F. No. DIT [Inv.]- I/MVAT/Del/2012-13/71 dated 26.02.2013. The DGIT (Inv) Mumbai communicated the details of non-genuine / bogus bills availed by the above assessee as per the information obtained from the Maharashtra VAT Department as a result of enquiries conducted by them. The information regarding M/s. Sanvik Engineers (India) Beneficiary Tin Hawala Tin Hawala Hawala PAN FY Amount Name 27650394720V 27090707756V Mahavir AMMPM3778R 2009-10 1212598 Sales Corporation 27650394720V 27440688212V Tulsiani AADCT0405G 2009-10 4076273 Rading Private Limited 27650394720V 27560694451V Samarth APBPS3000G 2009-10 1628294 Enterprises 27650394720V 27600648257V Niddhish AACCN6984H 2009-10 4630071 Impex Pvt Page | 2
Ltd. 27650394720V 27750595164V Deep AMTPS9884P 2009-10 4630071 Enterprises Total 15847973 It is alleged that M/s. Sanvik Engineers India Pvt. Ltd. has availed bogus bills from the aforesaid five parties mentioned under the column of Hawala Name’ amounting to Rs.1,58,47,973/- in the financial year 2009-10. I have perused the assessment record of the assessee for the A. Y.2010-11. The details of purchases furnished by the assessee during the assessment proceedings contain names of the above hawala dealers who have given bogus bills. Thus the assessee has reduced its taxable profits by introducing bogus purchase bills to the extent of Rs.1,58,47,973/-. In view of the above I have reasons to believe that a sum of Rs.1,58,47,973/- represents income of the assessee for the A. Y.2010-11 which has escaped assessment within the meaning of provisions of section 147 of the IT Act 1961, therefore a notice u/s 148 of the Income Tax the IT Act 1961 is required to be issued and served upon the assessee company to assess the income escaped as stated, hereinabove.”
The assessee, in response to the said notice, filed a letter dated 22.03.2013 stating that the return originally filed u/s 139 may be treated as return in response to notice 148. The assessee sought copy of the reasons recorded which were provided to the assessee on the same date. The assessee filed objections to the Page | 3 notice u/s.148 on 28.03.2013 which were also disposed off by passing a separate order dated 10.04.2013 by rejecting various objections.
Subsequently the Assessing Officer issued statutory notice u/s. 142 (1) and 143 (2) for compliance and asked the assessee to explain as to why the purchases amounting to Rs.1,58,47,973/- representing bogus bills purchase through hawala dealers be not disallowed and added back to the income of the assessee. The assessee filed reply stating that it had purchased material from the said parties and all these transactions are genuine and material has been consumed in the projects executed for the project of Magus Hotels and Ascent Hotels at Mumbai and that all the payments were made to the suppliers through banking channel by account payee cheques only. It was argued that no project of similar nature can be completed without material. The assessee also filed the copies of purchase bills issued by the above suppliers alongwith delivery challan, material receipt note and copy of purchase order etc. The copies of the bank statement highlighting the payments were also filed.
However, the Assessing Officer was not satisfied with the above submissions and asked the assessee to prove the genuiness of the transactions with the impugned parties and to produce evidence of supply of material i.e. transport bills/ bilty etc and also to produce the parties in person to verify the authenticity of the of the transactions. It was submitted that it is not possible for the assesee to produce the suppliers since they are not the regular suppliers of the assessee company and furthermore project at Mumbai has already been completed in the year 2011. It was requested to call all the suppliers for their cross examination, since the assessee is not able to produce the same. The assessee also requested the Assessing Officer to provide the relevant material and opportunity to cross examine the said parties. It was submitted that information received from VAT department and the basis of their conclusion of the impugned suppliers to be bogus etc is unfounded and suspicious in nature. Since all these parties were registered as far as 2007and thus the silence of the VAT department on their conduct prior to these dates prior to the year in question convey unambiguously about the existence and genuiness of these parties.
However, the Assessing Officer was not satisfied and again asked the assessee to furnish evidence of supply and use of the material purchased and also to produce the parties in person. In absence of compliance of the same and observing that the assessee arranged bogus purchase bills with a motive to reduce its taxable profits and observing that the parties have admitted in the investigation by the VAT department of Maharashtra that they were not doing genuine business but were simply providing accommodation entries in the shapes of bogus bills, the Assessing Officer made addition of Rs.1,58,47,973/- to the total income of the assessee as bogus purchases from the aforementioned parties.
Before CIT(A) the assessee apart from challenging the addition on merit, challenged the validity of the reassessment proceedings. The Ld. CIT(A) held that the reassessment proceedings are void since the reasons recorded by the Assessing Officer u/s 147 of the IT Act is not proper and valid and is based on suspect and without any evidence. He has acted only on the basis of 3rd party information without applying his own mind. Further the Assessing Officer during the course of original assessment proceedings had made enquiries about more than 20 parties and deep scrutiny was done and had considered these parties as genuine. Since there was no failure on the part of the assessee to disclose fully and truly all material facts required for assessment and the Assessing Officer was having a very scanty and vague information that those five parties are hawala givers, therefore, the action taken u/s 147 is a mere change of opinion. For the above proposition the Ld. CIT(A) relied on the decision of Hon’ble Delhi High Court in the case of Usha International Limited Vs. CIT reported in 348 ITR 485.
So far as the merit of the case is concerned, he noted that third party information cannot be accepted as an evidence without giving opportunity of cross-examination to the assessee. He noted that the assessee has purchased certain items which was used for manufacturing the Central Air Conditioning plant in the hotel. If the allegations of the Assessing Officer that assessee has not purchased the material is correct, than it is not possible on the part of the assessee to complete the Central Air Conditioning system in the hotel. Further the Assessing Officer has not rejected the books of account of the assessee. Relying on various decisions the Ld. CIT(A) deleted the addition made by the Assessing on merit also. 9. Aggrieved with such order of the CIT(A), the revenue is in appeal before the Tribunal by raising the following grounds of appeal :- “1. The Ld. CIT(A) has erred in law and on facts in treating the reopening of the assessment proceedings u/s. 147 of the Income Tax Act 1961 as ab initio void.
2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,58,47,973/- made by the AO on account of bogus purchases based on information received from Maharashtra VAT department, an external evidence.
3. The appellant craves to amend, modify, alter, add or forego any grounds (s) of appeal at any time before or during the hearing of this appeal.”
10. The Ld. DR strongly challenged the order of the CIT(A) in holding the reassessment proceedings as void. She submitted that when the information was received from a Government Department that the parties from whom the assesssee had purchased the material are only entry providers without doing any genuine business and the assessee was unable to produce the parties, then the action of the CIT(A) in annulling the reassessment proceedings is not proper. She submitted that when the purchases are bogus merely because it will show higher G.P will not be ground for deleting the addition. She accordingly submitted that the order of the CIT(A) be set aside on both the issues and the order of the Assessing Officer be restored.
The Ld. Counsel for the assessee on the other hand strongly supported the order of the CIT(A). He submitted that apart from the communication from the MVAT department, the Assessing Officer does not have any other evidence to disbelieve the purchases made by the assessee from the alleged five parties. Therefore, the reopening made on the basis of borrowed satisfaction cannot be upheld. It is not known on what basis the VAT department came to the conclusion that these are all hawala parties. Despite being asked to supply the full details the Assessing Officer did not reply on the said issue. He submitted that when the assessee has given the dates of purchase of material and the payments were made by account payee cheque through banking channels and the sales are not disputed then it is not proper on the part of the Assessing Officer to disallow the entire purchases. He accordingly submitted that the order of the CIT(A) be upheld and the grounds raised
by the revenue be dismissed.
12. We have considered the rival arguments made by both the sides and perused the material available on record. We find the Assessing Officer in the instant case received information from the DGIT (Investigation), Mumbai that VAT Department, Mumbai has supplied information on the basis of enquiries conducted by them that the assessee M/s. Sanvik Engineers India Pvt Ltd. has availed bogus bills from the alleged five parties (as mentioned earlier at para No.2 of this order) amounting to Rs. 1,58,47,973/-. The Assessing Officer, after perusal of the assessment record and on the basis of details furnished by the assessee, reopened the assessment u/s 147/148 of the IT Act. Since the assessee could not produce the details as asked by the Assessing Officer to substantiate the genuiness of the purchases and also failed to produce the five parties from whom it had made the alleged bogus purchases, the Assessing Officer made addition of Rs.1,58,47,973/- to the total income of the assessee treating the purchases as bogus. We find the Ld. CIT(A) quashed the reassessment proceedings and also deleted the addition on merit.
13. So far as the order of the CIT(A) in quashing the reassessment proceedings are concerned, we find the same is not proper under the facts and circumstances of the case. The Assessing Officer has acted on the basis of information supplied by the investigation wing of the department who in turn have received information from MVAT department that the assessee M/s. Sanvik Engineers Pvt. Ltd. has availed bogus bills from aforesaid five parties who are hawala dealers. The Assessing officer after obtaining the information has perused the assessment record and also has also gone through the various details filed by the Assessee during the course of original assessment proceedings. When the investigation wing has received specific information from another government department that assessee has indulged in hawala transaction by availing bogus purchases bills to inflate its purchases, therefore, it cannot be said that the Assessing Officer had no information or that there was no fresh material before the Assessing Officer for reopening of the assessment. So far as the observation of the CIT(A) that the Assessing Officer in the original assessment has considered these parties as genuine is concerned, the same is incorrect, in view of the extensive enquiries conducted by the MVAT and passing of the information to DGIT (Investigation) who in turn has passed the information to the Assessing Officer. Therefore, these things came to light only after such enquiries were conducted after the completion of the original assessment. Therefore, the reassessment proceeding in the instant case in our opinion is valid. Therefore, the order of the CIT(A) treating the reopening of the assessment u/s 147 of the IT Act as ab-nitio void is not correct. We accordingly set aside the order of the CIT(A) on this issue and allow the ground No.1 filed by the revenue.
So far as the order of the CIT(A) in deleting the addition of Rs.1,58,47,973/- on merit is concerned, we find during the course of assessment proceedings the Assessing Officer had specifically asked the assessee to produce the above parties for his examination. However, the assessee stated that it is not possible for it to produce the suppliers since they are not the regular suppliers of the assessee company and further the project at Mumbai had already been completed. Further the assessee could not furnish evidence of supply of these materials i.e. transportation bilty or any evidence to prove the movement of goods. Therefore deletion of the entire amount of the bogus purchases so made by the Assessing Officer is not proper. Therefore, the order of the CIT(A) on this issue also cannot be held to be proper.
However, it has been held in various decisions that even if the purchases are held as bogus, the entire purchase amount cannot be added when the department has not disputed the assessee’s sales and the Assessing officer has not rejected the books of accounts and has not granted opportunities of cross examination. In such case only gross profit element embedded in such bogus purchases can be added. For the above proposition, we find support from decision of Hon’ble Bombay High Court in the case of PCIT Vs. Mohd. Hazi Adam vide and other connected appeals vide consolidated order dated 21.02.2019 where the Hon’ble High Court has observed as under :- “8. In the present case, as noted above, the assessee was a trader of fabrics. The A. O found three entities who were indulging in bogus billing activities. A. O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arise whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee’s additional income or the assessee is correct in contending that such logic cannot be Page | 11
applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee’s sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G. P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High court in the case of N. K. Industries Ltd. (surpa) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under – “So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of 3,70,78,125/- which comes to Rs.20,98,621,88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is Page | 12 answered partially in favour of the assessee and partially in favour of the revenue.”
16. Since in the instant case the Assessing Officer has not disturbed the sales and has not rejected the books of accounts, therefore, the entire amount of bogus purchases as alleged cannot be added to the total income of the assessee and the addition has to be restricted to the extent of the G. P. Rate on purchases at the same rate of other genuine purchases. The assessee in the paper book page 54 has given the calculations of such GP rate at 9.96%. We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to restrict the addition to the extent the G. P. rate on purchases at the same rate of other genuine purchases. The Assessing Officer is accordingly directed to restrict the addition to 9.96% of alleged bogus purchases as against Rs. 1,58,47,973 added by him subject to verification of the GP so computed by the assessee in the paper book. The appeal filed by the revenue is accordingly partly allowed.
In the result, the appeal filed by the revenue is accordingly partly allowed. Order pronounced in the open court on 30.05.2019.