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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya (AM)
This appeal by the assessee is directed against the order of learned CIT(A) dated 24.5.2016 and pertains to A.Y. 2009-10.
First issue raised is that learned CIT(A) erred in holding the validity of notice u/s. 148 of the I.T. Act. Second issue raised is upon merits of sustaining the addition of disallowance @ 12.5% as reduced by gross profit margin already disclosed on alleged bogus purchases.
This appeal was first disposed of by this Tribunal vide order dated 2.2.2017 by ex-parte order. Subsequently, pursuant to the recall, another order was passed by this Tribunal on 8.1.2018 which was also an ex-parte order. This order was also recalled and pursuant to this I have heard this appeal.
Brief facts of this case are as under : The assessee is an individual and proprietor of M/s. Darshan Steel Corporation trading in us and non ferrous metals and electronic goods. The assessee filed ROI declaring income at on 24/08/2009. The AO received
2 Bipin Mangalji Sanghvi information from the Investigation Wing that the assessee has entered into bogus purchase transactions with 20 parties totaling to Rs. 1,56,26,375/-. After recording reasons, the assessment was reopened by issue of notice u/s 148. During reassessment proceedings, the AO issued notice u/s. 142(1) to the assessee requiring him to produce details of purchases made from these 20 parties as also details such as evidence including purchase bills, proof of delivery of goods, ledger accounts, bank accounts, transport/lorry receipts, mode of payments and bank statements. The assessee is alleged to have made bogus purchases from 20 parties viz. Sthapna Trade Impex Pvt. Ltd Rs. 1303280, Saileela Trading Pvt Ltd Rs.13,78,883/-, Jigan Enterprises Rs.48568, Mihir Sales P. Ltd Rs.7,06,688/-, Meeti Trade Impex Rs.7166, Monish Enterprises Rs.37440, Smartlink Tradex P. Ltd Rs.679043, Motion Traders P Ltd Rs.18,21,042/-, Monil Impex Rs.104936, Navpad Exports P Ltd Rs.735278, Sivamani Traders P Ltd Rs.735278, Top Shop Trading Co Pvt Ltd Rs.196200, Jinkushal Exports Pvt Ltd Rs.953814, Maulik Exports Pvt Ltd Rs. 14560, Chandranand Trading Pvt Ltd Rs.400134, Meridian Sales Agency Pvt Ltd Rs.402686, Ridham Mercantile Pvt Ltd Rs.700650, Shidshila Tradelinks Pvt Ltd Rs. 920419, Kalpataru Mercantile Pvt Ltd Rs. 1592494, Pakshal Tradelink P Ltd Rs.1595700 totaling to Rs.15626375. The AO issued notice u/s. 133(6) of the Act to all the above parties which were returned unserved by the postal authorities in all cases. The AO required the assessee to produce the parties before him alongwith relevant details as detailed in the notice. The assessee produced confirmation, purchase bills, sales bills, copy of ledger account and copy of bank statement. However, the assessee could not produce any lorry receipts, transportation details or confirmations from the alleged purchasers. The assessee could not produce these parties before the AO for examination nor did he provide the latest addresses of these parties. The AO therefore disallowed 12.5% of the total bogus purchases of Rs. Rs.15626375 from these 20 parties as unverifiable/bogus following certain judicial pronouncements. This resulted in an addition of Rs. 1953297/-.
3 Bipin Mangalji Sanghvi
Upon assessee’s appeal learned CIT(A) elaborately dealt with challenge to jurisdiction and rejected the same by observing as under :- “5.1 Ground No.1: This ground challenges the validity of reopening proceedings and sufficiency of reasons recorded against the said proceedings. The case of the appellant is that the AO was not justified in reopening the assessment. I find that the AO reopened the assessment based on cogent material in his possession indicating escapement of income. There was no scrutiny assessment in this case and the reopening is made within 4 years of the end of the AY. I therefore fail to appreciate the grievance of the appellant on this issue. The appellant seeks to challenge the sufficiency of reasons for reopening. The Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd (1999) 236 ITR 34 (SC) has held that at the stage of reopening only prima facie escapement of income is required and whether income has escaped assessment or not, is a matter to be decided at the time of reassessment. Similarly in the case of Phoolchand Bajranglal (1993) 203 ITR 456, the Hon'ble Supreme Court has held that the court cannot go into the sufficiency or adequacy of reasons. On the present facts, I find that the AO is in possession of information on the basis of which he has formed a reason to believe that income has escaped assessment. The information with him has a direct nexus with the reason for reopening. I therefore hold that the AO was correct in reopening the assessment and uphold his action. As such I dismiss these grounds of appeal and uphold the action of the AO in reopening the assessment.
5.2 Ground 2: This ground challenges the assessment order as being bad in law on the grounds that the objections of the appellant were not disposed off by a speaking order. I find that the appellant filed his 1st objection on 30/09/2014 and the 2nd one on 23/12/2014. The AO then disposed off these objections through a speaking order dated 24/12/2014. The order disposing off the objections meets the grievance of the appellant raised through his two objection letters. The appellant then filed a third objection letter dated 2nd Jan 2015 raising the issue of documentary evidence in the possession of the AO for reopening. This was also disposed off by the AO through another speaking order dated 23/01/2015 wherein it was brought to the notice of the appellant that the notices u/s 133(6) issued by the AO to his purchase parties have all been returned unserved by the postal dept. The onus then shifted on the appellant to prove the genuineness of his purchases. Once again on facts, I cannot appreciate the grievance of the appellant as the AO has met the objections raised by the appellant. I therefore dismiss this ground of appeal.
5.3 Ground 3: The appellant seeks to challenge the notice u/s 142(1) as being bad in law as it has been issued without providing a reasonable time of 4 weeks after disposing off the objections. On this issue, I must say, that the sec 142(1) itself does not provide for any time lines for issue of notice. The AO by disposing the objections of the appellant through a speaking order, has followed the spirit of the various decisions of the Hon'ble Supreme Court and Bombay High Court cited by the appellant in grounds 2 & 3. In fact, I find that the notice u/s 142(1) issued by the AO dated 10/12/2014 has been complied with by the appellant only on 4th Feb 2015. (Ref pages 148 to 443 of 4 Bipin Mangalji Sanghvi the PB filed before me). The reply of the appellant to the AO dated 4th Feb 2015 very specifically refers to the notice issued u/s 142(1) dated 14. By this action alone the appellant has availed more than 4 weeks time to reply to the Assessing Officer and no adverse inference has been drawn against him in the interregnum. I do not find force in the arguments of the appellant in respect of this ground and therefore the same are dismissed.”
As regards partial addition learned CIT(A) directed that disallowance should be made @ 12.5% of the bogus purchases as reduced by gross profit already declared by the assessee.
Against this order the assessee is in appeal before the ITAT.
I have heard both the counsel and perused the records. As regards challenging to the reopening I find that learned CIT(A) has passed a very elaborate order dealing with all aspects referred by learned counsel. The case laws referred by learned CIT(A) are also germane and supports the case of validity of the reopening. As regards the case law of Hon'ble Jurisdictional High Court in Writ Petition No. 1641/2018 dated 6.1.2018 is concerned, the deals with speculation by the Assessing Officer about the escapement of income. There is no such speculation by the Assessing Officer in the reasons recorded in the present case. On the basis of information the Assessing Officer had reasonable belief that there was an escapement of income. In this view of the matter there is no infirmity in the reopening as held by Hon'ble Apex Court in catena of case laws that at the time of reopening the escapement of income need not be proved to be hilt. Moreover, reopening is duly related to tangible material which has come to the possession of the Assessing Officer. The case law of Hon'ble Apex Court in the case of Kelvinator of India Ltd. (256 ITR 1) also supports the validity of reopening on this account. Other case laws referred by learned counsel are not applicable. Moreover, since I am deciding this issue on the basis of Hon'ble Apex Court decision referred above, other decisions are not germane. Hence, I do not find any infirmity in the validity of reopening in this case. Hence, the assessee’s challenge to reopening is dismissed.
5 Bipin Mangalji Sanghvi
As regards the merits of the case I find that the issue is quantification of income on bogus purchases. In this regard I note that Hon'ble Bombay High Court in its recent judgement in the case of principle Commissioner of income tax versus M Haji Adam & Co (ITA number 1004 of 2016 dated 11/2/2019 in paragraph 8 there off), has held that the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. Accordingly, I direct the Assessing Officer to follow the aforesaid direction of Hon'ble Jurisdictional High Court.
In the result, this appeal filed by the assessee stands partly allowed.
Order has been pronounced in the Court on 11.10.2019.