YOGESH M. DOSHI,MUMBAI vs. ACIT- 27 (3), MUMBAI

The captioned appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-25, Mumbai [in short ‘CIT(A)’] and arise out of assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short ‘the Act’). As common issues are involved, we are proceeding to dispose off these appeal through a consolidated order for the sake of convenience. Facts being identical we begin with the assessment year (AY) 2010-11.

The 1st ground raised in this appeal is against the reopening done by the AO vide notice u/s 148 dated 08.05.2015.

The Ld. counsel for the assessee argues that the notice u/s 148 dated 08.05.2015 issued by the AO is beyond the period of four years and as the reopening has been done without any tangible material, the order passed by the CIT(A) confirming the reopening be set aside.

We have heard the rival submissions and perused the relevant materials on record. As mentioned earlier, the return of income dated 07.10.2010 filed by the assessee declaring total income at Rs.17,94,210/- was processed u/s 143(1) of the Act. Thereafter, the AO received information from the Sales Tax Department, Government of Maharashtra Yogesh M. Doshi 3 & 3565/Mum/2018 that the assessee had obtained bogus purchase bills from two dealers. The details are mentioned at para 2 hereinbefore. The Hon’ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 (SC) analyzed the distinction between the acceptance of a return u/s 143(1) and an assessment which is framed u/s 143(3) of the Act. In the former case, the AO would have much wider latitude to reopen the assessment. In the case of Avirat Star Homes Venture P. Ltd. v. ITO (2019) 411 ITR 321 (Bom), the Hon’ble Bombay High Court referring to the above decision has held : “that the return had been accepted without scrutiny. The income-tax investigation had subsequently provided information about certain companies having bank accounts with a bank in Kolkata and who were involved in giving accommodation entries of various nature to several beneficiaries including the assessee. The information supplied by the Investigation Wing to the Assessing Officer formed a prima facie basis to enable the Assessing Officer to form a belief of income chargeable to tax having escaped assessment. The Assessing Officer perused the information supplied by the Investigation Wing and having formed the belief that income chargeable to tax had escaped assessment, could not be stated to have acted mechanically. Further, the mere fact that the assessee had asked for certain information from the Assessing Officer, which at this stage was not supplied, would not invalidate the reasons recorded by the Assessing Officer in issuing the notice. The notice was valid.” Thus in the instant case, the AO has rightly issued notice u/s 148 for reopening the return of income processed u/s 143(1) of the Act. Therefore, the 1st ground of appeal is dismissed.

Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) vide order dated 01.03.2018 agreed with the reasons given by the AO and confirmed the addition of Rs.34,75,629/-.

Before us, the Ld. counsel for the assessee submits that while confirming the order of the AO, the Ld. CIT(A) has not appreciated the fact that the assessee is registered under the Excise vide registration number : AAHPD5571AX001 having warehouse at M/s Gupta Udyog, B-17, MIDE, Taloja, Dist-Raigad, New Mumbai-410208 and also purchases are duly Yogesh M. Doshi 5 & 3565/Mum/2018 supported by bank statement showing payment made to supplier, purchase bills, ledger a/c, quantitative details etc. which were furnished before lower authorities. It is further explained by him that merely on the basis of information received from the Sales Tax Department and third party statement, without providing an opportunity for cross-examination, purchases cannot be treated as non-genuine. It is also stated that details of sale invoice were filed before the AO along with a chart showing sale of those materials along with corresponding purchases. Thus it is stated that merely because those parties failed to respond to notice u/s 133(6) issued by the AO, addition u/s 69C cannot be made. Further, the Ld. counsel submits that the percentage of 12.5% arrived at by the AO is without any basis because the gross profits of the assessee over the years have remained in the range of 2% to 2.5%. Finally, the Ld. counsel relies on the order of the Hon’ble Bombay High Court dated 11.02.2019 in Pr. CIT v. M/s Mohommad Haji Adam & Co. (ITA No. 1004 of 2016) and the order of the Tribunal dated 16.05.2019 in VR Enterprises v. ITO (ITA No. 4650/Mum/2018 for AY 2009-10) 8. On the other hand, the Ld. DR submits that in the instant case, the AO vide order sheet entry dated 16.12.2015 informed the assessee that the notices issued u/s 133(6) could not be served. In response to it, the assessee expressed his inability to provide the new address of the above two parties. For this reason, the AO could not issue summons u/s 131 of the Act. Also, the assessee could not produce before the AO the above two parties for verification. As observed by the AO, the assessee failed to produce the details of challan, lorry receipts, stock register. We are of the considered view that considering the facts and circumstances of the case a reasonable profit be estimated. The nature of Yogesh M. Doshi 6 & 3565/Mum/2018 business of the assessee is trading in iron and steel. In the case of M/s Mohommad Haji Adam & Co. (supra), during the course of survey operations in the case of entities from whom the assessee had claimed to have made purchases, the Department collected information suggesting that such purchases were not genuine. The AO noticed that the assessee had shown purchases of fabrics worth Rs.29.41 lakhs from three group concerns, namely M/s Manoj Mills, M/s Astha Silk Industries and M/s Shri Ram Sales and Synthetics. On the basis of statement recorded during such survey operations, the AO concluded that the selling parties were engaged only in supplying the bogus bills, that the goods in question were never supplied to the assessee, and therefore, the purchases were bogus. He, therefore, added the entire sum in the hands of the assessee as its additional income. The assessee carried the matter in appeal before the CIT(A), who accepted the factum of purchases being bogus. However, he compared the purchases and sales statements of the assessee and observed that the Department had accepted the sale, and therefore, there was no reason to reject the purchases, because without purchases there cannot be sales. He, therefore, held that under these circumstances the AO was not correct in adding the entire amount of purchases as the assessee’s income. He, therefore, deleted the addition refreshing it to 10% of the purchase amount. He also directed the AO to make addition to the extent of difference between the gross profit rate as per the books of accounts on undisputed purchases and gross profit on sales relating to the purchases made from the said three parties. The assessee carried the matter before the Tribunal. The Revenue also carried the issue before the Tribunal. The Tribunal allowed the appeal of the assessee partly and dismissed that of the Revenue. The Tribunal noted that the CIT(A) had not given any reasons for retaining 10% of the purchases by way of ad-hoc additions. The Tribunal, Yogesh M. Doshi 7 & 3565/Mum/2018 therefore, deleted such additions, but retained the portion of the order of the CIT(A) to that extent he permitted the AO to tax the assessee on the basis of difference in the GP rates. In further appeal before the Hon’ble Bombay High Court, the Revenue referred to the decision of the Division Bench of the Hon’ble Gujarat High Court in the case of N.K. Industries Ltd. v. DCIT in Tax Appeal No. 240 of 2003 and connected appeals decided on 20.06.2016 and also pointed out that the SLP against such decision was dismissed by the Hon’ble Supreme Court. The Hon’ble Bombay High Court held : “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 arises 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 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 (supra) 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 Yogesh M. Doshi 8 & 3565/Mum/2018 the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even 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 Rs.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 answered partially in favour of the assessee and partially in favour of the revenue.” We find that the facts in the instant case are similar to the above decision. Following the same, we direct the AO to restrict the additions limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases.