SOLO HARDWARE P. LTD,MUMBAI vs. ASST CIT CIR 5(3)(2), MUMBAI

आयकर अपील�य अ�धकरण, मुंबई �यायपीठ,जी,मुंबई। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “G”, MUMBAI �ी जो�ग�दर �संह, उपा�य� एवं �ी रिमत कोचर, लेखा सद�य, के सम� Before Shri Joginder Singh, VICE PRESIDENT, and Shri Ramit Kochar, Accountant Member

ITA NOs.1485 & 1486/Mum/2017 Assessment Years: 2010-11& 2011-12 M/s Solo Hardware Private ACIT, Limited, Circle-5(3)(2), बनाम/ Shop No.03, Shastri Nagar, Aayakar Bhavan, Vs. Opp. Pant Nagar Police M. K. Road, Station, Ghatkopar (East), Mumbai-400020 Mumbai-400075 �नधा�रती / Assessee राज�व / Revenue P.A. No.AAJCS0760R None �नधा�रती क� ओर से / Assessee by Chaudhary Arun Kumar Singh- राज�व क� ओर से / Revenue by DR

सुनवाई क� तार�ख / Date of Hearing 17/10/2018 24/10/2018 आदेश क� तार�ख /Date of Order: आदेश / O R D E R

These two appeals are by the assessee against the impugned order dated 16/11/2016 of the Ld. First Appellate Authority, Mumbai. During hearing, none was

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present for the assessee, in spite of the fact that on

17/09/2018, the appeals were adjourned at the request

of the assessee (letter dated 14/09/2018 is available on

record) for today i.e. 17/10/2018. The assessee neither

presented itself nor moved any adjournment petition. It

seems that the assessee has nothing to say, therefore, we

have no option but to proceed, ex-parte, qua the assessee

and tend to dispose of this appeal on the basis of

material available on record.

respect to reopening of assessment under section 147 of

the Income Tax Act, 1961 (hereinafter the Act) on the

plea that the assigned reasons are wrong and

insufficient, thus, the notice issued under section 148 of

the Act for reopening is itself illegal and unjustified. On

the other hand, the Ld. DR, Chaudhary Arun Kumar

Singh, strongly defended the reopening by inviting our

attention to the factual matrix contained in the

assessment order as well as in the impugned order.

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2.1. We have considered the rival submissions and

perused the material available on record. So far as, re-

opening of assessment u/s 147/148 of the Act, is

concerned, it is noted that the assessee has declared

income of Rs.29,77,205/- and books profit at

Rs.29,56,171/-, under section 115JB of the Act. The

assessment was completed under section 143(3) at

Rs.29,77,205/-. Subsequently, the assessment was

reopened under section 147 of the Act after recording the

reasons to the effect that income chargeable to tax had

escaped assessment, therefore, notice under section 148,

dated 09/03/2015 was served upon the assessee, to

which the assessee asked for the reasons of reopening.

Notice under section 142(1) and 143(2) were also issued.

The reasons for reopening have been mentioned in the

assessment order. The Ld. Assessing Officer received

information from the office of the DGIT(Inv.) and a list of

cases, wherein, certain parties were involved in Hawala

transaction and the assessee was found to be one of such

beneficiaries. The details of such parties have also been

mentioned in the assessment order. It was found that

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the assessee made purchases to the tune of

Rs.6,23,19,289/- made from the Hawala parties as bogus

purchases.

2.2. In the light of the foregoing discussions, it is

our bounded duty to examine the validity of reopening

u/s 147 r.w.s 148 of the Act, therefore, before adverting

further we are reproducing hereunder the relevant

provision of section 147 of the Act for ready reference and

analysis:-

“. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset

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(including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in

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the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.”

2.3 If the aforesaid provision of the Act is

analyzed, we find that after insertion of Explanation -3 to

section 147 of the Act by the Finance (No.2) Act of 2009

with effect from 01/04/1989 section 147 has an effect

that Assessing officer has to assess or reassess income

(such income) which has escaped assessment and which

was basis of formation of belief and, if he does so, he can

also assess or reassess any other income which has

escaped assessment and which came to the notice during

the course of proceedings. Identical ratio was laid down

by Hon’ble jurisdictional High Court in CIT vs Jet

Airways India Pvt. Ltd. (2010) 195 taxman 117 (Mum.)

and the full Bench decision from Hon’ble Kerala High

Court in CIT vs Best Wood Industries and Saw Mills

(2011) 11 taxman.com 278 (Kerala)(FB). A plain reading

of explanation-3 to section 147 clearly depicts that the

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Assessing Officer has power to make addition, where he

arrived to a conclusion that income has escaped

assessment which came to his notice during the course

of proceedings of reassessment u/s 148. Our view is

fortified by the decision in Majinder Singh Kang vs CIT

(2012) 25 taxman.com 124/344 ITR 358 (P & H) and Jay

Bharat Maruti Ltd. Vs CIT (2010) Tax LR 476 (Del.) and

V. Lakshmi Reddy vs ITO (2011) 196 taxman 78 (Mad.).

The provision of the Act is very much clear as with effect

from 01/04/1989, the Assessing Officer has wide powers

to initiate proceedings of reopening. The Hon’ble Kerala

High Court in CIT vs Abdul Khadar Ahmad (2006) 156

taxman 206 (Kerala) even went to the extent so long as

the AO has independently applied his mind to all the

relevant aspect and has arrived to a belief the reopening

cannot be said to be invalid.

2.4. We are aware that “mere change of opinion”

cannot form the basis of reopening when the necessary

facts were fully and truly disclosed by the assessee in

that situation, the ITO is not entitled to reopen the

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assessment merely on the basis of change of opinion.

However, powers under amended provision are wide

enough where there is a reasonable belief with the

Assessing Officer, that income has escaped assessment,

because the powers with effect from 01/04/1989 are

contextually different and the cumulative conditions spelt

out in clauses (a) and (b) of section 147, prior to its

amendment are not present in the amended provision.

The only condition for action is that the Assessing Officer

“should have reason to believe” that income chargeable to

tax has escaped assessment. Such belief can be reached

in any manner and is not qualified by a pre-condition of

faith and true disclosure of material facts by an assessee

as contemplated in pre-amended section 147. Viewed in

that angle, power to reopen assessment is much wider

under the amended provision. Our view is fortified by

the decision from Hon’ble Delhi High Court in Bawa

Abhai Singh vs DCIT (2001) 117 taxman 12 and Rakesh

Agarwal vs ACIT (1996) 87 taxman 306 (Del.). The

Hon’ble Apex Court in CIT vs Sun Engineering works Pvt.

Ltd. 198 ITR 297 (SC) clearly held that proceedings u/s

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147 are for the benefit for the Revenue, which are aimed

at gathering the ‘escaped income’. At the same time, We

are aware that powers u/s 147 and 148 of the Act are

not unbridled one as it is hedged with several safeguards

conceived in the interest of eliminating room for abuse of

this power by the AO. However, the material available on

record, clearly indicates that income chargeable to tax

had escaped assessment, therefore, the ld. Assessing

Officer was within his jurisdiction to reopen the

assessment. The Hon’ble Apex Court in Ess Ess Kay

Engineering Co. Pvt. Ltd. (2001) 247 ITR 818 (SC) held

that merely because the case of the assessee was correct

in original assessment for the relevant assessment year,

it does not preclude the ITO to reopen the assessment of

an earlier year on the basis of finding of his fact that

fresh material came to his knowledge.

2.5. Under section 147, as substituted with effect

from 01/04/1989, the scope of reassessment has been

widened. After such substitution, the only restriction, put

in that section is that “reason to believe”. That reason

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has to be a reason of a prudent person which should be

fair and not necessarily due to failure of the assessee to

disclose fully and partially some material facts relevant

for assessment (Dr. Amin’s Pathology Laboratory vs JCIT

(2001) 252 ITR 673, 682 (Bom.) Identical ratio was laid

down by Hon’ble Delhi High court in United Electrical

Company Pvt. Ltd. vs CIT (2002) 258 ITR 317, 322 (Del.)

and Prafull Chunnilal Patel vs ACIT 236 ITR 832, 838

(Guj.). The essential requirement for initiating

reassessment proceeding u/s 147 r.w.s 148 of the Act is

that the ld. Assessing Officer must have reason to believe

that any income chargeable to tax has escaped

assessment for any assessment year. The Hon’ble

Gujarat High Court in Prafull Chunnilal Patel vs ACIT

(supra) even went to the extent that at the initiation stage

formation of reasonable belief is needed and not a

conclusive finding of facts. Identical ratio was laid down

in Brijmohan Agrawal vs ACIT (2004) 268 ITR 400, 405

(All.) and Ratnachudamani S. Utnal vs ITO (2004) 269

ITR 272, 277 (Karnataka) applying Sowdagar Ahmed

Khan vs ITO (1968) 70 ITR 79(SC).

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2.6. So far as, the meaning of expression, “reason

to believe” is concerned, it refers to belief which prompts

the Assessing Officer to apply section 147 to a particular

case. It depend upon the facts of each case. The belief

must be of an honest and reasonable person based on

reasonable grounds. The Assessing Officer is required to

act, not on mere suspicion, but on direct or

circumstantial evidence. Our view find support from the

ratio laid down in following cases:-

i. Epica Laboratories Ltd. vs DCIT 251 ITR 420, 425-426 (Bom.), ii. Vishnu Borewell vs ITO (2002) 257 ITR 512 (Orissa), iii. Central India Electric Supply Company Ltd. vs ITO (2011) 333 ITR 237 (Del.), iv. V.J. Services Company Middle East ltd. vs DCIT (2011) 339 ITR 169 (Uttrakhand), v. CIT vs Abhyudaya Builders (P. ) Ltd. (2012) 340 ITR 310 (All.), vi. CIT vs Dr. Devendra Gupta (2011) 336 ITR 59 (Raj.), vii. Emirates Shipping Line FZE vs Asst. DIT (2012) 349 ITR 493 (Del.). viii. Reference may also made to following judicial decisions:- ix. Safetag international India P. Ltd. (2011) 332 ITR 622 (Del.), x. CIT vs Orient Craft Ltd. (2013) 354 ITR 536 (Del.)

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xi. Acorus Unitech Wirelss Pvt. Ltd. vs ACIT (2014) 362 ITR 417 (Del.). xii. Praful Chunilal Patel: Vasant Chunilal Patel vs Asst. CIT (1999) 832, 843-44, 844-45 (Guj.), xiii. Venus Industrial Corporation vs Asst. CIT (1999) 236 ITR 742, 746 (Punj.), xiv. Srichand Lalchand Talreja vs Asst. CIT (1998) 98 taxman 14, 19 (Bom.), xv. Usha Beltron Ltd. vs JCIT (1999) 240 ITR 728, 736-37, 739 (Pat.) xvi. Kapoor Brothers vs Union of India (2001) 247 ITR 324, 331, 332-33 xvii. Vippy Processors Pvt. Ltd. vs CIT (2001) 249 ITR 7, 8 (MP)

2.7. In Dilip S. Dahanukar vs Asst. CIT (2001) 248

ITR 147, 150-51 (Bom.). The Hon’ble jurisdictional High

Court held as under:-

“Held, that there was material on record on the basis of survey and statement of person to show that the assessee had wrongfully claim deduction u/s 80IA. Therefore, the Assessing Officer had reason to believe that income had escaped assessment for assessment year 1994-95.”

Identically in the case of Srichand Lalchand

Talreja v. Asst. CIT, (1998) 98 Taxman 14, 19 (Bom),

where the information regarding acquisition of the

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asset was not available with the Assessing Officer

during the relevant assessment year 1992-93 and

such information was disclosed in the return for the

assessment year 1995-96, the Hon’ble jurisdictional

High Court held that the Assessing Officer can form a

bona fide belief that there was escapement of income

in relation to assessment year 1992-93.

2.8. The Hon’ble jurisdictional High Court in

Export Credit Guarantee Corporation of India Ltd. v.

Addl. CIT, (2013) 350 ITR 651 (Bom), where there had

been no application of mind to the relevant facts during

the course of the assessment proceedings by the

Assessing Officer, the reopening of the assessment was

held to be valid.

2.9. The Hon’ble jurisdictional High Court in

Girilal & Co. v. S.L. Meena, ITO, (2008) 300 ITR 432

(Bom), held that in order to invoke the extraordinary

jurisdiction of the court the petitioner must also

make out a case that no part of the relevant material

had been kept out from the Assessing Officer). The

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information was in the annexures and consequently

Explanation 2(c)(iv) of section 147 would apply. The

reassessment proceedings after four years were valid.

2.10. In the case of Deputy CIT v. Gopal

Ramnarayan Kasat, (2010) 328 ITR 556 (Bom), it was not

the case of the assessee that the notice issued was after

the expiry of the time limit provided in section 153(2).

The reassessment proceedings were held to be valid. In

Indian Hume Pipe Co. Ltd. v. Asst. CIT, (2012) 348 ITR

439 (Bom), both in the computation of taxable long-term

capital gains in the original return of income and in the

computation that was submitted in response to the query

of the Assessing Officer there was a complete silence in

regard to the dates on which the amounts were invested,

as such there being a failure to disclose fully and truly

material facts necessary for assessment. The

reassessment proceedings were held to be valid. This view

was also confirmed in following cases:-

a. Dalmia P. Ltd. v. CIT, (2012) 348 ITR 469 (Del); b. CIT v. K. Mohan & Co. (Exports), (2012) 349 ITR 653 (Bom);

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c. Remfry & Sagar v. CIT, (2013) 351 ITR 75 (Del); d. OPG Metals & Finsec Ltd. v. CIT, (2013) 358 ITR 144 (Del).

2.11. In the case of Venus Industrial Corporation v.

Asst. CIT, (1999) 236 ITR 742, 746 (P & H) [Where

initiation was started within four years for re-examining

the deduction under section 80HHC, was held to be

wrongly allowed in the original assessment. Identically,

in the case of Happy Forging Ltd. v. CIT, (2002) 253 ITR

413,416-17 (P & H), where excise duty paid in advance

was shown as an asset in the balance sheet and was

allowed as a deduction, reassessment notice on the

ground that excise duty was shown as an asset in the

balance sheet and was not routed through the profit and

loss account. The reopening at this stage was held to be

valid. In the case of Vipan Khanna v. CIT, (2002) 255

ITR 220, 230 (P & H), where from the facts it was clear

that the assessee had claimed depreciation in the return

at the rate of 50 per cent and he had nowhere disputed

the fact that the admissible rate of depreciation to him

was 40 per cent., such fact alone was sufficient to initiate

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reassessment proceedings under section 147 and,

therefore, such initiation was sustained. The Hon’ble

Punjab & Haryana High Court in Mrs. Rama Sinha v.

CIT, (2002) 256 ITR 481, 483, 486, where the

reassessment notice has been issued on the basis of

definite information from CBI regarding investments by

the assessee which had not been disclosed during the

original assessment proceedings, such initiation has been

upheld.

2.12. In the case of Pal Jain v. ITO, (2004) 267 ITR

540, 544-45, 548, 549 (P & H), applying Phool Chand

Bajrang Lal v. ITO, (1993) 203 ITR 456 (SC), although the

transaction of sale of shares was disclosed and accepted

in the original assessment, but the subsequent discovery

by the DDI (Investigation) revealed that the transaction

was not genuine, a reassessment notice after four years

has been held to be valid because there was no true

disclosure of the material facts. In this regard, the

petitioner-assessee cannot draw any support from the

statement for challenging the validity of the notice for

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reassessment. It goes without saying that for the purpose

of making the assessment, the Assessing Officer shall

have to confront the petitioner with the entire material in

his possession on the basis of which he proposes to make

the additions. In Punjab Leasing Pvt. Ltd. v. Asst. CIT,

(2004) 267 ITR 779, 781-82 (P & H), where depreciation

was allowed to the assessee, who was engaged in the

business of financing of vehicles and consumer durables

on 'hire-purchase basis' as well as on 'lease/rent basis', a

reassessment notice issued after four years has been held

not to suffer from any illegality as the same was based on

the bona fide action of the competent authority to

determine whether or not the vehicles in respect of which

the petitioner had been claiming depreciation, were

actually owned by it.

2.13. In Jawand Sons v. CIT(A), (2010) 326 ITR 39 (P

& H), in the initial assessment, the benefit of deduction of

the duty drawback and DEPB under section 80-IB was

wrongly granted to the assessee, for which it was not

entitled. Therefore, reassessment proceedings to

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withdraw the deduction were held to be valid. Likewise,

in CIT v. Hindustan Tools & Forgings P. Ltd., (2008) 306

ITR 209 (P & H), where, the assessee in the regular

assessment had been allowed deduction more than

actually allowable under section 80HHC. Therefore, the

action initiated by the AO for reassessment under section

147(b) could not be held to be invalid.

2.14. In the case of Markanda Vanaspati Mills Ltd. v.

CIT, (2006) 280 ITR 503 (P & H), wherein, the information

furnished by the assessee gave no clue to the payment of

liability in regard of the sales tax collected in excess. The

Assessing Officer was held to be validly initiated the

reassessment proceedings under section 147 for both the

years under consideration. In the case of Sat Narain v.

CIT, (2010) 320 ITR 448 (P & H), the document did not

form the sole basis for the Assessing Officer to initiate

reassessment proceeding but he also took into

consideration the letter written by the Assistant

Commissioner as well as the fact that no return had been

filed by the assessee for assessment year 1995-96. Thus,

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it was held that the Assessing Officer had rightly invoked

the jurisdiction to initiate the reassessment proceedings

under section 147. In the case of CIT v. Hukam Singh,

(2005) 276 ITR 347 (P & H), it was held that the

respondents did not have the locus standi to question the

orders of reassessment on the ground of lack of notice.

Non-issuance of notice to some of the legal heirs of the

late P was merely an irregularity and the same did not

affect the validity of the reassessment orders. Likewise,

in Tilak Raj Bedi v. Joint CIT, (2009) 319 ITR 385 (P & H),

wherein, facts coming to light in a subsequent

assessment year could validly form the basis for initiating

reassessment proceedings, in view of Explanation 2 to

section 147. The action of the income tax authorities in

reopening the assessment of the assessee and restricting

the deduction under section 80-IB was held to be valid.

2.15. In the case of Smt. Usha Rani v. CIT, (2008)

301 ITR 121 (P & H), there was nothing on record to show

the relationship between the donor and the donee,

capacity of the donor to make gifts and the occasion

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therefore. The assessee had failed to discharge the onus

to prove the gifts. The reassessment proceedings were

held to be valid. In the case of Usha Beltron Ltd. v. Joint

CIT, (1999) 240 ITR 728, 736-37, 739 (Pat), where the

investigation report indicated that the Officer had reason

to believe that on account of failure on the part of the

petitioner-assessee to disclose true and full facts, income

had been grossly under assessed, reassessment

proceedings were held validly initiated.

2.16. In the case of Kapoor Brothers v. Union of

India, (2001) 247 ITR 324, 331, 332-33 (Pat), where the

material evidence for the purpose of reopening of the

assessment already completed has been brought to the

notice of the authority during the course of enquiry. The

notice was held to be valid by the Hon’ble High Court. In

the case of Vippy Processors Pvt. Ltd. v. CIT, (2001) 249

ITR 7, 8 (MP), where the need to issue notice arose due to

noticing of vast difference in value of properties disclosed

by the assessee and that of the report of the Valuation

Officer and the reasons that led to the issue of the notice

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were duly recorded and the same were also adequate and

based on relevant facts and material, initiation was

upheld. In Triple A Trading & Investment Pvt. Ltd. v.

Asst. CIT, (2001) 249 ITR 109, 110-11 (MP), where the

notice was issued after recording reasons in that regard,

initiation was upheld.

2.17. Likewise, Hon’ble Gujarat High Court in

Garden Finance Ltd. v. Add/. CIT, (2002) 257 ITR 481,

489, 494-95, special leave petition dismissed by the

Supreme Court: (2002) 255 ITR (St.) 7-8 (SC), where the

assessee was holding shares in an amalgamating

company and he was allotted shares in the amalgamated

company and such shares were sold by him and he has

disclosed the market price of such shares as on the date

of amalgamation as the cost of acquisition of such shares

and has not disclosed the cost of acquisition of shares in

the amalgamating company in accordance with section

49(2) read with section 47(vii), initiation of reassessment

proceedings after four years has been sustained because

there was failure on the part of the assessee to disclose

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material facts necessary for assessment. Likewise, in

Suman Steels v. Union of India, (2004) 269 ITR 412,418-

19 (Raj), where the return of the assessee for assessment

year 1995-96 was processed under section 143(1)(a)

accepting the net profit rate declared by the assessee,

who carried on con- tract business, initiation of

reassessment proceedings by issuing a notice dated 15-5-

2001 proposing to reassess petitioner-assessee at higher

rate in view of the presumptive rate prescribed under

section 44AD has been sustained. In the case of Dr.

Sahib Ram Giri v. ITO, (2008) 301 ITR 294 (Raj), the

reassessment proceedings were initiated after recording

reasons in writing by the AO. The non-availability of a few

documents demanded by the assessee would not make

the reassessment proceedings initiated for the reasons

recorded in detail illegal.

2.18. In the case of Desh Raj Udyog : Chaman Udyog

v. ITO, (2009) 318 ITR 6 (All), in the assessment years in

question, the matter was still to be decided finally by the

assessing authority whether the income should be

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treated under the head 'Business income' or 'property

income'. The assessee would get opportunity to show

sufficient cause to the assessing authority during the

course of assessment. Thus, it could not be said that

there was no relevant material to initiate proceedings

under section 147. In the case of Kartikeya International

v. CIT, (2010) 329 ITR 539 (All), in view of the matter, the

petitioner was not entitled for the deduction on the duty

drawback amount under section 80-IB and since it had

been allowed in the assessment order passed under

section 143(1), it had escaped assessment. On these facts

the initiation of the proceedings under section 147 read

with section 148 for assessment years 2005-06 and

2006-07 was legal and in accordance with law.

2.19. Likewise, in the case of Sunil Kumar lain:

Suresh Chandra lain v. ITO, (2006) 284 ITR 626 (All),

notwithstanding the fact that the amount had been

assessed to tax in the hands of P, he had taken a stand

that the amount did not belong to him and instead

belonged to S. Thus, it was not clear as to in whose

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hands the amount in question had to be assessed. The

ITO was justified in taking proceedings under section 147

for assessing the amounts in the hands of the petitioners

according to the claim made by the petitioners. Likewise,

Hon’ble Kerala High Court in CIT v. Dr. Sadique Ummer,

(2010) 322 ITR 602 (Ker), where, the Assessing Officer

collected further information to complete the

reassessments which was also permissible under the Act.

The finding of the first appellate authority as well as the

Tribunal, that the Assessing Officer had no material to

believe that the income had escaped assessment was

wrong and contrary to facts. The assessee had not

maintained any books of account. Therefore, the

reopening of assessments was held to be valid and within

time. In the case of CIT v. Uttam Chand Nahar, (2007)

295 ITR 403 (Raj), the notice requiring the assessee to file

the return within 30 days was in accordance with section

148 as it must be deemed to be in force with effect from

1-4-1989, and in force as on the date notice was issued.

There was no violation of section 148 in respect of the

specified period within which the return is to be

25 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

submitted. The reassessment proceedings were held to be

valid.

2.20. In the case of CIT v. C. V. layachandran, (2010)

322 ITR 520 (Ker), where, the assessee did not concede

the income on capital gain either under the un-amended

provision or un-der the amended provision, the recourse

open to the Department was to bring to tax income

escaping assessment under section 147 which was not

time barred or otherwise invalid. Likewise, in Atul

Traders v. ITO, (2006) 282 ITR 536 (All), the account

books or record and other material were all common

which were being considered by the CIT(A) in the

proceedings relating to three appeals. The petitioner had

notice and opportunity of being heard. The reassessment

proceedings were held to be validly initiated. In the case

of Inductotherm (India) P. Ltd. v. lames Kurian, Asst. CIT,

(2007) 294 ITR 341 (Guj), the Assessing Officer had

found that there were errors in the computation of

allowances. The reassessment proceedings were held to

be valid. In the case of Papaya Farms Pvt. Ltd. vs. DCIT,

26 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

(2010) 323 ITR 60 (Mad), where the assessee had

furnished incorrect particulars and therefore, the

reopening of the assessment was held to be justified.

2.21. In the case of CIT v. Kerala State Cashew

Development Corporation Ltd., (2006) 286 ITR 553 (Ker),

wherein, the assessee was following the mercantile

system of accounting should not have claimed deduction

of penal interest which had accrued not in the previous

year relevant to the assessment year but in earlier years.

This the assessee had not disclosed. The reassessment

was held to be valid. Likewise, in Kusum Industries P.

Ltd. v. CIT, (2008) 296 ITR 242 (All), as the award had

become final it would be taken that the directors of the

assessee had accepted the factum of earning of secret

profit not reflected in the books of account, which was

also binding on the company. The non-appearance of one

of the arbitrators and one of the directors in respect of

the summon issued under section 131 would not make

the reassessment invalid. The Hon’ble Kerala High Court

in CIT v. Indo Marine Agencies (Kerala) P. Ltd., (2005)

27 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

279 ITR 372 (Ker), held that the entry would amount to

an order under section 144. The mere fact that it was not

communicated to the assessee would not make such an

assessment recorded in the order sheet illegal and that

would not bar further proceedings under section 147.

Thus, the assessment was held to be validly reopened

under Explanation 2(c) to section 147. Likewise, in CIT v.

N. Jayaprakash, (2006) 285 ITR 369 (Ker), where, the

assessee could not, after having persuaded the assessing

authority to withdraw the notice dated 1-10-1993,

pointing out that it was not in conformity with law, be

allowed to contend that the notice was valid due to the

omission of the time-limit by the Finance (No.2) Act,

1996, with effect from 1-4-1989. In the absence of

specific provision in the Finance (No. 2) Act, 1996,

invalidating proceedings initiated by the Income-tax

Officer, the action taken by him applying the then

existing law could not be said to be invalid.

2.22. Likewise, in CIT v. S.R. Talwar, (2008) 305 ITR

286 (All), the factum of taking advances or loan from T

28 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

and K, in which the assessee was one of the directors had

not been disclosed nor a copy of the ledger account of the

assessee maintained by the company filed. In view of the

absence of these details, the Assessing Officer could not

examine the taxability of advances or loan raised by the

assessee. There was failure to disclose material facts

necessary for assessment. The reassessment proceedings

were held to be valid. In another case, the Hon’ble

Allahabad High Court in Chandra Prakash Agrawal v.

Asst. CIT, (2006) 287 ITR 172 (All), wherein, the Income-

tax Department had sent a requisition on 27-3-2002,

under section 132A requisitioning the books of account

and other documents seized by the Central Excise

Department. The record of the proceeding dated 18-4-

2002, showed that the requisition was not fully executed

as all the books of account and other documents had not

been delivered to the requisitioning authority. The

proceedings initiated under section 147 was held to be

valid.

29 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

2.23. In Ramilaben Ratilal Shah v. CIT, (2006)

282 ITR 176 (Guj), held that the noting in the diary

constituted sufficient information for the escapement

of income by either non-declaration of correct sale

consideration or furnishing of inaccurate particulars

as regards sale consideration. Thus, the Tribunal was

justified in holding that the assessee had failed to

disclose fully and truly all material facts necessary

for the assessment of the relevant assessment year.

The reassessment proceedings had been validly

initiated.

2.24. Likewise, in CIT v. Abdul Khader Ahamed,

(2006) 285 ITR 57 (Ker), it was clear from the reasons

recorded by the Deputy CIT that he prima facie had

reason to believe that the assessee had omitted to

disclose fully and truly the material facts and that as a

consequence income had escaped assessment. The

reassessment was held to be valid. In the case of U.P.

State Brassware Corporation Ltd. v. CIT, (2005) 277 ITR

40 (All), the principles laid down by the Calcutta High

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Court in CIT v. New Central Jute Mills Co. Ltd. : (1979)

118 ITR 1005 (Cal) did constitute information on a point

of law which should be taken into consideration by the

ITO in forming his belief that the income to that extent

had escaped assessment to tax and, the reassessment

was held to be valid. In Sunder Carpet Industries v. ITO,

(2010) 324 ITR 417 (All), held that the Departmental

Valuer's Report constituted material for entertaining a

belief of escaped income in the years under

consideration. The reassessment proceeding was held to

be valid.

2.25.. In Aurobindo Sanitary Stores v. CIT,

(2005) 276 ITR 549 (Ori), there being a substantial

difference between the figures of liabilities towards

sundry creditors in the party ledgers of the assessee-firm

and the figures of liabilities towards sundry creditors in

the balance-sheet of the assessee-firm for the previous

year relevant to the assessment year 1989-90. These

materials had a direct link and nexus for formation of a

belief by the Assessing Officer that income of the

31 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

assessee-firm had escaped assessment because of failure

of the assessee to disclose fully and truly all material

facts necessary for the assessment. In the case of CIT v.

Best Wood Industries & Saw Mills, (2011) 331 ITR 63

(Ker), the assessee challenged the validity of the

reassessment on the ground that the AO had exceeded

his jurisdiction under section 147 and both the first

appellate authority as well as the Tribunal accepted the

contention of the assessee holding that so far as the

reassessments related to assessment of unexplained

trade credits, they were invalid. On appeal, it has been

held that the reassessments were to be valid. In Honda

Siel Power Products Ltd. v. Deputy CIT, (2012) 340 ITR

53 (Del), there being omission and failure on the part of

the assessee to disclose fully and truly material facts

Thus reassessment proceedings were held to be valid.

2.26. In Atma Ram Properties Private Ltd. v. Deputy

CIT, (2012) 343 ITR 141 (Del), as the books of account

and other material were not produced and no letter was

filed, the order passed by the Commissioner (Appeals) in

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the assessment year 2001-02 would constitute

'information' or material from any external source and, as

such, the reassessment proceedings for the assessment

year 2000-01 were held to be valid. Likewise, in the case

of CIT v. Smt. R. Sunanda Bai, (2012) 344 ITR 271 (Ker),

the reassessment in question were held to be valid on the

fact that the assessee claimed and was given relief under

section 80HHA for the three preceding year which

disentitled her for deduction under section 80HH for the

assessment years 1992-93 and 1993-94.

2.27. In the case of Aquagel Chemicals P. Ltd. v.

Asst. CIT, (2013) 353 ITR 131 (Guj), since there being

sufficient material on record for the Assessing Officer to

form a belief as regards the escapement of income in

relation to the claim of depreciation in respect of the

building of coal fire boiler, the reassessment was held to

be valid. In the case of Convergys Customer

Management v. Asst. DIT, (2013) 357 ITR 177 (Del),

where there being prima facie material in the possession

of the Assessing Officer to form a tentative belief that

33 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

section 9(1)(i) held attracted, said reason by itself

constituted a relevant ground to reopen the assessment

of the assessee.

Reference may also be made to i. Ajai Verma v. CIT [(2008) 304 ITR 30 (All)]; ii. Ashok Arora v. CIT [(2010) 321 ITR 171 (Del)]; iii. CIT v. Chandrasekhar BaLagopaL [(2010) 328 ITR 619 (Ker)]; iv. Jayaram Paper Mills Ltd. v. CIT [(2010) 321 ITR 56 (Mad)]; v. Kerala Financial Corporation v. Joint CIT [(2009) 308 ITR 434 (Ker)]; vi. Mavis Satcom Ltd. v. Deputy CIT [(2010) 325 ITR 428 (Mad)]; vii. CIT v. Madhya Bharat Energy Corporation Ltd. [(2011) 337 ITR 389 (Del)]; viii. Kone Elevator India P. Ltd. v. ITO [(2012) 340 ITR 454 (Mad)]; ix. Vijay Kumar Saboo v. Asst. CIT [(2012) 340 ITR 382 (Karn)]; x. Siemens Information Systems Ltd. v. Asst. CIT [(2012) 343 ITR 188 (Bom)]; xi. I.P. Patel & Co. v. Deputy CIT [(2012) 346 ITR 207 (Guj)]; xii. Dishman Pharmaceuticals & Chemicals Ltd. v. Deputy CIT [(2012) 346 ITR 228 (Guj)]; xiii. Video Electronics Ltd. v. Joint CIT [(2013) 353 ITR 73 (Del)];

34 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

xiv. A G Group Corporation v. Harsh Prakash [(2013) 353 ITR 158 (Guj)]; xv. Inductotherm (India) P. Ltd. v. M. GopaLan, Deputy CIT [(2013) 356 ITR 481 (Guj)]; CIT v. Dhanalekshmi Bank Ltd. [(2013) 357 ITR 448 (Ker)]; xvi. Sitara Diamond Pvt. Ltd. v. ITO [(2013) 358 ITR 424 (Bom)]; xvii. Rayala Corporation P. Ltd. v. Asst. CIT [(2014) 363 ITR 630 (Mad)].

2.28. So far as, the decision in the case of CIT vs

Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) is

concerned, the Hon’ble Apex Court, while coming to a

particular conclusion, only in a situation, when not a

single piece of paper or document was recovered,

therefore, the Hon’ble Court held that since there was no

tangible material found and the addition was merely on

the basis of statement only then reopening of assessment

u/s 147 of the Act was not permissible. Likewise, in the

case of CIT vs S. Khader Khan Son (2012) 254 CTR 228

(SC), affirming the decision of Madras High Court in

(2008) 300 ITR 157 (Mad.), the whole addition was made

solely on the basis of statement u/s 133A and no other

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material was found, in that situation, it was held that the

such statement has no evidentiary value.

2.29. In the case of Aradhna Estate Pvt. Ltd. vs DCIT

(2018) 91 taxmann.com 119 (Gujarat), the Hon'ble High

Court observed/held as under:-

“In reasons recorded by the Assessing Officer for reopening the assessment. He pointed out that the information was received from the investigation wing of the department at Calcutta regarding shell companies which had given accommodation entries for share premium to Surat based companies. A list of 114 Calcutta based companies was provided which had given accommodation entries to such Surat based companies. Statements of many entry operators and dummy Directors recorded during various search and seizure operation, survey operation and investigation were checked. The Assessing Officer thereupon proceeded to record that "On perusal of data so provided by the Deputy Director (Investigation), it is noticed that during the period under consideration, the assessee company has accepted share capital/share premium from the following entries/parties which have been proved to be shell companies based on the investigation conducted by the Deputy Director (Investigation). Underneath, he provided a list of 17 companies who had transacted with the assessee company during the year under consideration and were alloted equity shares by purported investment of sizeable share capital and share premium amounts. On verification of such materials, the Assessing Officer noted that the assessee had received share capital/share premium amount, since the investor companies were found to be shell companies indulging in providing accommodation entries, the Assessing Officer was of the opinion that the share capital/share premium claimed to have been received from the company by the assessee was not genuine. Amount is nothing but assessee's own money introduced in the garb of share capital/share premium from the shell companies and therefore, such amount is liable to be taxed under section 68. He therefore, recorded his satisfaction that the income had escaped assessment and that this was due to the assessee having failed to disclose truly and fully all facts. [Para 7] Section 147 provides inter alia that if the Assessing Officer has the reason to believe that any income chargeable to tax has escaped assessment, he may subject to the provisions of sections 148 to 153, assess or reassess such income. Proviso to section 147 of course

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requires that where the assessment under sub-section (3) of section 143 has been made for the relevant assessment year, no action shall be taken under this section after the expiry of the four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on part of the assessee to make return under section 139 or in response to a notice issued under sub-section (1) of section 142 or 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. In this context, it is well settled that the requirement of full and true disclosure on part of the assessee is not confined to filing of return alone but would continue all throughout during the assessment proceedings also. In this context, the materials on record would suggest that the Assessing Officer had received fresh information after the assessment was over prima facie suggesting that sizeable amount of income chargeable to tax in case of the assessee had escaped assessment and that such escapement was on account of failure on part of the assessee to disclose truly and fully all material facts. The Assessing Officer formed such a belief on the basis of such materials placed before him and upon perusal of such material. This is not a case where the Assessing Officer was reexamining the materials and the documents already on record filed by the assessee along with the return or subsequently, brought on record during the assessment proceedings. It was a case where entirely new set of documents and materials was placed for his consideration compiled in the form of report received from the investigation wing. Such material was perused by the Assessing Officer and upon examination thereof, he formed a belief that the assessee company had received share application and share premium money from as many as 20 different investor companies who were found to be shell companies and indulging in giving accommodation entries. From this view point, since the Assessing Officer had sufficient material at his command to form such a belief. Such materials did not form part of the original assessment proceedings and was placed before the Assessing Officer only after the assessment was completed. Since on the basis of such materials, Assessing Officer, came to a reasonable belief that income chargeable to tax had escaped assessment, merely because these transactions were scrutinised by the Assessing Officer during the original assessment also would not preclude him from reopening the assessment. His scrutiny during the assessment will necessarily be on the basis of the disclosures made by the assessee. [Para 8] The contention that there was no failure on part of the assessee to disclose truly and fully facts cannot be accepted. The Assessing Officer, as noted, received fresh material after the assessment was over, prima facie, suggesting that the assessee company had received bogus share application/premium money from number of shell companies. [Para 10]

37 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

Merely because the transactions in question were examined by the Assessing Officer during the original assessment would not make any difference. The scrutiny was on the basis of disclosures made and materials supplied by the assessee. Such material is found to be prima facie untrue and disclosures not truthful. Earlier scrutiny or examination on the basis of such disclosures or materials would not debar a fresh assessment. Each individual case of this nature is bound to have slight difference in facts. [Para 11] The next contention that the Assessing Officer did not demonstrate any material enabling him to form a belief that income chargeable to tax has escaped assessment is fallacious. The Assessing Officer recorded detailed reasons pointing out the material available which had a live link with formation of belief that the income chargeable to tax had escaped assessment. At this stage, as is often repeated, one would not go into sufficiency of such reasons. [Para 13] Section 68 as is well known, provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. That the share application money received by the assessee from above- noted companies was only by nature of accommodation entries and in reality, it was the funds of the assessee which was being re-routed. Undoubtedly. Section 68 would have applicability. Proviso added by the Finance Act, 2012 with effect from 1-4-2013, does not change this position. [Para 14] As per this proviso, where the assessee is a company and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, explanation offered by the assessee company shall be deemed to be not satisfactory, unless the person in whose name such credit is recorded in the books of the company also offers an explanation about the nature and source of sum so credited and such explanation in the opinion of the Assessing Officer has been found to be satisfactory. Essentially, this proviso eases the burden of proof on the revenue while making addition under section 168 with respect to non genuine share application money of the companies. Even in absence of such proviso as was the case governing the periods with which we are concerned in the present case, if facts noted by the Assessing Officer and recorded in reasons are ultimately established, invocation of section 68 would be called for. [Para 15] The contention that the Assessing Officer had merely and mechanically acted on the report of the investigation wing also cannot be accepted. One has reproduced the reasons recorded by the Assessing Officer and noted the gist of his reasons for resorting to

38 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

reopening of the assessment. The Assessing Officer had perused the materials placed for his consideration and thereupon, upon examination of such materials formed a belief that income chargeable to tax had escaped assessment. [Para 16] In the result, petition is dismissed. [Para 17]” 2.30. The Hon'ble Gujarat High Court while

validating the reopening of assessment under section

147/148 of the Act in a later order (aforesaid) dated

20/02/2018 on the issue of cash credit (share

application money) duly considered the arguments of

both sides and followed the following the decisions

I. Jayant Security and Finance Ltd. v. Asstt. CIT [Special Civil Application No. 18921 of 2017, dated 12-2-2018] (para 12); II. Raymond Woolen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) (para 13); III. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 13) IV. Pr. CIT v. Gokul Ceramics [2016] 241 Taxman 1/71 taxmann.com 341 (Guj.) (para 16)

And distinguished the following decisions

i. Allied Strips Ltd. v. Asstt. CIT [2016] 384 ITR 424/69 taxmann.com 444 (Delhi) (para 11) and ii. Yogendrakumar Gupta v. ITO [2014] 366 ITR 186/46 taxmann.com 56 (Guj.) (para 11)

39 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

The Hon'ble High Court while upholding the validity of

reopening also considered following decision, which were

referred by both sides-

I. Allied Strips Ltd. v. Asstt. CIT [2016] 384 ITR 424/69 taxmann.com 444 (Delhi) (para 5), II. Harikrishan Sunderlal Virmani v. Dy. CIT [2017] 394 ITR 146 (Guj.) (para 5), III. Raymond Woolen Mills Ltd.v. ITO [1999] 236 ITR 34 (SC) (para 6), IV. Yogendrakumar Gupta v. ITO [2014] 366 ITR 186/46 taxmann.com 56 (Guj.) (para 6), V. Aaspas Multimedia Ltd. v. Dy. CIT [2017] 83 taxmann.com 82/249 Taxman 568 (Guj.) (para 6), VI. Jayant Security & Finance Ltd. v. Asstt. CIT [Sp. Civil Application No. 18921 of 2017, dated 12-2- 2018] (para 12), VII. Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 13) and VIII. Pr. CIT v. Gokul Ceramics [2016] 241 Taxman 1/71 taxmann.com 341 (Guj.) (para 16). 2.31.. The sum and substance of the aforesaid

decision was that since the Assessing Officer was having

sufficient material at his command to form a reasonable

belief that income chargeable to tax had escaped

assessment, merely because this transactions were

scrutinize by the Assessing Officer during the original

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assessment, would not preclude him from reopening

assessment. Thus, the assessment notice was held to be

justified. In the appeal before us, the ld. Assessing Officer

as stated above, received information that the assessee is

beneficiary of bogus purchases amounting to

Rs.6,23,19,289/-, therefore, the Ld. Assessing Officer

was under a reasonable belief that income chargeable to

tax has escaped assessment. The facts has been

enumerated in the assessment order, therefore, the same

are not being repeated being matter of record. On the

basis of factual matrix and the case laws, we are of the

considered opinion that the Ld. Assessing Officer was

quite justified to reopen the assessment under section

147/148 of the Act, thus, this ground of the assessee is

having no merit, therefore, dismissed.

addition @12.5% of the alleged bogus purchases

amounting to Rs.6,23,19,289/- made under section 69C

of the Income Tax Act, 1961 (hereinafter the Act). We

have perused the assessment order as well as the

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impugned order and the contention of the assessee

raised therein. On the other hand, the learned DR

strongly defended the assessment order/impugned order

by placing reliance upon the decision in the case of N K

Proteins from Hon'ble Apex Court.

3.1. We have considered the rival submissions and

perused the material available on record. We note that

the learned Assessing Officer estimated the gross profit @

12.5% of such bogus purchases, resulting into addition

of Rs.77,89,911/- (12.5% of Rs.6,23,19,289/-) for

Assessment Year 2010-11 and Rs.35,44,809/- at the

same rate on the bogus purchases to the tune of

Rs.2,83,58,475/- for Assessment Year 2011-12 .

3.2. Before adverting further, we deem it

appropriate to consider various decisions from Hon'ble

High Courts/Hon'ble Apex Court, so that we can reach to

a proper conclusion. The Hon'ble Gujarat High Court in

Sanjay Oilcakes Industries vs CIT (2009) 316 ITR 274

(Guj.) held as under:-

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“11. Having heard the learned advocates appearing for the respective parties, it is apparent that no interference is called for in the impugned order of the Tribunal dated April 29, 1994, read with the order dated September 29, 1994, made in miscellaneous application. In the principal order the Tribunal has recorded the following findings : "8.3. We have considered the rival submissions and perused the facts on record. In our opinion, the action of the Commissioner of Income-tax (Appeals) confirming 25 per cent. of the amounts claimed is fair and reasonable and no interference is called for. The Commis sioner of Income-tax (Appeals) has gone through the purchase prices of the raw material prevalent at the time and rightly came to the con clusion that the disallowance to the extent of 25 per cent. was called for. It is established that the parties were not traceable ; they opened the bank accounts in which the cheques were credited but soon thereafter the amounts were withdrawn by bearer cheques. That fairly leads to the conclusion that these parties were perhaps creation of the assessee itself for the purpose of banking purchases into books of account because the purchases with bills were not feasible. Thus, the abovenoted parties become conduit pipes between the assessee-firm and the sellers of the raw materials. Under the circumstances, it was not impossible for the assessee to inflate the prices of raw materials. Accordingly, an addition at the rate of 25 per cent. for extra price paid by the assessee than over and above the prevalent price is fair and reasonable and

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we accordingly confirm the finding of the Commis sioner of Income-tax (Appeals)." 12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques, the cheques have been deposited in bank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to

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whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law.” 3.3. In the aforesaid case, the Hon'ble High

Court accepted that the apparent sellers, who issued the

said bills were not traceable and the goods received from

parties other than the persons, who had issued the bills

for such goods. The purchases were shown to have been

made by making payments, through banking channel

and thus the apparent sellers were not genuine or were

acting as conduit between the assessee and the actual

seller. In such a situation, the conclusion drawn by the

Ld. Commissioner of Income Tax (Appeal) as well as by

the Tribunal was affirmed. Hon'ble Apex Court in

Kachwala Gems vs JCIT (2007) 158 taxman 71 observed

that an element of guesswork is inevitable in cases,

where estimation of income is warranted.

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3.4. The Hon'ble Gujarat High Court in CIT vs

Bholanath Poly Fab. Pvt. Ltd. (2013) 355 ITR 290 (Guj.)

held/observed as under:-

“5. Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, the purchases of the entire 1,02,514 metres of cloth were sold during the year under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders and also made reference to the Tribunal's decision in the case of Vijay Proteins Ltd. v. Asst. CIT [1996] 58 ITD 428 (Ahd). 6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The

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Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed.” 3.5. Likewise, the Hon'ble Gujarat High Court in

CIT vs Vijay M. Mistry Construction Ltd. (2013) 355 ITR

498 (Guj.) held/observed as under:-

“6. As is apparent from the facts noted hereinabove, the Commissioner (Appeals) after appreciating the evidence on record has found that the assessee had in fact made the purchases and, hence, the Assessing Officer was not justified in disallowing the entire amount. He, however, was of the view that the assessee had inflated the purchases and, accordingly, by placing reliance on the decision of the Tribunal in the case of Vijay Proteins (supra) restricted the disallowance to 20 per cent. The Tribunal in the impugned order has followed its earlier order in the case of Vijay Proteins to the letter and enhanced the disallowance to 25 per cent. Thus, in both cases, the decision of the Commissioner (Appeals) as well as that of the Tribunal is based on estimate. This High Court in the case of Sanjay Oil Cake [2009] 316 ITR 274 (Guj) has held that whether an estimate should be at a

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particular sum or at a different sum can never be a question of law. 7. The apex court in the case of Kachwala Gems [2007] 288 ITR 10 (SC) has held that in a best judgment assessment there is always a certain degree of guess work. No doubt, the authorities should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily but there is necessarily some amount of guess work involved in a best judgment assessment. 8. Examining the facts of the present case in the light of the aforesaid decisions, the decision of the Tribunal, being based on an estimate, does not give rise to any question of law so as to warrant interference. 9. In so far as the proposed questions (C), (D) and (E) are concerned, the same are similar to the proposed question (A) wherein the Tribunal has restricted the addition to 25 per cent. on similar facts. In the circumstances, for the reasons stated hereinabove, the said grounds of appeal do not give rise to any question of law. 10. As regards the proposed question (B) which pertains to the deletion of addition of Rs. 7,88,590 made on account of inflation of expenses paid to Metal and Machine Trading Co. (MMTC), the Assessing Officer has found that MMTC was a partnership firm of Shri Nitin Gajjar along with his father and brother operating from Bhavnagar. A perusal of their transactions with the assessee indicated that there is some inflation of expenses as detailed in paragraph 6.1 of the assessment order. After considering the evidence on record, the Assessing Officer disallowed the amount Rs. 7,88,590 on account of payment made to MMTC.

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49 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

50 ITA Nos. 1485 & 1486/Mum/2017 M/s Solo Hardware Pvt. Ltd.

have been made on depreciation only if at all the Assessing Officer conclusively proved that the purchases of crane and other parts are bogus. Upon appreciation of the material on record the Commissioner (Appeals) found that the Assessing Officer has simply brushed aside all the evidence on account of technical infirmities and that the evidence such as octroi receipt ; hypothecation of the crane to the bank; existence of the crane even till date with the assessee conclusively proved that the crane was purchased and it was in use even as on date with the assessee. The Commissioner (Appeals) accordingly found that there was no scope for any disallowance and accordingly deleted the disallowance made on account of purchase of crane and allowed the depreciation as claimed by the assessee. 15. The Tribunal, in the impugned order, has noted that the cost of crane was never claimed by the assessee in the return of income. Before the Tribunal, the assessee produced the evidence that the crane in question was registered with the RTO and the same was wholly and exclusively used for the purposes of its business. The Tribunal, therefore, held that the Commissioner (Appeals) was legally and factually correct in deleting the disallowance of cost of crane as well as depreciation thereon. 16. From the facts emerging from the record, it is apparent that the assessee had never claimed the cost of the crane in the return nor had it debited the expenses to the profit and loss account, and as such the question of disallowing the same and adding the same to the income would not arise. Moreover, in the absence of any evidence to indicate that the purchase was bogus or that the crane in fact did not exist, the question of disallowing the deprecation in respect of the same also would not arise. When the assessee had conclusively proved the purchase

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and existence of the crane, and had not debited the expenses to the profit and loss account, no addition could have been made in respect of the purchase price nor could have depreciation been disallowed in respect thereof. The Tribunal was, therefore, justified in deleting the addition as well as disallowance of depreciation. 17. In the light of the aforesaid discussion, it is not possible to state that there is any legal infirmity in the impugned order made by the Tribunal so as to warrant interference. In the absence of any question of law, much less, a substantial question of law, the appeal is dismissed.” 3.6. The Hon'ble jurisdictional High Court in the

case of CIT vs Ashish International Ltd. (ITA

No.4299/2009) order dated 22/02/2011, observed/held

as under:-

“The question raised in this appeal is, whether the Tribunal was justified in deleting the addition on account of bogus purchases allegedly made by the assessee from M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. According to the revenue, the Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. in his statement had stated that there were no sales / purchases but the transactions were only accommodation bills not involving any transactions. The Tribunal has recorded a finding of fact that the assessee had disputed the correctness of the above statement and admittedly the assessee was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P.

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Ltd. who had made the above statement. The appellate authority had sought remand report and even at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribunal being based on the fact, no substantial question of law can be said to arise from the order of the Tribunal. The appeal is dismissed with no order as to costs.” 3.7. The Hon'ble Gujarat High Court in CIT vs M.K.

Brothers (163 ITR 249) held/observed as under:-

“Being aggrieved by the aforesaid order, the assessee went in second appeal before the Tribunal. It was urged on behalf of the assessee that the transactions in question were normal business transactions and the assessee had made payments by cheques. The parties did not come forward and if they did not come, the assessee should not suffer. However, on behalf of the Revenue, it was urged that detailed inquiries were made and thereafter the conclusion was reached. The Tribunal found that there was no evidence anywhere that these concerns gave bogus vouchers to the assessee. No doubt, there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. The Tribunal accordingly, did not sustain the addition retained by the Appellate Assistant Commissioner. Hence, at the instance of the Revenue, the aforesaid question has been referred to this court for opinion.

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On a perusal of the order of the Tribunal, it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations, the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made in the books of account were bogus entries. We, therefore, do not find that the conclusion arrived at by the Tribunal is against the weight of evidence. In that view of the matter, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. Accordingly, the reference stands disposed of with no order as to costs.”

3.8. The Mumbai Bench of the Tribunal in the case

of DCIT vs Rajeev G. Kalathil (2015) 67 SOT 52 (Mum.

Trib.)(URO), identically, held as under:-

“2.2.Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority(FAA).Before him it was argued that

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assessee had filed copies of bills of purchase from DKE and NBE, that both the suppliers were registered dealers and were carrying proper VAT and registration No.s, that ledger accounts of the parties in assessee's books showed bills accounted for, that payment was made by cheques, that a certificate from the banker giving details of cheque payment to the said parties was also furnished. Copies of the consignment, received from the Government approved transport contractors showing that material purchased was actually delivered at the site was furnished before the AO. It was also argued that some of the material purchased from the said parties were lying part of closing stock as on 31.03.2009 as per the statement submitted on record. After considering the assessment order and the submissions made by the assessee, FAA held that the transactions were supported by proper documentary evidences, that the payments made to the parties by the assessee were in confirmation with bank certificate,t hat the suppliers was shown as default under the Maharashtra VAT Act could not be sufficient evidences to hold that the purchases were non-genuine, that the AO had not brought any independent and reliable evidences against the assessee to prove the non-genuineness of the purchases, that there was no evidence regarding cash received back from the suppliers. Finally, he deleted the addition made by the AO . “2.3.Before us, Departmental Representative argued that both the suppliers were not produced before the AO by the assessee, that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine. He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries. (ITA/6579/Mum/2010- dated 13.11.2013). Authrorised representative (AR) contended that payments made by the

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assessee were supported by the banker’s statement, that goods received by the assessee from the supplie was part of closing stock,that the transporter had admitted the transportation of goods to the site.He relied upon the case of Babula Borana (282 ITR251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon’ble Bombay High Court. 2.4.We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash traial. Secondly, proof of movement of goods is not in doubt. Thererfore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO.”

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3.9. The ratio laid down in the case of M/s Neeta

Textiles vs Income Tax Officer 6138/Mum/2013, order

dated 27/05/2013, Shri Jigar V. Shah vs Income Tax

Officer (ITA No.1223/M/2014) order dated 22/01/2016,

M/s Imperial Imp. & Exp. vs Income Tax Officer ITA

No.5427/Mum/2015, order dated 18/03/2016 supports

the case of the assessee and the conclusion drawn in the

impugned order. However, as relied by the Ld. DR, the

Hon'ble Gujarat High Court in the case of N.K. Industries

Ltd.,etc vs DCIT (supra) considering various decisions

decided the issue in favour of the Revenue and the

Hon'ble Apex Court dismissed the SLP vide order dated

16/01/2017 (SLP No.(c) 769 of 2017). We find that in

that case, during search proceedings, certain blank

signed cheque books and vouchers were found and thus

the purchases made from these concerns, were treated as

bogus by the Assessing Officer.

3.10. The Hon'ble Gujarat High Court in N.K.

Industries Ltd. vs DCIT (IT Appeal No.240, 261, 242, 260

and 241 of 2003), vide order dated 20/06/2016

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considered the decision of the Tribunal and various

judicial decisions including the case of Vijay Proteins and

Sanjay Oilcakes Industries ltd., M/s Woolen Carpet

Factory vs ITAT (2002) 178 CTR 420 (Raj.), the Tribunal

was held to be justified in deciding the case against the

assessee. The Hon'ble Apex Court confirmed the decision

of the High Court for adding the entire income on

account of bogus purchases (SLP (C) Nos. 769 of 2017,

order dated 16/01/2017.

3.11. In such type of cases, broadly, the Ld.

Commissioner of Income Tax (Appeal) as well as this

Tribunal has followed the decisions from Hon'ble Gujarat

High Court in the case of Simit P. Seth (2013) 356 ITR

451 (Guj.), CIT vs Vijay M. Mistry Construction Ltd.

(2013) 355 ITR 498 (Guj.), CIT vs Bhola Nath Poly Fab.

(P.) Ltd. (2013) 355 ITR 290 (Guj.) and various other

decisions of the Tribunal and the decision of M/s Nikunj

Eximp(supra) from Hon'ble jurisdictional High Court,

wherein, the aggregate disallowance was restricted to

12.5%. Admittedly, there cannot be sale without

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purchases. The case of the Revenue is that there is

bogus nature of purchases made from suppliers and the

parties were not found existing at the given addresses.

Admittedly, in such type of cases, there is no option but

to estimate the profit which depends upon the subjective

approach of an individual and the material facts available

on record. In the present appeal, the ld. Assessing Officer

received information from the Sales Tax Department with

respect to non-payment of VAT by some of the parties

and whose registration was canceled later, having

observed that they were non-existence sellers and they

have not made any sales accept bogus invoiced issued

their names. So far as, the argument of the assessee that

payments were made through banking channel to such

sellers and received material has already been considered

by the Ld. Commissioner of Income Tax (Appeal).

Considering the totality of facts, the violation of VAT

cannot be lost sight of and thus the aforementioned

decision also throws light on the issue. There is

uncontroverted finding in para-6.2 of the assessment

order that notices issued to two parties under section

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133(6) were returned back unserved, thus, we find no

infirmity in the conclusion of the Ld. Commissioner of

Income Tax (Appeal) in adopting/sustaining the addition

@12.5% of such bogus purchases, resultantly, the appeal

of the assessee are having no merit, therefore, dismissed.

Finally, the appeals of the assessee are dismissed. This Order was pronounced in the open court in the

presence of ld. DR at the conclusion of the hearing

on17/10/2018.

Sd/- Sd/- (Ramit Kochar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT मुंबई Mumbai; �दनांक Dated : 24/10/2018 f{x~{tÜ? P.S /�नजी स�चव आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai