SHRI DINESHKUMAR C. DOSHI,MUMBAI vs. INCOME TAX OFFICER 19(1)(4), MUMBAI

These two appeals are by the assessee against the impugned order dated 10/01/2018 of the Ld. First Appellate Authority, Mumbai. The first ground raised by the assessee Dinesh S. Jain

pertains to upholding the reopening of assessment under section 147/148 of the Income Tax Act, 1961 (hereinafter the Act).

moved application for adjournment, which was rejected, as no plausible reasoning was adduced for seeking

adjournment. Shri S. K. Bepari, Ld. DR, defended the addition sustained by the Ld. Commissioner of Income Tax

(Appeal) by arguing that the addition sustained by the Ld.

First Appellate Authority at the rate of 6.5% may be enhanced to 12.5% of bogus purchases, as done by the Ld.

Assessing Officer. So far as, reopening of assessment under section 147 is concerned, the stand of the Ld. Assessing

Officer was defended.

opening of assessment u/s 147/148 of the Act on the plea

that the Ld. Assessing Officer ignored the fact that there was no reason to believe that income has escaped assessment as there was no tangible material with the Assessing Officer and Dinesh S. Jain

independent application of mind is concerned, I find that there was information with the Assessing Officer that assessee is one of the beneficiaries of accommodation entries

provided by the some of the MVAT dealers, who were indulged in issuing bogus sale/purchase bills and the notices

sent u/s.133(6) were issued to eight parties were returned

back unserved by the postal department, with the remark,

“not known”, “not traceable” and “Left” etc. The Ld. Assessing

Officer asked the assessee to prove the genuineness of the purchases made from such parties with supporting evidences

and also to produce for such verification, the assessee failed

to do so. In this background, I will analyze whether the Ld.

Assessing Officer was right in re-opening the assessment

u/s.147 of the Act.

bounded duty to examine the validity of reopening u/s 147

r.w.s 148 of the Act, therefore, before adverting further I am

reproducing hereunder the relevant provision of section 147

of the Act for ready reference and analysis:- Dinesh S. Jain

“. 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 (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 Dinesh S. Jain

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 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.”

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 Dinesh S. Jain

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 juri ictional High Court in (Mum.) and the full Bench decision from Hon’ble Kerala High explanation-3 to section 147 clearly depicts that the 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. My 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) 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 Dinesh S. Jain

relevant aspect and has arrived to a belief the reopening

cannot be said to be invalid.

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 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 Dinesh S. Jain

wider under the amended provision. My view is fortified by the decision from Hon’ble Delhi High Court in Bawa Abhai ACIT (1996) 87 taxman 306 (Del.). The Hon’ble Apex Court in clearly held that proceedings u/s 147 are for the benefit for the Revenue, which are aimed at gathering the ‘escaped

income’. At the same time, I am 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 juri iction 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. Dinesh S. Jain

After such substitution, the only restriction, put in that section is that “reason to believe”. That reason 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 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 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 depends 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. My view

find support from the ratio laid down in following cases:-

i. Epica Laboratories Ltd. vs DCIT 251 ITR 420, 425-426 (Bom.), ii. Reference may also made to following judicial decisions:- ix. Praful Chunilal Patel: Vasant Chunilal Patel vs Asst. CIT (1999) 832, 843-44, 844-45 (Guj.), xiii. Usha Beltron Ltd. vs JCIT (1999) 240 ITR 728, 736-37, 739 (Pat.) xvi. 332-33 147, 150-51 (Bom.). The Hon’ble juri ictional 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 asset was not available with the Assessing Officer during the relevant Dinesh S. Jain

assessment year 1992-93 and such information was disclosed in the return for the assessment year 1995-96,

the Hon’ble juri ictional 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. 4. 7. The Hon’ble juri ictional 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.

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

that in order to invoke the extraordinary juri iction 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 information was in the annexure and consequently Explanation 2(c)(iv) of section Dinesh S. Jain

147 would apply. The reassessment proceedings after four

years were valid.

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

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

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 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 Dinesh S. Jain

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.

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 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 Dinesh S. Jain

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.

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 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. Dinesh S. Jain

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, it was held that the Assessing Officer

had rightly invoked the juri iction 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 Dinesh S. Jain

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.

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 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. Dinesh S. Jain

(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 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.

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 Dinesh S. Jain

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

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 Dinesh S. Jain

documents demanded by the assessee would not make the reassessment proceedings initiated for the reasons recorded

in detail illegal.

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 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. Dinesh S. Jain

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 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 Dinesh S. Jain

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 submitted. The reassessment proceedings were held to be valid.

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 which was also binding on the company. The non-appearance

of one of the arbitrators and one of the directors in respect of Dinesh S. Jain

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) 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. Dinesh S. Jain

286 (All), the factum of taking advances or loan from T 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. Dinesh S. Jain

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.

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

118 ITR 1005 (Cal) did constitute information on a point of Dinesh S. Jain

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.

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 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 Dinesh S. Jain

(Ker), the assessee challenged the validity of the reassessment

on the ground that the AO had exceeded his juri iction

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.

(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 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 Dinesh S. Jain

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. 4. 26. 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 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)]; Dinesh S. Jain

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)]; 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)].

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 Dinesh S. Jain

then reopening of assessment u/s 147 of the Act was not addition was made solely on the basis of statement u/s 133A (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 Dinesh S. Jain

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 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, Dinesh S. Jain

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] 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 Dinesh S. Jain

gist of his reasons for resorting to 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]”

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) Dinesh S. Jain

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).

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 assessment, would not preclude

him from reopening assessment. Thus, the assessment notice Dinesh S. Jain

was held to be justified. Referring to the said explanation in consolidated Photo & Finvest Ltd. (2006) 281 ITR 394 (Del.),

Hon'ble High Court observed as under:-

“8. It is clear from the above that the two critical aspects which need to be addressed in any action under section 147 are whether the Assessing Officer has "reason to believe" that any income chargeable to tax has escaped assessment and whether the proposed reassessment is within the period of limitation prescribed under the proviso to section 147. Explanation (1 ) to the said provision makes it clear that production of account books or other evidence from which the Assessing Officer could with due diligence discover material evidence would not necessarily amount to disclosure within the meaning of the proviso that stipulates an extended period of limitation for action in cases where the escapement arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.”

has to be considered on the touch stone whether there was reasonable belief that income chargeable to tax had escaped

assessment and for that purpose, the Hon'ble Apex Court in light on the issue and further by Hon'ble juri ictional High

Court in M/s Girilal & Company vs Income Tax Officer 300

ITR 432 (Bom.). In the appeal before me, the ld. Assessing

Officer received information dated from DGIT(Inv.) that the assessee is one of the beneficiaries of accommodation entries

provided by the some of the MVAT dealers, who were indulged in issuing bogus sale/purchase bills, which was Dinesh S. Jain

investigated and kept on public domain by the Sales Tax

Department and further, the notices issued under section 133(6) of the Act to such eight parties by the ld. Assessing

Officer were returned back by the postal authorities with the remark “not known” “not traceable” and left etc. The assessee

also could not prove the genuineness of the purchases from these parties, therefore, the Ld. Assessing Officer was under a reasonable belief that income chargeable to tax has escaped

assessment which in my opinion was sufficient to initiate

reassessment proceedings. Explanation-1 to section 147 of the Act supports my view. Thus, the first ground raised by the assessee is having no merit, consequently, dismissed.

as against the addition @12.5% made by the Ld. Assessing

Officer is concerned, it is noted that the learned Assessing

Officer made the addition @12.5% of such bogus purchases,

which was reduced to 6.5% by the learned CIT(A). The assessee has challenged the retention of addition to the extent of 6.5% whereas, the argument of Ld. DR is that it Dinesh S. Jain

should be enhanced to 12.5% as done by the Ld. Assessing

Officer.

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:-

“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 Dinesh S. Jain

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 we accordingly confirm the finding of the Commis sioner of Income-tax (Appeals)."

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 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.”

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

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).

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.”

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 particular sum or at a different sum can never be a question of law.

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.

assessee. According to the Commissioner (Appeals), though MMTC in some respect could be attributed to be associated with the assessee-company, still it could not be expected that MMTC was carrying out its business without any motive or profit. According to the Commissioner (Appeals), it was proved by the assessee that the rates charged by MMTC were comparable with the prevailing market rates, no such addition can stand. The Commissioner (Appeals) took note of the fact that it was not the case of the Assessing Officer that the purchases had been directly effected from third parties and not directly from MMTC ; the difference could not be the net profit in the hands of MMTC ; and that while conducting the entire exercise MMTC would have to incur certain expenditure in transportation, in engaging personnel in the office and other operations and was accordingly of the view that there was no case of actual inflation of rates and deleted the addition.

appreciation of the evidence on record, does not give rise to any question of law in so far as the present ground of appeal is concerned.

disallowance and accordingly deleted the disallowance made on account of purchase of crane and allowed the depreciation as claimed by the assessee.

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. 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.”

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 Dinesh S. Jain

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.

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 Dinesh S. Jain

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.”

“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 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 Dinesh S. Jain

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 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 Dinesh S. Jain

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.”

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 and the Hon'ble Apex Court dismissed the SLP vide order

dated 16/01/2017 (SLP No.(c) 769 of 2017). I 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. Dinesh S. Jain

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. 7. 9. 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 decision of M/s Nikunj Eximp(supra) from Hon'ble

juri ictional High Court, wherein, the aggregate Dinesh S. Jain

disallowance was restricted to 12.5%. Admittedly, there here under:

“49. We will now deal with the main ground raised by the assessee in relation to addition of Rs. 11.99 crores made in respect of bogus purchases. We have carefully considered the elaborate arguments made by the learned representatives of both sides. We have also carefully gone through the orders of the learned Departmental authorities as well as all other documents submitted in the various paper books submitted by the learned representatives of both sides, to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives.

made from these parties were recorded in the regular books of accounts till the date of search in the normal manner. Therefore, the question relating to addition in respect of purchases made from these suppliers does not come within the ambit of block assessment. Heavy reliance was placed on the judgment of the Hon'ble Gujarat High Court in the case of CIT v. N.R. Paper & Boards Ltd. (supra) and other such decisions.

operative Bank Ltd. v. CIT (2001) 250 ITR 229 (Guj). At p. 265, the Hon'ble High Court has observed as under: "As per the settled legal position, a decision is an authority for what it actually decides and not necessarily for what logically follows from it. Equally well settled is the principle that a decision to be law under Article 141 must not be a mere conclusion by which the case is disposed of. Because, a conclusion, a mere conclusion, may be on facts, it may not and does not necessarily involve consideration of law. It is well settled that An. 141 will not be attracted if law is not declared or stated vocally to support the conclusion reached for deciding the lis. A mute declaration of the mere conclusion is not contemplated under Article

total income disclosed in the said returns in view of the block assessment made for the period which included the said asst. yr. 1995-96. The Division Bench of this Court in the case of N.R. Paper & Boards Ltd. v. Dy. CIT (1998) 234 ITR 733 (Guj) considered the provisions in detail. The Court pointed out that the block assessment of undisclosed income to be charged at a higher rate of tax prescribed was independent of the pending regular assessments and it operated in a different field from the assessment of undisclosed income which was not and would not have been disclosed for the purpose of the Act. Undisclosed income, by Chapter XIV-B, is classified separately for the purposes of assessment and is required to be worked out in the manner prescribed therein and treated to a higher rate of tax. This process did not disturb the assessments already made, of the previous years, and was only intended to sniff out what had remained hidden and not disclosed by the assessee. There would, therefore, be no overlapping in the nature of the assessment made under this chapter of undisclosed income and the regular assessment made under Section 143(3). The powers of regular assessment are kept intact and so are all the appellate, revisional and other powers affecting such regular assessment and all the statutory consequences flowing from the exercise of such powers would follow along side of this special assessment procedure devised for dealing with undisclosed income as a result of search. It, therefore, follows that the inquiry under Section 143(3) for regular assessment which was pending when the block assessment was made, the AO who comes across evidence and material which was not found or made available in the process of block assessment, cannot ignore the same and he will be duty-bound to make the regular assessment taking into account such evidence and material gathered in the enquiry under Section 143(3) to ensure that proper assessment of total income is made and tax is determined on the basis of such assessment."

"The definition of "undisclosed income" in Section 158B(b) includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transaction, where such asset, entry or other document or transaction representing wholly or partly income or property which has not been or would not have been disclosed for the purposes of the Act. It, therefore, follows that what the assessee had already disclosed or would have disclosed is not to be treated as undisclosed income. From the provisions of Section 158BA(1), it would appear that the AO can proceed to assess the undisclosed income only if a search is initiated under Section 132 of the Act by the authorised officer. The total undisclosed income relating to the block period is to be charged to tax at the higher rate of 60 per cent presently specified in Section 113 of the Act after such undisclosed income is assessed in accordance with the provisions of this chapter by the AO as income of the "block period" as defined in Section 158B(a) of the Act. This has to be done "irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not" as provided in Sub-section (2) of Section 158BA. This expression clearly indicates that the block assessment of undisclosed income and its being charged to a higher rate of tax prescribed, was independent of the pending regular assessments and it operated in a different field from the assessment of undisclosed income which was not and would not have been disclosed for the purposes of the Act. Undisclosed income, by this chapter, is classified separately for the purposes of assessment and is required to be worked out in the manner prescribed therein and treated to a higher rate of tax. This process did not disturb the assessments already made, of the previous years, and was only intended to sniff out what had remained hidden and would not have been disclosed by the assessee. There would, therefore, be no overlapping in the nature of the assessment made under chapter of undisclosed income and the regular assessment made under Section 143(3) of the Act. If the pending regular assessment proceedings were to be frozen and got substituted by the assessment of the Dinesh S. Jain

undisclosed income of the block period, the legislature would have been specific on that aspect and would have made it clear that the pending regular assessment proceedings should be dropped. The provisions of this chapter do not either expressly or by necessary implication even remotely indicate that the regular assessment proceedings of a previous year covered in the block period, were required to be stayed or dropped or substituted by the proceedings of this chapter. Under Sub-section (3) of Section 158BA, where the date of filing the return of income under Section 139(1) for any previous year has not expired, and the income of that previous year or the transactions relating to such income are duly recorded, then such income is not required to be included in the block period. This obviously means that the regular assessment of that previous year which has remained pending, will proceed notwithstanding that it was falling in the block period. The same would be the case where the block period includes only a part of the previous year of which the return is filed for regular assessment, and the regular assessment can proceed notwithstanding that the undisclosed income for a part of that previous year was within the block period."

the Act shall be in addition to the regular assessment in respect of each previous year included in the block period, and the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period. It further provides that the income assessed in this chapter shall not be included in the regular assessment of any previous year included in the block period. The mere fact that the AO is empowered to assess the concealed income in regular assessment does not lead to the conclusion that what the ITO can assess in regular assessment cannot be assessed in block assessment. The Hon'ble Gujarat High Court while dealing with the reference application under Section 256(2) has declined to refer the various questions suggested by the CIT mainly on the ground that the questions proposed by the Revenue did not raise any question of law and it has also been observed that where the assessee has disclosed the particulars of income or expenditure in the return/books of accounts, the AO cannot take a different view on the basis of "same material". Such observations have been made by following the judgment reported in (1998) 234 ITR 733 (Guj) (supra). The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd., if read in the context of questions raised before the Court, cannot be read as having held that even if the material found during the course of search exposes the falsity of the entries made in the regular books of accounts, the consequent concealed income cannot be assessed as undisclosed income in block assessment under Chapter XIV-B. In the present case the addition in respect of purchases made from the alleged bogus suppliers has originated on the basis of material found and seized during the search. Certain blank bill books, signed cheque books and other documents of various parties including these five supplier concerns were found and seized from the office premises of the assessee during the search. The post-search investigation clearly indicates that these five parties did not in fact supply any material to the assessee but they were only issuing fictitious bills. They may be called "billing agents" or "name lenders". Whether they acted as billing agents/name lenders for and on behalf of the assessee as well as for and on behalf of various other parties, is a different question but ample material has been brought on record to adequately prove that these five parties from whom the assessee claimed to have made purchases of wash Dinesh S. Jain

cotton seed oil were not the real suppliers of such material but they were only issuing fictitious bills. The falsity of the claim for purchases shown as purchases made from these billing agents/name lenders resulting in addition on account of either bogus purchases or inflated purchases will surely come within the ambit of undisclosed income as defined in Section 158B(b) as amended by the Finance Act, 2002 with retrospective effect from 1st July, 1995. The said provision is reproduced below: "158B--In this Chapter, unless the context otherwise requires,-- (a)......:.... (b) "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false." It may also be relevant here to reproduce Section 158BB(1): "158BB(1).--The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined......"

materials of information as are available with the AO and relatable to such evidence, the undisclosed income so detected as a result of search and/or as a result of other material or information as are available with the AO, will be assessable as undisclosed income in assessment for the block period. It may be relevant here to mention that such other material or information as are available with the AO used in Section 158BB(1) would include material, information and evidence gathered as a result of post-search investigation on the basis of evidence found during the search or found as a result of search. Such information as would be available with the AO can be made the base for computation of undisclosed income of the block period. The term, the AO used in Section 158BB(1), is distinct from authorised officers who conducted the search. It, therefore, clearly indicates that the post-search investigation made by the Dy. DIT/Addl. DIT and by the AO in furtherance to the evidence found during the search can be validly taken into consideration, if such material available with the AO exposes the falsity of the entries recorded in the regular books of accounts in normal course.

facts and discussions, we are of the view that the question relating to addition of purchases made, from these bogus suppliers or addition in respect of inflated purchase price shown as paid to these bogus suppliers comes within the ambit of block assessment under Chapter XIV-B.

be helpful not only to the Department but to the assessee also. We, therefore, do not agree with the submissions made by the learned advocate, Shri Puj, that such a notice can be issued only before intimation of proceedings under Section 132of the Act. Moreover, even under the provisions of Section 133 of the Act, the AO or the officers referred to in the said section are having power to call for information. So issuance of such a notice during or after the search cannot be said to be bad in law."

the basis of principles of law emerging from various decisions cited by the learned representatives. We have also indicated hereinbefore as to how the facts of various cases relied upon by the learned counsel are different and distinguishable from the facts of the present case. We will however bear in mind the various principles laid down by the Hon'ble Courts while considering the facts and material relating to the present case.

(A) Certain blank bill books, blank signed cheque books, letter heads and vouchers of these concerns were found from the business premises of the assessee during the course of search conducted on 24th Feb., 1999. (B)(i) There are various similar features in relation to bank accounts of all these suppliers. For instance, the bank account of Adinath Corporation was opened on 17th April, 1998 by depositing Rs. 1,000 in cash on that date during the block period from 17th April, 1998 to 7th July, 1998. The total deposits in their bank account was Rs. 2,10,54,076. 50. Whenever any cheque given by the assessee towards payment of purchase price to this party was credited in their bank account, on that very day, on most of the occasions, an equivalent amount had been withdrawn by a self cheque. For instance, cheque of Rs. 3,69,857 was credited in their bank account on 23rd April, 1998 and there is a cash withdrawal of an equivalent amount on that very day. Most of the times, there is a withdrawal of an equivalent amount by self cheque on the date of deposit of the cheque on their account. This bank account was introduced by Shri Nileshbhai K. Patel, as director of the appellant-company. The balance in this bank account after such withdrawal soon after the deposit of the cheque mostly remained at the same figure of Rs. 5041. The learned Departmental Representative has submitted a copy of letter dt. 20th March, 2001 from Mehsana Urban Co-op. Bank Ltd. stating that as per the statement of account of Adinath Corporation account No. 531, all credit entries by transfer during the period from 17th April, 1998 to 7th July, 1998 are from NKPL. It clearly shows that so far in bank account of Adinath Corporation is concerned, the entire cheques deposited in this bank account were given by the appellant-company towards payments of purchase bills obtained from them. The corresponding debits in the bank account in the normal course should have been given by way of cheques to those mills from whom M/s Adinath Corporation purchased the wash cotton seed oil and supplied the same to the assessee. However, we do not find any mention in this bank account showing any cheque issued to any party. All the withdrawals are by way of self cash cheques. It is true that the bank accounts of other parties were not introduced by Shri Nileshbhai K. Patel as in the case of Adinath Corporation but there is some inter- connection of this concern with the others. M/s Tirupati Dinesh S. Jain

Corporation is owned by the same person, namely, Shri J.J. Doshi. For example, the following three cheques have been debited in the account of M/s Adinath Corporation as per the copy placed at p. 37 of the paper book dt. 21st Oct., 2002 submitted by the Department:

Date Cheque No. Amount 15-4-1998 942352 2,59,429 15-4-1998 942358 2,82,945 17-4-1998 942369 3,97,792

These amounts have been credited in the bank account of M/s Tirupati Corporation with Visnagar Nagrik Sahakari Bank Ltd. A copy of account of Tirupati Corporation in the books of the assessee has also been placed at p. 42 to 45 of the said paper book, which shows that the purchase bills were obtained from Tirupati Corporation only upto 13th Feb., 1998. Thereafter, that account was discontinued and purchase bills were obtained from Adinath Corporation from 8th April, 1998 to 7th July, 1998. Likewise, cheque No. 79489 dt. 7th July, 1998 for Rs. 3,79,967 debited in the account of Krishna Industries in the books of the assessee has been deposited in the bank account No. 531 with Mehsana Urban Co-op. Bank Ltd. in the name of M/s Adinath Corporation. It may also be relevant here to mention that the total purchases claimed to have been made by the assessee from M/s Adinath Corporation during the period from 8th April, 1998 to 7th July, 1998 was Rs. 2,16,13,276 out of which deposits in their bank account were only Rs. 2,10,54,076. This implies that remaining cheques must have been deposited by M/s Adinath Corporation in some other bank accounts. (B)(ii) The bank account of M/s Tirupati Corporation was also opened with an initial deposit of Rs. 1,000 on 29th Sept., 1997. The cheques deposited in this account which are mostly from NKPL (assessee-company) are also followed by immediate withdrawal of an equivalent amount on most of the occasions leaving a balance of Rs. 7,616 on most of the days. Most of the cheques are either cash withdrawn or have Dinesh S. Jain

been issued in favour of Triveni Corporation, as is apparent from the narration given in the copy of bank statement placed at pp. 67 and 68 of the paper book dt. 1st July, 2002 submitted by the assessee. (B)(iii) The bank account of M/e Vimal Industries was also opened with an initial deposit of Rs. 1,000 on 18th June, 1998. The transactions of purchase bills obtained from this party pertained to the period from July, 1998 to December, 1998. M/s Vimal Industries had also withdrawn the amounts from time to time by way of self cheques soon after the respective cheques from various parties were credited. It is true that the total deposits in the account of M/s Vimal Industries with Mehsana Urban Co-op. Bank Ltd. account No. 1117 as per the assessment order for the period from 18th June, 1998 to 19th April, 1999 is Rs. 10,50,05,834 and purchases made by the assessee from this party has been shown at Rs. 11,48,34,121 only, which indicates that M/s Vimal Industries have received remaining cheques from various other parties and the Department has not been able to ascertain as to which other parties have made payments by cheques to M/s Vimal Industries. A perusal of bank account of M/s Vimal Industries submitted at pp. 69 to 78 indicates that substantial transactions have also continued in this account even after December, 1998, when the purchases by the assessee from this party had discontinued. After December, 1998, most of the withdrawals in the bank account of M/s Vimal Industries are by way of cheques against which the expression "self" has not been mentioned in the copies of bank statements. This account has been finally closed on 12th May, 1999. No inquiry has also been made by the Department about destination of withdrawals made by cheques from this bank account. But the practice of withdrawing substantial amounts till the purchases by the assessee from M/s Vimal Industries continued to apply in the case of M/s Vimal Industries, though various payments even prior to December, 1998 have been made by cheques other than the cheques marked as "self" cheques. (B)(iv) Krishna Industries : They opened bank account No. 4203 with Visnagar Nagrik Sahakari Bank Ltd. Usmanpura Branch on 30th June, 1998 with an initial deposit of Rs. 1,100. The total deposits in this bank account for the period from 30th June, 1998 to 21st July, 1998 were Rs. 29,93,310 Dinesh S. Jain

as mentioned at p. 20 of the assessment order which tallies with copies of bank statement furnished at p. 79 of the paper book dt. 1st July, 2002. The assessee in the paper book has also submitted copy of bank statement of Krishna Industries with Mehsana Urban Co-op. Bank account No. 1130. This account was opened with an initial deposit of Rs. 1,000 on 2nd July, 1998. The total purchases claimed to have been made by the assessee from this party were of Rs. 3,19,56,782. The total deposits credited in the bank accounts of Krishna Industries as mentioned at p. 34 of the assessment order in Rs. 2,79,01,621. The deposits in bank account No. 4203 with Visnagar Nagrik Sahakari Bank were followed by withdrawal of an equivalent amount on the same day when the cheques were credited. However, most of the withdrawals in other bank account No. 1130 with Mehsana Urban Co-op. Bank are also by way of self cheques but there are other few withdrawals by way of cheques/DDs. For example there is a debit of Rs. 6,50,100 by way of demand draft dt. 28th July, 1998. Likewise, there are some withdrawals by cheques also. But most of the withdrawals from this bank account are by way of self cheques of substantial amounts withdrawn almost on the same day when corresponding cheques were credited in the said bank account. (B)(v) Karnavati Industries : They also opened their account on 29th Dec., 1997 with initial deposit of Rs. 1,000. The total deposits in the said account from 29th Dec., 1997 to 29th Dec., 1998 are Rs. 12,30,13,608 as per copy of bank statement submitted at pp. 87 to 101 of the said paper book. The total purchase bills obtained by the assessee from this party were only of Rs. 38,10,000, A copy of account of Karnavati Industries in the books of assessee submitted at pp. 57 to 59 shows the total debits in this account to the tune of Rs. 2,28,77,001. The total credits have been shown at Rs. 2,26,14,069 for the period from 18th June, 1998 to 31st March, 1999. There is a closing balance of Rs. 2,62,932 as on 31st March, 1999. The nature of debits in this accounts have not been discussed. There are various credits in this account with the narration that the "amount received from Vimal Industries on their behalf". The debits are mostly supported by narration such as GJ-3T-2492 on 9th July, 1998 for Rs. 35,12,040. A perusal of the bank account shows that inspite of transactions running into more than Rs. 12 crores in this Dinesh S. Jain

bank account, the balance at the end of most of the days throughout the period was ranging between Rs. 1,000 to Rs. 6,000. (B)(vi) These are some of the unusual features pertaining to the bank accounts of these bogus suppliers. If they would have been genuine suppliers capable of supplying wash cotton seed oil to the tune of several lacs/crores in a short period like in the present case, they would surely invest adequate capital of their own, which in the present case, is not evident from their bank accounts which shows that all these accounts were opened with initial amount of Rs. 1000 or Rs. 1100 and balance in all these accounts for most of the times ranged between small figures of Rs. 1000 to Rs. 10,000. Had they really supplied the goods on credit of such large magnitude to the assessee, as claimed by the assessee, they will have some evidence of substantial contribution of capital and/or substantial credit purchases made from various mills/big traders. The debits in their bank accounts would have mostly been by way of crossed/account payee cheques issued in favour of those oil mills/big traders from whom they have purchased such material and in turn supplied to the assessee. The major withdrawals by self cheques immediately when the cheques in their bank accounts were credited exposes the impossibility of their having supplied such material of lacs/crores of rupees on credit to the assessee. (C) The ITO made inquiries from sales-tax authorities in respect of some of these suppliers. Those inquiries revealed that the copies of ration cards given by these name lenders to sales-tax Department were found to be fake, Copies of electricity bills did not pertain to the addresses given. Also the residential addresses of owners given to the sales-tax authorities were not correct. (D) The notice sent by the IT authorities to these suppliers at the addresses given to the banks were returned back. The inquiries conducted through the inspector revealed that none of them existed at the given addresses. (E) Most vital and significant evidence brought on records by the IT authorities is clear and categorical admission by all these parties in the form of affidavits/statements. Copies of affidavits/statements given by all these supplier concerns Dinesh S. Jain

referred to in the assessment orders clearly indicate that all of them have clearly denied having supplied any material to the assessee, They also stated that they were being paid petty monthly amounts by Shri Nilesh K. Patel for signing cheques, bills and other documents in the names of these bogus concerns. The assessee contended, that no reliance on these affidavits/statements obtained by the Dy. DIT/Addl. DIT behind back of the assessee, should be placed, as they were not examined in the presence of the assessee nor the assessee was allowed to cross-examine them. It is pertinent to mention here that the AO vide very first questionnaire dt. 4th Dec., 2000 which is reproduced at p. 2 and 3 of the assessment order gave complete gist of inquiries conducted in respect of purchases made from these parties. Copies of all relevant statements/affidavits given by the owners of these supplier concerns had also been provided, as is evident from para 9 of the said letter dt. 4th Dec., 2000. The assessee furnished reply dt. 26th Dec., 2000. Copy of this letter has been placed on pp. 10 to 13 of the paper book submitted by the Department on 21st Oct., 2002. The assessee in this letter has submitted in para 8.1 that copies of accounts of all these five parties from the books of accounts of the assessee are furnished. In para 9 it has, inter alia, been stated as under: "It may please further be noted that certain affidavits are there and certain other evidences were also found during search but since the transactions recorded in the books of account in the normal course and therefore it does not fall within the purview of block assessment." It is apparent from the aforesaid letter that even after receiving the copies of affidavits/statements and other documents on the basis of which the AO suspected the genuineness of these purchases, the assessee did not ask the ITO to produce these suppliers and brokers for their cross- examination nor any material in rebuttal of such clinching and categorical denial by the suppliers and brokers, was furnished. The AO thereafter once again gave a show-cause notice dt. 8th Jan., 2001 which has been reproduced at p. 28 of the assessment order. The AO clearly stated that the purchases made from all these parties are bogus in nature. The gist of inquiries conducted by the Department along with the copies of statements/affidavits have already been given to the assessee along with the letter dt. 4th Dec., 2000, Dinesh S. Jain

The assessee was given one more opportunity to explain the same.

said letter dt. 23rd Feb., 2001 in the assessment proceedings in the case of Shri Nileshbhai K. Patel. The learned Senior Departmental Representative submitted that these affidavits were submitted at the fag end of the period of limitation in the case of Shri Nilesh K. Patel. The affidavit of Shri J.J. Doshi, who is proprietor of two parties, namely, M/s Adinath Corporation and M/s Tirupati Corporation was submitted to the AO along with the letter dt. 20th April, 2001. Copy of the letter has been placed at p. 29 of the Departmental paper book. It was pointed out by the learned Senior Departmental Representative that 20th April, 2001 was Friday. The next two days were holidays being Saturday and Sunday. One more holiday was there on 27th April, 2001 on account of Mahavir Jayanti. The case was going to be barred by limitation of time on 30th April, 2001. The assessee produced all these affidavits at the fag end of the assessment proceedings, when it was soon going to be barred by limitation of time. No request for cross- examination of these suppliers or brokers was made by the assessee in any of the letters submitted to the AO during the course of assessment proceedings.

AO along with their books of accounts and records from which the capacity of the suppliers and the reality and genuineness of credit sales of such large magnitude made by them to the assessee could have been verified. The assessee also did not produce the brokers through whom it was stated by Shri Nileshbhai Patel that the purchases from these parties were made through them. The suppliers who could give their affidavits subsequently in which they have retracted from their earlier affidavits/statements to Dy. DIT, were therefore fully co-operating with the assessee and there is no reason as to why the assessee did not or could not produce them before the AO for their examination along with the relevant records.

short period. The assessee obtained those subsequent self- serving affidavits from the suppliers. Therefore, the onus lies upon the assessee to produce those persons along with their records, to prove that earlier affidavits do not contain true and correct facts and were obtained under coercion. The assessee failed to produce them before the AO. They have also failed to produce them before the Tribunal along with their relevant records, though a specific opportunity was granted to them during hearing. All these facts prove beyond doubt that all the five supplier concerns were created/floated only for the purposes of issuing fake/fictitious bills. They had no capacity to supply wash cotton seed oil of such large magnitude to the assessee. They also did not have adequate capital and infrastructure for carrying out business of such large scale. None of them appear to be existing income-tax assessee as GIR Number/PAN Number and ward, etc. are not stated in any of their affidavits. We therefore agree with the findings of the learned Departmental authorities that all these suppliers were only name lenders/billing agents. The purchases claimed to have been made by the assessee from them do not represent genuine purchases made from those parties.

been recorded in the seized inward register and the same are verifiable from the regular books of accounts as well as inward register, stock register lying seized with the Department. The AO has not adversely commented on the aforesaid submissions made on behalf of the assessee during the course of assessment proceedings. (B) The Tribunal required the learned Senior Departmental Representative to verify from the seized inward register/daily gate outward register lying seized with the Department, the fact whether entries in respect of receipt of material represented by these fictitious invoices are recorded in such daily gate outward register/inward register. The learned Senior Departmental Representative vide para 3.12 of his written submissions has admitted that all the entries of such purchases made from bogus parties are appearing in the inward register but he has pointed out certain strange coincidence in relation to those entries. For instance, he has pointed out that nine trucks shown as per inward register 2311 to 2319 have been shown as received on 16th Nov., 1997 from M/s Tirupati Corporation. All such nine trucks have been emptied within one hour and 15 minutes as per inward and outward time recorded in the said register. It has been pointed out that the tankers received from other regular dealers have taken more than 4 to 5 hours in carrying out the entire process of unloading which includes weighment, taking sample from the tanker for the purpose of checking the quality, colour and odour and then after obtaining lab report it has to be emptied in the assessee's tanks. The assessee in the rejoinder has replied that they had adequate capacity to unload 10 to 12 tankers at their unloading station. It has also been submitted that there are other instances where third parties have unloaded their tankers within such short time. The day-to-day stock records are prepared on the basis of raw material entered into the said inward register. The receipt of material is also corroborated by various other documents of contemporary period such as weighment of the material inward receipts and analysis reports etc. All these documents were furnished to the AO to prove the fact of real receipt of material shown as purchased through such fictitious invoices. (C) The learned CIT(A) called for a remand report from the AO during the course of appellate proceedings before him. Dinesh S. Jain

As already stated hereinbefore, the AO in his remand report dt. 26th Dec., 2001 has clearly stated that the test check of the purchase bills and other supporting documents with reference to inward register, stock register etc. have been made and it is found that the entries in respect of purchases made from the above parties are entered and consumed. This remand report given by the AO after verifying the relevant facts stated in the documents produced by the assessee with the contents of seized registers, provide a clinching proof in favour of the assessee's contention that the material in question had really been received and used in the process of production. (D) One more vital evidence which supports the assessee's contention about real receipt of material in question is that a detailed stock inventory was prepared by the authorised officers of the Department at the time of conducting the search on 24th Feb., 1999 and 29th Feb., 1999. The AO required the assessee to reconcile the stocks found during the course of search with the stock records and financial books of accounts. The assessee submitted a reply vide letter dt. 14th March, 2001 in which it was stated that complete reconciliation of stock found during the course of search and as per books of accounts is enclosed from which it would be seen that all the items found as per the stock inventory prepared at the time of search are fully verifiable as per the stock records maintained by the assessee-company. The AO accepted this explanation after detailed verification and no addition has been made in the assessment order in relation to any unexplained stocks found during the course of search. This also proves the fact that the material in question had really been received.

(1996) 58 ITD 428 (Ahd) or in some other cases. He also pointed out that part disallowances made in respect of inflation of purchase price made in the cases of Adinath Industries and Arun Industries have been deleted by the Tribunal and those orders of the Tribunal have been confirmed by the Hon'ble Gujarat High Court. The judgment of the Hon'ble Gujarat High Court is binding, says the learned counsel. We have already indicated while discussing the ratio of principles laid down by the Hon'ble Gujarat High Court in these two cases that the facts of the present case are totally different. In the present case there is an unequivocal, clear and emphetic denial by these suppliers as well as brokers in their first affidavits/statements submitted to the Dy. DIT. The assessee has not produced those suppliers/brokers before the AO along with the relevant records. The Tribunal also gave the assessee a specific opportunity to produce those suppliers/brokers along with their books of accounts and other relevant records. The assessee has expressed their inability to produce them before the Tribunal. The facts of those two cases are therefore totally distinguishable as in those cases there was no such clear but categorical denial by the brokers/suppliers. The assessee must have obtained fictitious bills from such billing agents/name lenders with a view to derive some definite gain. It is true that the material in question was received by the assessee but those materials were not received from these billing agents/name lenders" but were received from undisclosed sources or from unknown parties, which was within special and exclusive knowledge of the assessee and the assessee is not willing to disclose the true facts to the Department. It is well known that unaccounted material may be available in the market at much lower price as compared to the purchases made from genuine dealers on the strength of genuine bills. The real suppliers may be willing to sell those products at a much lower rate in view of manifold reasons. There may be saving on account of excise duty, sales-tax or other taxes which may be leviable in respect of manufacture and sale of such goods. The real suppliers or the oil mills may derive substantial saving of income-tax in respect of income from sale of unaccounted goods produced and sold by them. There may be various factors due to which sellers may be willing to charge lower rates for unaccounted goods as compared to accounted goods. The assessee is engaged in the business which is Dinesh S. Jain

subject to frequent checking by civil supply department of the State Government. The regular checks are made at the factory premises in order to verify whether hoarding is done or not. Thus, there is effective check by food and civil supplies department of the State Government so far as quantitative details are concerned. The main area left with the concerns like the assessee would, therefore, be suppression of income by inflating the purchase price of raw material. Such material received by the assessee from unknown suppliers or from undisclosed sources also enable the assessee to utilise their black money/unaccounted funds for making purchases of such raw material in cash from open market. The assessee has shown credit purchases from these name lenders/billing agents. A statement of peak has been reproduced in earlier part of this order which shows that the peak amount credited in the account of one of these name lenders/billing agents relating to credit sales alleged to have been made by them to the assessee is Rs. 1,54,14,534. This only gives an idea of the large amount of black money kept utilised by the assessee for making unaccounted purchases from open market in cash and obtaining the bills from billing agents/name lenders to record such quantity of material purchased in their stock registers, to meet the effective checking done by the civil supply department and by other departments. The assessee has not only derived the benefit of circulation of large black money for purchases of such unaccounted material from open market but has also derived extra profit by purchasing them at a much lower rate from the real suppliers/mills, who had really supplied the material in question to the assessee. Therefore what was actual profit derived by the assessee from such device/practice adopted by them is exclusively known to the assessee, The assessee does not want to tell the truth but simply wants to have total deletion on technical and legal grounds which have no valid base whatsoever.

levied only on real income. It is an elementary rule of accountancy as well as of taxation laws that profit cannot be ascertained without deducting cost of purchases from sales, otherwise it would amount to levy of income-tax on gross receipts or on sales. Such recourse is not permissible under any provisions contained in the IT Act. The facts and discussion made hereinabove show that the purchase invoices obtained from five name lenders/billing agents are fictitious. The material and evidence found during the course of search and post-search investigation conducted by the officers of the Department have adequately exposed the falsity of such entries of purchases made in the regular books of accounts. The undisclosed income derived by the assessee out of purchases aggregating to Rs. 11.99 crores shown as having been purchased from these billing agents/name lenders will, therefore, have to be estimated on a reasonable and rational basis so as to determine the figure of undisclosed income liable to tax in the block assessment under Chapter XIV-B. The entire amount of bogus purchases cannot be treated as undisclosed income/concealed income, because material in question had really been received. The inflated portion of purchase price mentioned in the fictitious invoices are within exclusive knowledge of the assessee. The assessee is not willing to tell the truth. Therefore, the estimate of such undisclosed income liable to tax in block assessment in relation to such bogus purchases of Rs. 11.99 crores will have to be made. As already stated hereinbefore, the real mills/wholesale dealers genuinely engaged in sale and supply of such material may be willing to sell such unaccounted goods at a much lower rates in view of various manifold advantages, such as savings in all kinds of taxes, duties, utilisation of black money and various other factors, The legislature in its wi om has amended Section 40A(3)by the Finance Act, 1995 w.e.f. 1st April, 1996 which provides for disallowance of 20 per cent of such expenditure incurred otherwise than by crossed or account payee cheques. This figure of 20 per cent must have been arrived at by taking into consideration all the relevant facts. This 20 per cent disallowance is contemplated in cases where black money is not employed in respect of such unaccounted purchases. It is applicable only in cases where the payment of expenditure exceeding Rs. 20,000 is made otherwise than by a crossed cheque or crossed demand draft. Here is a case where not only the benefit by way of avoidance of various kinds of Dinesh S. Jain

taxes such as excise duty, sales-tax at various stages of inputs are there but it is a case where such purchases on the strength of fictitious invoices given by the billing agents/name lenders are treated as credit purchases. Therefore, while estimating the amount liable to be treated as undisclosed income in relation to such purchases aggregating to Rs. 11.99 crores, the question relating to unexplained non-genuine credit shown in the accounts of these name lenders/billing agents will have to be kept in mind. The assessee's counsel contended that no such addition was made by the AO under Section 68 nor Section 68 applies in relation to such credit purchases. All these facts and decisions submitted by the learned counsel are not relevant because we are not making any fresh addition in respect of any unexplained cash credit but this vital factor is being taken into consideration while estimating the amount of undisclosed income liable to tax in the block assessment in relation to such purchases of Rs. 11.99 crores. The peak credit as on any one date in the account of one of these billing agents/name lenders is Rs. 1,54,14,534. This chart was submitted by the learned Senior Departmental Representative and copies were given to the learned counsel for the assessee. No mistake in the said peak statements were pointed out by the learned counsel. The addition in respect of such unexplained part credit in the accounts of bogus suppliers can be made under Section 68 or 69C in view of decisions in the cases of Vijay Proteins Ltd. (supra) and is also supported by judgment of Hon'ble Rajasthan High Court in the case of Indian Woollen Carpet Factory v. ITAT. No separate or fresh addition is being made by us but this important factor is taken into consideration as to how much addition out of addition of Rs. 11.99 crores should be sustained. Apart from this the estimate of 25 per cent disallowance made in the case of Vijay Proteins (supra) is also relevant as that case relates to a concern engaged in the similar nature of business and there also purchase invoices were obtained from billing agents/name lenders but material in fact had been received from unknown sources. The Tribunal after a careful consideration in that case confirmed the disallowance of 25 per cent out of total amount of such bogus purchases. No separate addition was made in respect of peak credit in the accounts of those bogus suppliers as the amount of disallowance made at the rate of 25 per cent adequately covered the amount of unexplained Dinesh S. Jain

peak credit. One of us (AM) was a party to the said decision in the case of Vijay Proteins Ltd. (supra).

behalf of the assessee. It was found that the seized bills bear the gate entry numbers at the factory premises of NKPL. Therefore, there is no doubt that the assessee made purchases from NKIL and also sold the goods to Triveni Corporation and Tirupati Corporation as per purchase bills and sale bills found and seized in the file marked as Annex. A-6. The AO therefore made an addition of Rs. 2,01,99,793 in respect of unaccounted purchases from NKIL for the block period for asst. yr. 1998-99. The AO also made separate addition in respect of unaccounted sales so made to Triveni Corporation and Tirupati Corporation on the basis of sale invoices found and seized in file marked as Annex. A-6. The addition in respect of unaccounted sales was made to the tune of Rs. 2,05,86,761. 73. The learned CIT(A) has dealt with this issue in paras 8 to 8.2 on pp. 24 and 25 of his order. The learned CIT(A) has observed that since both the concerns, viz. NKPL and NKIL belong to the same group and addition on account of unaccounted sales has already been confirmed by him in the case of NKIL, no further addition can be made in respect of unexplained purchases in the hands of the appellant. Since what can be taxed is only the profit on the aforesaid sales of Rs. 2,05,86,761, after reducing Rs. 2,01,99,793 being the cost of purchases made by the assessee from NKIL, addition should be sustained only to the tune of Rs. 3,86,968 in substitution of both the aforesaid additions made by the AO. The CIT(A) accordingly sustained the addition of Rs. 3,86,968. 74. The learned counsel appearing on behalf of the assessee reiterated his arguments as were made before the learned Departmental authorities, In the written submissions submitted before the CIT(A), it was submitted vide paras 4.2 to 4.4 that these transactions had not actually taken place. It was admitted that there was a seal of sale entry on the bills of NKIL but the transactions did not finally take place. This can be verified from the day-to-day stock register maintained by NKIL and NKPL. No evidence whatsoever has been adduced by the AO to prove that the assessee has in fact purchased and sold wash cotton seed oil. The addition cannot be made merely on the basis of certain loose papers found during the search. Copy of board's resolution confirming the cancellation of these bills was also furnished Dinesh S. Jain

at the time of assessment. An alternative prayer was also made before the CIT(A) that if the assessee's contention is not accepted, then only profit on such sales amounting to Rs. 3,86,968 can be taxed. The CIT(A) after considering these submissions confirmed the addition to the extent of Rs. 3,86,968. The learned counsel on the strength of similar arguments urged that the addition of Rs. 3,86,968 should be cancelled.

been submitted by the Department in their paper book dt. 22nd Oct., 2002. Copies of bills issued by NKIL to NKPL included in Annex. A-6 clearly shows that the sale invoices were issued by them for wash cotton seed oil. It also bears truck numbers, delivery challan numbers and inward date and number and date on the seal of NKPL. The sale invoices issued by NKPL in favour of Triveni Corporation and Tirupati Corporation are for "Exp. Soyabean Oil". These bills also contain truck numbers and delivery challan numbers, etc.

the quantity weight and truck numbers mentioned in these invoices forming part of A-6 in the light of similar material claimed to have been recorded as received from Kothari Global. Nature of purchases from Kothari Global have to be examined with reference to their invoices and its comparison with seized invoices.

This ground is therefore infructuous and is rejected accordingly. IT(SS)A No. 41/Ahd/2002 in the case of N.K. Proteins Ltd. :

"

"

These also represent payments made by assessee group concerns for purchases and other expenses. Inquiries are being conducted from banks to find out the concerns which made these payments for purchases and other expenses. Substantive disallowance will be made in these concerns after conclusion of inquiries. However, protectively the addition is made in the case of the assessee being unaccounted payments in asst. yr. 1999-2000. (emphasis, italicized in print, supplied by us) Therefore total amount of Rs. 31,48,12,332 is added as unaccounted payments for the block period in respective assessment years as under:

Asst yr. Amount 1998-99 Rs. 2,12,73,188 1999-2000 Rs. 29,35,39,144

(Unaccounted payments Rs. 31,48,12,332)"

"

Krishna Marketing, total amount of Rs. 2,47,14,062 is deposited during the financial year 1998-99. In the bank account of Somnath Industries total deposits made is amounting to Rs. 3,24,57,568 during the financial year 1998-99. These also represent payments made by assessee group concerns for purchases and other expenses. Inquiries are being conducted from banks to find the concerns which made these payments for purchases and other expenses. Substantive disallowance will be made in these concerns after conclusion of inquiries, However, protectively the addition is made in the case of the assessee being unaccounted payments in asst. yr. 1999-2000. In the bank account of Sejal Enterprises, total deposit is made amounting to Rs. 91,47,866 by the assessee for which no explanation was furnished by the assessee. Therefore, amount of Rs. 91,47,866 is added as unaccounted payments in the hands of the assessee for the block period in the asst. yr. 1999-2000. (Unaccounted deposit Rs. 91,47,866) (Unaccounted payments Rs. 5,71,71,630)"

No. Name of the holder Amount credited Dinesh S. Jain

It appears that these deposits in the bank accounts of these suppliers are for the period upto the date when copies of their bank accounts were obtained by the Dy. DIT/Addl. DIT. However, details in respect of deposits in their bank accounts upto the date of search i.e. 24th Feb., 1999 have been given in para 10 on p. 33 of the assessment order, which are as under:

………………..

The AO has briefly discussed the evidence against the assessee in relation to such bogus suppliers which, inter alia, include the affidavits/statements given by the suppliers denying having supplied any goods to NKPL and NKIL and statements of brokers and other facts discussed in the assessment orders passed in the case of NKPL and NKIL. The AO has also discussed various replies and affidavits of suppliers submitted on behalf of the assessee in rebuttal of the earlier affidavits. The AO thus made an addition in respect of entire amount found credited in the bank accounts of these so-called bogus suppliers aggregating to Rs. 37,19,85,062 in the hands of Shri Nileshbhai K. Patel on substantive basis,

these payments were made by NKIL and NKPL respectively to these suppliers by cheques. Hence deposits in the bank accounts of these suppliers to the extent the deposits representing cheques received from NKIL and NKPL, cannot be treated as unexplained deposits. The issue relating to alleged bogus purchases made by NKPL and NKIL from these concerns has been dealt with separately in the respective assessment orders but those payments made by cheques by NKIL and NKPL by no stretch of imagination be treated as unexplained deposits in the bank accounts of those bogus suppliers. The same addition cannot be made in the hands of either NKIL or NKPL, nor in the case of Shri Nileshbhai K. Patel. As regards the deposits aggregating to Rs. 21,89,82,084 are concerned, it was contended that all these deposits in the bank accounts of various suppliers have been received by cheques from other parties. The AO has brought no material on record to show that such undisclosed deposits in the bank accounts of these suppliers were made by NKIL or by Shri Nileshbhai K. Patel, On the other hand, the AO, while passing the assessment orders in the cases of NKIL and NKPL, had observed that the inquiries would be made in relation to those deposits by cheques in the accounts of these suppliers to find out which other concerns have made payments by cheques to these suppliers and substantive additions will be made in the hands of those concerns after necessary inquiries and investigation. The assessee has placed reliance on the following judgments before the CIT(A): (i) CIT v. Daulatram Rawatmal (1973) 87 ITR 349 (SC) (ii) Parakh Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pune) (iii) Omkarmal Gaurishankar v. ITO (1991) 39 TTJ 223 (Ahd) (iv) Dimco Silk Mills v. ITO (1999) 107 Taxman 41 (Mag)

materials which was found during the course of search and also further inquiries conducted by the AO during the course of assessment. After perusing the said materials and records, I have no hesitation in holding that the inference drawn that the moneys deposited in the said accounts belong to the appellant is not supported by sufficient evidence for the following reasons: (a) The appeal in respect of NKIL has been disposed of by the undersigned as per order dt. 16th Jan., 2001 while appeal in respect of NKPL has been disposed of by the undersigned as per order dt, 21st Jan., 2002. For the sake of convenience, the various contents and facts relating to the statements and evidences discussed by the AO in the block assessment order of the appellant, are not discussed again. The same have been elaborately discussed therein. In the case of Sejal Enterprises, addition of Rs. 1,26,48,060 was upheld on account of bogus purchases in the case of NKIL whereas finding was given that, in respect of Somnath Industries and Krishna Marketing, there was no material for considering the additions under Section 158BC, in the absence of any material discovered during the course of search. Similarly, in respect of bogus purchases relating to Vimal Industries, Karnavati Industries, Adinath Corporation, Tirupati Corporation, Krishna Industries totalling Rs. 11,99,07,754 was upheld in the orders of NKPL as discussed above. It was noted that the said payments originated in the books of NKIL and NKPL and were through cheque payments and the transactions have been duly reflected in the books of NKIL and NKPL. Thus, the source of the said deposits stands established. (b) In respect of deposits of Rs. 21,89,82,084, the amount is stated to be received from outsiders i.e. other than NKIL and NKPL. The AO has not brought any evidence in this respect that the appellant was benamidar of such parties. As a matter of fact, even the names of parties from whom such amounts have been received and deposited in the said bank accounts have not been discussed anywhere in the assessment order. The only reference made by the AO is at p. 39 of the order in the case of NKIL and at p. 35 of the order in the case of NKPL, in which the AO had observed that inquiries will be made in respect of those concerns and substantive addition made in those cases. In view of these Dinesh S. Jain

facts, there is no justification for treating the same as undisclosed income of the appellant and that too without any finding or supporting evidence emerging out of search action under Section 132 in the case of appellant. (c) In respect of the amount of Rs. 3,64,01,316 as stated in the written submissions before me, the amount is represented towards sale by NKPL and the transactions are duly recorded in the books of account. There is no finding that the source of the same is the appellant or that it is based on any material discovered as a result of search. (d) The appellant has strongly submitted that the transactions between the account holders and the appellant are only in the capacity of his being MD of NKIL and NKPL and that he has never done any business in his individual capacity. It is further submitted that no adverse inference can be drawn for mere introduction to the proprietor of the concern for opening a bank account. Reliance is placed on the decision of Tribunal, Ahmedabad in the case of Dimco Silk Mills v. ITO (supra) which is relied upon as mentioned earlier in this order. It is submitted that the onus is on the AO to hold that the said deposits are on account of undisclosed income of the appellant and this view is correct in view of the decision of the Supreme Court in the case of CIT v. Daulatram Rawatmal (supra). (e) It is further submitted that as discussed by the AO himself in the orders of NKIL and NKPL, no cheque books were found from the residential premises of the appellant in respect of any of the above account holders relating to the abovementioned concerns. This is found to be correct since the same were found from the residence of Kamleshbhai Patel. As such, addition made by the AO of Rs. 37,19,85,062 cannot be sustained and therefore directed to be deleted."

appellant recorded only for Rs. 11.99 crores and the rest is from the outside parties for which no findings have been given by the AO. In respect of the amount of Rs. 3,64,01,316, no finding has been given by the AO and the transaction has already been considered in the case of NKIL. It is noted that the contention of the appellant are correct and the appeal of NKIL bearing Appeal No. CIT(A)-VI (now III)/CC2/54/01- 02 has already been disposed of as per order dt. 16th Jan., 2002. After perusing the points made by the appellant, I find that there is no justification in making double addition first by way of treating the same as bogus purchases and than considering the same as unexplained deposits in the bank accounts of the proprietors/concerns. It is relevant to note that it is observed by the AO that withdrawals made relating to purchases of NKPL have been used by the appellant itself.

"

are considered as payment made by the assessee-company and is also considered as unaccounted payments. Therefore, the learned AO has made addition of Rs. 5.71 crores as unaccounted payments on protective basis. The details of such unaccounted payments and purchases are given below: Purchases considered as bogus in the case of NKIL: Rs. Somnath Industries 1,14,78,000 Krishna Marketing 51,67,228 Sejal Enterprises 1,26,48,060 ------------- 2,92,93,288 -------------

The details of deposit of cheques in the bank account from the above referred companies and outsiders are as under:

… …

already been confirmed and there is no basis for making further addition in the absence of any additional evidence that the same is co-related with purchases out of unexplained monies. This would amount to double taxation.

In view of the above facts, these 2 additions are directed to be deleted."

not mentioned the branch of the bank. Kindly see the page No. 39 wherein the reply the bank has written that we don't have records of the bank branch from which these instruments were presented. Kindly see the page No. 1 in which Co-operative Bank of Ahmedabad Ltd. has stated that the cheque No. 44156 as mentioned is not clear from this branch and so we are unable to furnish further details as required by you. The Kalupur Commercial Co-op. Bank Ltd. has stated as appeared at page No. 4 that furnish the name of the company under N.K. group and the date of clearance of cheque. On page No. 50, the Sabarmati Co-op. Bank Ltd. has stated due to shifting process our records related to our branch we are unable to submit all such data in time.

submitted along with the letter dt. 18th Dec., 2002. This account was introduced by N.K. Industries. The persons authorised to operate the bank account in the name of Swastik Overseas Ltd. is Shri R.B. Mehta and one other Mehta. The learned Senior Departmental Representative was requested to show the photo copy of the statement of Rajesh Mehta-broker with a view to find out whether the signature on this bank account opening form tallies with the signature of the said broker. It was found that signature on this bank account opening form appears to be of the same person viz. Shri Rajesh Mehta-broker. The Bench required the learned Senior Departmental Representative to state as to whether Shri Rajesh Mehta-broker has been interrogated in relation to transactions carried out in the name of Swastik Overseas Ltd. The learned Senior Departmental Representative admitted that no such interrogation of Shri Rajesh Mehta was made. The extracts from the statement of Shri Rajesh Mehta reproduced on p. 10 of the assessment order in the case of NKPL shows that not a single question was put by the AO or Addl. DIT to Shri Rajesh Mehta about Swastik Overseas Ltd.

constitute a small figure of about Rs. 10 lakhs which is a small fraction of the total deposits aggregating to more than Rs. 44 crores deposited in the bank accounts of such bogus suppliers/name lenders/billing agents. The Department has not even examined the partners/proprietors/directors of Swastik Overseas Ltd. and Issan Overseas Ltd. The Department has not made any serious efforts to find out the complete names, addresses of various other concerns which gave cheques to all these bogus suppliers, which have been credited in their respective bank accounts. The concerned IT authorities having vast powers vested upon them under the provisions of the Act could very easily obtain complete details of all the persons who gave these cheques to these bogus suppliers. They could also find out various withdrawals made from these bank accounts of various bogus suppliers and ascertain the destination of those amounts withdrawn by various cheques other than self cheques debited in those bank accounts. No serious efforts have been made for finding out the complete particulars of various debits and credits in the bank accounts of all such bogus suppliers except locating details of cheques given by NKPL and NKIL as per books of accounts of these two concerns. The learned Senior Departmental Representative simply relied upon the reasons mentioned in the assessment orders to support such a ground raised in all the aforesaid three appeals by the Revenue; one in the case of NKPL; NKIL and Shri Nileshbhai K. Patel. The learned Senior Departmental Representative also drew our attention to letter dt. 23rd May, 2001 sent by Madhavpura Mercantile Co-op. Bank Ltd. to the AO informing them that cheque No. 162824 and 162854 were issued by M/s Madhukant Agrotech (P) Ltd. in favour of Karnavati Industries. Copy of current account card was also annexed with this letter which shows details of a/c No. 362 in the name of M/s Madhukant Agrotech (P) Ltd. The address of M/s Madhukant Agrotech (P) Ltd. as given in the account opening form is as under: Madhukant Agrotech (P) Ltd. Aarohi, Nr Vijay Restaurant, University Road, Navrangpura, Ahmedabad.

account was introduced by Giriraj Trading Co., Girishkumar K. Shah-HUF. Copy of resolution passed for opening of the said bank account by Madhukant Agrotech (P) Ltd. was also supplied by the said bankers to the AO. The Bench required the learned Senior Departmental Representative to state as to whether any further investigation was made from M/s Madhukant Agrotech (P) Ltd. to show as to whether they had any direct or indirect connection with any of the persons or concerns of N.K. Group. The learned Senior Departmental Representative admitted that no further enquiries were made from Madhukant Agrotech (P) Ltd. The learned Senior Departmental Representative also tried to explain that the bankers have indicated that they did not have the records of bank branches from which various instruments relating to such bank accounts were presented. For example, attention was invited towards letter dt. 20th March, 2001 of Mehsana Urban Co-op. Bank Ltd. p. 39 of this paper book in which they have indicated that the AO should contact service branch/head office of respective banks for the required details. However all these inquiries continued only upto May, 2001. The assessment in the case of NKPL and NKIL were made on 30th April, 2001. The assessment in the case of Nileshbhai Patel was completed on 28th Feb., 2001. No effective efforts were made by the officers of the Department for further investigation in this regard. The AO on p. 35 in the case of NKPL and on p. 39 of the assessment order in the case of NKIL has observed that the inquiries are being conducted from the banks to find out the names and particulars of other, concerns which made these payments for purchases and other expenses. Substantive disallowances will be made in the cases of those concerns after conclusion of enquiries. The additions were protectively made in the cases of NKIL and NKPL subject to further investigation so that appropriate additions can be made in the hands of the concerns who gave such cheques to these bogus suppliers. However, no further inquiries have been made and no additions have been made in the cases of any such other concerns who really gave cheques to these bogus suppliers.

valuable assets were found from any of the persons or concerns except meagre quantity of jewellery and cash etc. The unexplained jewellery was disclosed by the assessees of this group in the block return which have been accepted by the Department, The addition made on account of unexplained cash in the hands of different persons of this group was made by the AO but same was deleted by the CIT(A) and no further appeal has been preferred by the Revenue in relation to such deletion. This clearly proves that the assessee, did not own any other unaccounted assets or deposits whatsoever. The learned counsel contended that no addition could be validly made in the hands of Shri Nilesh K. Patel as he was not carrying on any personal business. The entire evidence which contains reference of his name is in his capacity as MD/director in NKPL and NKIL. There is no material or evidence on record that any funds were provided by Shri Nileshbhai Patel for deposits in all or any of these bank accounts. Shri Nileshbhai Patel had no transactions with any of these suppliers. Mere introduction of some bank accounts cannot lead to the conclusion that the assessee were the real owners of the amounts credited in the bank accounts of such suppliers particularly when all such credits in the bank accounts of those suppliers are by way of cheques deposited in these accounts. Such cheques other than cheques given by NKPL and NKIL towards purchase invoices were given by outside parties/third parties with whom neither Shri Nileshbhai Patel, nor NKPL nor NKIL had any connection whatsoever. The burden squarely lies upon the Revenue to prove that such cheques were deposited by these assessees. The learned counsel relied upon the judgment of the Hon'ble Supreme Court in the case of CIT v. Daulatram Rawatmal (supra); and the decision of Tribunal in the case of Parakh Foods Ltd. v. Dy. CIT (supra) and various other decisions referred to in para 4.7 of the order of CIT(A) in the case of Shri Nileshbhai Patel. The learned counsel further pointed out that no notice under Section 158BD had been issued to any other concerns who gave such cheques to these suppliers. Reliance was also placed on the decision in the case reported in 68 ITD 273 (sic). The learned counsel contended that the documents submitted along with letter dt. 18th Dec., 2002 by the learned Senior Departmental Representative further supports the assessee's contention. For example, cheques of Madhukant Agrotech (P) Ltd. were credited in the bank account of Karnavati Dinesh S. Jain

Industries. M/s Madhukant Agrotech have no connection whatsoever with the assessee. This strongly supports the view that Karnavati Industries, if they are treated as bogus suppliers/billing agents/name lenders, they are acting as such on behalf of other parties. Similar inference can be drawn from the bank opening forms of Swastik Overseas Ltd. and Issan Overseas Ltd. The Department ought to have examined Shri Rajesh B. Mehta and other directors/owners of those concerns to find out as to who were real persons who gave such cheques to these bogus suppliers. The learned counsel drew our attention to the copies of bank statements submitted by the learned Senior Departmental Representative along with the letter dt. 18th Dec., 2002. In those bank statements the bankers appear to have given hand-written narration such as KCC, PNB, Manekchowk, AMCO etc. The assessee had no bank account with PNB, KCC or any of these places which are hand written and which have been highlighted in the copies of those bank statements submitted by the learned Senior Departmental Representative. The Department has miserably failed to bring any evidence on record to show that any of the cheques of outside parties/third parties were in any way connected with any of the persons or concerns of N.K. Group. The learned counsel strongly supported the orders of the CIT(A) in all these three cases in relation to the aforesaid common ground.

month of March to May, 2001 and thereafter the matter was not pursued.

treat the entire deposits in these bank accounts in the names of various suppliers as benami deposits/benami accounts of these assessees. The Hon'ble Supreme Court in the case of Daulatram Rawatmal (supra) has observed at p. 360 as under: "The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the Department which claimed that the amount of fixed deposit receipt belonged to the respondent-firm even though the receipt had been issued in the name of Biswanath, the burden lay on the Department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of Biswanath. A simple way of discharging the onus and resolving the controversy was to trace the source and origin of the amount and find out its ultimate destination. So far as the source is concerned, there is no material on the record to show that the amount came from the coffers of the respondent-firm or that it was tendered in Burrabazar Calcutta Branch of the Central Bank, on 15th Nov., 1944, on behalf of the respondent. As regards the destination of the amount, it has already been mentioned that there is nothing to show that it went to the coffers of the respondent. On the contrary, there is positive evidence that the amount was received by Biswanath on 22nd Jan., 1946. It would thus follow that both as regards the source as well as the destination of the amount, the material on the record gives no support to the claim of the Department."

addition to this, a cheque of Rs. 3,64,01,316 was given by Triveni towards goods sold by NKPL. This left the balance deposit aggregating to Rs. 21,89,82,084 received by bogus suppliers/billing agents from other parties/third parties with which it is contended that the persons or concerns of NX Group had no connection whatsoever. The names and particulars of parties who deposited the cheques in the bank accounts of these suppliers after the search have also not been brought on record, It was primary duty of the Department to find out as to which other parties/concerns have given these cheques which have been deposited in the bank accounts of these bogus parties. The Department has completely failed to discharge such burden, which heavily lies on them to support their conclusion that any of these three assessees were real owners of cheques of all such other concerns/third parties deposited in the bank accounts of these bogus suppliers. The Department has also not made any investigation to prove destination of the funds withdrawn by self cheques and by other cheques given to other parties. The Department has thus failed to discharge the burden of proving that the origin and destination of these funds were these assessees and none else. The CIT(A), in our view, has rightly deleted the additions so made by the AO in all these three cases under consideration.

assessee group and other concerns who gave such cheques. The total deposits in the bank account of these bogus suppliers/billing agents/name lenders is more than Rs. 44 crores. The Department has only found out the details of cheques given by NKIL and NKPL which is only a small portion thereof. The details of major credits in all these accounts have not yet been found out by the Department. It is incumbent on the part of the Department to find out complete details of all other concerns who gave such cheques to these bogus suppliers. Those other concerns might also have taken fictitious purchase invoices from these bogus suppliers. They may not have even received the material sought to have been supplied to those other concerns through such fictitious invoices issued by such billing agents. After carrying out necessary investigation and finding out the names and addresses of other persons and concerns, whose cheques have been credited in the bank accounts of these bogus suppliers, necessary action against those concerns/persons should be initiated under Section 158BD or under Section 147 or any other relevant provisions of the IT Act. The Department cannot exonerate such "other concerns" by leaving investigation at incomplete stage like this. It would be imperative to mention that the time limit for initiating action under Section 147has been reduced to only six years in Section 149. The time left with the officers of the Department now is very short. It is, therefore, necessary to strive the best possible time-bound programme for ascertaining the full particulars viz. names and addresses of all other concerns/parties/persons whose cheques have been deposited in the bank accounts of these bogus suppliers, so that timely action can be initiated against all such other persons/concerns/parties. If, as a result of further investigation, it comes to the notice of the Department that those other concerns/third parties are benamis of the persons and concerns of assessee's group, the Department will be entitled to take necessary action under Section 147, if they have in their possession adequate material to justify formation of reasonable belief which should be much more stronger than the reasons to suspect, If the AO comes across evidence and material which were not found or made available in the process of block assessment but are discovered as a result of post-search investigation, he can certainly use such information for making regular assessment under Section 143(3) which also includes Dinesh S. Jain

reassessment under Section 147 subject to fulfilment of conditions precedent mentioned in the other provisions of the Act. It will be the duty of the learned Senior Departmental Representative who represented this case before us to bring this fact to the notice of the learned Chief CIT, learned CIT, and learned DG (Investigation) so that further investigation in this regard may receive serious attention, which it deserves, and timely action can be initiated against such other concerns/persons under Sections 147, 158BD or other relevant provisions.

2,50,427 for asst. yr. 1995-96, Rs. 62,75,837 for asst. yr. 1998-99 and Rs. 61,21,796 for asst. yr. 1999-2000 amounting in all to Rs. 1,26,48,060 are bogus and thereby has erred in confirming addition of Rs. 1,26,48,060 as undisclosed income.

obtained under undue influence, therefore, any finding based on such affidavit cannot be relied upon.

relation to this ground, we hold that this ground is devoid of any merit and is accordingly rejected.

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Industries at the instance of Shri Nileshbhai Patel who used to give him Rs. 2000 p.m. for all this work. The bank account of Somnath Industries was opened on 24th Aug., 1998 with initial deposit of Rs. 1,000 in cash. It has been closed on 12th May, 1999. One more bank account of Somnath Industries was also opened. The total amount of deposit in these two bank accounts upto the date of search was Rs. 2,24,57,568 as mentioned on p. 9 of the assessment order. The AO has also observed that in almost all cases, the deposits and withdrawals are on the same day. The AO on the basis of aforesaid evidence gave similar findings that Somnath Industries is fictitious entity and purchases shown by NKIL from them represented bogus purchases. The findings so given are recorded on p. 9 of the assessment order.

in relation to such bogus purchases was supplied and the assessee was required to explain as to why purchases made from these concerns should not be disallowed. The assessee filed reply dt. 15th Dec., 2000 stating that the entire purchases are recorded in the books of accounts in the normal course before the date of search and therefore it does not fall within the purview of block assessment. The AO has thereafter discussed the various show-cause notices given by him and the replies received from the assessee in this regard. The show-cause notices and the replies were also almost as that in the case of NKPL. The AO arrived at the conclusion that all such purchases made from these three parties are bogus purchases and he disallowed the total purchases of Rs. 2,92,93,288 made from them.

the submissions made relating to affidavit of other parties are not relevant. It is also found from the orders of the AO and the CIT(A) that the assessee had, inter alia, submitted the affidavit of Shri Kaushik R. Surti, proprietor, M/s Somnath Industries. The AO has rejected the said affidavit as the signature thereon did not tally with the signature on his affidavit filed before the Dy. DIT.

Gujarat High Court in the case of N.R. Paper & Boards (supra) has agreed with the assessee's contention that so far as purchases from these two concerns are concerned, they cannot be considered in the block assessment under Chapter XIV-B for the block period because no documents relating to those two parties were found during the course of search. The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards has been read by the CIT(A) out of context. We have already discussed this issue while dealing with the similar grounds in the case of NKPL. The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper and Boards if read in the light of context and the question decided by the Hon'ble Gujarat High Court, it would be amply clear that the ratio of the Hon'ble Gujarat High Court laid down in those cases does not in any manner support the view so taken by the CIT(A). The basic facts that the concerns of N.K. Group viz. NKPL and NKIL are resorting to the device of obtaining fictitious purchase invoices from the bogus suppliers came to the knowledge of the authorised officers, Dy. DIT/Addl. DIT as a result of search. The result of search clearly demonstrated that the assesses is claiming deduction in respect of inflated purchases, by debiting bogus purchases or may be by inflating the purchase price by obtaining the purchase invoices from name lenders/billing agents. It may also be relevant here to once again refer to the amended definition "undisclosed income" given in Section 158B(b) which, inter aha, includes any expenses, deduction or allowance claimed under this Act, which is found to be false. This detection of falsity of purchases made from all these parties was made by the Department only as a result of search. If search would not have been conducted, the Department would have never come to know of such a device adopted by the assessee. We are therefore of the considered opinion that the order passed by the CIT(A) of deleting such additions is not valid and justified on the facts of the present case. Various other facts and circumstances relating to all the three parties viz. Somnath Industries, Krishna Marketing and Sejal Enterprises are similar as that in the case of NKPL in relation to purchases of Rs. 11.99 crores made by them from various such bogus suppliers. The facts and circumstances are absolutely similar.

from whom the assessee claimed to have purchased material to the tune of Rs. 2.92 crores are merely name lenders/billing agents and the sale invoices issued by them in the name of NKIL are fictitious invoices. The burden lies on the assessee to support any claim for deduction made by them. In the present case such burden should have been discharged by the assessee only by producing those three suppliers along with their records so that the genuineness of their purchases, sales, financial capacity and all other relevant facts could be examined. The assessee has not produced them before the AO. We gave a specific opportunity to the assessee to produce all of them before the Tribunal along with their records. The assessee has expressed their inability to produce them before the Tribunal. However, it is also true that the receipt of material shown to have been purchased from these three parties had really been received as per facts and evidence brought on record, which are similar as in the case of NKPL.

Court dismissed the SLP and confirmed the decision of Hon'ble Gujarat High Court.

available on record and also considering the fact whether the assessee is a manufacturer or a trader or both. In the present

appeal, undisputedly the notice issued u/s 133(6) of the Act

was never replied by the concerned parties and rather these

parties were found non-existences at the given addresses. It is worth mentioning that even before the Ld. Assessing

Officer and also before the Ld. Commissioner of Income Tax

(Appeal) the assessee expressed his inability to produce the parties, which clearly establishes that the genuineness of the transaction is under doubt or it can be said not established

by the assessee or remained to be established. So far as the decision in the case of Nikunj Exim Enterprises Pvt. Ltd. is concerned, I am of the view that in the present appeal, the assessee could not establish the genuineness of the transactions. Even right from the assessment stage till the stage of this Tribunal, the assessee did not produce the parties. In such a situation the fact remains that the genuineness of the transactions remained to the proved with positive material. Therefore, considering the totality of facts,

cases discussed hereinabove, to plug the leakage of revenue,

I am of the view that the learned CIT(A) has taken one of the Dinesh S. Jain

best possible view to estimate the profit @6.5%, which is quite justified. Thus, the stand taken by the learned CIT(A)

is affirmed.

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 on 11/10/2018. (Joginder Singh) "या"यक सद"य / JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated : 11/10/2018 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

उप/सहायक पंजीकार (Dy./Asstt.