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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)-20, New Delhi dated 18.03.2016 for the Assessment Year 2006-07. 2. The assessee has raised the following grounds of appeal:- “1. On the facts and circumstances of the case, the order passed by the learned^ Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eyes of law and on facts.
2. On the facts and circumstances of the case, learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the initiation of the reassessment proceedings and the reassessment order are bad, both on the facts and in law and liable to be quashed, as the statutory conditions and procedure prescribed under the statute have hot been complied with.
3. (i) On the facts and circumstances of the case, learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the AO are bad in the eyes of law, as the reasons recorded for the issue of notice under section 148 are bad in the eyes of law an(J are contrary to the facts. (ii) On the facts and circumstances of the case, learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the reassessment order passed by the AO Is bad and liable to be quashed as the same has been reopened on the basis of the reasons which are vague and have been recorded without application of mind on the part of the AO. 4 On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of an amount of Rs.52,47,565/- on account of bogus purchases. Page | 1 Virendra Kumar Gupta Vs. ACIT, (Assessment Year: 2006-07)
5. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming that the firms M/s Vishnu Trading Company and M/s Shree Bankey Bihari Trading Co. are not engaged in actual business ignoring the fact that during the course of search on these firms substantial inventory in respect of the material being purchased by the assessee was found, which confirms the fact that these firms were doing actual business. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in rejecting that the inference drawn by the AO merely on the basis of a statement that these firms are not in actual business is baseless and contrary to the facts on record.”
6. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee in ignoring the fact that the quantity purchased and sold being completely tallying, the allegation that the assessee has not made purchases cannot be sustained. 7. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the addition on account of bogus purchases, rejecting the material and evidences brought on record by the assessee to show that the purchases and sales were-made in the regular course of business. 8. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in enhancing the addition made by the AO by an amount of Rs.2,62,377/- on account of commission paid in cash on the alleged bogus purchases. (ii) That the learned CIT(A) has erred in making the addition by disregarding the explanations and evidences brought on record by the assessee. 9. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in making an addition for an amount of Rs. 10,49,513/- on account of the GP understated by the assessee on the alleged bogus purchases. (ii) That the learned CIT(A) has erred in making the addition by estimating the income at an arbitrary rate of 20% of the purchases made from these parties, without there being any basis for the same and by rejecting the explanations of the assessee. 10. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the addition so made on the basis of material collected at the back of the assessee, is bad in law and liable to be deleted. 11. On the facts and circumstances of the case, the ld CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the addition made by the AO is untenable in the eyes of law, having been made without providing opportunity to cross examine the person on the basis of whose statement the allegations have been made against the assessee and without following the principles of natural justice.”
The facts of the case is that the assessee is an individual carrying on the business, filed return of income for Assessment Year 2006-07 for Rs. 148750/- on 31.10.2006. The return was processed u/s 143(1) of the Act on 29.03.2007. A letter was received from the Chief Commissioner of Income Tax along with a CD containing the details of accommodation Virendra Kumar Gupta Vs. ACIT, (Assessment Year: 2006-07)
entries provided by one Shri Rakesh Gupta, Shri Vishesh Gupta, Navneet Jain and Vaibhav Jain. The proprietary concern of the assessee M/s. Sanjay Metal Udyog was found to have obtained accommodation entries from two parties M/s. Vishnu Trading Company of Rs. 3454995/- and M/s. Bake Bihar of Rs. 1792570/- totaling to Rs. 5247565/-. All the accommodation entry provider in assessment proceedings u/s 153A have admitted that they have provided accommodation entries to the parties as per list where the name of the assessee M/s. Sanjay Metal Udyog is also appearing. The ld Assessing Officer examined the above information and also pin pointed the exact amount of purchases made by the proprietary concern of the assessee and tabulated it. Therefore, notice u/s 148 of the Act was issued on 30.03.2013. In response to that notice assessee did not file any return of income. However, after several notices the assessee himself appeared on 30.08.2013 and requested the copy of the reasons recorded for reopening of the assessment. Such reasons were provided to him. Assessee filed objections and same were rejected by ld AO. Subsequently, a final show cause notice on 19.03.2014 was issued to the assessee to which assessee submitted that it has purchased material from the above two parties who are having PAN, sales tax no and further, to substantiate the purchases he submitted the confirmation, copy of purchase bills, ledger account of freight and labour charges, copy of the sales tax details of the assessee, copy of the stock register, copy of the bank account of the assessee where the payment have been made by cheque to these two parties and affidavit of the assessee himself that purchases are genuine. Assessee further stated that the amount of purchases made by assessee from these two parties have been sold to other persons which are included as purchases and sales. The ld Assessing Officer rejected the contention of the assessee stating that when the entry operators have given their statements that these are all bogus evidences therefore, they are not believable. He therefore, held that the purchases of Rs. 5247565/- is bogus and same was added to the total income of the assessee applying provisions of section 69 of the Act and determining the total income of the assessee at Rs. 5396320/-. The assessee aggrieved with the order of the ld Assessing Officer preferred appeal before the ld CIT(A), who dismissed the appeal and further enhanced the total addition from Rs. 5247565/- to Rs. 6459455/-. The ld Assessing Officer made an addition of Rs. 262377/- @ 0.25% of the total bogus purchases made by the assessee on account of commission paid for obtaining bogus accommodation entries. He further made an addition of Rs. 1049513/- as gross profit earned on such accommodation entry @20%. Therefore, assessee is in appeal before us.
Virendra Kumar Gupta Vs. ACIT, (Assessment Year: 2006-07)
The ld Authorised Representative vehemently contended that reopening made by the ld Assessing Officer is not correct. To substantiate his claim he relied upon the various orders of the coordinate bench where it is held that reopening is invalid with respect to the same parties:- a. Unique Metal Industries Vs. Income Tax officer in dated 28.10.2015 b. Nayar Metal Company Vs. ITO in ITA No. 1374/Del/2015 dated 31.03.2016 c. Rajesh Kumar Arora Vs. ITO in ITA No. 2861/Del/2016 dated 25.11.2016 5. Therefore, ld AR was of the view that this issue is covered in favour of the assessee so far as reopening of the above assessment is concerned. 6. On the issue of reopening the ld DR submitted that on identical facts and circumstances of the case the Hon'ble Gujarat High Court has upheld the reopening of the assessment on bogus purchases in Gujarat Ambuja Export Ltd Vs. DCIT in SCA No. 10745/ 2016 dated 11.09.2017. He further stated that issue is also squarely covered in favour of the revenue on reopening by the decision of the Hon'ble Delhi High Court in case of Paramount Communication Ltd Vs. Pr. CIT 392 ITR 444 against which special Leave petition filed by the assessee is also dismissed, wherein, Hon'ble High Court held that information regarding bogus purchases by assessee received by DRI from Central Excise Commissioner which was passed on to the Revenue authorities was tangible material to initiate valid reassessment proceedings. He further relied upon the decision of the Hon'ble Supreme Court in NK Proteins Ltd Vs. DCIT 25% of undisclosed income generated out of bogus transactions was added to the total income. He further referred to the decision of the Hon'ble Gujarat High Court in NK Industries Ltd Vs. DCIT dated 20.06.2016 wherein, Hon'ble High Court held that addition of undisclosed income is required to be made when the entire transaction was found to be bogus. In view of the above decision he submitted that decisions relied upon by the ld AR are not relevant as the Hon'ble Supreme Court and Hon'ble High Court relied upon by the Revenue. He therefore, submitted that complete addition deserves to be upheld. 7. We have carefully considered the rival contentions and also perused the orders of the lower authorities. In this appeal following two issues emerge for our consideration:- a. Whether reopening on the facts and circumstances of the case, made by the ld Assessing Officer is in accordance with the law.
Virendra Kumar Gupta Vs. ACIT, (Assessment Year: 2006-07) b. Whether on account of bogus purchases addition of Rs. 5247565/-, being 100% of the purchases is correct and further addition with respect to the commission paid in case of accommodation entries and profit @20% made from these parties is correct or not.
On coming to the issue of reopening the ld AR has relied upon the several decisions of the coordinate bench wherein reopening with respect to the bogus purchase from the above parties was held to be invalid. The ld Departmental Representative has relied upon the decision of the Hon'ble Delhi High Court in case of DCIT Vs. Paramount Communications Pvt. Ltd 382 ITR 444 (Delhi) wherein it has been held that information received by DRI from Central Excise Authorities which was passed on to the Revenue authorities was tangible material to initiate valid reassessment proceedings. The ld DR further relied upon the decision of the Hon’ble Gujarat High Court in case of Gujarat Ambuja Export Pvt. Ltd (supra) wherein, in para No. 9, on identical issue, where the information was received from the income tax department about huge deposits in the account of the suppliers who were found to be providing accommodation entries. The court held that:- “8. Undisputedly, these transactions were not examined by the Assessing Officer during the original assessment proceedings though he did find sufficient evidence suggesting that not all purchases made by the assessee were genuine. In fact though the appellate authority and the Tribunal reduced the addition made by the Assessing Officer on this count, in theory, the non-genuineness of some of the purchases was approved by the Tribunal also. Be that as it may. So far as the assessee's purchases from S.R. Sales are concerned they were not subject matter of the assessment proceedings and in that view of the matter the question of change of opinion would not arise. In any event, when fresh material was unearthed by the department through the investigation wing who had inquired into the transactions of M/s. S.R. Sales Corporation neither the question of change of opinion nor the concept of full disclosure may have a bearing. If the purchases of the assessee from M/s. S.R. Sales Corporation were bogus, sales and the entries were in the nature of accommodation entries, merely because the assessee disclosed such entries in the return filed and also showed such purchases in the books of accounts would hardly be sufficient to advance the arguments of full and true disclosure.
9. The question of sufficiency of material available with the Assessing Officer to form a belief that income chargeable to tax had escaped assessment must be seen in light of limited jurisdiction, review and the self restraint imposed by the courts at the threshold stage. In a writ petition, the court would be primarily concerned with the question whether the Assessing Officer had information enabling him to form a bonafide belief that income chargeable to tax had escaped assessment. The court would not evaluate the evidence at that stage nor is the Assessing Officer expected to demonstrate with certainty that the addition will certainly be sustained in the reassessment proceedings. What is required at this stage to enable the Assessing Officer to issue the notice for reopening the assessment is the tangible material on record upon consideration of which he can form a reasonable belief that income chargeable to tax had escaped assessment. Such belief has to be one which is formed Page | 5 Virendra Kumar Gupta Vs. ACIT, (Assessment Year: 2006-07)
bona fide upon perusal of the materials at his command and unless it can be stated that the formation of the belief is perverse in the sense no reasonable person could on the available material on record form such a belief, the court would not interfere with the notice for reopening.”
9. The Hon'ble Delhi High Court in case of Paramount Communication Ltd (supra) has held that reopening of the assessment made on the basis information received from outside agency is valid as under:- “8. As far as AY 2004-05 is concerned, this Court is of the opinion that in the reference to the bogus purchase made by the assessee from M/s. Kashish Impex Pvt. Ltd. and the information received for the period 17.09.2002 to 20.05.2005 and the amount of bogus purchase for the period under consideration amounted to Rs. 1.64 crores was entirely based upon the information received from the Directorate of Revenue Intelligence (DRI) Regional Unit at Jaipur. This in turn was based upon information given by the Central Excise Department. While it is true that the court is conscious that the reassessment notice should not have been routinely issued, at the same time, the nature of power is wide enough that when there an escapement of income and the Revenue has information ruling that this escapement is also relatable to suppression of material facts (which could include false claims), the power to reopen concluded assessment can validly be exercised. The consideration which ought to weigh with the Revenue and are considered valid are the existence of tangible material or information - in the light of the judgment in CIT v. Kelvinator of India [2010] 320 ITR 561 (SC).
Having regard to the contents of the notice for AY 2003-04, the court is unable to agree with the findings of the ITAT. It constitutes reference to tangible material "outside" the record, i.e. information based upon the investigation of the Commissioner of Central Excise with respect to the purchases made by the assesses. However, as far as the second issue is concerned, the Court is of the opinion that even the rectified order does not address the issues squarely. Thus, arguendo such arguments could be validly raised. At the same time, the court notices that for both AYs 2004-05 and 2005-06, the note discloses the source of the information, i.e. DRI Local Unit at Jaipur, sending information based upon the Commissioner of Central Excise's investigations. To require the Revenue to disclose further details regarding the nature of documents or contents thereof would be virtually rewriting the conditions in section 147. After all, Section 147 merely authorises the issuance of notice to reopen with conditions. If the Court were to dictate the manner and contents of what is to be written, the statutory conditions would be added as it were. In this context, it needs to be emphasized that the court would interpret the statute as they stand in their own terms, but at the same time being conscious of the rights of the citizens. So viewed, Kelvinator of India (supra) strikes just balance. To add further conditions to the nature of discussion/reasons that the officer authorising the notice would have to discuss in the note or decision would be beyond the purview of the Courts and would not be justified. For the above reasons, this Court is of the opinion that the impugned order - and the consequential order of 05.01.17 cannot be sustained. They are accordingly set aside. The question of law urged by the Revenue is answered in its favour. The parties are directed to be present before the ITAT on 06.03.2017. The ITAT shall proceed to hear the Revenue's appeals on its merits and Virendra Kumar Gupta Vs. ACIT, (Assessment Year: 2006-07) render decision in accordance with law. All rights and contentions of the parties with respect to the merits are reserved.”
Furthermore, on receipt of the information from the ld CIT, New Delhi, ld AO examined the list of accommodation entry provided by Shri Rakesh Gupta and others and found that assessee has obtained the accommodation entry from M/s. Vishnu Trading Co. of Rs. 3454995/- and M/s. Bake Bihari of Rs. 1792570/- in the form the purchases in M/s. Sanjay Metal Udyog proprietary concern of the assessee. He also verified the complete details from the information received. Therefore, there is complete application of the mind by the Assessing Officer before recording the reasons. Further, the ld AO also perused the assessment proceedings of accommodation entry providers where they have confessed of providing accommodation entries as per the list. On that basis the ld Assessing Officer reached at a fair conclusion that assessee has obtained accommodation entries from these two parties and then notice u/s 148 of the Act was issued. It shows that Assessing Officer has applied his mind to the information received from third party (in the case from the CIT, Central-2, New Delhi). Hence, no fault can be found in the reopening proceedings initiated by the ld AO.
Reliance on the decisions of the coordinate bench by the ld AR were not followed by us for the reason that at that particular time when they were rendered, both the above decisions of Hon'ble Delhi High Court and Hon’ble Gujarat High Court were not available. In view of this we find no infirmity in the order of the ld Assessing Officer in initiating reassessment proceedings which was confirmed by the ld CIT(A). In view of this ground No. 1 to 3 of the appeal of the assessee are dismissed.
Now coming to ground of addition of Rs. 5247565/- on account of bogus purchases, Rs. 262377/- on account of commission paid on obtaining the accommodation entries and addition of 20% of the purchases of Rs. 1049513/- on account of understatement of the profit for the same. The ld AR did not submit any major arguments on this but relied on the submission made before the ld CIT(A).
The ld CIT DR vehemently supported the orders of the lower authorities, relying on the following judicial pronouncement:- a. PCIT Vs. Paramount Communication (P) Ltd 2017-TIOL-253-H.C –IT) b. PCIT Vs. Paramount Communication (P) Ltd 292 ITR 444 c. CIT Vs. Arun Malhotra 363 ITR 195 d. NK Proteins Vs. CIT 2017-TIOL-23-HC–IT)
Virendra Kumar Gupta Vs. ACIT, (Assessment Year: 2006-07) e. Vijay Proteins Ltd Vs. ACIt 58 ITD 428 (Ahmadabad) f. CIT Vs. La Medica 117 Taxmann 628 ( Delhi) 14. The various decisions cited by the ld CIT DR as well as the contention of the assessee before the lower authorities were considered. The Hon'ble Supreme Court in case of NK Proteins Ltd Vs. DCIT in 2017-TIOL-23-S.C.-IT has confirmed on the similar circumstances addition to the extent of 25% of the bogus purchases. Similar view has been taken by the Hon’ble Gujarat High Court in NK Industries Ltd Vs. DCIT 2016 TIOL-3165-H.C.-AHM-IT dated 20.06.2016 and Vijay Proteins Ltd Vs. CIT 58 Taxmann.com 44. Therefore, the addition made by the ld Assessing Officer in the present case of whole of the purchase consideration cannot be sustained. The various judicial precedents cited before us also suggest that addition should be restricted to the extent of 25% of the purchases. Further, the decision relied upon by the ld Departmental Representative of Hon'ble Delhi High Court in case of CIT Vs. La Medica 250 ITR 575 do not apply to the facts of the case as in that particulars case the goods were pledged with the bank and the person from whom the purchases were made and who was operating the bank account was the employee of the group concern of the assessee. However, in the present case there is no such finding similar to that judgment. Further, assessee has already recorded the sales of the goods allegedly purchased from these bogus parties. Further, the ld CIT(A) has categorically stated at page No. 39 of his order under the heading “actual transaction” that goods have actually been purchased from grey market by cash payment from the cash generated outside the books of account and on quantitative details shown by the assessee, it has to be reasonably presumed that assessee purchased material from market in cash and bills were obtained from the above two bogus concerns of the accommodation entry provider. Therefore, it is apparent that the addition of whole of the amount cannot be made. Therefore, in view of the decision of the Hon'ble Supreme Court and Hon'ble High Court cited by the ld DR, we direct the ld Assessing Officer to restrict the addition @25% of the total purchases of Rs. 5247565/- from these tainted parties. Accordingly, the addition is restricted to Rs. 1311891/- and balance addition of Rs. 3935673/- is deleted. In the result ground No. 4 to 7 are partly allowed.
The next ground of appeal is with respect to enhancement made by the ld CIT(A) of Rs. 262377/- on account of commission paid for the alleged bogus purchases. As the purchases made by the assessee from the above two parties is conclusively proved to be bogus, naturally assessee has paid commission to them for arranging the purchase bills. The estimate Virendra Kumar Gupta Vs. ACIT, (Assessment Year: 2006-07)