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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
Date of Hearing – 27.04.2018 Date of Order – 25.07.2018
O R D E R PER SAKTIJITDEY, J.M.
These cross appealsarise out of order dated 4th August 2016,passed by the learned Commissioner (Appeals)–30, Mumbai, for the assessment year2007–08.
2 M/s. Ashesh Brothers ./2019 Assessee’s Appeal
In ground no.1, assessee has challenged the validity of re– opening of assessment under section 147 of the Act.
At the outset, the learned Authorised Representative submitted, the limitation issue forming part of the aforesaid ground is not pressed. Accordingly, we will proceed on the basis that the notice issued under section 148 of the Act is within the period of limitation.
Briefly the facts relating to the ground raised are, the assessee a partnership firm is in the business of exporting cut and polished diamonds. For the impugned assessment year the assessee filed its return of income on 16th December 2011 declaring total income of ` 33,48,466. The return of income filed by the assessee was picked up for scrutiny and assessment in case of the assessee was originally completed under section 143(3) of the Act accepting the returned income. As stated by the Assessing Officer, a search and seizure operation under section 132(1) of the Act was conducted in case of one Bhawarlal Jain and his group concerns on 3rd October 2013 by the DCIT (Investigation), Mumbai. In course of such search and seizure operation it was found that Bhawarlal Jain has established a number of companies which are nothing but mere paper companies created for 3 M/s. Ashesh Brothers providing accommodation entries by way of unsecured loans, bogus sale bills, etc. During the search operation and post search proceedings, statements were recorded from the directors, partners and proprietors of the group concerns of Bhawarlal Jain wherein, as observed by the Assessing Officer, the concerned parties admitted of having provided accommodation bills to various parties. From the information found during the search it was noticed that the assessee is one of the beneficiaries of such accommodation bills as it had shown purchases from few such group concerns of Bhawarlal Jain. On the basis of such information available with the Assessing Officer he re– opened the assessment under section 147 of the Act by issuing a notice under section 148 of the Act on 27th March 2014. The Assessing Officer ultimately completed the assessment under section 143(3) r/w section 147 of the Act vide order dated 27th March 2015, estimating profit @ 8% on alleged bogus purchases of ` 2,66,73,680.However, in respect of rough diamond worth of ` 1,62,73,905 purchased from M/s. Sun Diam,the Assessing Officer added back the entire amount stating that the assessee was not able to explain the consumption of rough diamond in the manufacturing process. Being aggrieved of the assessment order so passed, assessee preferred appeal before the first appellate authority, interalia, challenging the validity of re–opening of assessment under section 147 of the Act. So far as the issue of validity
4 M/s. Ashesh Brothers of re–opening of assessment under section 147 of the Act is concerned, the learned Commissioner (Appeals) observed, the Assessing Officer before re–opening of assessment had received specific information from the Investigation Wing to indicate that the assessee is a beneficiary of accommodation billsfrom the group concern of Bhawarlal Jain. Therefore, he held that when the Assessing Officer was having specific material / information before him indicating escapement of income, he had reason to believe that income has escaped assessment, therefore, was empoweredto initiate proceedings under section 147 of the Act. Relying upon the ratio laid down in a number of judicial precedents the learned Commissioner (Appeals) upheld the validity of re–opening of assessment under section 147 of the Act.
The learned Authorised Representative submitted, the notice issued under section 148 of the Act on 27th March 2014 clearly demonstrates that the assessment was re–opened after expiry of four years from the end of the relevant assessment year. He submitted, the original assessment in case of the assessee having been completed under section 143(3) of the Act, the conditions of proviso to section 147 of the Act would apply. He submitted, as per the conditions of the said proviso, unless there is failure on the part of the assessee to disclose truly and fully the material necessary for his assessment, re–
5 M/s. Ashesh Brothers opening of assessment after expiry of four years from the end of the assessment year is invalid. The learned Authorised Representative drawing our attention to the reasons recorded for re–opening of assessment under section 147 of the Act, a copy of which is at Page–4 of the paper book, submitted that the re–opening is only on the basis of material available on record and no fresh tangible material was there before the Assessing Officer at the time of recording of reasons. Further, he submitted, in the reasons recorded the Assessing Officer has not pointed out any failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.In support of such contention, the learned Authorised Representative relied upon the following decisions:– i) Sampatram Buthmal Dugar v/s CWT, 167 ITR 178; and ii) CIT v/s Balwantrai S. Jain, 72 ITR 59.
Thus, the learned Authorised Representative submitted, the re– opening of assessment u/s 147 has to be declared as invalid.
The learned Departmental Representative strongly relying upon the finding of the learned Commissioner (Appeals) submitted, at the time of seizure operation conducted in case of Bhawarlal S. Jain Group specific information came to the possession of the Department that group concerns of Bhawarlal Jain are only paper companies and are in 6 M/s. Ashesh Brothers the business of providing accommodation entries. He submitted, since the assessee is a beneficiary of such accommodation entries, the Assessing Officer had material before him to form a belief that income has escaped assessment due to availing of accommodation entries by the assessee. The learned Departmental Representative submitted, since these facts came to the notice of the Department only as a result of search conducted in case of Bhawarlal Jain and group concerns and these information were neither provided by the assessee nor examined by the Assessing Officer while completion the original assessment, the restrictions imposed under the proviso to section 147 of the Act will not apply. The learned Departmental Representative submitted, at the time of issuance of notice under section 148 of the Act the only thing which is required to be seen is whether there was tangible material on the basis of which a reasonable person could have formed a requisite belief. In support of his contention, the learned Departmental Representative relied upon the following decisions:–
i) Raymond Woolen Mills Ltd. v/s ITO, 236 ITR 34 (SC); ii) ACIT v/s Rajesh Jhavari Stock Brokers Pvt. Ltd., 291 ITR 500; iii) Malegaon Electricity Co. P. Ltd. v/s CIT, 78 ITR 466; iv) Honda Siel Power Products Ltd. v/s DCIT, 52 DTR 353; and v) Piaggio Vehicles v/s DCIT, 290 ITR 377.
We have considered rival submissions and perused materials on record. We have also applied our mind to the decisions relied upon. It
7 M/s. Ashesh Brothers is evident from the material on record as well as the reasons recorded for re–opening the assessment that during the search and seizure operation conducted in case of Bhawarlal Jain and his group concerns, specific material / information came to the possession of the Department that such group concerns were providing accommodation entries / bills to various parties. Undisputedly, such search and seizure operation was conducted on 3rd October 2013 which is after expiry of four years from the end of the impugned assessment year. Therefore, when in course of such search and seizure operation material came to the possession of the Department that the assessee is a beneficiary of the accommodation bills provided by Bhawarlal Jain group concerns, certainly, the Assessing Officer can re–open the assessment on the basis of such information which came to his possession after completion of the original assessment. Therefore, there is a live link between the material available on record and formation of belief. At the time of recording reasons the Assessing Officer must have material before him on the basis of which, prima–facie, a belief can be formed regarding escapement of income. At that stage, the Assessing Officer is not required to conclusively prove the escapement of income. Further, the conditions / restrictions imposed under the proviso to section 147 will not apply to the facts of the present case, since, the information relating to the fact that some of the parties from whom
8 M/s. Ashesh Brothers assessee claimed to have made purchases were only providing accommodation bills, came to the notice of the Department as a result of search conducted on 3rd October 2013. Further, the assessee having not made full and true disclosure relating to the source of purchase in course of the original assessment proceedings, the proviso to section 147 will not apply. Therefore, the re–opening of assessment under section 147 of the Act in the instant case is to be held as valid. The decisions relied upon by the learned Authorised Representative being factually distinguishable will not apply to the assessee’s case. Ground no.1 is dismissed.
In grounds no.2 and 3, assessee has challenged estimation of profit on the alleged bogus purchases.
Brief facts are, during the re–assessment proceedings, the Assessing Officer on the basis of information available with him found that certain parties belonging to Bhawarlal Jain group, from whom assessee claimed to have purchased diamond, were only providing accommodation bills without actually selling them. He, therefore, called upon the assessee to prove the purchase of diamond with supporting evidence. In response to the query raised by the Assessing Officer, the assessee produced certain details like purchases made with invoices, copies of bank statements evidencing payment to the 9 M/s. Ashesh Brothers parties through banking channel, confirmatory statement of accounts in the books of the concerned parties etc. The Assessing Officer, however, did not find the evidences submitted by the assessee conclusive. He observed, the material found during the search and seizure operation clearly established that the concerned parties were providing accommodation bills only without delivery of any goods and services. He observed, the assessee was unable to prove the actual delivery of goods through cogent evidence. The Assessing Officer observed,mere filing of purchase invoices and making payment through banking channel would not prove the genuineness of transactions. Accordingly, he concluded that the assessee was not able to prove the genuineness of purchase made from the concerned parties. However, he found that in respect of cut and polished diamond worth ` 2,66,73,680, claimed to have been purchased from M/s. Avi Exports, M/s. Mouli Mani Impex Pvt. Ltd. and M/s. Vitrag Jewels, the assessee was able to establish the sale effected against such purchases. Therefore, the Assessing Officer was of the view that the assessee might have purchased such goods from sources other than the declared source. Accordingly, he proceeded to estimate profit @ 8% on such purchases. So far as purchase of rough diamond worth ` 1,62,73,905, claimed to have been made from M/s. Sun Diam, the Assessing Officer added the entire amount alleging that the assessee
10 M/s. Ashesh Brothers failed to explain its further consumption in the manufacturing process as well as the ratio of consumption. Accordingly, he completed the assessment.Being aggrieved of the additions so made, the assessee preferred appeal before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record, though, agreed with the Assessing Officer that the assessee was unable to conclusively prove the genuineness of the purchases, however, he observed that in case of three parties viz. M/s. Avi Exports, M/s. Moulimani Impex and M/s. Vitrag Jewels, the Assessing Officer himself has held that though the assessee was unable to prove that purchases were from the declared source, however, the goods have entered the stock of the assessee. Therefore, the Assessing Officer had estimated the profit @8%. The learned Commissioner (Appeals) relying upon the decision of the Hon'ble Gujarat High Court in CIT v/s Simit P. Sheth, [2013] 38 taxmann.com 385 (Guj.), held that the estimation of profit @ 8% is on the higher side considering that the VAT rate is @ 1% in some places in Gujarat, whereas, in Surat it is totally exempt. Thereafter, referring to the benign assessment procedure (BAP) Scheme of Ministry of Commerce and Industries, Government of India, the learned Commissioner (Appeals) restricted the addition to 5% of the purchases made from the 11 M/s. Ashesh Brothers aforesaid parties. As regards purchase of rough diamond of ` 1,62,73,905, from M/s. Sun Diam, though, he agreed with the Assessing Officer that the assessee was not able to prove the genuineness of purchase from the said party, however, he observed that such purchase of rough diamond was made for manufacturing activity. He observed, the Assessing Officer has not disturbed the export sales made by the assessee after manufacturing. Thus, he accepted assessee’s contention that in the absence of purchase of rough diamond the assessee could not have made exports of cut and polished diamonds. Thus, the learned Commissioner (Appeals) held that the assessee must have purchased the rough diamond from some other source. He further noted, the Assessing Officer himself has made addition @ 5% of the purchases made from the same party in the subsequent assessment years. Ultimately, the learned Commissioner (Appeals) directed the Assessing Officer to restrict the addition to 8% of the rough diamond purchased from M/s. Sun Diam, worth ` 1,62,73,905.
The learned Authorised Representative mostly reiterating the submissions made before the Departmental Authorities contended that in course of assessment proceedings the assessee had furnished all details relating to the purchases made from the concerned parties. He submitted, the assessee not only produced the purchase invoices,
12 M/s. Ashesh Brothers payment details made through banking channel, account confirmation statement, but also furnished affidavits of the concerned parties confirming the purchases. He submitted, the Assessing Officer without conducting any independent enquiry has simply relied upon the report of the DGIT (Inv.) and the information obtained from the Sales Tax Department. He submitted, in course of assessment proceedings, the Assessing Officer has not supplied to the assessee any statement of third parties implicating the assessee. No opportunity to cross examine the concerned parties was allowed to the assessee in spite of specific request. He submitted, no adverse material was confronted to the assessee. He submitted, no material or evidence having any reference to the fact that purchases made by the assessee were bogus was brought to the notice of the assessee. He submitted, when the assessee has furnished documentary evidence to prove the genuineness of the purchases, it is for the department to prove that the apparent is not real. In this context, he relied upon the decision of the Hon'ble Supreme Court in CIT v/s Daulat Ram Rawatmull, [1973] 87 ITR 349 (SC). The learned Authorised Representative submitted, in course of proceedings before the Departmental Authorities the assessee has furnished quantitative tally of purchase, consumption and sale and no discrepancy was found in such statement. Therefore, the fact that the assessee had purchased the 13 M/s. Ashesh Brothers goods has been proved. In these circumstances, no addition even on estimate basis can be made.
The learned Departmental Representative opposing the submissions of the assessee submitted that at no stage the assessee could prove the genuineness of the purchases through cogent evidence. He submitted, in case of cut and polished diamond, since, the purchases made by the assessee could be reconciled with the consumption / sales, the Assessing Officer estimated the profit @ 8%. However, in respect of rough diamond, the assessee could not furnish any evidence to reconcile the consumption and sale which prompted the Assessing Officer to add the entire purchases. Therefore, he submitted that the learned Commissioner (Appeals) was not justified in restricting the addition to 8% simply relying upon the subsequent years assessment order.
We have considered rival submissions and perused materials on record. We have also applied our mind to the decisions relied upon. Undisputedly, on the basis of information received from the Sales Tax authorities it was found that purchase of cut and polished diamond and rough diamond made from four parties are not genuine since the concerned parties are providing accommodation entries only. On a careful perusal of the assessment order, it is evident, though, in 14 M/s. Ashesh Brothers response to the show cause notice, the assessee had furnished certain documentary evidences including confirmatory statement of accounts in the books of the selling dealers, however, the Assessing Officer simply relying upon the information obtained from the Sales Tax Department has concluded that purchases made by the assessee from the declared source are not genuine. It is very much clear, to verify the authenticity of assessee’s claim no independent enquiry was conducted by the Assessing Officer. In fact, it has been brought to our notice by the learned Authorised Representative that in the course of assessment proceedings, the assessee had furnished affidavits of the selling dealers confirming the sale of diamonds to the assessee. Copies of such affidavits from three selling dealers viz. M/s. Avi Exports, M/s. Moulimani Impex Pvt. Ltd. and M/s. Vitrag Jewels, are available in the paper book filed by the assessee before us. On a perusal of these affidavits it appears that the concerned parties have confirmed the sales made by them to the assessee. Neither the Assessing Officer nor the Commissioner (Appeals) have taken cognizance of the affidavits. Such evidences furnished by the assessee should have triggered further enquiry at the end of the Assessing Officer to verify the authenticity of assessee’s claim of purchases to be genuine. At least, the veracity of the statements made in the affidavits should have been examined / enquired into by the Assessing Officer by issuing summons
15 M/s. Ashesh Brothers to the concerned parties under section 131 of the Act. The minimum the Assessing Officer could have done is to issue notices under section 133(6) of the Act to the concerned parties to obtain necessary information regarding the correctness of assessee’s claim of purchases made from them. Without conducting any enquiry, the Assessing Officer has straight away rejected the books of account of the assessee and estimated the income. Moreover, it is noticed that the Assessing Officer referring to certain third party statements made before the Sales Tax Authorities has formed an opinion that purchases made by the assessee are not genuine. As it appears, the adverse materials in possession of the Assessing Officer were not confronted to the assessee. Pertinently, before the first appellate authority, though, the assessee had made specific submissions with regard to not providing the assessee the statements of Bhawarlal Jain along with opportunity to cross examine, the objections of the assessee have been dealt with rather mechanically. It is trite law, if the Assessing Officer intends to use any adverse material in detriment to assessee’s interest, he must confront such material to the assessee so that assessee gets a fair opportunity to defend itself. In the present case, it is evident, such cardinal principal of law has been given a complete go by. The learned Commissioner (Appeals) without paying much attention to the aforesaid aspect has proceeded to interfere with the 16 M/s. Ashesh Brothers quantification of the addition on estimate basis. Thus, on over all consideration of facts and material on record, we are of the view that before rejecting the books of account and making addition the material / evidences brought on record have neither been properly appreciated nor proper enquiry has been made for coming to the conclusion that purchases are not genuine. In view of the aforesaid, we are inclined to restore the issue to the file of the Assessing Officer for denovo adjudication after due opportunity of being heard to the assessee. The Assessing Officer must properly examine the evidences filed by the assessee including the affidavit of the selling parties. It is open for the Assessing Officer to make further enquiry as he deems fit for ascertaining the genuineness of purchases. The assessee must also co–operate in the enquiry, if any, to be conducted by the Assessing Officer by furnishing / producing necessary evidence / information as may be called for by the Assessing Officer. Further, we make it clear, any adverse material available with the Assessing Officer, if intended to be used against the assessee, should be confronted to the assessee and proper opportunity for rebuttal of the same should be granted to the assessee. With the aforesaid observations, grounds are allowed for statistical purposes.
In the result, assessee’s appeal is partly allowed for statistical purposes.
17 M/s. Ashesh Brothers ./2016 Revenue’s Appeal
The grievance of the Revenue in the present appeal is confined to the direction of the learned Commissioner (Appeals) in restricting the addition made on purchase of rough diamond to 8% of ` 1,62,73,905.
While deciding identical issue raised by the assessee in ground no.2 and 3, of ITA no.5461/Mum./2016, we have restored the issue to the Assessing Officer for denovo adjudication. That being the case, the issue raised by the Revenue is also restored to the Assessing Officer for denovo adjudication.
In the result, Revenue’s appeal is allowed for statistical purposes.
To sum up, assessee’s appeal is partly allowed for statistical purposes and Revenue’s appeal is allowed for statistical purposes. Order pronounced in the open Court on 25.07.2018