DCIT 15(1)(1), MUMBAI vs. A.J. BUILDCON P.LTD, MUMBAI

1. The revenue has filed the present appeal against the order dated 22.07.2016 passed by the Commissioner of Income Tax (Appeals) -24, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2009- 10.

The revenue has raised the following grounds: - “1. "On the farts and in the circumstances of the case and in taw, The Ld. C1T(A) erred directing the Assessing Officer to delete the entire disallowance of Rs.67,99hl3Q/-mad account of alleged bogus purchases, without appreciating the fact That the said seller pa were found to be Hawala operators/ bogus billers?, as per findings given by (he Sales A.Y.2009-10 Department, Govt. of Maharashtra, and the Investigation Wing, Income Tax Departs Mumbai. 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred directing the Assessing Officer to delete the entire disallowance made on account of all bogus purchases, without appreciating the fact that the assessee had neither confirmation for purchases nor produced any evidences in the shape of stock register the course of assessment proceedings, to substantiate its claim that The goods claims have been purchased from alleged parties were actually consumed/ sold. 3 "On the facts and in the circumstance 5 of the case and in law;, the Ld. C1T(A} directing the Assessing Officer to delete the entire disallowance made on account of all bogus purchases, even though the Hon’ble ITAT in the case of Vijay Protiens 58 ]TD 428 confirmed addition of 25% of the amount of such purchases ." 4. "On the facts and circumstances of the case and in law, the Ld. C1T(A) erred in considering the decisions of the Hon’ble Delhi High Court in the case of La Medica 250 575 (2001), wherein it is held that the purchases from unproven parties is bogus, and decision of the Hon'ble Gujarat High Court in Hynoup Foods & Oil Industries Pvt. Ltd. 1TR 702 (Guj], wherein it is held that provisions of Section 40A (3) of the Income 'fax Ant applicable to the case of bogus purchase." 5r The appellant craves leave to add, amend or alter any of the aforesaid grounds or ad new ground of appeal

We have heard the argument advanced by the Ld. Representative of the parties and perused the record. Under this issue the revenue has challenged the deletion of addition raised on account of bogus purchase to the tune of Rs.67,99,130/- by the CIT(A). Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - DECISION : 2,4 I have given my careful consideration to the rival submissions, perused the material on record and duly considered the factual matrix of [he case as also the legal position. Ground No. 1 is general in nature and need no! be adjudicated. 24.2 Ground No.2 deals with the merits of the disallowance of bogus purchase towards Mvat dealers whose names appeared on the web site of Sales Tax authorities However, Ground Nos 3 & 4 need to be adjudicated first as they are in respect of the re-opening of the assessment. 2.4.3 Ground Nos. 3 & 4- are against the re-opening of assessment u/s 147 of the Act. It is seen that the original assessment was completed u/s 143(1). Further, on the basis of information received from the Investigation Wing it was found by Ld. AO that the appellant had obtained bogus purchase bilfs amounting to Rs.67,99,130/-from 14 parties. Ld. AO found that the appellant had procured the above bills without taking the actual delivery of material resulting in inflation of claim of expenses. The same was corroborated by the information from Sales Tax authorities and hence, after taking into consideration the above additional information, Ld. AO proceeded to issue a notice u/s 148 of the Act dated 13.03.2014 after recording the reasons to believe that income had escaped assessment. 2.4.4 Per Contra, Ld. AR for the appellant has stated that the case was reopened merely on the opinion of a third party and hence, the said re-opening was bad-in-law.

Expln 1 to the said provision makes il dear that production of 6 A.Y.2009-10 account books or other evidence from which the AO 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 assesses to disclose fully and truly all material facts necessary law assessment." 24 13 In Kantamani Venkata Naryana & Sons vs. Addl. ITO (1967 ) 63 ITR 638 (SC), the apex Court held that in proceedings under Art 226 of the Constitution of India challenging the jurisdiction of the ITO to issue a notice for reopening the assessment, the High Court was only concerned with examining whether the conditions which invested the ITO with the powers to reopen the assessment existed. It is not, observed the Court, within the province of the High Court to record a final decision about the failure to disclose fully and truly all material facts bearing on the assessment and consequent escapement of income from assessment and Tax. The Court also held that from a mere production of the books of account, it could not be inferred that there had been futl disclosure of the material facts necessary for the purposes of assessment. The terms of the Explanation, declared the Court, were too plain To permit an argument thai the duty of the assessee to disclose fully and truly all material facts would stand discharged when he produces the books of account or evidence which has a material bearing on the assessment. The Court observed (P.644)' 'it is the duty of the assessee to bring to the notice of the ITO particular items in the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced, the ITO may not on that account be produced from exercising the power to assess income which had escaped assessment" 2.4.14 To the same effect is the decision of the Supreme Court in Malegaon Electricity Co. (P) Ltd. vs. CIT (1970) 73 ITR 466 (SC) where the Court observed is true that if the ITO had made some investigation, particularly if he had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was end consequently he would have been ableo find out the pnce in excess of their written down value realized by the assessee. it can be said that the ITQ if he had been diligent could have got the necessary information from his records But that is not the same thing as saying that the assesses had placed before the ITO truly and fully all material! 7 A.Y.2009-10 facts necessary for Ihe purpose of assessment. The law casts a duty on the assessee to 'disclose fully and truly aft material facts necessary for his assessment for that year 2.4.15 (supra): It has been further observed in Consolidated Photo & Finvesl Ltd. ~19.......The argument that tfie proposed reopening of assessment was based upon a change of opinion has not impressed us. The assessment order not admittedly address itself to the question which the AO proposes to examine in She course of reassessment proceedings The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined. it must be presumed that those aspects wore present to the mind of the AO and had been hetd in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but Were can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the AO ." 2.4.16 It is well settled that even an audit objection on the point of fact can be a valid ground for reopening of assessment. In the case of New Light Trading Co. vs. CJT (2001) 170 CTR (Del)l38: (2002J 256 ITR 391 (Del), a Division Bench of the Court after referring to the decision of Supreme Court in CIT vs P.V.S. Beedies fP) Ltd. (1999) 155 CTR (SC) 538 : (1999) 237 JTR 13 (SC) has held as under (at p. 393): 'in the case of C!T vs. p.V.S Beedies (P) Ltd. (199$) 155 CTR (SC) 538; (1999) 237 ITR 13 {SC) the apex Court held that the audit patty can point out a fact, which has been overlooked by the ITO in the assessment Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party its permissible under law. As the Tribunal has b; righty noticed, this was not a case for the AO merely acting at the behest of the audit - ^ party or on its report has independently examined the material collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question, therefore, in the affirmative, in favour of the Revenue and against the assessee."

Kalyanji Mavji & Co. vs. CJT 102 JTR 287 (SC) 2. Esskay Engineering P. Ltd, vs, CIT247ITRB18 3. ITO vs, Purushottam Das Bangur & Anr. 224 ITR 362 (SC) In the light of the above discussion, the contention of the assessee that the present case is of change of opinion has to be rejected. 2.4.18 The second question arises for consideration is whether the appellant had made full and true disclosure of material facts. I have already reproduced above the contentions of the appellant in this regard and the objections raised. There is nothing on record and not even the stand of The appellant that the bogus parties as recorded in the "reason to believe" were either called or examined during the course of original assessment proceedings as no scrutiny assessment was original framed. 2.4.19 In Writ Petn. No.9036 of 2007, Honda Siel Power Products Ltd. vs. DyCIT& Anr. Decision dt. 14rh Feb. 2011 (reported at (2011) 52 DTR (Del] 353 -Ed.) it was held: "70...... The term 'failure' on the part of the assessee is not restricted only to the IT return and the columns of the IT return or the tax audit report. This is the first stags. The said expression 'failure to fully and truly disclose material facts' also relate to the stage of the assessment proceeding, the second stage. There can be omission and failure on the part of the assesses to disclose fully and truly material facts during the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the AQ complete and correct information and details it is required and under an obligation to disclose. Burden is on the assessee to make full arid the true disclosure". 2 4 20 Formation of opinion of the A O. has to bo considered on the touch stone whether there was reasonable belief that income had escaped assessment and for that purpose reliance is placed on the judgement of Hon’ble Supreme Court in Raymond Woolen Mills Ltd. vs ITO (supra). Considering the ratio laid down by the Hon’ble Supreme Court in the above case, the question is whether the A.O. had prima facie reason to believe that the income had escaped assessment. I have earlier reproduced Explanation 2(c) of 9 A.Y.2009-10 Sec.147. In view of the factual and legal matrix narrated earlier, as there was no true disclosure of the material facts during the course of original proceedings, it prima facie cannot be stated that there was no reason to believe. The various judgements relied upon on behalf of the appellant are distinguishable in as much as either there was no failure to disclose the full and true relevant information and/or it was merely a change of opinion in those cases. The appellant could not make out the case that no part of the relevant material has been kept out from the A.O. and that it would not be unreasonable for the A.O. not to draw inference from the accounts produced during the original assessment proceedings. Sustenance in this regard is also drawn from the judgement of Hon'ble jurisdictional High Court in the case of M/s, Girilal & Co. vs. ITO 300 ITR 432 (Bom). 2.4.21 Any fresh information received by the A.O. can entitle him to issue notice u/s.148, if on the basis of such information he has prima facie reason to believe that income has escaped assessment. So much so that it was held by the Hon'ble Supreme Court in Claggett Brachi Co. Ld, vs CIT 177 ITR 409 (SC) that an information obtained during assessment proceedings of a subsequent year can also validate the proceedings initiated u/s.147 for earlier year. Similarly, Hon'ble Bombay High Court in the case of Anusandhan Investments Ltd. vs. M.R. Singh, DCJT, 287 ITR 482 held that a notice issued u/s.148 based on assessment of subsequent assessment year is valid even if the appeal is pending for such assessment. Further, in the case of Piaggio Vehicles P, Ltd. vs. DCIT 290 ITR 377 (Bom), the Hon'ble Jurisdictions! High Court held that in a case of reopening after 4 years subsequent to scrutiny assessments, contradiction was discovered between Tax Audit report and Return of income, it was a case of omission and/or –on the part of the assessee to disclose fully and truly afl facts for computation held by Hon'ble Supreme Court in the following cases that fads which could have been found by the ITO by further probing are covered under failure to disclose fully and truly has material facts:- Indo-Aden Salt Mfg, and Trading Co. P. Ltd. vs.ClT 159 ITR 624 (SC) R.B,Bansilal Abirchand Firm vs. CIT 70 ITR 74 (SC) 2.4.22 In such circumstances, it cannot be held that there was full and true disclosure by the appellant. Accordingly, the second contention of the appellant fails. 2 4 23 In view of the above binding precedents of the Hon'ble Supreme Court, I am of the view that the Ld. A.O. had valid 10 A.Y.2009-10 reasons to initiate reassessment proceedings which were duly recorded and communicated to the appellant and therefore, there is no merit in the arguments advanced by the Ld.AR on this ground. Accordingly, ground nos.3 & 4 are dismissed. 2.4.24 Coming to the merits of the addition vide Ground No.2, it is seen that the Ld. AO on the basis of information received from the DG!T(lnv.) Mumbai held that the purchases made from the alleged 14 parties amounting to Rs.67,99,130/- was bogus. While coming to the above conclusion, he brushed aside the appellant's contention that the transactions were made through banking channel and the materials were purchased for appellant's business of construction of building material It appears that Ld. AO has based his finding on the enquiries conducted by the Sales Tax Department. 2 4.25 Per Contra, Ld AR has vehemently opposed the action of the Ld. AO and at the outset it has been stated that this case is different from other cases of bogus purchase as the Ld. AO did not even issue a notice u/s 133(6) To any of the purchasers to verify the correctness of the transaction the has further been stated that no other enquiries were conducted by the Ld AO including deputing an Inspector to the supplier's premises. it has also been pleaded that from the copies of the bills produced it was apparent that the purchases were for materials such as Aluminium Screws, Printed Wall Tiles, Cuddappa Stones, Kota Stones, Bricks, Marbles etc. and appeilant was regularly purchasing these materials from the dealers in the market, used to supply the material through their lorries along with invoices and delivery challans and at the site office, the appellant's staff used to receive the material and the Engineers of the Contractee also inspected the specifications and quality of the materials. Ultimately, all the amounts were paid through crossed a/c payee cheques. It has thus been stated That Ld. AO has merely based his decision on the enquiry conducted by Sales Tax authorities and without making any independent enquiry, he has merely copied and pasted the decision as in other cases where notice u/s 133(6) were issued and other enquiries were conducted by the Ld. AO in this regard, the Ld. AR has relied on a host of decisions including the following 1. C.IT. v Nikunj Eximp Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom) 2. Shri Rajeev G Kalathilv. DCIT 25(3). Mumbai ITA/6727/MUM/2012 11 A.Y.2009-10

Shri GanpatrajA. Sanghavi v. ACIT ITA/2826/MUM/2G13 (Bom) 4. Ramesh Kumar & Co. v. ACfT ITA/2959/MUM/2014 (Bom) 5. I.T.O. vr Shri Deepak PopatJal Gala ITA/5920/MUM/2013 (Bom) 2.4.26 Having considered the pros and cons and The materials available on record, I do find that in this case, Ld. AO has failed lo carry out any enquiry and even a notice u/s 133(6) was not issued to Jhe suppliers. From the assessment order it is also that the appellant was not required to produce the said parties. Further, whereas the Ld. AO has not touched the sales part of the appellant's Profit and Loss account, he has merely made a disallowance on account of purchases without carrying out any enquiries. As rightly held by the Hon'ble Mumbai Bench of ITAT in the case of M/s Imperial Import and Export in ITA No- 5427/Mum/2015 dated 18-03.2016, no addition could have been made without making independent enquiries by [he Ld. AO Hon'ble Tribunal further observed that merely on the basis of information obtained from the Sales Tax Department, no addition could be sustained without any independent enquires by the Ld. AO.” 5. We have heard the parties and perused the record. We noticed that the assessee has purchased the building materials from various persons and the same has been consumed by assessee in the construction. Though the assessee has furnished copies of purchase invoices, copy of bank statement etc, yet the assessee has failed to prove transportation of materials from the premises of the dealer to the site of the assessee. The assessee also failed to obtain confirmation letter from the alleged bogus dealers. The AO has recorded that the assessee has failed to furnish any evidence to show consumption of these goods in the business activities of the assessee. We noticed from the financial statement that the assessee has purchased with the materials during the year to the tune of Rs.769.32 lacs hence the alleged bogus purchases of Rs.63.99 lacs constituted small portion of the total value of the purchases. It is the contention of the Ld. AR that the work 12 A.Y.2009-10