DCIT 15(1)(1), MUMBAI vs. ANTONY MOTORS P.LTD, NAVI MUMBAI

2. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in making additions of Rs.1,23,35,791/- on account of alleged non- genuine purchases from 5 parties (viz. Deepali Enterprises, Rekha Trading Company, Renuka Sales, Siddhivinayak Trading Company and Cosmos Enterprises) which were wrongly sustained @ 7.5% of said purchases i.e. Rs.9,25,184/- by the Commissioner of Income Tax(A) by way of alleged bogus purchases only on the basis of the information on the website www.mahavat.gov.in about suspicious dealers: i. Without issuing notices u/s 133(6) to the suppliers and thereby not allowing cross-examination of the same. ii. by not rejecting the books of accounts of the Appellant u/s 145(3) by stating that the purchases within the same were unverifiable. iii. without appreciating the fact that similar additions were deleted in many other cases by the ITAT. iv. by overlooking the fact that all the payments were made by account payee cheque. v. by disregarding the fact that the appellant had already shown GP of 17- 20%. General: This cross objection is filed in time. The cross objection prays leave to add, alter or amend the above grounds of cross objection on or before the disposal of this cross objection.”

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 Brief facts for AY 2009-10 are as under: 3. The assessee is engaged in the business of manufacturing repairing, servicing of body of motor chases and engineering products, training in spare parts. For Assessment Year 2009-10, the assessee filed its return of income on 30/10/2007 declaring total income of Rs.2,50,91,020/-. It is submitted that, under section 143(3) of the act the assessment order was passed on 31/12/2011 determining total income in the hands of assessee at ₹3,06,60,843/-. 3.1. Subsequently, information was received from investigation wing of the Income tax department, Mumbai that sales tax department recorded statements of certain hawala operators, who confirmed to have given bogus bills to certain assessee‘s including one M/s.Titan Antony Aviation Pvt. Ltd., an associate concern of the assessee company. 3.2. The Ld.AO observed that, the assessee and M/s. Titan Antony Aviation Pvt.Ltd was sharing the same office premises. On perusal of case records of the assessee for the year under consideration, the Ld.AO noted that, certain transactions with these hawala dealers were found. Accordingly, survey under section 133A of the act was carried out on 14/12/2012 on the assessee.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 The Ld. AO found that, for financial year relevant to assessment year under consideration, following parties issued bogus bills to the assessee, the details of which are as under:

Sr. No. Name Financial Amount Year 1. Deepali Enterprises 2008-09 23,09,859 2. Rekha Trading Company 2008-09 11,68,829 3. Renuka Sales 2008-09 48,02,321 4. Siddhivinayak Trading Company 2008-09 37,22,378 5. Cosmos Enterprises 2008-09 3,32,404 Total 1,23,35,791 3.3. Ld.AO on perusal of ledger register maintained by the assessee in respect of materials purchased and received by them, it was seen that material purported to have been received from the above parties were not entered. The assessing officer thus had reason to believe that, income to the extent of Rs.1,23,35,791/- escaped assessment, and accordingly notice under section 148 was issued on 09/01/2013. 3.4. The assessee was called upon to furnish return in lieu of the notice. The assessee vide letter dated 12/02/2013 submitted that, the return filed on 29/09/2009 (or general return filed) may be treated as return filed in lieu of notice under section 148 of the act.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 The assessee also requested for the reason recorded for reopening the assessment, which was communicated to the assessee on 06/08/2013. Objections for reopening of ssessment were filed by the assessee on 28/08/2013. The assessing officer rejected these objections vide order dated 24/01/2014. 3.5. The Ld.AO thereafter called upon the assessee to furnish details of purported purchases made from the parties mentioned in the table hereinabove. The assessee was also called upon to justify, as to why, the purported purchases should not be disallowed as bogus purchases. In response to the SCN, the assessee filed various details like summary of stock statement details of purchases from the parties, copy of bills with and GRN number, bank certificate for payment made to the 5 parties, ledger copies of the above 5 parties along with confirmation from them and consumption made out of the purchases made from these parties and reply on 05/02/2014, 17/02/2014, 28/02/2014 and 25/03/2014. The assessee also furnish the copies of the TDS certificate and 26AS statement. 3.6. The Ld. AO however noted that, the assessee only furnished copies of invoices etc., and stated that the purchases were made from genuine supplier and was delivered at the site. The Ld.AO did not accept the evidence, and made addition in the hands of the assessee amounting to ₹1,23,35,791/-. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A)

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 4. The Ld.CIT(A) on the issue of challenge raised by the assessee regarding validity of the notice under section 148 of the act, was of the opinion that, the Ld.AO had valid reasons to initiate such proceedings and the same was communicated to the assessee. The Ld.CIT(A) also held that, all necessary procedures stipulated by Hon’ble Supreme Court in case of GKN Drive Shafts vs ITO reported in (2003) 259 ITR 19 was followed. The Ld.CIT(A) thus dismissed the legal ground raised by the assessee in all the years under consideration. 4.1. On merits, Ld.CIT(A) considered the additions as under: A. Issue 1: The Ld.CIT(A) was of the opinion that the assessee shown gross profit of 17% to 20% during the year under consideration. The Ld.CIT(A), thus estimated the suppressed profit to the extent of 7.5% of the purchases made from the bogus entities, being the profit element embedded in such purchases. Identical view was taken by the Ld.CIT(A) for all the years under consideration. B. Issue 2: In respect of the disallowance made under section 14A read with Rule 8D of the Act, the Ld.CIT(A) was of the opinion that, against the dividend earned by the assessee, disallowance made by the Ld.AO was on the higher side and therefore restricted the disallowance to 10% of the dividend income.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 Similar view was adopted for all the years under consideration on this issue. C. Issue 3: On the issue of the disallowance made by the Ld.AO under section 36(1)(iii) of the act, relying on the decision of Hon’able Bombay High Court in case of Reliance Utility reported in 313 ITR 340 and HDFC Bank Ltd reported in 366 ITR 505, the Ld. CIT(A) deleted the additions for all the years under consideration. Similar view was adopted for all the years under consideration on this issue. Aggrieved by the order of the Ld.CIT(A), the assessee and revenue are in appeal before this Tribunal.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 5.1. The Ld.AR submitted that, the return of income for the year under consideration was filed declaring total income of ₹3,02,87,795/-. It is submitted that, the return was processed for scrutiny and notice under section 143(2) was issued to assessee on 29/09/2010 along with notice under section 142(1) of the act. The Ld.AR referring to page 68 of the paper book for Assessment Year 2009-10, submitted that scrutiny assessment order was passed for the year under consideration. He submitted that the assessee made actual purchases from the alledged parties that were genuine and the same were verifiable. 5.2. The Ld.AR submitted that the crux of the issue is validity challenged by the assessee of the notice issued under section 148 of the Act and in consequence the order of reassessment are bad in law on following preposition. A. He submitted that for the year under consideration notice under section 148 was issued within the period of 4 years, that and the assessing officer must have reason to believe that income chargeable to tax escaped assessment. It is submitted that for arriving at such conclusion, there must be ―tangible material‖ available with the Ld.AO on record. The Ld.AR submitted that, in the present facts of the case, there is nothing on record to substantiate such reasonable belief on behalf of the Ld.AO. B. The Ld.AR contended that all relevant details pertaining to the suppliers and purchases were furnish during original assessment M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 proceedings, and therefore issuance of 148 notice amounts to ‗change of opinion‘. He placed reliance on the decision of Hon’ble Supreme Court in case of CIT vs Kelvinator of India Ltd reported in (2010) 320 ITR 561. Reliance was also placed on the decision of Hon’ble Bombay High Court in case of Asian paints vs DCIT & Anr., reported in (2009) 308 ITR 195 to buttress his contention that the Ld.AO cannot proceed further for a period of 4 weeks from the date of service of the order rejecting the objections filed by the assessee. C. The Ld.AR alleged that the assessing officer did not furnish copy of the approval obtained before reopening of the assessment and did not specify on which date the reasons recorded. D. Ld.AR submitted that, the assessee by letter dated 28/08/2013 requested for statements recorded and cross examination of the of the VAT dealers, based on which the Ld.AO came to the conclusion that, assessee was indulged in obtaining bogus purchases in the form of accommodation entry, without purchasing actual goods, materials from such dealers. It is submitted that, the assessing officer failed to furnish the copy of the information received from the DG office, and the proof of assessee‘s name appearing on the list of persons who is alleged to have received such accommodation entries by way of bogus purchases.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 5.3. The Ld.AR prayed that, the proceedings initiated under 148 of the act on present facts of the case is not based on the fulfilment of the precondition stipulated under the section and that, it is mere ‗change of opinion‘ without there being any tangible material to come to such conclusion. 5.4. On the contrary the Ld.DR vehemently opposed the arguments of the Ld.AR. He submitted that the objections are decided by the Ld. AO vide order dated 24/01/2014. The Ld.DR vehemently argued that, re-opening of assessment in present facts of the case cannot be termed as mere change of opinion. He submitted that the Ld.AO examined the details filed by the assessee during the assessment proceeding on the basis that the same were genuine. 5.5. He submitted that the now there is information available that, the alledged suppliers were not genuine. It was fresh information, and acting on the same cannot be said to be change of opinion. He placed reliance on the decisions of Hon’ble Supreme Court in case of N.K.protens reported in [2017] 84 taxmann.com 195 wherein the addition of entire undisclosed income generated out of bogus transactions, was upheld. He thus supported the reopeaning of the assessment upheld by the Ld. CIT(A) We have perused the submissions advanced by both sides in light of records placed before us.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 6. The reopening of an assessment under Section 148 of the Act cannot be arbitrary or on a mere change of opinion or at a mere whim and caprice of the Assessing Officer. It is for this reason that the Supreme Court in GKN Drive shafts India v. ITO (supra) provids that the assessing officer would furnish reasons as recorded for issuing notice to reopen an assessment and the assessee would be entitled to file its objections. The Assessing Officer would then dispose of the objections by a speaking order. Thus one more safe guard was provided by Hon‘ble Supreme Court to ensure that there is proper application of mind before an assessment is reopened as reopening of an assessment is likely to cause harassment. 6.1. It is noted that during the assessment proceedings the assessee was asked by the Ld.AO to furnish details of sales and purchases and to provide name, address and the amount etc. From the details so furnished, it was observed that, it exactly matched with the information available with the Ld.AO. However the assessee contends that that all documents including the bills received from all suppliers were disclosed by the assessee during the original assessment proceedings. Therefore, there has been no failure to disclose truly and fully all material facts necessary for assessment on the part of the assessee. 6.2. It is the main contention of the Ld.AR that escapement of tax on income must arise out of failure on behalf of the assessee to disclose fully and truly all facts necessary for assessment of income.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 In this case, it is submitted that, all documents including the bills received from the alleged entry providers were disclosed by the assessee during the original assessment proceedings leading to assessment order under section 143(3) dated 31/12/2011. Therefore, there has been no failure to disclose truly and fully all material facts necessary for assessment. 6.3. In our view the shield under the proviso to Section 147 of the Act can come to the assessee aid, only if, there has been a full and true disclosure of all facts necessary for assessment. In the present case, there is a prima facie doubt about the truthfulness and/or completeness of the disclosure at the time of original assessment in view of information obtained later. Under such circumstances the provisions cannot aid the assessee at the stage of notice under Section 148 of the Act. It is likely that during the assessment proceedings the assessee may be able to satisfy the Assessing Officer that there was a true and full disclosure. Once the Assessing Officer received information that invoices issued by alleged five parties reproduced herein above are bogus, then the same is necessarily to be the subject matter of enquiry under the reassessment proceedings. The information that bills produced were not genuine does give rise to a reasonable belief in the mind of the Assessing Officer that income chargeable to tax has escaped assessment, as recorded in the reasons as under:

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 6.4. In our view, at the time of issuing a notice under Section 148 of the Act, it is not necessary for the Assessing Officer to conclusively arrive at a finding that there has been escapement of income. At the stage of issue of the notice, the only requirement is to examine whether, on the available material a reasonable person could form a reasonable view to believe that, income chargeable to tax escaped assessment. In the present facts of the case such reasonable belief by the Ld.AO is discernable from the reasons recorded herein above.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 6.5. The Ld.AR before this Tribunal emphasized that the assessment was completed under Section 143(3) of the Act. Further, during the course of assessment proceedings the assessee was asked by the Ld.AO to furnish details of sales and purchase of more than Rs.10 lacs. Consequently, the purchases of from all 5 alleged suppliers were also subject matter of examination before the Ld.AO during the original assessment proceedings. The Ld.AR thus submitted that on the same set of facts as were in existence during assessment proceedings leading to assessment order dated 31/12/2011, the Ld.AO seeks to take a view different from that taken earlier. 6.5.1. This submission by the Ld.AR in our opinion, over looks the fact that, in so far as the purchases from alleged five suppliers are concerned, based on which the revenue reopened the assessment, was never a subject matter of enquiry by the Ld.AO during the original assessment proceedings that lead to passing of assessment order dated 31/12/2011. Thus, so far as purchases from alleged five suppliers are concerned, there can be no occasion for change of opinion as rightly pointed out by the Ld.DR that there was no opinion formed by the assessing officer at the time when the original assessment order was passed. It is only during the course of survey proceedings that information was received regarding the bills from the alleged parties being not genuine.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 6.5.2. In support, we refer to the decision of Hon’ble Supreme Court in case of Raymond Wollen Mills Ltd. reported in (1999) 236 ITR 34. Hon'ble Supreme Court while considering as to sufficiency of reasons to believe at the stage of issuance of notice under section148 of the Act of 1961 has held thus:— "3.In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs." Hon'ble Supreme Court in above rulings held that, at the stage of issuance of notice for re-opening of assessment, the Court is only require to see whether there is prima facie material available on the basis of which department can reopen case and not sufficiency or correctness of material to be considered. 6.6. Another submission of Ld.AR is that, there was no proper application of mind by authority granting approval/sanction and that it was based on borrowed satisfaction to reopen the assessments. We refer to Section151 of the act that deals with sanction for issue of notice. Sub-section (2) of section 151 requires that, the authority granting sanction/approval must be satisfied on M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 the reasons recorded by Assessing Officer that it is a fit case for issuance of such notice. 6.6.1. In case of assessee before us, on analysis of information collected/received and findings thereon, the Assessing Officer elaborately recorded reasons to believe that income of assessee has escaped assessment and sought permission to proceed u/s.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 Accordingly, Ground no.1 raised by the assessee in all the cross objections stands dismissed.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 7.4. We have considered several judicial precedents relied before us in the paper book and filed at the time of hearing. Admittedly, the assessee is unable to prove the genuineness of the purchase with respect to the five parties amounting to Rs.1,23,35,791/-. However the Ld.CIT(A) took note of the fact that, no sales could be effected without purchases. The assessee also produced quantity and quality wise details of purchase and their corresponding consumption and sales before Ld.CIT(A). The Ld.CIT(A) thus came to the conclusion M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 that, only profit element embedded in such purchases could be subjected to tax. 7.5. It is apparent that, the assessee purchased materials from one party and procured bogus bills of the same material from another party. There is no doubt that the assessee would have paid commission to procure such bills to these five parties, which has not at all been looked into by the Ld.AO. However, be that as it may, in such circumstances, all the judicial precedents relied before us shows that, only profit element embedded therein should be added. We note that the assessee offered GP ratio of 17.33 % to 16.71% for assessment years 2007-08 to 2009-10. And the profit element in the motor industry is also 15 to 20%. The Ld.CIT(A) restricted the addition to 7.5% of the bogus purchase bills that already forms part of the profit element. To that extent in our view, there is double addition. 7.6. At this juncture, we draw assistance from the following observation of decision of Hon’ble Bombay High Court in case of PCIT vs. Mohammad Haji Adam & Co.(supra): 8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases M/s. Antony Motors Pvt. Ltd.

724/M/2016 CO No. 150.-152/M/2017 shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot he applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under— " So far as the question regarding addition of Rs. 3,70,78,125/- as gross profit on sales of Rs. 37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs. 3,70,78,125/- which comes to Rs. 20,98,621.88 we think it fit to direct the revenue to add Rs. 20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 7.7. Admittedly, the assessee recorded the sales out of the alleged bogus purchases as turnover. Therefore, we are of the opinion that the addition should be based on gross profit ratio. Respectfully following the ratio laid down by Hon’ble High Court, in the interest of justice, we remand the issue to the Ld.AO. The assessee is directed to furnish details of genuine purchases and non genuine purchases. The Ld.AO shall then calculate the ratio of genuine and non genuine purchases with the GP ratio for relevant assessment years. The difference shall be considered as addition in the hands of the assessee.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 Accordingly Ground No.2 raised by assessee and Ground no.1 raised by the revenue in all appeals under consideration stands partly allowed for statistical purposes.

724/M/2016 CO No. 150.-152/M/2017 respect of earning exempt income. The expenditure incurred in relation to income which does not form part of the total income only has to be disallowed u/s. 14A. Only when an expenditure has a direct or proximate relation with the exempt income, could be disallowed. In the case when there is no direct expenditure incurred for earning the exempt income then the allocation or apportionment of expenditure has to be made, only when, there is nexus between expenditure incurred and exempt income. In the case in hand the Ld.AO has not conducted any enquiry to find out which are the other expenditure which can be attributable for earning the exempt income. In the absence of any such enquiry the action of the Ld.AO in making entire disallowance is not justified. For the assessment year 2008-09 the Ld.CIT(A) worked out the disallowance u/s. 14A at 10% of the expenditure incurred for composite activities. When there is no change in the facts and circumstances of the case for the year under consideration in the expenditure to be apportioned in relation to the earning of exempt income vis-à-vis assessment year 2008-09, the disallowance made for the assessment year 2008- 09 has to be followed for the year under consideration. We therefore do not find any infirmity in the disallowance being restricted to 10% of the exempt income earned by the assessee during assessment year 2008-09.

M/s. Antony Motors Pvt. Ltd. 724/M/2016 CO No. 150.-152/M/2017 Accordingly, Grounds raised by the assessee and revenue on this issue for assessment year 2008-09 stands dismissed. Ground No.4 in the cross objection filed by the assessee is in support of deleting the addition made under section 36(1) (iii) of the Act. The revenue alleges the view taken by the Ld.CIT(A) on this issue in ground no. 3 for A.Y.2008-09. It is noted that the Ld.CIT(A) deleted the addition by observing as under: “2.8.7 Ground No. 7 is against the action of Ld.AO in disallowing Rs.56,492/- u/s 36(1) (iii). At the outset it has been stated by Ld. AR that appellant's case is covered by the decision of Hon'ble Bombay High Court in the case of Reliance Utility 313 ITR 340 (Bom) and in HDFC Bank 366 ITR 505 (Bom). In view of the binding decisions of Hon'ble Bombay High court, the addition made is deleted. Accordingly Ground No. 7 is allowed.” There is nothing argued by the Ld.DR or any evidence placed on record contrary to the above observation by Ld.CIT(A). Considering the smallness of the amount deleted, we uphold the same. Accordingly the grounds raised on this issue by the assessee stands allowed & revenue stands dismissed. In the result the appeals filed by the assessee & revenue stands partly allowed. Order pronounced in the open court on 30-10-2024.