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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
per the order passed u/s 143(3) r.w.s. 147 of the Act.
Income Tax (Appeals) challenging both the validity of reopening and merits of the addition.
The ld. Commissioner of Income Tax (Appeals) confirmed the reopening by observing as under:
2.5.4 I have perused the submissions of the appellant and the material on record for reopening the assessment u/s 147 of the Act. The facts as appearing from the assessment order are that the return of income was taken up for scrutiny and assessment u/s 143(3) of the Act was finalized enhancing the returned income from Rs.72,22,654/- to Rs.73,65,740/-. Subsequently the assessment was reopened by issuing notice u/s 148 of the Act on 26-02-2013 to consider the information received during the assessment proceedings of the A.Y. 2010-11 with regard to the accommodation entries from some parties to inflate purchases. 2.5.5 Section 147 of the Act confers jurisdiction on the Assessing Officer to reopen assessment subject to the conditions laid down therein. The relevant provisions of section 147 of the Act are as under:
"147. 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 re-compute 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 subsection (1) of section 142 or 2.5.6 Thus, it is laid down in the first proviso to section 147 of the Act that where an assessment under sub-section (3) of section 143 r.w.s. 147 has been made for the relevant assessment year, no action shall be taken under the section after expiry of 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 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. 2.5.7 The facts of the present case are now tested in the light of the aforesaid provisions of sec. 147 as applicable to the year under consideration. On verification of details placed on record, it is found that the notice under section 148 of the Act for the assessment year under appeal was issued on 26-02-2013 after recording the following reasons by the Assessing Officer: "Information was received in this case from the office of the DGIT(Inv.), that this assessee has taken accommodation entries to inflate its purchases. An inquiry u/s 133(6) of the IT Act, 1961 in a number of scrutiny cases, including in the case of the assessee in AY 2010-11, revealed that several of these parties are not available at the given address and the notices have been returned by the postal dept. with the remarks 'not known', 'left', 'unclaimed, etc. The assessee has been unable to produce these parties or prove genuineness of purchases made from them including the transport details, delivery challans etc. This indicate that the assessee had adopted a modus operandi to decrease its true profits by inflating its expenses including purchase expenses by taking accommodation entries from such parties. The records of the assessee for this A.Y. also reveal that the assessee has adopted this modus operandi in this year as well. This is apparent from the details of purchases from these parties (from whom the assessee had taken accommodation bills) in FY2008-09 relevant to AY 2009-10, which are as follows:-
TIN Name Amount of sale to assessee in FY 2007-08 (Rs) 27680272629V Shiv Industries 11,039 27620641456V Kiran Sales Corporation/ 3137940 Nidhi Impex India 27090277561 Revathi Steel Traders 135980 27020229342 Universal Enterprise 2614238
On the basis of the aforesaid tangible material available with me now, I have reason to believe that income chargeable to tax, as indicated by the accommodation bills for purchases to the tune of Rs. 61,20,823/- from the aforesaid parties has escaped assessment for the A. Y. 2009-10 within the meaning of section 147 of the IT. Act, 1961. A notice u/s. 148 r.w.s. 147 is therefore, being issued to re-assess such income and also any other income chargeable to tax which has escaped assessment, which comes to my notice subsequently in the course of proceedings for reassessment for A. Y. 2009-10".
2.5.8 If the period between the end of the relevant assessment year under appeal i.e. 31.03.2009 and the date of issuance of the notice under section 148 on 22.03.2013 is reckoned, it is evident that the notice was issued within a period of four years from the end of the relevant assessment year. In the present case, it is an admitted position that prior to issue of notice under sec 148, assessment was made under sec 143(3). In such case for reopening the assessment which was finalized u/s 143(3) of the Act, the conditions are the income chargeable to tax should have escaped assessment by reason of failure on the part of the assessee either (i) 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 (ii) to disclose fully and truly all material facts necessary for his assessment. It is an undisputed position that there is no failure on the part of the appellant as far as the first condition is concerned. Insofar as the second condition is concerned, though the appellant is stating that the issue is considered in the original ^ assessment, they could not produce any notice or letter calling and verifying the details of purchases by the AO during such proceedings. On perusal of the assessment records and order it is noticed that the additions made are disallowances under different expenditure heads like miscellaneous expenses, telephone expenses and conveyance expenses on adhoc basis. As could be seen from the assessment order, the issue of information about the accommodation entries was noticed during the course of assessment proceedings for the A.Y. 2010-11. In view of this position, the issue of bogus purchases were not the issue in the original assessment and purchases were not verified. On the date of recording reasons, new material in the form of new information received by the AO has come on record by the AO to trigger reopening of assessment beyond four years. In these circumstances, the condition precedent for a valid exercise of the power to reopen the assessment, within four years from end of the relevant Assessment Year, is present in the 2.5.9 Since in the original assessment, the issue was not verified by the Assessing Officer and the same is a new information, and tangible' material has been received by the Assessing Officer and was available with him at the time of recording reasons, and also nothing on record suggests that the material filed by the appellant along with the return and available on record indicate that the issue was verified during the course of original assessment proceedings, the notice under section 148 of the Act having been issued within four years from the end of the relevant assessment year is done correctly. For the foregoing reasons, it is held that reopening of the assessment under section 147 of the Act was done/properly following the due process of law and there is no infirmity or illegality in reopening the assessment and the notice issued u/s.148 for the year under consideration is perfectly legal and valid.
As regards the merits of the case, the ld. Commissioner of Income Tax (Appeals) noted that the sales have not been doubted. He proceeded to confirm 12.5% addition for the bogus purchase.
Against the above order of ld. Commissioner of Income Tax (Appeals), the assessee is in appeal before the ITAT.
We have heard both the counsel and perused the records. As regards the reopening of the assessee, on a careful consideration, we note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for sale of material without delivery of goods, which information was based on information received by Revenue from Maharashtra Sales Tax Authority. Information was received that the assessee was purchase. The accommodation entry provider has deposed and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were issued without delivery of goods, in consideration for commission. These, accommodation entry providers, on receipt of cheques from parties against bogus bills for sale of material, later on withdrew cash from their bank accounts, which was returned to beneficiaries of bogus bills after deduction of their agreed commission. The Assessee was stated to be one of the beneficiaries of these bogus entries of sale of material from hawala entry operators in favour of the assessee wherein the assessee made alleged bogus purchases through these bogus bills issued by hawala entry providers in favour of the assessee.
These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavit made before the Sales Tax Department that they were involved in issuing bogus purchase bills without delivery of any material. There is a list of such parties wherein the assessee is stated to be beneficiary of bogus purchase bills.
From the above, we find that tangible and cogent incriminating material were received by the Assessing Officer which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the Assessing Officer that income has escaped assessment. The escaped assessment. On this incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the guilt. In this regard, I refer to the decision of the Hon'ble Apex Court in the case of CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, 291 ITR 500:-
"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the AO has cause or justification to know or suppose (hat income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Managnese Ore Co, ltd. v. ITO(1991) 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co, (P.) Ltd. (1996) 217 ITR 597 (Supreme Court): Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (Supreme Court).”
The above discussion and precedent from Hon’ble Apex Court fully justify the validity of reopening in this case. Further we find that the Ld. CIT(A) has carefully examined the issue and has properly appreciated the issue. Hence, we do not find any infirmity in the same. Accordingly, we uphold the order of the Ld. CIT(A) on the Court decision, the other case laws referred by assessee are not supporting the assessee’s case.
We further note that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were being used by certain parties to obtained bogus bills. The assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. The credibility of information relating to reopening remains un-assailed. In such factual scenario, the assessing officer has made the necessary enquiry. The issue of notice to all the parties have returned unserved. Assessee has not been able to provide any confirmation from any of the party. Assessee has also not been able to produce any of the parties. Necessary evidence relating to transportation of the goods was also not on record. In this factual scenario, it is amply clear that the assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills is bogus and non- existent.
The Sales Tax Department in its enquiry has found the parties to be providing bogus accommodation entries. The assessing officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent. We find it further strange that assessee wants the Revenue to produce assessee’s own vendors, whom the assessee could not produce. The purchase bills from these non-existent/bogus parties cannot be taken as cogent evidence of purchases. In light of the overwhelming evidence, the Revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC) and CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC). In the present case, the assessee wants that the unassailable fact that the suppliers are non-existent and, thus, bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of Hon’ble Apex Court decisions.
In these circumstances, the learned Departmental Representative has referred to Hon’ble Gujarat High Court decision in the case of Tax Appeal No. 240 of 2003 in the case of N K Industries vs. Dy. CIT vide order dated 20.06.2016, wherein 100% of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. It was expounded that when purchase bills have been found to be bogus, 100% disallowance dismissed by the Hon’ble Apex Court vide order dated 16.1.2017.
We further find that Hon'ble jurisdictional High Court in the case of Nikunj Eximp Enterprises (in Writ petition no 2860, order dt. 18.6.2014) has upheld 100% allowance for the purchases said to be bogus when the sales have not been doubted.
However, the facts of that case were different. Furthermore, the sales in that case were basically to government departments. However, the ratio emanating from the above Hon'ble jurisdictional High Court decision is that when sales are not doubted 100% disallowance for bogus purchase cannot be sustained. The facts of this case indicate that the assessee has engaged into dealing in the grey market. Dealings in grey market give the assessee savings from the payment of necessary taxes and the assessee also uses undisclosed sums. These are at the expense of the Exchequer. In these circumstances, as expounded by the Hon’ble Gujarat High Court in the case of Simith P. Seth, 12.5% disallowance out of the bogus purchases serves the interest of justice.
Accordingly, we find that the order of ld. Commissioner of Income Tax (Appeals) is apposite and does not need any interference on our part. Accordingly, we uphold the same. The ld. Counsel of the assessee of the fairly agreed to the above proposition.