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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI R. C. SHARMA, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The Present two Cross Appeals have been filed by the assessee as well as revenue are against the order of Commissioner of Income Tax (Appeals)-41, Mumbai dated 28.11.16 for AY 2010-11.
Since, the facts raised in both the appeals filed by the assessee as well as the revenue are identical, therefore for the sake of convenience; they are clubbed, heard and disposed of by this consolidated order.
ITA No. 341/M/17 for AY 2010-11. 3. First of all we take up assessee’s appeal in for AY 2010-11.
3 & 669/Mum/2017 Pankaj Kumar Dani 4. The Ld. AR filed additional grounds of appeal thereby challenging the order of Ld. CIT(A) in upholding the action of ITO in issuing notice u/s 148 of the I.T. Act.
5. In this respect, we have heard the arguments of both the parties and we find that this ground raised by the assessee is legal in nature, therefore while following the principle laid down by Hon’ble Supreme Court in the case of NTPC Vrs CIT, 229,ITR 383, we allow the assessee to raise additional ground of appeal.
6. The brief facts of the case are that the assessee is engaged in the trading business of diamonds and shares under the proprietorship concerns i.e. M/s Ryan International. The AO was in receipt of information from DGIT(Inv) Mumbai, Sales tax Department that the assessee had claimed purchases from Shiv Trading Enterprises, M/s Anand Trading Corporation, M/s Sidhivinayak Enterprises, M/s Krishna Trading Associates and M/s Strong Trading Pvt. Ltd totaling to Rs. 10,82,91,060 and these parties have indulged in issuing accommodation bills without actual sales and delivery of goods. Therefore the case was reopened and order of Assessment u/s 143(3) r.w.s 147 of 4 I.T.A. No. 341 & 669/Mum/2017 Pankaj Kumar Dani the I.T. Act was passed thereby making addition of 100% purchases made from these parties.
7. Aggrieved by the order of AO, assessee filed the appeal before CIT(A) and the Ld. CIT(A) after considering the case of both the parties had partly allowed the appeal of assessee thereby restricting the addition @ 30% of the total purchase.
8. Aggrieved by the order of Ld. CIT(A), both, the assessee as well as revenue filed their respective appeals before us. Since at present we are dealing with the appeal of assessee, therefore we adjudicate the grounds raised by the assessee as mentioned above.
9. First of all we take up additional ground raised by the assessee thereby challenging the order of Ld. CIT(A) in upholding the action of ITO in reopening the Assessment. We have heard the counsel for both the parties and we have also perused the material place on record as well as the orders passed by revenue authorities. As per the facts of the case, the original assessment was completed u/s 143(1) of the I.T. Act and since the AO got information from the office of DGIT(Inv) containing party-wise bogus purchases made by the assessee 5 & 669/Mum/2017 Pankaj Kumar Dani based on detailed investigation conducted by the Sales Tax Department including the deposition made by respective parties. On the basis of these informations including the deposition of the respective parties, the Ld. CIT(A) correctly found that the notice u/s 148 was issued on the basis of fresh information and tangible material, therefore correctly held that the reopening and order u/s 147 was proper in the present case. Even the Hon’ble Supreme Court in the case of ACIT vrs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500(SC) held as under:- "The word 'reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that 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 Assessing Officer should have finally ascertained the fact by legal evidence or conclusion- The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers . 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, 6 I.T.A. No. 341 & 669/Mum/2017 Pankaj Kumar Dani 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 Assessing Officer is within the realm of subjective satisfaction's” As stated above, there should be relevant material on which a reasonable personal could have formed a requisite belief, However as can be seen from the reasons recorded for reopening there are various mistakes as pointed out i. para 2.05. Also the Ld AO was not aware of the fact also that the flat was hold by two persons i.e. appellant and his wife and not only appellant. This shows that the IA AO had merely consider the information received and based on suspicion reopened the case. However, it is clearly stated in above case also that "reason to believe" is required and "reasons to believe" is not the same thing as "reason to suspect".
Keeping in view the facts and circumstances of the above case and considering the legal proposition as discussed above, we hold that at the stage of issue of notice for reopening, the only question which is to be considered is whether there was relevant 7 & 669/Mum/2017 Pankaj Kumar Dani material on which a reasonable person could, have formed a requisite belief. However, 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 Assessing Officer is within the realm of subjective satisfaction. Since in the present case, the AO had fresh information and tangible material from the Investigation Wing. At the stage of issuing notice for initiating process for reopening, only prima facie case is to be seen. Therefore, while relying upon the proposition laid down by the Hon’ble Supreme Court in the case of ACIT vrs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500(SC), we dismiss this ground raised by the assessee and uphold the order of Ld. CIT(A).
Another ground raised by the assessee before us is against challenging the action of Ld. CIT(A) in allowing the AO to treat genuine purchase as bogus purchase and treated it as unexplained expenditure u/s 69C amounting to Rs. 3,24,87,318 (30% of purchase of Rs. 10,82,91,060).
8 & 669/Mum/2017 Pankaj Kumar Dani 11. We have heard the counsel for both the parties and we have also perused the material place on record as well as the orders passed by revenue authorities.
Ld. AR submitted that the assessee relied on their broker for purchase of majority of goods who provides the assessee with the material along with invoices on many occasions. It was also submitted that the assessee had made payments to the parties to whom the purchases were made through banking channel “Account Payee Cheques”. It was also argued by Ld. AR that the opportunity of the cross examination of the statement of the parties were not provided to the assessee, therefore such statements could not have been trusted. It was further submitted that the Ld. CIT(A) has not looked into the audited accounts of the assessee and has not considered the G.P. rate for the previous years.
On the other hand Ld. DR relied upon the order passed by AO. The operative portion of Ld. CIT(A)’s order is reproduced below:-
9 & 669/Mum/2017 Pankaj Kumar Dani 5.2 So far the addition on account of the purchases are concerned, it is found that notices u/s 133(6) were issued to all the parties. It could not be served on any 5.3 On the issue of bogus purchase, decisions (Ike Vijay Proteins Ltd. vs. CIT [2015] 58 taxmann.com 44 (Guj) , CIT vs. Simit P. Sheth [2013] 356 ITR 451 (Gui.) support disallowance of certain percentage of purchase price. The disallowance is justified because the exact source of goods or exact amount of inflation is known to the assessee only. Further, without a much bigger benefit than the normal GP ratio, no prudent person will enter into transactions of purchasing materials from one source and taking bills from another. As a consequence, the profit embedded in such transactions of purchase and sales will he much higher than nori GP ratio. 5.4 In the facts and circumstances of the case, I find 30% of purchase disallowance to be fair and reasonable in this case. I am of the opinion that disallowance of 100% of the purchase amount is not justified unless it is proved that the entire cash was returned and came to the pocket of the assessee and the assessee has not purchased any material from any other source . In the present case, in-depth enquiries were not conducted by the AO. The AO did not carry 10 I.T.A. No. 341 & 669/Mum/2017 Pankaj Kumar Dani out further investigation from the bank to examine whether the supplier had withdrawn cash from his account. Accordingly, addition of Rs. 3,24,87,318/-[ being 30% of Rs. 10,82,91,060/-] is sustained and balance Rs.7,58,03,742/-[ being 70% of Rs. 10,82,91,060!-] is deleted. The ground is partly allowed.
In the resuit, the appeal is partly allowed.
After having heard the counsels for both the parties, we find that although in this case, notice u/s 133(6) were issued to all the parties but the same could not be served on any of the parties. The Ld. CIT(A) has categorically held that the assessee has failed to prove that the goods were purchased from the above parties. Whereas the Ld. AR appearing on behalf of the assessee argued that the AO has not conducted proper investigation and has not provided the copies of deposition /statement of parties so recorded before Sales Tax Department /DGIT(Inv.) and has further failed to provide opportunity of cross examination to the assessee and has thus not carried out induct inquiries. From the records, we also found that Ld. CIT(A) has also categorically held that in the present case, in-depth enquiries 11 & 669/Mum/2017 Pankaj Kumar Dani were not conducted by the AO and the AO did not carry out further investigation from the bank to examine whether the supplier had withdrawn cash from their accounts. Although, Ld. CIT(A) had found lapses in the investigation carried out by the AO but still restricted the addition by relying upon the judgments in the case of Vijay Proteins ltd. Vrs. CIT(2015), 58 taxmann.44 and CIT Vrs. Simit P Sheth(2013) 356 ITR 451.
Be that as it may, considering the interest of justice, we rely upon the judgment passed by Hon’ble Apex Court in the case of Kapurchand Shrimal Vrs. CIT 1981 131(ITR) Page 451 wherein it was held that the duty of the Tribunal does not end with making a declaration that the assessments are illegal and it is duty bound to issue further directions. The appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the 12 & 669/Mum/2017 Pankaj Kumar Dani statute and the statute does not say that such a direction cannot be issued by the appellate authority in a case of this nature. Therefore, considering the above judgment and keeping in view the interest of justice, we set aside the order of Ld. CIT(A) and remit the matter back to the file of AO with a direction to provide copies of deposition /statement of parties so recorded before Sales Tax Department /DGIT(Inv) and to provide opportunity to the assessee for cross examination and to carry out in-depth inquiries including investigation from the respective banks and thereafter pass afresh order of assessment. It is needless here to mention that before passing the order of assessment, the AO shall provide sufficient opportunity of hearing to the assessee. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law. With these directions, these grounds of appeal filed by the assessee are allowed for statistical purposes.
ITA No. 669/M/2017 for AY 2010-11.
Since we have already decided the merits of the orders passed by Ld.CIT(A) in the appeal filed by assessee in for AY 2010-11 and restored the matter back to the file of AO. Therefore, following our own decision in the aforementioned appeal, we apply the same findings in the present appeals which are applicable mutatis mutandis in the case of the revenue.
In the net result, both the appeals filed by the assessee as well as revenue allowed for statistical purposes. Order pronounced in the open court on 8th Nov 2017 Sd/- Sd/- (R. C. Sharma) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 08.11.2017 Sr.PS. Dhananjay आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : अपीलाथी/ The Appellant 1. 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) आयकरआयुक्त/ CIT- concerned 4.