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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA
O R D E R Per Shamim Yahya, A. M.: This Appeal by the Assessee is directed against the Order by the Commissioner of Income Tax (Appeals)-24, Mumbai (‘CIT(A)’ for short) dated 30.11.2016 and pertains to the assessment year (A.Y.) 2009-10.
The grounds of appeal
read as under:
1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [the Id. CIT (A)] erred in upholding reopening of the assessment proceedings u/s. 147 of the Income Tax Act, 1961 and the reasons assigned for doing so are wrong and contrary to the facts and (A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO circumstances of the case, the provisions of the Income Tax Act, 1961 and the Rules made thereunder. 2. (a) On the facts and in the circumstances of the case and in law, the Id. CIT (A) erred in confirming the addition of Rs.26,04,077/- by treating 12.5% of the aggregate purchases of Rs.2,08,32,618/-from Ramex Trading, VN Enterprises, Azad Light House, P. S. Trading and Jagdish Trading as non-genuine purchases and the reasons assigned for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961 and the Rules made thereunder. (b) On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer [Ld. AO.j erred in making the addition without providing the copies of statement of the persons on which the reliance was placed by him and without providing opportunity to cross examine those parties which is totally wrong and against the principle of natural justice. (c) On the facts and in the circumstances of the case and in law, the authorities below failed to appreciate, (i) that the appellant has made purchases from the these parties, who had supplied materials as per their bills. (ii) that the payment towards theses invoices were made by account payee cheques only. (iii) that the sources of such payments are recorded /reflected and disclosed in books of accounts. (iv) that the goods purchased have been sold by the appellant and reflected in the books of accounts and the quantitative reconciliation was also provided which have not been doubted by the learned Assessing Officer. (v) that the Ld. AO. has made addition merely on the basis of statements given by third parties before the Sales Tax authorities and without any independent enquiry by him.
3. Without Prejudice to above grounds of appeal No.2, the Ld. authorities below failed to appreciate that Gross Profit [G.P.] margin already offered on the items S.S. Sheet/ Coil is 8.60% and there is no basis for making further addition of G.P. @ 12.5% and making such a huge addition is wrong and contrary to the facts of the case and provisions of the Income Tax Act, 1961 and the rules made thereunder.
Brief facts of the case are as under: The assessee company is a dealer of L & T products, representative of Amara Raja Batteries Ltd., traders / service providers etc. The return of income for the year under appeal was filed on 28.09.2009 declaring total income of Rs.9,00,311/-. Assessment u/s. 143(3) r.w.s 147 of the Act was completed by the Ld. Assessing Officer on 23.03.2015 determining income at Rs.35,04,630/-. Ld. Assessing Officer
(A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO observed that the assessee had debited purchases from Ramex Trade Impex Pvt. Ltd. Rs. 50,43,839/- and M/s. V. N. Enterprises Rs.1,00,47,452/- total amounting to Rs.1,50,91,291/- whose TIN matched with the information received from the Sales Tax Department regarding bogus parties with whom the assessee had made purchases. On the basis of information received from the Investigation Wing of Income Tax Department, Mumbai, it was found that the assessee had obtained bogus purchase bills total amounting to Rs.1,50,91,291/- from M/s Ramex Trade Impex Pvt. Ltd. which were settled to be hawala operators. On the basis of information received from the Investigation Wing of Income Tax Department, Mumbai, it was found that the assessee company had taken accommodation entries from Sangli (West) hawala operators. Along with the letter, the ADIT also forwarded statement recorded of Shri Dinesh Amritlal Parekh, Sushant Rajendra Ladda, Suresh Amritlal Parekh, the entry providers and a list of beneficiaries of the accommodation entries provided by the persons through different concerns. On perusal of the purchase list of the assessee company, it was found that assessee company had shown purchases from the companies viz. M/s. Jagdish Trading Co, M/s. Azad Light House & M/s. P.S. Trading Co. amounting to Rs. 57,41,327/-. The companies are reflected among the list of concerns run the Sangli hawala. The Sangli (W) hawala operators i.e. the key persons, Shri Suresh Parekh, Shri Dinesh Parekh and Shri Sushant Ladda with the help of their allies at different fake entities provided accommodation entries to various persons. Two of the above companies i.e. M/s. Jagdish Trading & M/s. P.S. Trading Do. Mentioned in the above list reflects among the list of hawala entry providers of Sangli and M/s. Azad Light hour was operating from the same place that is form the place M/s. P.S. Trading Company is operating. Therefore, the assessee was asked to justify the purchases made from the above parties. Regarding accommodation entries taken from various parties, the assessee was asked to furnish complete details of purchases made and also show cause as to why the amount shown as purchase from Hawala parties should to be disallowed and added to the total income. The Assessing Officer noted that during the course of enquiries made by the (A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO Sales Tax Department, the hawala operators have narrated their modus operandi and had confirmed that they issue only bills to the customers as per the requirements and no goods were delivered to these customers. That they also stated that the payments received in cheque are returned by cash after retaining a small portion as commission. That accordingly the name of the assessee company is also found to be in the list of beneficiaries from the hawala operators. That however the assessee company has failed to bring on record the relevant documentary evidence in the form of goods receipt note (GRN), lorry receipt(s) etc. with supporting documentary evidence, details of transportation of goods and documentary evidence to establish the delivery and/or receipt of the goods purported to have been purchased from the aforementioned parties.
Further, the Assessing Officer on going through the submissions and contentions of the assessee, concluded that the assessee failed to prove with supporting documentary evidences that the material was actually delivered in its premises and also failed to file evidences of deliveries to establish that the material was consumed for business activities. Also the assessee failed to furnish the confirmation from the party that it had actually sold and delivered material to the assessee company and hence, an amount of Rs.26,04,077/-, being 12.5% of the total non-genuine purchases of Rs.2,08,32,619/-. Accordingly, Rs. 26,04,077/-, was treated as bogus purchases and added to the returned income of the assessee.
Upon the assessee’s appeal, the ld. CIT(A) dismissed the issue raised regarding the reopening. He was of the opinion that the notice u/s. 148 of the Act was issued validly based on the valid information received from the Investigation Wing of the Income Tax Department and the reopening was done four years from the end of the relevant assessment year. The ld. CIT(A) further observed that the reopening of the assessment on the basis of bogus purchase was affirmed by the Hon'ble Bombay High Court decision in the case of Hitesh R. Shah [2013] 35 taxmann.com 474 (Bom),
(A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO even though the original assessment was concluded u/s. 143(3) and even beyond the four years. He further observed that in the instant case there was no scrutiny initially and the return was only processed u/s. 143(1) and assessment was reopened u/s. 147 within four year. Hence, he observed that the Assessing Officer has also followed due procedure of recording of reasons and supplying such reasons to the assessee on request. In view of the above, the reassessment made is held invalid.
The ld. CIT(A) referred to several case laws and inter alia concluded as under: 2.4.3. (ix) Notwithstanding anything stated above, it is the prerogative of the AO / Revenue to reopen the assessment if the AO has found in the course of time that certain amounts which should have been brought to tax have escaped assessment. The powers were clearly enacted u/s 149 r.w.s. 151 of the Act. As per these provisions what the AO is supposed to see is whether there is an escapement of income and whether it is within four years or beyond four years and whether it is a case of 143(1) or 143(3) so as to take approval from competent authorities as per the provisions. Once the AO ensures these requirements then he can reopen the assessment by recording the reasons. The AO will be within his jurisdiction to reopen the assessment and his jurisdiction cannot be challenged per se. Further it is to be understood that mere reopening does not mean that the AO has come to the conclusion that income has escaped.
2.4.4 In view of the above discussion the reopening of assessment is held valid since there was “tangible material” available with the A.O. at the time of DIT investigation. Further, as the assessment is reopened based on the Tax Departments investigation of “bogus sellers”, the A.O. has a “reason to opinion”. The reopening proceedings are, therefore, upheld and the ground is dismissed.
As regards the merits of the case, the ld. CIT(A) confirmed the action of the A.O. by holding that the purchases were bogus. Further, holding that the sales have not been doubted, he followed the Hon’ble Gujarat High Court decision in the case of Commissioner of Income Tax-I vs Simit P Sheth 356 ITR 451 and confirmed the disallowance to 12.5% of the bogus purchases. Against the above order, the assessee is in appeal before the ITAT.
I have heard both the ld. Counsel and perused the records.
(A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO
As regards the reopening of the assessee, on a careful consideration, I 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 beneficiary of hawala accommodation entries from entry providers by way of bogus 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 account, 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, I find that tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these
(A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO 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 Apex Court fully justify the validity of reopening in this case. Further I find that the Ld. CIT(A) has carefully examined the issue and has properly appreciated the issue. Hence, I do not find any infirmity in the same. Accordingly, I uphold the order of the Ld. CIT(A) on the issue of reopening. Since, the issue has been decided on the basis of the Hon’ble Apex Court decision, the other case laws referred by assessee are not supporting the assessee’s case.
(A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO 12. As regards the merits of the case, I find 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. 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. 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. the Assessing Officer had noted that the assessee company has failed to bring on record the relevant documentary evidence in the form of goods receipt note (GRN), lorry receipt(s) etc. with supporting documentary evidence, details of transportation of goods and documentary evidence to establish the delivery and/or receipt of the goods purported to have been purchased from the aforementioned parties. In this factual scenario it is amply clear that assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills are bogus and non-existent.
The Sales Tax Department in its enquiry have 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 unserved. Assessee has not been able to produce any of the parties. In such circumstance there is no doubt that these parties are non-existent. I 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 214 ITR 801 and Durga Prasad More 82 ITR 540. In the (A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO present case, the assessee wants that the unassailable fact that the suppliers are nonexistent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above apex court decisions.
I further find that Hon'ble jurisdictional High Court in the case of Nikunj Exim 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. Hence, the ratio from this decision is not applicable on the facts of the case.
In these circumstances, the ld. 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, order dt 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 was required. The special leave petition against this order along with others has been dismissed by the Hon’ble Apex Court vide order dt 16 .1 2017.
I further note that honble Rajasthan high court has similarly taken note of decisions of the apex court on the issue of bogus purchases in the case of CIT Jaipur vs Shruti Gems in of 2009. The Hon’ble High Court has referred to the decision of CIT Jaipur vs. Aditya Gems, D. B. in ITA No. 234 of 2008 dated 02.11.2016, wherein the Hon’ble Court had inter alia held as under: "Considering the law declared by the Supreme Court in the case of Vijay Proteins Ltd. Vs. Commissioner of Income Tax, Special Leave to Appeal (C) No.8956/2015 decided on 06.04.2015 whereby the Supreme Court has dismissed the SLP confirmed the order dated 09.12.2014 passed by the Gujarat High Court and other decisions of the High Court of Gujarat in the case of (A.Y. 2009-10) Shree Chemtech Marketing Pvt. Ltd. vs. ITO Sanjay Oilcake Industries Vs. Commissioner of Income Tax (2009) 316 ITR 274 (Guj) and N.K. Industries Ltd. Vs. Dy. C.I.T., Tax Appeal No.240/2003 decided on 20.06.2016, the parties are bound by the principle of law pronounced in the aforesaid three judgments.
However, I note that this is not an appeal by the revenue. Hence it will not be appropriate to take away the relief already granted by the revenue to the assessee. Hence I confirm the order of ld. CIT(A).
In the result, this appeal filed by the assessee stands dismissed. प�रणामतः �नधा�रती क� अपील खा�रज क� जाती है । Order pronounced in the open court on 16.10.2017 Sd/- (Shamim Yahya) लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 16.10.2017 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,