MANISH D. MANDHANIA,MUMBAI vs. ASST CIT 33(2), MUMBAI

O R D E R

Per Shamim Yahya, AM

Ground No. 1 :- Issue of notice u/s 148 a) On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in treating reopening appellant's assessment as valid assessment.

. Shri Manish D.Mandhania. b) On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in treating reopening appellant's assessment as valid assessment on the ground that - Maharashtra Sales Tax department has declared the impugned parties, mentioned in reasons forming belief, as hawala dealers and had cancelled their TINs. Ground No. 2 :-Bogus Purchases :- a) On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in confirming addition at estimated profit @ 12.5% of purchases made from bogus entities as the suppressed profit element embedded in such purchases. b) On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in confirming addition at 12.5% of purchase amount at Rs. 1,64,600/- by disallowing purchases which are not belonging to the assessee on the ground that assessee made Bogus purchases by relying on certain information received from Sales-tax Department. On the basis of such information the AO arrived at the conclusion that the above purchases are non-genuine or are bogus. c) On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in making conclusion on the basis of information received from sales tax department and not from making enquiry from the assessee or verifying the genuineness of the transaction after verifying the details from the assessee. The learned AO failed to conduct independent enquiries and learned CIT(A) has erred in confirming the same. Note :- The Appellant craves, leave to add to, amend, alter or withdraw any of the foregoing grounds of appeal before or at the time of hearing of the appeal, if necessary.”

4. In this case the AO had received information from DGIT(Inv.), Mumbai/data published by Sales Tax Dept. (Hawaia dealer) that the . Shri Manish D.Mandhania. assessee had obtained bogus purchases from M/s Shree Durga Steel amounting to Rs.13,16,805/-. Thereafter, the case was reopened u/s 147 and notice u/s 148 was issued and duly served on the assessee. In response to the said notice, the assessee filed reply stating that the return of income filed on 21.9.2009 may be treated as return of income filed in response to notice u/s 148. The AO issued a letter to M/s Shree Durga Steel to produce copies of bills, delivery challans, proof of transport, copy of account as appearing in ledger account, bank statement etc. in respect of purchase from the above party, which were returned unserved by the postal authorities with the remarks "Not known/Left/Refused", The AO asked the assessee to file details viz. copy of return for A.Y.2009-10 along with statement of income, P&L A/c, balance sheet, confirmation of M/s Shree Durga Steel, proof of transport, delivery challans and entry in their stock register of all the purchases, copies of stock register, copies of consumption report of purchases etc. In response, the assessee furnished only ledger accounts of al purchase parties, copy of return of income but did not furnish specific details mentioned above. Since the assessee failed to bring on record any material/evidence to substantiate his claim, the AO held the purchases as bogus and made addition @ 12.5% u/s 69C of Rs.1,64,600/-.

5. Against the above order, assessee appealed before the learned CIT(A) challenging both the validity of reopening and merits of the addition.

6. The learned CIT(A) affirmed the action of the Assessing Officer by holding as under:-

. Shri Manish D.Mandhania. 5.2 I have considered the stand of the AO and the submissions made by the appellant in this regard. It is noted that the AO has validly initiated the proceedings u/s 147 by proper issue and service of notice on assessee. Since the AO received information from the Investigation wing, the reopening cannot be held invalid. The reopening of assessment is found to be in order and is upheld. Accordingly, this ground of appeal is dismissed. 6.2 I have gone through the assessment order and submissions made in this regard. It is noted that the AO had disallowed an amount of Rs.1,64,600/- towards unproved/bogus purchases made by the assessee on the basis of the information received from the Sales Tax Department. The AR of the assessee has opposed the addition and submitted that the purchases were genuine. Enquiry was conducted by AO which suggested that the assessee had taken accommodation entries for purchases without any physical delivery of goods. The AO had noted that the parties from whom the assessee claimed the purchases to be made, were not available at the given address. The AO also afforded another opportunity to the assessee either to produce the parties or to provide the new addresses of the purchasers which he failed to do. In view of this, it is noted that the claim of the assessee cannot be accepted in entirety and also the details filed indicate that the purchases were made without which the assessee could not have declared the sales made. It is noted that only profit element is liable to tax in such cases as was held in the case of:

1. CIT vs Bholanath Poly Fab Ltd. (2013) 355 ITR 290 (Guj) (HC) 2. CIT vs Simit P. Sheth (2013) 356 ITR 451 (Guj) (HC) 3. CIT vs Sanjay Oil Cake Industries (2009) 316 ITR 274 (Guj) (HC) 4. ITO vs Permanand (2007) 107 TTJ 395 0d) (Trib.)

5. Shri Madhukant B. Gandhi vs ITO Bench 'B' dt. 23-02-2010 (AY 2005-06) (Mum.) (Trib.)

. Shri Manish D.Mandhania.

. Shri Manish D.Mandhania. 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.

. Shri Manish D.Mandhania. "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).”

. Shri Manish D.Mandhania. 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 dated 16.1.2017.

“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 by the Supreme Court has dismissed the SLP confined 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 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.”