ASST CIT 14(1), MUMBAI vs. KANTILAL C JAIN, MUMBAI

Per Joginder Singh (Judicial Member):

The Revenue is aggrieved by the impugned order dated

14/08/2014 of the ld. First Appellate Authority, Mumbai for

A.Y. 2010-11 (ITA No. 6924/Mum/2014), whereas, the

assessee has also preferred cross appeal (ITA

Nos.6505/Mum/2014). The assessee has also filed appeal,

through legal heir, for A.Y. 2009-10 (ITA No.

6504/Mum/2014).

assessee has challenged reopening of assessment u/s. 147 of

the Income Tax Act, 1961 (hereinafter the Act) as bad in law.

During hearing the ld. Counsel for the assessee advanced

argument merely contending that the reopening is bad. On the

other hand, the ld. DR defended the reopening as valid by

supporting the order of the Ld. Commissioner of Income Tax

(Appeal).

brief are that the assessee declared income of Rs.9,57,870/-

3 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain in his return filed on 19.09.2009 which was processed u/s.

143(3) of the Act. Subsequently, the case was reopened on the

basis of the information received from Sales Tax Department,

through Investigation Wing, wherein certain bogus bill

provider/accommodation entry providers were identified and

there statements were recorded. As per the information, the

assessee is one of the beneficiaries who utilize the services of

this bogus billers by taking accommodation entry of bogus

purchases from M/s. Saileela Trading P. Ltd. to the tune of

Rs.28,30,184/-. Notice u/s. 148 of the Act was served upon

the assessee and thereafter notices u/s. 143(2) and 142(1)

were also served upon. Assessment was completed u/s. 143(3)

r.w.s. 147 on 28.01.2014 making the addition on account of

accommodation entry.

3.1. It is our bounded duty to examine the validity of

reopening u/s 147 r.w.s 148 of the Act. Before adverting

further we are reproducing hereunder the relevant provision of

section 147 of the Act for ready reference and analysis:-

“. 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

4 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain 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 recompute 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 sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—

5 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.”

3.2. If the aforesaid provision of the Act is analyzed, we

find that after insertion of Explanation -3 to section 147 of the

6 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain Act by the Finance (No.2) Act of 2009 with effect from

01/04/1989 section 147 has an effect that Assessing officer

has to assess or reassess income (such income) which has

escaped assessment and which was basis of formation of belief

and, if he does so, he can also assess or reassess any other

income which has escaped assessment and which came to the

notice during the course of proceedings. Identical ratio was

laid down by Hon’ble jurisdictional High Court in CIT vs Jet

Airways India Pvt. Ltd. (2010) 195 taxman 117 (Mum.) and the

full Bench decision from Hon’ble Kerala High Court in CIT vs

Best Wood Industries and Saw Mills (2011) 11 taxman.com

278 (Kerala)(FB). A plain reading of explanation-3 to section

147 clearly depicts that the Assessing Officer has power to

make addition, where he arrived to a conclusion that income

has escaped assessment which came to his notice during the

course of proceedings of reassessment u/s 148. our view is

fortified by the decision in Majinder Singh Kang vs CIT (2012)

25 taxman.com 124/344 ITR 358 (P & H) and Jay Bharat

Maruti Ltd. Vs CIT (2010) Tax LR 476 (Del.) and V. Lakshmi

Reddy vs ITO (2011) 196 taxman 78 (Mad.). The provision of

7 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain the Act is very much clear as with effect from 01/04/1989, the

Assessing Officer has wide powers to initiate proceedings of

reopening. The Hon’ble Kerala High Court in CIT vs Abdul

Khadar Ahmad (2006) 156 taxman 206 (Kerala) even went to

the extent so long as the AO has independently applied his

mind to all the relevant aspect and has arrived to a belief the

reopening cannot be said to be invalid.

3.3. We are aware that “mere change of opinion” cannot

form the basis of reopening when the necessary facts were

fully and truly disclosed by the assessee in that situation, the

ITO is not entitled to reopen the assessment merely on the

basis of change of opinion. However, powers under amended

provision are wide enough where there is a reasonable belief

with the Assessing Officer, that income has escaped

assessment, because the powers with effect from 01/04/1989

are contextually different and the cumulative conditions spelt

out in clauses (a) and (b) of section 147, prior to its

amendment are not present in the amended provision. The

only condition for action is that the Assessing Officer “should

have reason to believe” that income chargeable to tax has

8 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain escaped assessment. Such belief can be reached in any

manner and is not qualified by a pre-condition of faith and

true disclosure of material facts by an assessee as

contemplated in pre-amended section 147. Viewed in that

angle, power to reopen assessment is much wider under the

amended provision. Our view is fortified by the decision from

Hon’ble Delhi High Court in Bawa Abhai Singh vs DCIT (2001)

117 taxman 12 and Rakesh Agarwal vs ACIT (1996) 87

taxman 306 (Del.). The Hon’ble Apex Court in CIT vs Sun

Engineering works Pvt. Ltd. 198 ITR 297 (SC) clearly held that

proceedings u/s 147 are for the benefit for the Revenue, which

are aimed at gathering the ‘escaped income’. At the same

time, we are aware that powers u/s 147 and 148 of the Act are

not unbridled one as it is hedged with several safeguards

conceived in the interest of eliminating room for abuse of this

power by the AO. However, the material available on record,

clearly indicates that income chargeable to tax had escaped

assessment, therefore, the ld. Assessing Officer was within

his jurisdiction to reopen the assessment. The Hon’ble Apex

Court in Ess Ess Kay Engineering Co. Pvt. Ltd. (2001) 247

9 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain ITR 818 (SC) held that merely because the case of the assessee

was correct in original assessment for the relevant assessment

year, it does not preclude the ITO to reopen the assessment of

an earlier year on the basis of finding of his fact that fresh

material came to his knowledge.

3.4. Under section 147, as substituted with effect from

01/04/1989, the scope of reassessment has been widened.

After such substitution, the only restriction, put in that

section is that “reason to believe”. That reason has to be a

reason of a prudent person which should be fair and not

necessarily due to failure of the assessee to disclose fully and

partially some material facts relevant for assessment (Dr.

Amin’s Pathology Laboratory vs JCIT (2001) 252 ITR 673, 682

(Bom.) Identical ratio was laid down by Hon’ble Delhi High

court in United Electrical Company Pvt. Ltd. vs CIT (2002) 258

ITR 317, 322 (Del.) and Prafull Chunnilal Patel vs ACIT 236

ITR 832, 838 (Guj.). The essential requirement for initiating

reassessment proceeding u/s 147 r.w.s 148 of the Act is that

the ld. Assessing Officer must have reason to believe that any

income chargeable to tax has escaped assessment for any

10 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain assessment year. The Hon’ble Gujara High Court in Prafull

Chunnilal Patel vs ACIT (supra) even went to the extent that at

the initiation stage formation of reasonable belief is needed

and not a conclusive finding of facts. Identical ratio was laid

down in Brijmohan Agrawal vs ACIT (2004) 268 ITR 400, 405

(All.) and Ratnachudamani S. Utnal vs ITO (2004) 269 ITR

272, 277 (Karnataka) applying Sowdagar Ahmed Khan vs ITO

(1968) 70 ITR 79(SC).

3.5. So far as, the meaning of expression, “reason to

believe” is concerned, it refers to belief which prompts the

Assessing Officer to apply section 147 to a particular case. It

depend upon the facts of each case. The belief must be of an

honest and reasonable person based on reasonable grounds.

The Assessing Officer is required to act, not on mere

suspicion, but on direct or circumstantial evidence. Our view

find support from the ratio laid down in following cases:-

i. Epica Laboratories Ltd. vs DCIT 251 ITR 420, 425-426 (Bom.), ii. Vishnu Borewell vs ITO (2002) 257 ITR 512 (Orissa), iii. Central India Electric Supply Company Ltd. vs ITO (2011) 333 ITR 237 (Del.),

11 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain iv. V.J. Services Company Middle East ltd. vs DCIT (2011) 339 ITR 169 (Uttrakhand), v. CIT vs Abhyudaya Builders (P. ) Ltd. (2012) 340 ITR 310 (All.), vi. CIT vs Dr. Devendra Gupta (2011) 336 ITR 59 (Raj.), vii. Emirates Shipping Line FZE vs Asst. DIT (2012) 349 ITR 493 (Del.). viii. Reference may also made to following judicial decisions:- ix. Safetag international India P. Ltd. (2011) 332 ITR 622 (Del.), x. CIT vs Orient Craft Ltd. (2013) 354 ITR 536 (Del.) xi. Acorus Unitech Wirelss Pvt. Ltd. vs ACIT (2014) 362 ITR 417 (Del.). xii. Praful Chunilal Patel: Vasant Chunilal Patel vs Asst. CIT (1999) 832, 843-44, 844-45 (Guj.), xiii. Venus Industrial Corporation vs Asst. CIT (1999) 236 ITR 742, 746 (Punj.), xiv. Srichand Lalchand Talreja vs Asst. CIT (1998) 98 taxman 14, 19 (Bom.), xv. Usha Beltron Ltd. vs JCIT (1999) 240 ITR 728, 736-37, 739 (Pat.) xvi. Kapoor Brothers vs Union of India (2001) 247 ITR 324, 331, 332-33 xvii. Vippy Processors Pvt. Ltd. vs CIT (2001) 249 ITR 7, 8 (MP)

12 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain 3.6. In Dilip S. Dahanukar vs Asst. CIT (2001) 248 ITR

147, 150-51 (Bom.). The Hon’ble jurisdictional High Court

held as under:-

“Held, that there was material on record on the basis of survey and statement of person to show that the assessee had wrongfully claim deduction u/s 80IA. Therefore, the Assessing Officer had reason to believe that income had escaped assessment for assessment year 1994-95.”

Identically in the case of Srichand Lalchand Talreja v. Asst. CIT, (1998) 98 Taxman 14, 19 (Bom), where the information regarding acquisition of the asset was not available with the Assessing Officer during the relevant assessment year 1992-93 and such information was disclosed in the return for the assessment year 1995-96, the Hon’ble jurisdictional High Court held that the Assessing Officer can form a bona fide belief that there was escapement of income in relation to assessment year 1992-93.

3.7. The Hon’ble jurisdictional High Court in Export

Credit Guarantee Corporation of India Ltd. v. Addl. CIT, (2013)

350 ITR 651 (Bom), where there had been no application of

mind to the relevant facts during the course of the assessment

13 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain proceedings by the Assessing Officer, the reopening of the

assessment was held to be valid.

3.8. The Hon’ble jurisdictional High Court in Girilal & Co. v. S.L. Meena, ITO, (2008) 300 ITR 432 (Bom), held that in order to invoke the extraordinary jurisdiction of the court the petitioner must also make out a case that no part of the relevant material had been kept out from the Assessing Officer). The information was in the annexures and consequently Explanation 2(c)(iv) of section 147 would apply. The reassessment proceedings after four years were valid.

3.9. In the case of Deputy CIT v. Gopal Ramnarayan

Kasat, (2010) 328 ITR 556 (Bom), it was not the case of the

assessee that the notice issued was after the expiry of the time

limit provided in section 153(2). The reassessment proceedings

were held to be valid. In Indian Hume Pipe Co. Ltd. v. Asst.

CIT, (2012) 348 ITR 439 (Bom), both in the computation of

taxable long-term capital gains in the original return of income

and in the computation that was submitted in response to the

query of the Assessing Officer there was a complete silence in

regard to the dates on which the amounts were invested, as

14 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain such there being a failure to disclose fully and truly material

facts necessary for assessment. The reassessment proceedings

were held to be valid. This view was also confirmed in following

cases:-

a. Dalmia P. Ltd. v. CIT, (2012) 348 ITR 469 (Del); b. CIT v. K. Mohan & Co. (Exports), (2012) 349 ITR 653 (Bom); c. Remfry & Sagar v. CIT, (2013) 351 ITR 75 (Del); d. OPG Metals & Finsec Ltd. v. CIT, (2013) 358 ITR 144 (Del).

3.10. In the case of Venus Industrial Corporation v. Asst.

CIT, (1999) 236 ITR 742, 746 (P & H) [Where initiation was

started within four years for re-examining the deduction under

section 80HHC, was held to be wrongly allowed in the original

assessment. Identically, in the case of Happy Forging Ltd. v.

CIT, (2002) 253 ITR 413,416-17 (P & H), where excise duty

paid in advance was shown as an asset in the balance sheet

and was allowed as a deduction, reassessment notice on the

ground that excise duty was shown as an asset in the balance

sheet and was not routed through the profit and loss account.

The reopening at this stage was held to be valid. In the

15 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain case of Vipan Khanna v. CIT, (2002) 255 ITR 220, 230 (P & H),

where from the facts it was clear that the assessee had

claimed depreciation in the return at the rate of 50 per cent

and he had nowhere disputed the fact that the admissible rate

of depreciation to him was 40 per cent., such fact alone was

sufficient to initiate reassessment proceedings under section

147 and, therefore, such initiation was sustained. The Hon’ble

Punjab & Haryana High Court in Mrs. Rama Sinha v. CIT,

(2002) 256 ITR 481, 483, 486, where the reassessment notice

has been issued on the basis of definite information from CBI

regarding investments by the assessee which had not been

disclosed during the original assessment proceedings, such

initiation has been upheld.

3.11. In the case of Pal Jain v. ITO, (2004) 267 ITR 540,

544-45, 548, 549 (P & H), applying Phool Chand Bajrang Lal v.

ITO, (1993) 203 ITR 456 (SC), although the transaction of sale

of shares was disclosed and accepted in the original

assessment, but the subsequent discovery by the DDI

(Investigation) revealed that the transaction was not genuine, a

reassessment notice after four years has been held to be valid

16 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain because there was no true disclosure of the material facts. In

this regard, the petitioner-assessee cannot draw any support

from the statement for challenging the validity of the notice for

reassessment. It goes without saying that for the purpose of

making the assessment, the Assessing Officer shall have to

confront the petitioner with the entire material in his

possession on the basis of which he proposes to make the

additions. In Punjab Leasing Pvt. Ltd. v. Asst. CIT, (2004) 267

ITR 779, 781-82 (P & H), where depreciation was allowed to

the assessee, who was engaged in the business of financing of

vehicles and consumer durables on 'hire-purchase basis' as

well as on 'lease/rent basis', a reassessment notice issued

after four years has been held not to suffer from any illegality

as the same was based on the bona fide action of the

competent authority to determine whether or not the vehicles

in respect of which the petitioner had been claiming

depreciation, were actually owned by it.

3.12. In Jawand Sons v. CIT(A), (2010) 326 ITR 39 (P &

H), in the initial assessment, the benefit of deduction of the

duty drawback and DEPB under section 80-IB was wrongly

17 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain granted to the assessee, for which it was not entitled.

Therefore, reassessment proceedings to withdraw the

deduction were held to be valid. Likewise, in CIT v. Hindustan

Tools & Forgings P. Ltd., (2008) 306 ITR 209 (P & H), where,

the assessee in the regular assessment had been allowed

deduction more than actually allowable under section 80HHC.

Therefore, the action initiated by the AO for reassessment

under section 147(b) could not be held to be invalid.

3.13. In the case of Markanda Vanaspati Mills Ltd. v. CIT,

(2006) 280 ITR 503 (P & H), wherein, the information

furnished by the assessee gave no clue to the payment of

liability in regard of the sales tax collected in excess. The

Assessing Officer was held to be validly initiated the

reassessment proceedings under section 147 for both the

years under consideration. In the case of Sat Narain v. CIT,

(2010) 320 ITR 448 (P & H), the document did not form the

sole basis for the Assessing Officer to initiate reassessment

proceeding but he also took into consideration the letter

written by the Assistant Commissioner as well as the fact that

no return had been filed by the assessee for assessment year

18 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain 1995-96. Thus, it was held that the Assessing Officer had

rightly invoked the jurisdiction to initiate the reassessment

proceedings under section 147. In the case of CIT v.

Hukam Singh, (2005) 276 ITR 347 (P & H), it was held that the

respondents did not have the locus standi to question the

orders of reassessment on the ground of lack of notice. Non-

issuance of notice to some of the legal heirs of the late P was

merely an irregularity and the same did not affect the validity

of the reassessment orders. Likewise, in Tilak Raj Bedi v.

Joint CIT, (2009) 319 ITR 385 (P & H), wherein, facts coming

to light in a subsequent assessment year could validly form

the basis for initiating reassessment proceedings, in view of

Explanation 2 to section 147. The action of the income tax

authorities in reopening the assessment of the assessee and

restricting the deduction under section 80-IB was held to be

valid.

3.14. In the case of Smt. Usha Rani v. CIT, (2008) 301 ITR

121 (P & H), there was nothing on record to show the

relationship between the donor and the donee, capacity of the

donor to make gifts and the occasion therefore. The assessee

19 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain had failed to discharge the onus to prove the gifts. The

reassessment proceedings were held to be valid. In the case of

Usha Beltron Ltd. v. Joint CIT, (1999) 240 ITR 728, 736-37,

739 (Pat), where the investigation report indicated that the

Officer had reason to believe that on account of failure on the

part of the petitioner-assessee to disclose true and full facts,

income had been grossly under assessed, reassessment

proceedings were held validly initiated.

3.15. In the case of Kapoor Brothers v. Union of India,

(2001) 247 ITR 324, 331, 332-33 (Pat), where the material

evidence for the purpose of reopening of the assessment

already completed has been brought to the notice of the

authority during the course of enquiry. The notice was held to

be valid by the Hon’ble High Court. In the case of Vippy

Processors Pvt. Ltd. v. CIT, (2001) 249 ITR 7, 8 (MP), where the

need to issue notice arose due to noticing of vast difference in

value of properties disclosed by the assessee and that of the

report of the Valuation Officer and the reasons that led to the

issue of the notice were duly recorded and the same were also

adequate and based on relevant facts and material, initiation

20 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain was upheld. In Triple A Trading & Investment Pvt. Ltd. v.

Asst. CIT, (2001) 249 ITR 109, 110-11 (MP), where the notice

was issued after recording reasons in that regard, initiation

was upheld.

3.16. Likewise, Hon’ble Gujarat High Court in Garden

Finance Ltd. v. Add/. CIT, (2002) 257 ITR 481, 489, 494-95,

special leave petition dismissed by the Supreme Court: (2002)

255 ITR (St.) 7-8 (SC), where the assessee was holding shares

in an amalgamating company and he was allotted shares in

the amalgamated company and such shares were sold by him

and he has disclosed the market price of such shares as on

the date of amalgamation as the cost of acquisition of such

shares and has not disclosed the cost of acquisition of shares

in the amalgamating company in accordance with section

49(2) read with section 47(vii), initiation of reassessment

proceedings after four years has been sustained because there

was failure on the part of the assessee to disclose material

facts necessary for assessment. Likewise, in Suman Steels

v. Union of India, (2004) 269 ITR 412,418-19 (Raj), where the

return of the assessee for assessment year 1995-96 was

21 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain processed under section 143(1)(a) accepting the net profit rate

declared by the assessee, who carried on con- tract business,

initiation of reassessment proceedings by issuing a notice

dated 15-5-2001 proposing to reassess petitioner-assessee at

higher rate in view of the presumptive rate prescribed under

section 44AD has been sustained. In the case of Dr. Sahib

Ram Giri v. ITO, (2008) 301 ITR 294 (Raj), the reassessment

proceedings were initiated after recording reasons in writing by

the AO. The non-availability of a few documents demanded by

the assessee would not make the reassessment proceedings

initiated for the reasons recorded in detail illegal.

3.17. In the case of Desh Raj Udyog : Chaman Udyog v.

ITO, (2009) 318 ITR 6 (All), in the assessment years in

question, the matter was still to be decided finally by the

assessing authority whether the income should be treated

under the head 'Business income' or 'property income'. The

assessee would get opportunity to show sufficient cause to the

assessing authority during the course of assessment. Thus, it

could not be said that there was no relevant material to

initiate proceedings under section 147. In the case of

22 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain Kartikeya International v. CIT, (2010) 329 ITR 539 (All), in view

of the matter, the petitioner was not entitled for the deduction

on the duty drawback amount under section 80-IB and since

it had been allowed in the assessment order passed under

section 143(1), it had escaped assessment. On these facts the

initiation of the proceedings under section 147 read with

section 148 for assessment years 2005-06 and 2006-07 was

legal and in accordance with law.

3.18. Likewise, in the case of Sunil Kumar lain: Suresh

Chandra lain v. ITO, (2006) 284 ITR 626 (All), notwithstanding

the fact that the amount had been assessed to tax in the

hands of P, he had taken a stand that the amount did not

belong to him and instead belonged to S. Thus, it was not

clear as to in whose hands the amount in question had to be

assessed. The ITO was justified in taking proceedings under

section 147 for assessing the amounts in the hands of the

petitioners according to the claim made by the petitioners.

Likewise, Hon’ble Kerala High Court in CIT v. Dr. Sadique

Ummer, (2010) 322 ITR 602 (Ker), where, the Assessing Officer

collected further information to complete the reassessments

23 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain which was also permissible under the Act. The finding of the

first appellate authority as well as the Tribunal, that the

Assessing Officer had no material to believe that the income

had escaped assessment was wrong and contrary to facts. The

assessee had not maintained any books of account. Therefore,

the reopening of assessments was held to be valid and within

time. In the case of CIT v. Uttam Chand Nahar, (2007) 295

ITR 403 (Raj), the notice requiring the assessee to file the

return within 30 days was in accordance with section 148 as it

must be deemed to be in force with effect from 1-4-1989, and

in force as on the date notice was issued. There was no

violation of section 148 in respect of the specified period within

which the return is to be submitted. The reassessment

proceedings were held to be valid.

3.19. In the case of CIT v. C. V. layachandran, (2010) 322

ITR 520 (Ker), where, the assessee did not concede the income

on capital gain either under the un-amended provision or

un-der the amended provision, the recourse open to the

Department was to bring to tax income escaping assessment

under section 147 which was not time barred or otherwise

24 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain invalid. Likewise, in Atul Traders v. ITO, (2006) 282 ITR 536

(All), the account books or record and other material were all

common which were being considered by the CIT(A) in the

proceedings relating to three appeals. The petitioner had

notice and opportunity of being heard. The reassessment

proceedings were held to be validly initiated. In the case of

Inductotherm (India) P. Ltd. v. lames Kurian, Asst. CIT, (2007)

294 ITR 341 (Guj), the Assessing Officer had found that there

were errors in the computation of allowances. The

reassessment proceedings were held to be valid. In the case of

Papaya Farms Pvt. Ltd. vs. DCIT, (2010) 323 ITR 60 (Mad),

where the assessee had furnished incorrect particulars and

therefore, the reopening of the assessment was held to be

justified.

3.20. In the case of CIT v. Kerala State Cashew

Development Corporation Ltd., (2006) 286 ITR 553 (Ker),

wherein, the assessee was following the mercantile system of

accounting should not have claimed deduction of penal

interest which had accrued not in the previous year relevant to

the assessment year but in earlier years. This the assessee

25 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain had not disclosed. The reassessment was held to be valid.

Likewise, in Kusum Industries P. Ltd. v. CIT, (2008) 296 ITR

242 (All), as the award had become final it would be taken that

the directors of the assessee had accepted the factum of

earning of secret profit not reflected in the books of account,

which was also binding on the company. The non-appearance

of one of the arbitrators and one of the directors in respect of

the summon issued under section 131 would not make the

reassessment invalid. The Hon’ble Kerala High Court in CIT v.

Indo Marine Agencies (Kerala) P. Ltd., (2005) 279 ITR 372

(Ker), held that the entry would amount to an order under

section 144. The mere fact that it was not communicated to

the assessee would not make such an assessment recorded in

the order sheet illegal and that would not bar further

proceedings under section 147. Thus, the assessment was

held to be validly reopened under Explanation 2(c) to section

(Ker), where, the assessee could not, after having persuaded

the assessing authority to withdraw the notice dated 1-10-

1993, pointing out that it was not in conformity with law, be

26 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain allowed to contend that the notice was valid due to the

omission of the time-limit by the Finance (No.2) Act, 1996,

with effect from 1-4-1989. In the absence of specific provision

in the Finance (No. 2) Act, 1996, invalidating proceedings

initiated by the Income-tax Officer, the action taken by him

applying the then existing law could not be said to be invalid.

3.21. Likewise, in CIT v. S.R. Talwar, (2008) 305 ITR 286

(All), the factum of taking advances or loan from T and K, in

which the assessee was one of the directors had not been

disclosed nor a copy of the ledger account of the assessee

maintained by the company filed. In view of the absence of

these details, the Assessing Officer could not examine the

taxability of advances or loan raised by the assessee. There

was failure to disclose material facts necessary for assessment.

The reassessment proceedings were held to be valid. In

another case, the Hon’ble Allahabad High Court in Chandra

Prakash Agrawal v. Asst. CIT, (2006) 287 ITR 172 (All),

wherein, the Income-tax Department had sent a requisition on

27-3-2002, under section 132A requisitioning the books of

account and other documents seized by the Central Excise

27 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain Department. The record of the proceeding dated 18-4-2002,

showed that the requisition was not fully executed as all the

books of account and other documents had not been delivered

to the requisitioning authority. The proceedings initiated

under section 147 was held to be valid.

3.22. In Ramilaben Ratilal Shah v. CIT, (2006) 282 ITR

176 (Guj), held that the noting in the diary constituted

sufficient information for the escapement of income by

either non-declaration of correct sale consideration or

furnishing of inaccurate particulars as regards sale

consideration. Thus, the Tribunal was justified in holding

that the assessee had failed to disclose fully and truly all

material facts necessary for the assessment of the relevant

assessment year. The reassessment proceedings had been

validly initiated.

Likewise, in CIT v. Abdul Khader Ahamed, (2006) 285

ITR 57 (Ker), it was clear from the reasons recorded by the

Deputy CIT that he prima facie had reason to believe that the

assessee had omitted to disclose fully and truly the material

28 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain facts and that as a consequence income had escaped

assessment. The reassessment was held to be valid. In the

case of U.P. State Brassware Corporation Ltd. v. CIT, (2005)

277 ITR 40 (All), the principles laid down by the Calcutta High

Court in CIT v. New Central Jute Mills Co. Ltd. : (1979) 118

ITR 1005 (Cal) did constitute information on a point of law

which should be taken into consideration by the ITO in

forming his belief that the income to that extent had escaped

assessment to tax and, the reassessment was held to be valid.

In Sunder Carpet Industries v. ITO, (2010) 324 ITR 417 (All),

held that the Departmental Valuer's Report constituted

material for entertaining a belief of escaped income in the

years under consideration. The reassessment proceeding was

held to be valid.

3.23. In Aurobindo Sanitary Stores v. CIT, (2005) 276 ITR

549 (Ori), there being a substantial difference between the

figures of liabilities towards sundry creditors in the party

ledgers of the assessee-firm and the figures of liabilities

towards sundry creditors in the balance-sheet of the assessee-

firm for the previous year relevant to the assessment year

29 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain 1989-90. These materials had a direct link and nexus for

formation of a belief by the Assessing Officer that income of

the assessee-firm had escaped assessment because of failure

of the assessee to disclose fully and truly all material facts

necessary for the assessment. In the case of CIT v. Best Wood

Industries & Saw Mills, (2011) 331 ITR 63 (Ker), the assessee

challenged the validity of the reassessment on the ground that

the AO had exceeded his jurisdiction under section 147 and

both the first appellate authority as well as the Tribunal

accepted the contention of the assessee holding that so far as

the reassessments related to assessment of unexplained trade

credits, they were invalid. On appeal, it has been held that the

reassessments were to be valid. In Honda Siel Power Products

Ltd. v. Deputy CIT, (2012) 340 ITR 53 (Del), there being

omission and failure on the part of the assessee to disclose

fully and truly material facts Thus reassessment proceedings

were held to be valid.

In Atma Ram Properties Private Ltd. v. Deputy CIT,

(2012) 343 ITR 141 (Del), as the books of account and other

material were not produced and no letter was filed, the order

30 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain passed by the Commissioner (Appeals) in the assessment year

2001-02 would constitute 'information' or material from any

external source and, as such, the reassessment proceedings

for the assessment year 2000-01 were held to be valid.

Likewise, in the case of CIT v. Smt. R. Sunanda Bai, (2012)

344 ITR 271 (Ker), the reassessment in question were held to

be valid on the fact that the assessee claimed and was given

relief under section 80HHA for the three preceding year which

disentitled her for deduction under section 80HH for the

assessment years 1992-93 and 1993-94.

3.24. In the case of Aquagel Chemicals P. Ltd. v. Asst.

CIT, (2013) 353 ITR 131 (Guj), since there being sufficient

material on record for the Assessing Officer to form a belief as

regards the escapement of income in relation to the claim of

depreciation in respect of the building of coal fire boiler, the

reassessment was held to be valid. In the case of Convergys

Customer Management v. Asst. DIT, (2013) 357 ITR 177 (Del),

where there being prima facie material in the possession of the

Assessing Officer to form a tentative belief that section 9(1)(i)

31 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain held attracted, said reason by itself constituted a relevant

ground to reopen the assessment of the assessee.

Reference can also be made to following cases and the ratio laid down therein:- i. Ajai Verma v. CIT [(2008) 304 ITR 30 (All)]; ii. Ashok Arora v. CIT [(2010) 321 ITR 171 (Del)]; iii. CIT v. Chandrasekhar BaLagopaL [(2010) 328 ITR 619 (Ker)]; iv. Jayaram Paper Mills Ltd. v. CIT [(2010) 321 ITR 56 (Mad)]; v. Kerala Financial Corporation v. Joint CIT [(2009) 308 ITR 434 (Ker)]; vi. Mavis Satcom Ltd. v. Deputy CIT [(2010) 325 ITR 428 (Mad)]; vii. CIT v. Madhya Bharat Energy Corporation Ltd. [(2011) 337 ITR 389 (Del)]; viii. Kone Elevator India P. Ltd. v. ITO [(2012) 340 ITR 454 (Mad)]; ix. Vijay Kumar Saboo v. Asst. CIT [(2012) 340 ITR 382 (Karn)]; x. Siemens Information Systems Ltd. v. Asst. CIT [(2012) 343 ITR 188 (Bom)]; xi. I.P. Patel & Co. v. Deputy CIT [(2012) 346 ITR 207 (Guj)]; xii. Dishman Pharmaceuticals & Chemicals Ltd. v. Deputy CIT [(2012) 346 ITR 228 (Guj)];

32 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain xiii. Video Electronics Ltd. v. Joint CIT [(2013) 353 ITR 73 (Del)]; xiv. A G Group Corporation v. Harsh Prakash [(2013) 353 ITR 158 (Guj)]; xv. Inductotherm (India) P. Ltd. v. M. GopaLan, Deputy CIT [(2013) 356 ITR 481 (Guj)]; CIT v. Dhanalekshmi Bank Ltd. [(2013) 357 ITR 448 (Ker)]; xvi. Sitara Diamond Pvt. Ltd. v. ITO [(2013) 358 ITR 424 (Bom)]; xvii. Rayala Corporation P. Ltd. v. Asst. CIT [(2014) 363 ITR 630 (Mad)].

3.25. So far as, the decision in the case of CIT vs

Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) is concerned,

the Hon’ble Apex Court, while coming to a particular

conclusion, only in a situation, when not a single piece of

paper or document was recovered, therefore, the Hon’ble

Court held that since there was no tangible material found

and the addition was merely on the basis of statement only

then reopening of assessment u/s 147 of the Act was not

permissible. It is further noted that retraction was made by

the assessee, merely after a long gap of more than two years

and not at the earliest possible time. It was merely as

afterthought. There is a possibility that the statement, if,

33 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain recorded under duress and threat (which is not the case in the

present appeals) in that situation, there is a less possibility of

retraction during that period, however, if the retraction is

made within short span of time then retraction carries more

weight. The assessee never alleged that the statement was

recorded under duress and threat. Likewise, in the case of CIT

vs S. Khader Khan Son (2012) 254 CTR 228 (SC), affirming the

decision of Madras High Court in (2008) 300 ITR 157 (Mad.),

the whole addition was made solely on the basis of statement

u/s 133A and no other material was found, in that situation,

it was held that the such statement has no evidentiary value,

thus, under the peculiar facts in the present appeal, the cases

relied upon by the assessee are not of much help as is clearly

oozing out from the contents of the statement tendered by the

assessee without duress or threat, connecting the assessee of

non-recording of purchase and sale in the regular books of

accounts.

If the material available on record and the judicial

pronouncements discussed hereinabove are kept in

juxtaposition with the facts of the present appeal, we find that

34 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain there was reasonable belief with the Ld. Assessing Officer that

income chargeable to tax had escaped assessment as the Ld.

Assessing Officer made payment to the non-resident film

distributor without deducting TDS, therefore, we are of the

opinion that, so far as, initiation of proceedings u/s 147 r.w.s.

148 of the Act are concerned, the ld. Assessing Officer was

justifiably within the parameter of the law to reopen the

assessment, therefore, we affirm the stand of the ld. First

Appellate Authority, resulting into dismissal of the impugned

ground raised by the assessee.

assessee has challenged the addition of Rs.3,53,773/- being

12.5% of the alleged bogus purchases from hawala dealers out

of the total addition of Rs.28,30,184/-. The only contention of

the ld. Counsel for the assessee is that the benefit of the net

profit ratio already declared by the assessee which is in the

range of 2.5 to 3% may be given as the assessee has proved

consumption. On the other hand, the ld. DR defended the

addition retained by the ld. first appellate authority. The ld.

Counsel for the assessee as well as the ld. DR relied upon

35 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain certain decisions which we will discuss while disposing of the

impugned ground.

perused the material available on record. If the observation

made in the assessment order, leading to addition made to the

total income, conclusion drawn in the impugned order,

material available on record, assertions made by the ld. DR, if

kept in juxtaposition and analyzed, before adverting further,

the facts of the present appeals before us, we deem it

appropriate to consider various decisions from Hon'ble High

Courts/Hon'ble Apex Court, so that we can reach to a proper

conclusion. The Hon'ble Gujarat High Court in Sanjay

Oilcakes Industries vs CIT (2009) 316 ITR 274 (Guj.) held as

under:-

“11. Having heard the learned advocates appearing for the respective parties, it is apparent that no interference is called for in the impugned order of the Tribunal dated April 29, 1994, read with the order dated September 29, 1994, made in miscellaneous application. In the principal order the Tribunal has recorded the following findings : "8.3. We have considered the rival submissions and perused the facts on record. In our opinion,

36 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain the action of the Commissioner of Income-tax (Appeals) confirming 25 per cent. of the amounts claimed is fair and reasonable and no interference is called for. The Commis sioner of Income-tax (Appeals) has gone through the purchase prices of the raw material prevalent at the time and rightly came to the con clusion that the disallowance to the extent of 25 per cent. was called for. It is established that the parties were not traceable ; they opened the bank accounts in which the cheques were credited but soon thereafter the amounts were withdrawn by bearer cheques. That fairly leads to the conclusion that these parties were perhaps creation of the assessee itself for the purpose of banking purchases into books of account because the purchases with bills were not feasible. Thus, the abovenoted parties become conduit pipes between the assessee- firm and the sellers of the raw materials. Under the circumstances, it was not impossible for the assessee to inflate the prices of raw materials. Accordingly, an addition at the rate of 25 per cent. for extra price paid by the assessee than over and above the prevalent price is fair and reasonable and we accordingly confirm the finding of the Commis sioner of Income-tax (Appeals)." 12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques, the cheques have been deposited in bank

37 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law.” In the aforesaid case, the Hon'ble High Court accepted

that the apparent sellers, who issued the said bills were not

38 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain traceable and the goods received from parties other than the

persons, who had issued the bills for such goods. The

purchases were shown to have been made by making

payments, through banking channel and thus the apparent

sellers were not genuine or were acting as conduit between the

assessee and the actual seller. In such a situation, the

conclusion drawn by the Ld. Commissioner of Income Tax

(Appeal) as well as by the Tribunal was affirmed. Hon'ble Apex

Court in Kachwala Gems vs JCIT (2007) 158 taxman 71

observed that an element of guesswork is inevitable in cases,

where estimation of income is warranted.

5.2 The Hon'ble Gujarat High Court in CIT vs Bholanath

Poly Fab. Pvt. Ltd. (2013) 355 ITR 290 (Guj.) held/observed as

under:-

“5. Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, the purchases of the entire 1,02,514 metres of cloth were sold during the year

39 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders and also made reference to the Tribunal's decision in the case of Vijay Proteins Ltd. v. Asst. CIT [1996] 58 ITD 428 (Ahd). 6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed.” 5.3. Likewise, the Hon'ble Gujarat High Court in CIT vs

Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.)

held/observed as under:-

40 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain “6. As is apparent from the facts noted hereinabove, the Commissioner (Appeals) after appreciating the evidence on record has found that the assessee had in fact made the purchases and, hence, the Assessing Officer was not justified in disallowing the entire amount. He, however, was of the view that the assessee had inflated the purchases and, accordingly, by placing reliance on the decision of the Tribunal in the case of Vijay Proteins (supra) restricted the disallowance to 20 per cent. The Tribunal in the impugned order has followed its earlier order in the case of Vijay Proteins to the letter and enhanced the disallowance to 25 per cent. Thus, in both cases, the decision of the Commissioner (Appeals) as well as that of the Tribunal is based on estimate. This High Court in the case of Sanjay Oil Cake [2009] 316 ITR 274 (Guj) has held that whether an estimate should be at a particular sum or at a different sum can never be a question of law. 7. The apex court in the case of Kachwala Gems [2007] 288 ITR 10 (SC) has held that in a best judgment assessment there is always a certain degree of guess work. No doubt, the authorities should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily but there is necessarily some amount of guess work involved in a best judgment assessment. 8. Examining the facts of the present case in the light of the aforesaid decisions, the decision of the Tribunal, being based on an estimate, does not give rise to any question of law so as to warrant interference. 9. In so far as the proposed questions (C), (D) and (E) are concerned, the same are similar to the proposed question (A) wherein the Tribunal has restricted the addition to 25 per cent. on similar facts. In the circumstances, for the reasons stated hereinabove, the

41 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain said grounds of appeal do not give rise to any question of law. 10. As regards the proposed question (B) which pertains to the deletion of addition of Rs. 7,88,590 made on account of inflation of expenses paid to Metal and Machine Trading Co. (MMTC), the Assessing Officer has found that MMTC was a partnership firm of Shri Nitin Gajjar along with his father and brother operating from Bhavnagar. A perusal of their transactions with the assessee indicated that there is some inflation of expenses as detailed in paragraph 6.1 of the assessment order. After considering the evidence on record, the Assessing Officer disallowed the amount Rs. 7,88,590 on account of payment made to MMTC. 11. The assessee preferred an appeal before the Commissioner (Appeals), who upon appreciation of the evidence on record found that the Assessing Officer had not rejected the genuineness of the purchases made from MMTC while making the disallowance. His observations were based on inflation of rates which were being charged from the assessee. According to the Commissioner (Appeals), though MMTC in some respect could be attributed to be associated with the assessee-company, still it could not be expected that MMTC was carrying out its business without any motive or profit. According to the Commissioner (Appeals), it was proved by the assessee that the rates charged by MMTC were comparable with the prevailing market rates, no such addition can stand. The Commissioner (Appeals) took note of the fact that it was not the case of the Assessing Officer that the purchases had been directly effected from third parties and not directly from MMTC ; the difference could not be the net profit in the hands of MMTC ; and that while conducting the entire exercise MMTC would have to incur certain expenditure in transportation, in engaging personnel in the office and other operations and was accordingly of the view that there was no

42 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain case of actual inflation of rates and deleted the addition. 12. The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has found that the assessee had made purchases from MMTC at the prevailing market rates and that MMTC had incurred certain expenditure in engaging personnel in the office and other operations and would make some income from the entire exercise. In the circumstances, the purchases made by the assessee from MMTC would not be hit by the provisions of section 40A(2) of the Act. 13. Thus, the conclusion arrived at by the Tribunal is based on concurrent findings of fact recorded by the Commissioner (Appeals) as well as the Tribunal. It is not the case of the Revenue that the Tribunal has taken into account any irrelevant material or that any relevant material has not been taken into consideration. In the absence of any material to the contrary being pointed out on behalf of the Revenue, the impugned order being based on concurrent findings of fact recorded by the Tribunal upon appreciation of the evidence on record, does not give rise to any question of law in so far as the present ground of appeal is concerned. 14. In relation to the proposed question (F) which relates to the deletion of addition of Rs. 44,54,426 made on account of purchase of crane and allowing depreciation on the same, the Assessing Officer observed that the assessee had purchased a crawler crane for an amount of Rs. 24,61,000 excluding the cost of spare parts of Rs. 14,98,490. The Assessing Officer after examining the evidence on record and considering the explanation given by the assessee, made addition of Rs. 44,54,426, Rs. 39,59,490 being the purchase price of the crane along with its spare parts and Rs. 4,94,936 being depreciation claimed by the assessee. The Commissioner (Appeals), upon

43 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain appreciation of evidence on record, was of the view that the Assessing Officer has not appreciated the facts of the case properly and had made disallowance which was not permitted by the Income-tax Act. It was held that disallowance could only have been made in respect of expenses debited to the profit and loss account whereas in the present case the purchase of crane and spare parts of the crane and other machineries were in the nature of acquisition of capital asset. According to the Commissioner (Appeals), the disallowance could have been made on depreciation only if at all the Assessing Officer conclusively proved that the purchases of crane and other parts are bogus. Upon appreciation of the material on record the Commissioner (Appeals) found that the Assessing Officer has simply brushed aside all the evidence on account of technical infirmities and that the evidence such as octroi receipt ; hypothecation of the crane to the bank; existence of the crane even till date with the assessee conclusively proved that the crane was purchased and it was in use even as on date with the assessee. The Commissioner (Appeals) accordingly found that there was no scope for any disallowance and accordingly deleted the disallowance made on account of purchase of crane and allowed the depreciation as claimed by the assessee. 15. The Tribunal, in the impugned order, has noted that the cost of crane was never claimed by the assessee in the return of income. Before the Tribunal, the assessee produced the evidence that the crane in question was registered with the RTO and the same was wholly and exclusively used for the purposes of its business. The Tribunal, therefore, held that the Commissioner (Appeals) was legally and factually correct in deleting the disallowance of cost of crane as well as depreciation thereon. 16. From the facts emerging from the record, it is apparent that the assessee had never claimed the cost of the crane in the return nor had it debited the

44 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain expenses to the profit and loss account, and as such the question of disallowing the same and adding the same to the income would not arise. Moreover, in the absence of any evidence to indicate that the purchase was bogus or that the crane in fact did not exist, the question of disallowing the deprecation in respect of the same also would not arise. When the assessee had conclusively proved the purchase and existence of the crane, and had not debited the expenses to the profit and loss account, no addition could have been made in respect of the purchase price nor could have depreciation been disallowed in respect thereof. The Tribunal was, therefore, justified in deleting the addition as well as disallowance of depreciation. 17. In the light of the aforesaid discussion, it is not possible to state that there is any legal infirmity in the impugned order made by the Tribunal so as to warrant interference. In the absence of any question of law, much less, a substantial question of law, the appeal is dismissed.” 5.4. The Hon'ble jurisdictional High Court in the case of

CIT vs Ashish International Ltd. (ITA No.4299/2009) order

dated 22/02/2011, observed/held as under:-

“The question raised in this appeal is, whether the Tribunal was justified in deleting the addition on account of bogus purchases allegedly made by the assessee from M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. According to the revenue, the Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. in his statement had stated that there were no sales / purchases but the transactions were only accommodation bills not involving any transactions. The Tribunal has recorded a finding of fact that the assessee had disputed the correctness of the above statement

45 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain and admittedly the assessee was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. who had made the above statement. The appellate authority had sought remand report and even at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribunal being based on the fact, no substantial question of law can be said to arise from the order of the Tribunal. The appeal is dismissed with no order as to costs.” 5.5. The Hon'ble jurisdictional High Court in CIT vs

Nikunj Exim Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom.)

held/observed as under:-

“7. We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the Commissioner of Income-tax (Appeals), one cannot conclude that the purchases were not made by the respondent-

46 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal.” 5.6. The Hon'ble Gujarat High Court in CIT vs M.K.

Brothers (163 ITR 249) held/observed as under:-

“Being aggrieved by the aforesaid order, the assessee went in second appeal before the Tribunal. It was urged on behalf of the assessee that the transactions in question were normal business transactions and the assessee had made payments by cheques. The parties did not come forward and if they did not come, the assessee should not suffer. However, on behalf of the Revenue, it was urged that detailed inquiries were made and thereafter the conclusion was reached. The Tribunal found that there was no evidence anywhere that these concerns gave bogus vouchers to the assessee. No doubt, there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. The Tribunal accordingly, did not sustain the addition retained by the Appellate Assistant Commissioner. Hence, at the instance of the Revenue, the aforesaid question has been referred to this court for opinion. On a perusal of the order of the Tribunal, it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties

47 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations, the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made in the books of account were bogus entries. We, therefore, do not find that the conclusion arrived at by the Tribunal is against the weight of evidence. In that view of the matter, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. Accordingly, the reference stands disposed of with no order as to costs.”

5.7. The Mumbai Bench of the Tribunal in the case of

DCIT vs Rajeev G. Kalathil (2015) 67 SOT 52 (Mum.

Trib.)(URO), identically, held as under:-

“2.2.Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority(FAA).Before him it was argued that assessee had filed copies of bills of purchase from DKE and NBE, that both the suppliers were registered dealers and were carrying proper VAT and registration No.s, that ledger accounts of the parties in assessee's books showed bills accounted for, that payment was made by cheques, that a certificate from the banker giving details of cheque payment to the said parties was also furnished. Copies

48 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain of the consignment, received from the Government approved transport contractors showing that material purchased was actually delivered at the site was furnished before the AO. It was also argued that some of the material purchased from the said parties were lying part of closing stock as on 31.03.2009 as per the statement submitted on record. After considering the assessment order and the submissions made by the assessee, FAA held that the transactions were supported by proper documentary evidences, that the payments made to the parties by the assessee were in confirmation with bank certificate,t hat the suppliers was shown as default under the Maharashtra VAT Act could not be sufficient evidences to hold that the purchases were non-genuine, that the AO had not brought any independent and reliable evidences against the assessee to prove the non-genuineness of the purchases, that there was no evidence regarding cash received back from the suppliers. Finally, he deleted the addition made by the AO . “2.3.Before us, Departmental Representative argued that both the suppliers were not produced before the AO by the assessee, that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine. He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries. (ITA/6579/Mum/2010-dated 13.11.2013). Authrorised representative (AR) contended that payments made by the assessee were supported by the banker’s statement, that goods received by the assessee from the supplie was part of closing stock,that the transporter had admitted the transportation of goods to the site.He relied upon the case of Babula Borana (282 ITR251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon’ble Bombay High Court. 2.4.We have heard the rival submissions and perused the material before us. We find that AO had made the

49 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash traial. Secondly, proof of movement of goods is not in doubt. Thererfore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO.” 5.8. The ratio laid down in the case of M/s Neeta Textiles

vs Income Tax Officer 6138/Mum/2013, order dated

27/05/2013, Shri Jigar V. Shah vs Income Tax Officer (ITA

No.1223/M/2014) order dated 22/01/2016, M/s Imperial

Imp. & Exp. vs Income Tax Officer ITA No.5427/Mum/2015,

order dated 18/03/2016 supports the case of the assessee

and the conclusion drawn in the impugned order. However, as

50 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain relied by the Ld. DR, the Hon'ble Gujarat High Court in the

case of N.K. Industries Ltd.,etc vs DCIT (supra) considering

various decisions decided the issue in favour of the Revenue

and the Hon'ble Apex Court dismissed the SLP vide order

dated 16/01/2017 (SLP No.(c) 769 of 2017). We find that in

that case, during search proceedings, certain blank signed

cheque books and vouchers were found and thus the

purchases made from these concerns, were treated as bogus

by the Assessing Officer.

5.9. The Hon'ble Gujarat High Court in N.K. Industries

Ltd. vs DCIT (IT Appeal No.240, 261, 242, 260 and 241 of

2003), vide order dated 20/06/2016 considered the decision of

the Tribunal and various judicial decisions including the case

of Vijay Proteins and Sanjay Oilcakes Industries ltd., M/s

Woolen Carpet Factory vs ITAT (2002) 178 CTR 420 (Raj.), the

Tribunal was held to be justified in deciding the case against

the assessee. The Hon'ble Apex Court confirmed the decision

of the High Court for adding the entire income on account of

bogus purchases (SLP (C) No.s 769 of 2017, order dated

16/01/2017.

51 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain 5.10. In such type of cases, broadly, the Ld.

Commissioner of Income Tax (Appeal) as well as this Tribunal

has followed the decisions from Hon'ble Gujarat High Court in

the case of Simit P. Seth (2013) 356 ITR 451 (Guj.), CIT vs

Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.),

CIT vs Bhola Nath Poly Fab. (P.) Ltd. (2013) 355 ITR 290 (Guj.)

and various other decisions of the Tribunal and the decision of

M/s Nikunj Eximp(supra) from Hon'ble jurisdictional High

Court, wherein, the aggregate disallowance was restricted to

12.5%. Admittedly, there cannot be sale without purchases.

The case of the Revenue is that there is bogus nature of

purchases made from suppliers and the parties were not found

existing at the given addresses.

5.11. Admittedly, in such type of cases, there is no option

but to estimate the profit which depends upon the subjective

approach of an individual and the material facts available on

record. In the present appeal, the assessee produced the

purchase bills, sale invoices, ledger account, stock statement

etc. and also the payment was made through banking

channel. The assessee made part purchases from certain

52 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain bogus bill providers, thus, the possibility of revenue leakage

cannot be ignored. The addition was made by the ld. Assessing

Officer on the basis of the information received from Sales Tax

Department through Investigation Wing and the parties have

not directly named the assessee before the Sales Tax

Authorities. It is also noticed that the ld. Assessing Officer

merely relied upon the information and did not made any

serious attempt to examine whether the assessee actually got

the benefit of bogus billing. At the same time, the information

was never proved to be false by the assessee. We have also

observed from the order of the Ld. Commissioner of Income

Tax (Appeal) that assessee has earned GP of 11.81% in the

Assessment Year 2009-10 and 14.69% in the Assessment Year

2010-11. Therefore, in the interest of justice and fair play, by

taking a pragmatic view and to put an end to the litigation, in

principal we affirm the stand of the Ld. Commissioner of

Income Tax (Appeal) by confirming the addition to the extent of

12.5% of the gross bogus purchases. However, considering the

totality of the fact, the benefit of net profit ratio already

declared by the assessee has to be given which is claimed to be

53 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain in the range of 2.5 to 3%. Thus, the ld. Assessing Officer is

directed to adopt the addition @9% (Nine percentile only) of

the amount of said bogus purchases as the assessee has

already proved the consumption. Thus, the appeal of the

assessee is partly allowed.

appeals of the assessee/department for A.Y. 2010-11 on

identical issue.

the adhoc disallowance on travelling, telephone, mobile,

expenditure, etc. to the extent of 10% of the expenditure

instead of deleting the same. We have considered the rival

submissions and are satisfied with the conclusion of the ld.

First Appellate Authority in which no infirmity was pointed out

by the assessee. This ground of the assessee is, therefore,

dismissed.

not pressed before us by the assessee and are hereby

dismissed as not pressed.

54 ITA No. 6924, 6504 & 6505/Mum/2014 Shri Kantilal C. Jain

Revenue are disposed of in terms indicated hereinabove.

Order pronounced in the Open Court on 25/09/2017.

Sd/- Sd/- (Ramit Kochar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 25/09/2017 Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai