DCIT 9(1)(1), MUMBAI vs. ACON MEASUREMENT P.LTD, MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated

12/05/2015 of the First Appellate Authority, Mumbai, deleting

the addition of Rs. 50,17,847/- on account of non-genuine

purchases/bogus purchases, without appreciating the fact that

the assessee could not substantiate its claim in spite of ample

opportunity provided to the assessee, ignoring the finding by

the Ld. Assessing Officer that the concerned parties were

declared as hawala dealers by the Sales Tax Department of the

State Government and more specifically the notices issued u/s

133(6) were returned back.

Prakash Jhunjhunwala, explained that the assessee has

already declared gross profit at rate of 33% and net profit @

13.89%, therefore, the Ld. Assessing Officer unjustifiably

added the bogus purchases at 100%. It was also pleaded that

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the addition restricted by the Ld. Commissioner of Income Tax

(Appeal) at the rate of 10% is also excessive as the VAT rate

applicable to the assessee is 4%. However, the Ld. counsel

fairly agreed that there is some leakage to the Revenue,

therefore, some more relief may be given to the assessee. On

the other hand, Shri Saurabh Deshpande, ld. DR strongly

defended the impugned order by contending that the assessee,

in spite of opportunity provided, did not produce the concerned

parties, therefore, the addition, sustained by the Ld.

Commissioner of Income Tax (Appeal), may be increased. The

Bench asked the assessee whether, the parties can be

produced now for examination before the Assessing Officer. The

Ld. counsel for the assessee contended that he is not in touch

with the parties, therefore, cannot produce them.

2.1. We have considered the rival submissions and

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

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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, 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)."

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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

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

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observed that an element of guesswork is inevitable in cases,

where estimation of income is warranted.

2.2. 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 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).

2.3. Likewise, the Hon'ble Gujarat High Court in CIT vs

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

held/observed as under:-

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“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.

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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 case of actual inflation of rates and deleted the addition.

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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 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.” 2.4. 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 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.”

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2.5. 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-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.” 2.6. 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

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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 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.”

2.7. 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 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

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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 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.”

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2.8. 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 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.

2.9. 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

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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.

2.10. 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.

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

but to estimate the profit which depends upon the

subjective/objective approach of an individual and the material

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facts available on record. In the present appeal, the assessee is

manufacturer of measuring instruments, declared income of

Rs.51,24,860/- in its return filed on 25/08/2009. The

completed assessment was reopened u/s 147/148 of the Act,

as it came to the notice of the Ld. Assessing Officer that the

assessee obtained bogus purchase bills from certain parties,

which are hawala dealers on the list of State Sales Tax

Department. The said list reveals the name of parties like (i)

Mani Bhadra Sales Pvt. Ltd. (ii) Sandesh Sales Pvt. Ltd. and (iii)

Blue Moon Trading Pvt. Ltd. from which the assessee claimed to

have made purchases of Rs.50,17,844/-. The assessee also

filed reply dated 18/07/2014 contradicting that any bogus

purchases were made from these parties. Notice u/s 133(6) of

the Act were issued at the addresses of these parties, which

were returned back unserved by the postal authority with the

remand ‘left’ and ‘not known’. Considering the factual matrix,

the Ld. Assessing Officer found that there was no physical

delivery of purchases and only bogus bills were issued, thus,

considering various decisions, the Ld. Assessing Officer added

the sum of Rs.50,17,844/-, as bogus purchases to the total

income of the assessee. On appeal, the Ld. Commissioner of

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Income Tax (Appeal) considered various decisions held that the

entire disputed purchases cannot be added and therefore, to

plug the leakage of Revenue, estimated the suppressed income

at the rate of 10% of the disputed purchases (i.e. 10% of

Rs.50,17,844/-) and deleted the balance addition of

Rs.45,16,059/-. We have examined the factual matrix of the

present appeal and considering the totality of facts and the

assertions made from both sides and are of the opinion that the

Ld. Commissioner of Income Tax (Appeal) has taken a

reasonable view. Therefore, we affirm the stand of the Ld.

Commissioner of Income Tax (Appeal), resulting into dismissal

the appeal of the Revenue.

No.112/Mum/2017) is concerned, it is barred by 63 days. The

assessee has filed an affidavit explaining the delay. The Ld. DR

contended that the delay may not be condoned.

3.1. We have considered the rival submissions and

perused the material available on record. In view of the

assertions made by the ld. respective counsel, so far as,

condonation of delay is concerned no doubt filing of an appeal

is a right granted under the statute to the assessee and is not

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an automatic privilege, therefore, the assessee is expected to be

vigilant in adhering to the manner and mode in which the

appeals are to be filed in terms of the relevant provisions of the

Act. Nevertheless, a liberal approach has to be adopted by the

appellate authorities, where delay has occurred for bona-fide

reasons on the part of the assessee or the Revenue in filing the

appeals. In matters concerning the filing of appeals, in exercise

of the statutory right, a refusal to condoned the delay can

result in a meritorious matter being thrown out at the

threshold, which may lead to miscarriage of justice. The

judiciary is respected not on account of its power to legalize in

justice on technical grounds but because it is capable of

removing injustice and is expected to do so.

3.2. The Hon’ble Apex Court in a celebrated decision in

Collector, Land Acquisition vs Mst. Katiji & Ors. 167 ITR 471

opined that when technical consideration and substantial

justice are pitted against each other, the courts are expected to

further the cause of substantial justice. This is for the reason

that an opposing party, in a dispute, cannot have a vested right

in injustice being done because of a non- deliberate delay.

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Therefore, it follows that while considering matters relating to

the condonation of delay, judicious and liberal approach is to

be adopted. If sufficient cause is found to exist, which is bona-

fide one, and not due to negligence of the assessee, the delay

needs to condoned in such cases. The expression ‘sufficient

cause’ is adequately elastic to enable the courts to apply law in

a meaningful manner, which sub-serves the end of justice- that

being the life purpose of the existence of the institution of the

courts. When substantial justice and technical consideration

are pitted against each other, the cause of substantial justice

deserves to be preferred. The Hon’ble Apex Court in Vedabhai

vs Santaram 253 ITR 798 observed that inordinate delay calls

of cautious approach. This means that there should be no

malafide or dilatory tactics. Sufficient cause should receive

liberal construction to advance substantial justice. The Hon’ble

Apex Court in 167 ITR 471 observed as under:-

“3. The legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits. The expression “sufficient cause” employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of

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justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the others courts in the hierarchy.”

3.3. Furthermore, the Hon'ble Supreme Court in the case

of Vedabai Alia Vaijayanatabai Baburao Patil vs. Shantaram

Baburao Patil 253 ITR 798 held that the court has to exercise

the discretion on the facts of each case keeping in mind that in

construing the expression ‘sufficient cause’, the principle of

advancing substantial justice is of prime importance. The court

held that the expression “sufficient cause” should receive liberal

construction.

3.4. The decision of the Tribunal in People Infocom

Private Ltd. v/s CIT (ITA No.210/Mum/2013) order dated

19/05/2016, M/s Neutron Services Centre Pvt. Ltd vs ITO (ITA

No.1180/Mum/2012) order dated 18/02/2016, Shri Saidatta

Coop-. Credit Society Ltd. v/s ITO (ITA No.2379/Mum/2015)

order dated 15/01/2016 and Mr. Nikunj Barot (Prop. Enigma)

vs ITO (ITA No.4887/Mum/2015) order dated 06/01/2016,

wherein, substantial delay was condoned, supports the case of

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the present assessee. Having made the aforesaid observation

and various decisions discussed hereinabove, including from

Hon’ble Apex Court, the circumstances narrated by the

assessee, wherein, he has stated the reasons which caused the

delay, therefore, the delay is condoned.

concerned, the assessee has challenged upholding the

reopening of assessment u/s 147/148 of the Act on the plea

that the Ld. Commissioner of Income Tax (Appeal) ignored the

fact that there was no reason to belief that income has escaped

assessment as there was no tangible material with the

Assessing Officer and independent application of mind. On the

other hand, the Ld. DR strongly defended the reopening as

there was enough material with the Assessing Officer on the

basis of which, it was rightly concluded that income had

escaped assessment.

4.1. In the light of the foregoing discussions, 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

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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 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 :— (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 ;

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(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.”

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

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

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

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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

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

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

reopening cannot be said to be invalid.

4.3. 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 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

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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 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.

4.4. 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

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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 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).

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4.5. 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.), 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.),

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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)

4.6. 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

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escapement of income in relation to assessment year 1992-

93.

4.7. 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

proceedings by the Assessing Officer, the reopening of the

assessment was held to be valid.

4.8. 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.

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

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

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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

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).

4.10. 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.

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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 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.

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4.11. 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

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

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authority to determine whether or not the vehicles in respect of

which the petitioner had been claiming depreciation, were

actually owned by it.

4.12. 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 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.

4.13. 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

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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 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.

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4.14. 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

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.

4.15. 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

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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 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.

4.16. 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

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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 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.

4.17. 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

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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 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.

4.18. 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

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High Court in CIT v. Dr. Sadique Ummer, (2010) 322 ITR 602

(Ker), where, the Assessing Officer collected further information

to complete the reassessments 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.

4.19. 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

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Department was to bring to tax income escaping assessment

under section 147 which was not time barred or otherwise

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.

4.20. 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

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assessment year but in earlier years. This the assessee 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 147. Likewise, in

CIT v. N. Jayaprakash, (2006) 285 ITR 369 (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 allowed to contend

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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.

4.21. 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 Department. The

43 ITA No.4736/Mum/2015 & C.O. No.112/Mum/2017 Acon Measurement Pvt. Ltd.

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.

4.22. 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.

4.23. 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

facts and that as a consequence income had escaped

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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.

4.24. 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 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

45 ITA No.4736/Mum/2015 & C.O. No.112/Mum/2017 Acon Measurement Pvt. Ltd.

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 passed by

the Commissioner (Appeals) in the assessment year 2001-02

would constitute 'information' or material from any external

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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.

4.25. 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)

held attracted, said reason by itself constituted a relevant

ground to reopen the assessment of the assessee.

Reference may also be made to i. Ajai Verma v. CIT [(2008) 304 ITR 30 (All)];

47 ITA No.4736/Mum/2015 & C.O. No.112/Mum/2017 Acon Measurement Pvt. Ltd.

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)]; 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)].

4.26. 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

48 ITA No.4736/Mum/2015 & C.O. No.112/Mum/2017 Acon Measurement Pvt. Ltd.

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. 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.

4.27. 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

the Ld. Assessing Officer was genuinely of the view that income

chargeable to tax has escaped assessment as the assessee

could not prove the genuineness of the purchases. It is also

noted that there was an information received from DGIT(Inv.)

that the assessee made certain bogus purchases from the

parties mentioned in the assessment order/impugned order

and the assessee could not substantiate the genuineness of the

purchase made from such parties. The notices issued u/s

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133(6) were also returned back by the postal authorities with

the remarks ‘not known’. The Sales Tax Department has also

declared these three parties as hawala dealers and the assessee

could not adduce any evidence substantiating the purchases

made from these parties. It is also noted that the copies of

delivery challans, filed by the assessee, were not bearing the

signature, seal, stamp and lorry numbers. Thus, the totality of

facts available on record, clearly indicates that there was

reasonable belief with the Assessing Officer that income

chargeable to tax had escaped assessment. Thus, so far as

reopening is concerned, in the light of foregoing discussion, we

do not find any infirmity in the conclusion of the Ld.

Commissioner of Income Tax (Appeal), thus, this ground of the

assessee is devoid of any merit, consequently, dismissed.

disallowance of purchase of Rs.5,01,785/- at the rate of 10% of

Rs.50,17,844/- made from suspicious dealers. We have made

an elaborate discussion, while dealing with the appeal of the

Revenue in preceding paras of this order and finally affirmed

the stand of the Ld. Commissioner of Income Tax (Appeal).

However, since, the assessee has already declard gross profit at

50 ITA No.4736/Mum/2015 & C.O. No.112/Mum/2017 Acon Measurement Pvt. Ltd.

the rate of 33% and net profit at the rate of 13.89%, therefore,

by taking a lenient view, the adoption of profit at the rate of

10% is reduced to 8% of the bogus purchases i.e.

Rs.50,17,844/-, thus, this ground is partly allowed. Therefore

this cross objection of the assessee is also partly allowed.

Finally, the appeal of the Revenue is dismissed and the

cross objection of the assessee is partly allowed.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 31/08/2017. Sd/- Sd/- (Rajesh Kumar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 06/09/2017 f{x~{tÜ? P.S //.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Assessee. 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