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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI J.S. REDDY & SHRI KULDIP SINGH
Date of Hearing : 20.07.2016 Date of Order : 26.07.2016
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER :
The appellant, M/s. Rawat Metal Co. (hereinafter referred to as ‘the assessee’), by filing the present appeal, sought to set aside the impugned order dated 11.12.2014 passed by ld. Commissioner of Income-tax (Appeals)-XX, New Delhi qua the assessment year 2006-07 on the grounds inter alia that :-
“1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad, both in the eye of law and on the facts.
2. On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the initiation of the reassessment proceedings and the reassessment order are bad both on facts and in law and liable to be quashed as the statutory conditions and procedure prescribed under the statute have not been complied with.
3 (i) On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned AO are bad in the eye of law as the reasons recorded for the issue of notice under Section 148 are bad in the eye of law and are contrary to the facts.
(ii) On the facts and circumstances of the case, CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment order passed" by the AO. is bad and liable to be quashed as the same has been reopened on the basis of the reasons which are vague and has been recorded without application of mind on the part of the AO.
4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the rejection of the books of accounts of the assessee by the AO, despite the fact that the assessee has been maintaining proper books of accounts as per law.
5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the addition of an amount of Rs.4,68,040/- on account of bogus purchases.
6. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition to the extent of 20% of such purchases, without there being any basis for the same.
7.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming that the firms M/s Vishnu Trading Company, M/S Shree Shyam Trading Company are not engaged in the actual business ignoring the fact that during the course of the search substantial inventory in respect of the material being purchased by the assessee were found which confirm the fact that this firm was doing actual business.
(ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting that the inference drawn by the AO merely on the basis of a statement that these firms are not in actual business is baseless and contrary to the facts on record.
8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting the contention of the assessee in ignoring the fact that there being a complete tally of the quantity purchased and sold the allegation that the assessee has not made purchases cannot be sustained.
9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the addition to the extent of 20% of such purchases rejecting the material and evidences brought on record by the assessee to show that the purchases were made in regular course of the business and material so purchased was sold in the regular course of business.
On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting the contention of the assessee that the addition so made on the basis of material collected at the back of the assessee is bad in law & liable to be deleted.
11. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in rejecting the contention of the assessee that the addition made by the learned AO is untenable in the eye of law having been made without providing opportunity to cross
examine the person on the basis of whose statement the allegations have been made against the assessee and without following the principle of natural justice.
12. The appellant craves leave to add, amend or alter any of the grounds of appeal.”
Briefly stated the facts of this case are : the assessee by filing return of his income qua assessment year 2006-07 on 27.10.2006 declared his income at Rs.62,340/- which was processed under section 143 (1) of the Income-tax Act, 1961 (for short ‘the Act’) on 18.01.2007. Subsequently, on receiving information from CIT, Central – II, New Delhi in the form of Compact Disk (CD) containing list of the parties to whom the bogus purchases / accommodation entries were shown provided by Shri Rakesh Gupta, Shri Vishesh Gupta, Shri Navneet Jain and Shri Vaibhav Jain, after recording reasons forming belief that the income has escaped assessment in case of assessee, the assessment of the assessee qua AY 2006-07 was reopened u/s 147 of the Act.
3. From the lsit of accommodation entries, it is noticed that entries have been taken by the assessee to the following effect :-
Sl. Accommodation Name of party to Amount of No. entry provided by whom accommodation accommo- entry is provided dation entry 1 Vishu Trading Co. M/s. Rawat Metal Co. Rs. 5,48,337/- 2 Shree Shyam M/s. Rawat Metal Co. Rs.17,91,864/- Trading Co. Total amount of Rs.23,40,201/- entries = On the basis of admission made by Shri Rakesh Gupta, Shri Vishesh Gupta, Shri Navneet Jain and Shri Vaibhav Jain, the AO came to the conclusion that the assessee has taken accommodation entry from them to the tune of Rs.23,40,201/- for FY 2005-06 and thus, escaped assessment and consequently, notice u/s 148 of the Act was served upon the assessee. Assessee has not filed any objection against reopening of his case u/s 147 of the Act.
Assessee was called upon to explain as to why purchases amounting to Rs.23,40,201/- made by the assessee from the firms/concerns of aforesaid Shri Rakesh Gupta and Shri Vishesh Gupta be not treated as assessee’s income from undisclosed sources. Assessee put in appearance through his Authorized Representative who has filed submissions dated 24.01.2014. Finding submissions made by the assessee as to the purchases made during the year under assessment from the aforesaid Shri Rakesh Gupta and Shri Vishesh Gupta not satisfactory, AO came to the conclusion that purchases of Rs.23,40,201/- made from M/s.
Vishu Trading Co. and M/s. Shree Shyam Trading Co. are bogus purchases obtained by the assessee and as such, is deemed income of the assessee and thereby made an addition of Rs.23,40,201/-.
4. Assessee carried the matter before the ld. CIT (A) by challenging the assessment order who has partly allowed the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Ld. AR for the assessee challenging the impugned order contended that this appeal is covered by the decisions rendered by ITAT in case cited as Unique Metal Industries vs. ITO in dated 28.10.2015, M/s. Radhey Shyam & Co. vs. ITO in ITA No.1429/Del/2015 dated 30.11.2015, SMC-I Bench, Delhi ITAT, M/s. Punjab Metal Store vs. ITO in ITA No.1512/Del/2015 dated 02.12.2015, ‘F’ Bench, Delhi ITAT and M/s. Kishan Lal Gambhir & Sons vs. ITO in ITA No.1516/Dl/2015 dated 02.12.2015, ‘F’ Bench, Delhi ITAT.
However, on the other hand, ld. DR relied upon the order passed by the ld. CIT (A).
7. From the facts and circumstances of the case, arguments addressed by the representatives of the parties and decisions relied upon by the ld. AR, first question arises for determination in this case is :-
“as to whether reassessment order passed by the AO is not sustainable, thus liable to be quashed in the light of the findings returned by the coordinate Bench in the case cited as Unique Metal Industries (supra)?”
Assessment of the assessee for the AY 2006-07 has been reopened by the AO u/s 147 of the Act by recording reasons to the following effect :-
"Reasons for the belief that the income has escaped assessment in the case of M/s Rawat Metal Co. for the assessment year 2006-07
A letter bearing F.No. Addl. CIT /(Hq)/(Coord.)/ Accommodation entry/2012-13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner of I.Tax, Delhi-I, New Delhi therein forwarding letter bearing F.No. CIT(C)- 1I/2012-13/3898 dated 19.03.2013 received from the Commissioner of I.Tax, Central-II, New Delhi along with a CD containing the details of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet jain & Sh. Vaibhav Jain and directing this office to take necessary action as per section 148 in respect of entries pertaining to AY. 2006-07, which is time barring on 31.03.2013.
The information provided by the CIT, Central- II, New Delhi vide his letter dated 19.03.2013 reads as under :-
"Kindly find enclosed herewith letter dated 13.03.2013 of ACIT, Central Circle-10 duly forwarded by the Addl. CIT, Central Range-IV, along with its enclosures on the subject mentioned above.
2. The assessment of search cases of Sh. Rakesh gupta, Sh. Vishesh Gupta, Sh. Navneet Jain & Sh. Vaibhav Jain are under process with the ACIT, Central Circle-10. During the assessment proceedings
u/s 153A in the aforesaid cases, details regarding accommodation entries given by the above entry providers has been obtained by the A.O.
The list of accommodation entry recipients has been obtained from Sh. Rakesh Gupta and Sh. Vishesh Gupta. Hard copy of the list is enclosed as Annexure A, duly signed by Sh. Vishesh Gupta. The list gives the name of the firm which has provided the accommodation entry along with the name and address of the recipients of accommodation entry.
Sh. Navneet Jain & Sh. Vaibhav Jain has provided accommodation entry through thirty-seven paper entities. The list of the firms giving accommodation entry is enclosed as annexure-B. The list of accommodation entry recipients, has been obtained from Sh. Naveneet Jain & Sh. Vaibhav Jain. It does not give year wise bifurcation. Hard copy of the list is enclosed as annexure-C, duly signed by Sh. Vaibhav Jain. Thus, the firms mention in the list 'B' have provided accommodation entries to the firms mentioned in list 'C'.
5. The soft copy of the information in respect to annexure A, B & C is also enclosed.
6. The information of accommodation entry includes A.Y. 2006-07 also, which is a time barring year for taking action u/s 148.
This information is forwarded to you for early dissemination to various field offices in Delhi (Soft copy also enclosed)."
On examining the list of accommodation entries provided by Sh Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh Vaibhav Jain pertaining to AY 2006-07, it is noticed that the following accommodation entries have been taken by the assessee namely M/s. Rawat Metal Co.:-
Sl. Accommodation Name of party to Amount of No. entry provided by whom accommo- accommodation dation entry entry is provided 1 Vishu Trading Co. M/s. Rawat Metal Rs. 5,48,337/- Co. 2 Shree Shyam M/s. Rawat Metal Rs.17,91,864/- Trading Co. Co. Total amount of Rs.23,40,201/- entries =
Since Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain during the course of assessment proceedings u/s 153A of I.Tax Act have admitted that they have given accommodation entries to the parties whose lists have been provided by them to the ACIT, Central Circle- 10, New Delhi, therefore, it is fair to conclude that M/s Rawat Metal Co, whose name is appearing in the said list, has taken accommodation entries from Sh.Rakesh Gupta & Sh. Vishesh Gupta and Shri Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07.
In view of the above, I have reasons to believe that income chargeable to tax of M/s Rawat Metal Co. amounting to Rs. 23,40,201/- for the F.Y. 2005-06 relevant to A.Y. 2006-07 has escaped assessment and it is a fit case for initiation of proceedings u/s 147 of the Act.”
Undisputedly, the assessment order is based on the statements made by Shri Rakesh Gupta and Shri Vishesh Gupta during search proceedings conducted on 06.08.2010 and 11.08.2010 vide their affidavit dated 23.01.2010 that they were not making any actual sales but were only providing the accommodation bills; that assessment was reopened in case of M/s.
Unique Metal Industries (supra) by the same AO on the ground that assessee in that case has taken accommodation entry to the tune of Rs.2,44,399/- and Rs.8,12,542/- from M/s. Shree Shyam Trading Company and M/s. Vishnu Trading Co. respectively of Rakesh Gupta and Vishesh Gupta who have also allegedly provided accommodation entry to the present assessee.
In the reopening proceedings, assessee has come up with categoric argument that it has purchased goods after obtaining valid sales bill charging VAT and made the payment through account payee cheques and the goods so purchased by the assessee were sold to some other party and the said sale / purchase have been duly recorded in the books of account. However, AO without going into the merits of the defence taken by the assessee by verifying the payment of the VAT on the bills in question declared the same as bogus and without scanning the fact that all the payments have been made by the assessee by account payee cheque and has also not verified the further sale of the said goods to the third party by the assessee rather dis-believed the defence taken by the assessee merely on the ground that Shri Rakesh Gupta and Shri Vishesh Gupta have time and again admitted that they have provided bogus purchase bills to the assessee and have also furnished affidavit in this regard.
AO also declared the bills as bogus on the ground that transactions qua the bills in question were not recorded in the diaries which were seized by the search party at the time of search operation on 26.04.2010. Strangely enough, entries made by a businessman in a diary cannot overweigh audited account books prepared in the ordinary course of business. Moreover, when assessee has duly proved to have paid the VAT on the goods purchased vide bills otherwise declared as bogus by the AO and have further sold the goods to other party by recording entries in its books of account, entries, if any, made in the diary of Rakesh Gupta and Vishesh Gupta seized during search has no evidentiary value.
Moreover, in the face of the admitted fact that assessee has not been provided with an opportunity to cross examine Shri Rakesh Gupta and Shri Vishesh Gupta who alleged to have admitted before the revenue authorities that they have provided bogus bills to the assessee, their statement recorded by the revenue authorities cannot be read against the assessee to reopen the assessment. More so, the assessee has brought on record the confirmation as to the purchase of goods vide bills in question, made by Shri Rakesh Gupta and Shri Vishesh Gupta. Again, AO has declined to entertain the confirmation on the ground that aforesaid Shri Rakesh Gupta and Shri Vishesh Gupta have issued confirmation to those parties whose names are appearing in the list of accommodation entry which contravenes the stand taken by them. Again, AO without verifying the confirmation from the ledger account of Shri Rakesh Gupta and Shri Vishesh Gupta summarily dismissed the confirmation provided by them particularly when payment for the purchase of goods undisputedly made by the assessee by way of account payee cheque.
AO rejected the books of account merely on the ground that the assessee has failed to furnish the details / documents viz. itemwise and value-wise inventory of the closing stock, stock register, detail of sundry creditors, name of creditors with PAN number and address etc. However, CIT (A) despite returning categoric findings that from the perusal of the acknowledgement of the original return shows that the assessee has filed audited report, maintained purchase and sale bills along with vouchers of expenses and most of the payments were made through cheques but proceeded to uphold the rejection of the books by AO on the ground that there are discrepancies in the books of account to the extent that the assessee has maintained books and tallied the accounts by procuring bogus purchase bills. These self- contradictory findings show that books of account have been rejected by the AO and upheld by CIT (A) vide impugned order merely on the basis of conjectures and surmises. Moreover, when the revenue authorities have failed to prove that the assessee has procured bogus purchase bill from Shri Rakesh Gupta and Shri Vishesh Gupta the books of account have been arbitrarily rejected.
So, in view of what has been discussed above, we are of the considered view that the reassessment order in question has failed to withstand legal scrutiny and as such quashed. Moreover, the issue as to the validity of reassessment is covered by the decision of coordinate Bench in M/s. Unique Metal Industries (supra).
Now, adverting to the issue, “as to whether ld. CIT (A) has erred in confirming the addition to the extent of 20% of purchases i.e. Rs.4,68,040/- made by the assessee from M/s.
Vishu Trading Co. and M/s. Shree Shyam Trading Co.” 17. This identical issue has also been dealt with by the coordinate Bench in M/s. Unique Metal Industries (supra) by returning following findings :-
“27. As regards the addition of 20% sustained by the learned CIT(A) I am of the view that since purchases are not bogus, the addition on this account cannot be sustained. Even otherwise the addition of 20% on the facts and circumstances is apparently too high. The learned CIT(A) having held that tax has to be levied on real income and the profit cannot be ascertained without deducting the cost of purchases from the sales as otherwise it amount to levy of tax on gross receipt, she ought to have applied profit rate in this nature of trade. Estimating profit at the rate of 20% by taking into consideration the provisions of section 40A(3) will not lead to determination of correct real income. Section 40A(3) is meant for a different purpose when the assessee has made purchases in cash. This provision cannot be applied in such cases. Once the purchases are held to be bogus then the trading results declared by the assessee cannot be accepted and right course in such case is to reject books of accounts and profit has to be estimated by applying a comparative profit rate in: the same trade. Though there can be a little guess work in estimating profit rate but such profit rate cannot be punitive.”
Apart from the statements of Shri Rakesh Gupta and Shri Vishesh Gupta, their affidavits and guesswork / estimation, there is not an iota of material on record with AO/CIT(A) to make an addition at 20% of the purchases made by the assessee, firstly to declare the purchase bills in question as bogus and then to determine estimating profit @ 20% of the purchases by resorting section 40A(3), which can only be invoked when purchases are made in cash, the addition of 20% is not sustainable in the eyes of law, hence hereby deleted. Ld. DR has not brought on record any material to depart from the decision rendered by the coordinate Bench in M/s. Unique Metal Industries (supra).
In view of what has been discussed above, present appeal filed by the assessee is hereby allowed. Order pronounced in open court on this 26th day of July, 2016.