SRI MOTILAL JAIN,KOLKATA vs. I.T.O., WARD-35(4), KOLKATA, KOLKATA

The solitary common issue involved in these appeals of the assessee relates to the additions of Rs.2,65,044/-, Rs.1,56,728/- and Rs.2,28,800/- made by the Assessing Officer on account of the alleged bogus purchases to the total income of the assessee for A.Y. 2009-10, 2010-11 and 2011-12 respectively, which are confirmed by the ld. CIT(Appeals). , 1987 & 1988/KOL./2016 Assessment years: 2009-2010, 2010-2011 & 2011-2012 Page 2 of 6

The assessee in the present case is an individual, who is engaged in the business of trading of chemicals under the name and style of his proprietary concern M/s. Chemical India Limited. The returns of income for the years under consideration were filed by him under section 139(1) declaring total income of Rs.4,85,380/-, Rs.4,80,160/- and 5,55,450/- for A.Y. 2009-10, 2010-11 & 2011-12 respectively. The said returns were initially processed by the Assessing Officer under section 143(1) of the Act. He, however, subsequently reopened the assessments under section 147 after recording the reason that there was a suppression of sales by the assessee during all the three years under consideration. He accordingly issued notices under section 148, in reply to which a letter was filed by the assessee requesting that the returns filed originally by him under section 139(1) be treated as the returns filed in response to notices under section 148. During the course of proceedings under section 147, the Assessing Officer found that the relevant transactions were not of suppression of sales by the assessee, but there were certain purchases, the genuineness of which was in doubt. He accordingly verified the said purchases and since the assessee could not establish the genuineness of the same, the Assessing Officer treated the said purchases as bogus and made additions to that extent to the total income of the assessee in the assessments completed under section 147/143(3) for all the three years under consideration.

Against the orders passed by the Assessing Officer under section 147/143(3), appeals were preferred by the assessee before the ld. CIT(Appeals) for all the three years under consideration challenging the validity of the said assessments as well as disputing the additions made therein on account of bogus purchases on merits. The ld. CIT(Appeals), however, did not find merit in the said appeala and proceeded to dismiss the same by his appellate orders dated 4th July, 2016, which are impugned by the assessee in the present appeals filed before the Tribunal. , 1987 & 1988/KOL./2016 Assessment years: 2009-2010, 2010-2011 & 2011-2012 Page 3 of 6

I have heard the arguments of both the sides and also perused the relevant material available on record. The ld. counsel for the assessee has filed before me the copy of reasons recorded by the Assessing Officer for all the three years under consideration, which are identical except the amount of suppression of sales allegedly made by the assessee. The same are reproduced below:- “A.Y. 2009-10 (F.Y. 2008-09) 06.09.2013 “In the instant case, the assessee filed his return of income for the A.Y. 2009-10 in due time and duly processed u/s 143(1) at Rs.4,85,380/- on 12.11.2010 against the return income of Rs.4,85,380/-. Latter it is found and detected that against the tax identification no. (TIN) 2767002475IV for the F.Y 2008-09 relevant to the AY 2009-10 the assessee suppress his sale of Rs.1,59,151/-. In the light of the above, I have reason to believe that there had been escapement of income on receipt 1,59,151/- and suppression of correspondence income arises out that receipts and payment as per provision of section 69(C) of I.T. Act, therefore, attract the section 147 of the I.T. Act, 1961 for the AY 2010-11. Hence, notice u/s 148 for income escaping assessment u/s 147 of the I.T. Act, 1961 to be issued for such escapement of income”.

As rightly pointed out by the ld. counsel for the assessee from the reasons recorded by the Assessing Officer, the assessments were reopened on the ground that there was suppression of sales by the assessee. In the assessments completed under section 147/143(3) for all the three years under consideration, the Assessing Officer, however, did not make any additions on account of suppressed sales and actually made additions on account of bogus purchases. Although the ld. D.R. has contended that there was a mistake on the part of the Assessing Officer in mentioning the relevant transactions as suppressed sales instead of bogus purchases, the fact remains to be seen is that the assessments were reopened by the Assessing Officer for the reason that there was suppression of sales by the assessee and there was no addition made to the total income of the assessee on account of such suppression of sales in any of the three years under consideration. The additions finally made by the Assessing Officer to the total income of the assessee were on account of bogus purchases, which was not at all the subject matter of the reasons recorded by the Assessing Officer.

In the case of CIT –vs.- Jet Airways (I) Limited [(2011) 331 ITR 236 (Bombay) cited by the ld. counsel for the assessee, the Hon’ble Bombay High Court has held that as per the provisions of section 147 amended with effect from 1st April, 1989, the Assessing Officer has to assess or , 1987 & 1988/KOL./2016 Assessment years: 2009-2010, 2010-2011 & 2011-2012 Page 5 of 6 reassess the income, which escaped assessment and which was the basis of the formation of belief and if it is thus so, he can assess or reassess any other income, which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after the issuing of notice under section 148, he accepts the contention of the assessee and holds that the income which he has formed the reason to believe, had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him independently to assess some other income.

In the case of Ranbaxy Laboratories Limited –vs.- CIT (2011) 336 ITR 136 (Delhi), the very basis for initiation of proceedings under section 147/148 for which reasons to believe were recorded was, in fact, escaping assessment in respect of items of Club fees, gifts and presents, etc. and while these items were not disturbed, the Assessing Officer proceeded to reduce the claim of the assessee for deduction under section 80HH and 80I. The Hon’ble Delhi High Court, however, held that it was not permissible. Explaining the legal position in this regard, Hon’ble Delhi High Court observed that if even though Assessing Officer had a jurisdiction to reassess the issues other than the issues in respect of the proceedings were initiated, he was not justified to do so when the reasons for initiation of those proceedings had ceased to survive.

In the present case, no additions having been made by the Assessing Officer to the total income of the assessee on account of suppression of sales, the very reasons for the initiation of reassessment proceedings had ceased to survive and in my opinion, it was not permissible to the Assessing Officer to make additions to the total income of the assessee in the reassessments on the issue of bogus purchases, which was not the subject matter of reasons recorded by him for reopening the assessment as held by the Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Limited (supra) and the Hon’ble Bombay High Court in the case of Jet Airways (I) Limited (supra). I, therefore, delete the additions made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on , 1987 & 1988/KOL./2016 Assessment years: 2009-2010, 2010-2011 & 2011-2012 Page 6 of 6 account of the alleged bogus purchases in all the three years under consideration and allow these appeals of the assessee.

In the result, the appeals of the assessee are allowed. Order pronounced in the open Court on March 15, 2017.