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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Sh. G.D. Agrawal, Hon’ble & Smt. Beena A Pillai, JM
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER:
This is an appeal preferred by the assessee against the order of the ld. CIT(A)-XX, New Delhi vide his order dated 22/12/2014 for A.Y. 2006-07 on the following grounds:
1. “On the facts and circumstances of the case, the order passed by the ld. CIT(A) is bad, both in the eye of law and on the facts.
2. On the facts and circumstances of the case, the 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 ld. Assessing Officer are bad in the eye of law as the reasons recorded for the issue of notice u/s 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 Assessing Officer 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 Assessing Officer.
4. On the facts and circumstances of the case, the ld. CIT(A) has erred both on facts and in law in confirming the rejecting of the books of accounts of the assessee by the Assessing Officer, 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 ld. CIT(A) has erred both on facts and in law in confirming the addition of an amount of Rs. 8,70,461/- on account of bogus purchases. 6. On the facts and circumstances of the case, the ld. 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 ld. CIT(A) has erred both on facts and in law in confirming that the firms M/s.Vishnu Trading Company, M/s Shree Shyam Trading Company, M/s Om Agencies & M/s Shree Bankey Bihari Trading Co. 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 ld. CIT(A) has erred both on facts & in law in rejecting that the inference drawn by the Assessing Officer 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 ld. CIT(A) has erred both on facts and 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 ld. 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.
10. On the facts and circumstances of the case, the ld. 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 ld. CIT(A) has erred both on facts & in law in rejecting the contention of the asessee that the addition made by the ld. Assessing Officer 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.
The appellant craves leave to add, amend or alter any of the grounds of appeal.”
Brief facts of the case as recorded by the ld. Assessing Officer are as under:
The assessee had not filed its return of income for the year under consideration. The assessment was reopened on an information received from the ACIT, Central Circle 10, Jhandelwalan Extn., on the allegation that the assessee had made bogus purchases. The assessment was completed by the ld. Assessing Officer by making an addition of Rs. 43,52,304/- treating the entire purchases made by the assessee from M/s Shree Bankey Bihari Trading Company, M/s. Om Agencies and M/s Shree Syam Trading Company to be accommodation entries.
3. Aggrieved by the order of the ld. Assessing Officer, the assessee went into appeal before the ld. CIT(A). The ld. CIT(A) upheld the validity of the reassessment but reduced the addition to 20% of the purchases being Rs.8,70,461/-.
4. Aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us now.
5. The grounds taken before us by the assessee, relates to the validity of the reassessment as well as the sustenance of the addition to an extent of Rs. 8,70,461/-.
5.1. At the outset, the ld. AR submitted that, this Tribunal in the case of Unique Metal Industries vs. ITO in vide dated 28/03/2015, Radhey Shyam & Co. Vs. ITO in ITA no. 1429/Del/2015 vide order dated 30.11.2015, Punjab Metal Store Vs. ITO in ITA no. 1512/Del/2015 vide order dated 02.12.2015, Krishan Lal Gambhir & Sons Vs. ITO in ITA no. 1376/Del/2015 vide order dated02.12.2015 has decided the issue. The ld. AR submitted that the assessment in the case of Unique Metal, Radhey Shyam, Punjab Metals and Krishan Lal Gambhir (supra) was reopened, on the same allegation and the facts of the case are identical, as a number of assessments were reopened by the same Assessing Officer, on the basis of the same set off information. The ld. AR submitted that the Assessing Officer has recorded similar reasons in all the cases. The ld. AR has submitted that in the case of Unique Metal (supra) this Tribunal has held the reopening to be bad in law.
5.2. The ld. AR has also produced before us the orders of this Tribunal in the case of Radheshyam, Punjab Metals and Krishan Lal Gambhir(supra), wherein this Tribunal has considered a similar and identical issue, and held the reassessment to be bad in law.
5.3. It is submitted that in the reasons recorded, the assessing officer has simply narrated the letter received by it from CIT Central-II, New Delhi whereby there is an allegation that certain person have provided accommodation entries. It is further contended that it is on the basis of a list forwarded by CIT Central- II, New Delhi, the assessing officer has stated that the following accommodation entries have been taken by the assessee; S.No. Accommodation Name of party to whom Amount of entry provided by Accommodation entry is Accommodation provided entry 1. Vishnu Trading Co. M/s. Nayar Metal Rs.17,79,173 Company 2. Shree Bankey Bihari M/s. Nayar Metal Rs.13,77,212 Company 3. Shree Shyam Trading M/s. Nayar Metal Rs.8,00,948 Company 4. Om Agencies M/s. Nayar Metal Rs.3,94,979 Company
Total amount of Rs. 43,52,304 entries
6. On the contrary the Ld. DR, submitted that in this case information has been received after the assessee’s return was accepted under section 143 (1). In the information provided by CIT, Central-II, New Delhi, there is a clear allegation that the persons mentioned therein have provided accommodation entries. Since the name of the assessee appears in the list of accommodation entries the assessing officer was justified and recording reasons and reopening the assessment. It was submitted that at the time of reopening of the assessment, only a prima facie view has to be taken and there need not be any conclusive evidences. The Ld. DR further submitted that name of the assessee was appearing in the list of the accommodation entries provided and hence assessing officer was well within his power to reopen the assessment. The Ld. NTR also submitted that CIT(A) was justified in rejecting this ground of the assessing. In support thereof the Ld. and D are placed reliance on the judgment of Hon’ble jurisdictional High Court in the case of CIT versus Nova Promoters & Finlease Pvt.Ltd., reported in_______________
We have heard the rival submissions and carefully considered the documents placed on record. It is noted that the assessment has been reopened by the ld. Assessing Officer by recording the following reasons:
“Reasons for the belief that the income has escaped assessment in the case of M/s Krishan Lal Gambhir & Sons 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-1, New Delhi therein forwarding letter bearing F.No. CIT(C)-II/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 & Sh. Navneet Jain & Sh. Vaibhav Jain and directing this office to take necessary action as per section 148 in respect of entries pertaining to A.Y. 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: 1. “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 Assessing Officer.
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. Vishes Gupta. The list given 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’.
The soft copy of the information in respect to annexure A, B & C is also enclosed.
The information of accommodation entry includes A.Y. 2006-07 also, which is a time baring year for taking action u/s 148.
7. This information is forwarded to you for early dissemination to various field offices in Delhi. On examining the list of accommodation entries provided by Shri Rakesh Gupta & Shri Vishesh Gupta and Shri Navneet Jain & Shri Vaibhav Jain pertaining to A.Y. 2006-07. It is noticed that the following accommodation entries have been taken by the assessee namely M/s Nayar Metal Company:- S.No. Accommodation entry Name of party to whom Amount of provided by Accommodation entry is Accommodation entry provided 1. Vishnu Trading Co. M/s. Nayar Metal Company Rs.17,79,173 2. Shree Bankey Bihari M/s. Nayar Metal Company Rs.13,77,212 3. Shree Shyam Trading M/s. Nayar Metal Company Rs.8,00,948 4. Om Agencies M/s. Nayar Metal Company Rs.3,94,979 Total amount of Rs. 43,52,304 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.T. 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 Krishan Lal Gambhir & Sons, whose name is appearing in the said list, has taken accommodation entries from Shri Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07. Also the details of Income Tax Return filed by M/s. Nayar Metal Company for A.Y. 2006-07 and processing done u/s 143(1) of I.Tax Act thereof were taken out from ITD System. Further, no scrutiny assessment was done in A.Y. 2006-07.
In view of the above, I have reasons to believe that income chargeable to tax of M/s. Nayar Metal Company amounting to Rs. 43,52,304/- 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. Proposal in the prescribed form for the AY 2006-07 (F.Y. 2005-06) is submitted herewith for kind consideration and necessary approval u/s 151(2) of the I.T. Act, 1961 as the same is getting barred by limitation on 31/03/2013. If approved, notice u/s 148 of the act may be issued. Sd/- (Pawan Kumar Vashist) Income Tax Officer Ward 39(3), New Delhi Joint CIT, Range-39, N.Delhi For the reasons recorded above, it is a fit case for issuance of notice u/s.148. Hence necessary approval asper section 151(2) if the I.T.Act is hereby given for reopening the case for A.Y.2006-07 7.1. It is observed that the assessee has filed its return of income on 30/10/2006 declaring an income of Rs. 15,930 the same was processed under section 143 (1) of IT act dated 02. 03. 2007 at the declared income later on, information was received by assessing officer wide letter dated 13. 03. 2013, forwarded by CIT, Central-II, New Delhi and CCIT, New Delhi-1 wide letters dated 19.03.2013 and 26.03.2013, respectively providing a CD wherein the list of parties to whom bogus purchases/accommodation entries provided by Sh. Rakesh Gupta, Shree Vishesh Gupta Sh. Navneet Jain and Sh. Vaibhav Jain was appearing. The Ld.AO records at page 2 para 1 of assessment order that, “after going through the complete list and identifying the parties whose territorial jurisdiction lies with this board, this office, after properly recording the following reasons for forming the belief that the income has escaped assessment in the case of M/s. Nayar Metal company and taking administrative approval from the Joint CIT, Range-39, New Delhi granted on 28. 03. 2013, the assessment of the assessee for assessment year 2006-07 was reopened as per section 147 of the IT act.”
7.2. It is observed from the order passed by the assessing officer, whereby the assessing officer himself has stated that he was not having the copy of the statement and other information at the time of recording reasons, which was important for him to apply his mind, while forming belief of income escaping assessment. In this regard, the assessing officer himself records in paragraph 3 on page 5 of the assessment order, that post reopening of the assessment, he had conversations with the ACIT, Central Circle-10, New Delhi and has sent various letters dated 23.07. 2013 to 24.12.2013, asking for basic information which included copies of statement recorded regarding the alleged accommodation entries against the assessee.
7.3. The Ld. assessing officer in paragraph 4 further records that, he received the supporting documents wide letter dated 27. 12. 2013 from the office of ACIT, Central Circle-10, New Delhi. These facts clearly demonstrate that no information was within the knowledge of the assessing officer except for the letter received from CIT, Central-II, New Delhi, on the basis of which the assessing officer reopened the assessment, without their being any valid evidence and without application of mind. The observations made by the assessing officer in paragraph 3 of the assessment order shows that it was on 27.12.2013, that the Ld.AO has received the documents/details, on the basis of which he could have applied his mind in arriving at the conclusion as to whether any income has escaped assessment in the case of the assessee. It is pertinent to note that these relevant details were not available with the Ld.AO at the time of issuance of notice u/s.148 of the Act. He has merely on the basis of a list the reasons were recorded for issuance of notice.
7.4. In our view, the assessing officer ought to have considered the facts of the assessee’s case with that of the information received, and then after applying his mind, should have recorded the reasons. The reasons to believe has to be that of the assessing officer and further there has to be application of mind by the assessing officer. Recording of reasons to believe, does not mean that the assessing officer has to finally ascertain the fact that income has escaped assessment, but it mean that the assessing officer is required to examine the facts on the basis of the information and satisfy himself that taxable income has escaped assessment as held by Nova Promoters(supra). In the present case, on going through the reasons, it is quite evident that the assessing officer has simply mentioned the alleged accommodation entries in the reasons recorded, even without specifying the nature of such accommodation entries. This shows that the assessing officer has made no efforts to look into the return of the assessee, which was available with him.
7.5. It is a settled position of law that there must be material for information of a belief that income has escaped assessment. Further reasons referred to must disclose process of reasoning by which the assessing officer holds reasons to believe. There must be nexus between such material and belief and most importantly the reasons referred to, must show application of mind by the assessing officer. Hon’ble Supreme Court and various High Courts have held that the validity of the initiation of the reassessment proceedings are to be judged with reference to material available with the assessing officer, at the time of issuance of notice under section 148. In the present case, it is very much evident from the assessment order itself that the assessing officer was having nothing except the list provided by the CIT Central-II, New Delhi. He was not having the copies of the statement, assessment orders and other details which could enable him to apply his mind and form a belief that income has escaped assessment. In fact these information was not there with the assessing officer till 27.12.2013. Thus in our view this is a clear case of total non-application of mind by the assessing officer.
7.6. We found the issue regarding the validity of the reassessment is duly covered by the decision of this Tribunal in the case of Unique Metal (supra), Shree Radheshyam & Company(supra), Punjab Metals(supra) and Krishan Lal Gambhir (supra), wherein the assessing officer had initiated similar proceedings by recording the same stereotype reasons and the party from whom the assessee therein, had made purchases, were also same, as in the case of the present assessee. This Tribunal, vide orders dated 28/01/2015, 30/11/2015 and 02.12.2015, has quashed the reassessment proceedings as invalid due to non application of mind by the assessing officer.
7.7. Therefore, respectfully following the decisions of this Tribunal in the case of Unique Metal (supra), Shree Radheshyam and Company (supra), Punjab Metals(supra) and Krishan Lal Gambhir(supra), we quash the reassessment proceedings.
Now coming to the sustenance of the addition by the ld. CIT(A) to an extent of 20% of the purchases made by the assessee, we note that the Tribunal, vide its order dated 30/11/2015 in the case of Shree Radheshyam & Company (supra) have deleted similar addition. The Tribunal in the case of Shree Radheshyam & Company (supra), has followed the findings given in the order dated 28/11/2015 in the case of Unique Metal Industries (supra). This Tribunal has observed as under:
7. “Now coming to the merit about the sustenance of the addition by the CIT(A) @ 20% of the purchases made by the assessee from Shri Bankey Bihari Trading Co., after hearing the rival submissions and going through the order of the Tribunal, I noted that this Tribunal vide its order dated 28.10.2015 in the case of Unique Metal Industries (supra), deleted similar addition by observing in para 27 as under: “27. As regards the addition of 20% sustained by the ld. 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 ld. 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 @ 20% by taking into consideration the or visions 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.” 8.1. Ld. DR even though vehemently relied on the order of CIT(A) as well as that of the Assessing Officer, could not bring to our knowledge any cogent material or evidence which may compel us not to follow the decision of this Bench in (supra) and ITA No. 1429/Del/2015(supra). So far as the reliance placed by Ld.DR on the decision of Hon’ble jurisdictional High Court in case of the Nova Promoters(supra), the facts were different. In the case of Nova Promoters(supra), the assessing officer possessed all necessary documents and information at the time of issuance of notice u/s.148 of the Act, which is not at all there in case of the present assessee.
We therefore, respectfully following the decision of this Tribunal in the case of Unique Metal Industries (supra), Shree Radheshyam & Company (supra) Punjab Metals(supra) and Krishan Lal Gambhir (supra), delete the addition as sustained by the ld. CIT(A) amounting to Rs.8,70,461/-.
In the result, the appeal filed by the assessee is allowed.
The order is pronounced in the open court on 31.03.2016