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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
Date of Hearing : 17-12-2015 Date of Order : 15-01-2016
ORDER
PER H.S. SIDHU : JM
The Assessee and the Revenue filed these Cross Appeals against the impugned Order passed by the Ld. CIT(A)-XV, New Delhi dated 23.05.2008 relevant for the assessment year 2000-01.
The grounds raised in the Assessee’s Appeal read as under:-
“1. That on the facts and in the circumstances of the case, the Learned Commissioner of Income tax (Appeals) erred in law in holding the initiation of reassessment proceedings under section 147 / 148 of the Income tax Act, 1961 as valid, which was initiated by the learned assessing officer without disposing off the objection by passing speaking order for initiation of reassessment proceedings.
2. That on the facts and in the circumstances of the case, the Learned Commissioner of Income tax (Appeals) erred in law in holding the Notice under section 148 of the Income tax Act, 1961 issued on 30.03.2007 as not barred by limitation even though it was issued after expiry of four years period from the assessment made under section 143(3) by Deputy Commissioner of Income tax, Central Circle-3, New Delhi on 30.12.2002.
That on the facts and in the circumstances of the case, the Learned Commissioner of Income tax (Appeals) erred in upholding the addition made by the Learned assessing officer by disallowing purchase of gear cutting tools amounting to Rs.49,10,442/- on an estimated basis only on the basis of doubt, suspicion, conjecture and surmise.
That on the facts and in the circumstances of the case, the Learned Commissioner of Income tax (Appeals) erred in law in holding that extrapolating the findings of the DRI, Amritsar is valid in respect of goods to be exported out of India in the month of May 2000 to goods already exported during the financial year 1999-00.
That the appellant craves leave to add, to alter or to amend grounds of appeal before the appeal is heard and disposed off.”
3. The assessee has also filed an additional ground which reads as under:-
“6. Without prejudice to the other grounds of appeal and in the alternative, on the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in not allowing the deduction under section 80HHC on the total amount of income assessed by theAO.”
4. The grounds raised in the Cross Appeal filed by the Revenue read as under:- “1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 1,38,32,000/- on account of unexplained purchases, ignoring the findings of the AO that the three concerns namely Jyoti Steels, Jindal Alloys and Krishna Hardware & Mills Store were only paper entities which had actually not supplied any goods to anybody and as such there is no question of there being any further supply of these items to the assessee by M/s Garg Forging and Casting Ltd. and M/s Garg Industries Ltd.
2. The Appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing.”
5. The brief facts of the case are that the assessee is a company engaged in the business of manufacturing and trading of steel ingots, steel rods, etc. The return for the assessment year under consideration was originally filed declaring a loss of Rs.1,18,57,040/-. The assessment of the same was completed under section 143(3) vide order dated 30.12.2002 at a loss of Rs.81,10,550/-. The assessment was reopened under section 148 on the allegation that the assessee has made payment of Rs.1,38,32,000/- to bogus parties. The assessee objected to the reopening of the assessment. The AO rejected the objection and completed reassessment at an income of Rs.1,06,31,892/- as against loss of Rs.81,10,550/- originally assessed. The AO added a sum of Rs.1,38,32,000/- on account of the payment made to bogus suppliers. The AO further added a sum of Rs.49,10,442/- in respect of the 3 purchases made for the export on the ground that the items exported were cut pieces of bars and rods, the value of which cannot be more than 2% of the purchase price shown by the assessee.
6. Against the aforesaid order of the AO, the assessee appealed before the learned CIT(A) who vide impugend order dated 23.05.2008 upheld the action of the AO in reopening of the assessment. On merit, the learned CIT(A) deleted the addition of Rs.1,38,32,000/-. However, the other addition of Rs. 49,10,442/- was confirmed by the learned CIT(A).
7. Aggrieved with order of the learned CIT(A), both assessee and Revenue are in appeal before the Tribunal.
It was contended by the learned Counsel of the Assessee that the reopening of the assessment is bad in law. The original assessment was completed under section 143(3). The assessment has been reopened on 30.03.2007 after a period of 4 years from the end of the assessment year and hence in view of the proviso to section 147 reopening is barred by limitation particularly keeping in view the fact that the assessee fully and truly disclosed all material facts necessary for the computation of income.
It was further stated by him that the AO reopened the assessment without application of mind. Further there is no live nexus in the formation of the belief and the reasons recorded for the reopening of assessment. In this regard attention was invited to the reasons recorded at Paper Book Pg.
It was further stated that the assessee has not made any purchases from any of these parties as has been alleged in the reasons recorded. The details of purchases were filed before the AO during the original proceedings. The AO has not applied its mind after receiving the information even to verify whether purchases have been made from any of these parties. In the objection filed, the assessee has submitted a detailed reply and the same has been disposed of arbitrarily by the AO. It was further contended that the information received from DRI has been considered sacrosanct without independent application of mind by the AO.
On the issue of addition of Rs.49,10,442/- confirmed by the learned CIT(A), it was stated by the Ld. Counsel of the Assessee that the AO simply relied upon the report of the Commissioner of Customs and Excise and has not carried out any enquiry or investigation himself in the assessment proceedings as is evident from the assessment order. During the course of the reassessment the assessee has submitted complete details about the purchases made by it for the purpose of export. It has provided the name of the supplier, quantity and value and the AO has not pointed out any mistake or error. In support thereof reliance has been placed by the learned AR on the judgment of the Delhi Bench of the ITAT in the case of DCIT vs. Nandan Auto Tech Ltd., and 3203/Del/2009 dated 30th September, 2015.
In regard to the Revenue’s appeal on the issue of addition of Rs.1,38,32,000/- it was stated by the learned AR that the above said addition has been rightly deleted by the learned CIT(A) as the assessee has not made any purchases from any of these three concerns. The learned CIT(A) has thoroughly examined the issue and has passed a detailed and well reasoned order. The assessee had made purchases from M/s Nandan Auto Tech Ltd. The sales of M/s Nandan Auto Tech Ltd. have not been doubted by the AO. The assessments of both these companies were completed simultaneously. The AO having accepted the sales of Nandan Auto Tech Ltd. there was no reason for him to doubt the purchases made by the assessee from Nandan Auto Tech Ltd.. 12. As regards the order passed by the Commissioner of Custom & Excise relied upon by the AO, it was submitted that the said order has been set asided by the Hon’ble Punjab & Haryana High Court. In the order passed by the Hon’ble Punjab & Haryana High Court it has been held that past exports cannot be challenged on the basis of any irregularities, if any, noticed in subsequent exports. The Hon’ble High Court has also referred to the investigation report which reveals that there is nothing to prove that alloy steel forgings was not manufactured and exported through the merchant exporters by the Nandan Auto Tech 5 Ltd. It has been further held that the investigation do not reveal evidence to prove the mis-declaration or over-invoicing of the export product by the merchant exporters. 13. On the contrary, learned DR relied upon the order of the AO and the CIT(A) on the issue of reopening of the assessment. It was stated that the assessment has been reopened on the basis of the specific information received from the DRI. At the stage of the reopening of the assessment only a prima facie view has to be taken. In this case there was information that the assessee has made payment of Rs.1,38,32,000/- to the three suppliers and these suppliers were not genuine and hence the AO was right in reopening the assessment.
On the issue of addition of Rs.49,10,442/- the learned DR relied upon the order of the learned CIT(A). It was submitted that the learned CIT(A) has given a finding that the that the export made by the assessee was that of cut pieces of steel. It was submitted that the AO having received the report from DRI there was no further need for the AO to carry out the investigation and the learned CIT(A) has rightly upheld the addition.
As regards the addition of Rs.1,38,32,000/- the learned DR admitted that though the assessee has not made any purchases from any of these three parties but the fact that assessee has made payment to these three parties on behalf of M/s Nandan Auto Tech Ltd. cannot be ignored. Since all these three parties were non-genuine, the addition has been rightly made by the learned AO in the hands of the assessee and CIT(A) was not justified in deleting the same. 16. We have heard both the parties and perused the relevant reords available with us especially the orders of the revenue authorities and the Paper Book. 17. As regards Ground nos. 1 and 2 in assessee’s appeal are on the issue of reopening of the assessment. The learned CIT(A) has upheld the order of the AO in reopening the assessment. On going through the same we note that the learned CIT(A) has given a detailed reasoning for upholding the reopening of the assessment. The relevant findings of the learned CIT(A) read as under:- “2.2 I have considered the submissions of the appellant, the findings of the AO and the facts on record. The appellant relies on the proviso to Sec.
This proviso stipulates that a case already finalized u/s 143(3) for any assessment year could only be re-opened u/s 147, provided there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In Explanation 1 to Sec. 147, it has further more been stated that production before the A.O. of account books or other evidence from which material evidences could with due diligence have been discovered by the A.O. will not necessarily amount to disclosure within the meaning of the proviso to Sec.
147. It is within the parameters of the proviso and Explanation 1 to Sec. 147 that the facts of re-opening in the appellant’s case are to be evaluated. A scrutiny assessment u/s 143(3) was completed in this case on 30.12.2002. In that order, the exports by the appellant were not held as mis-declared. The appellant states that the A.O. finalizing the order on 30.12.2002 would have been aware of the findings of the DRI, since the DRI action in the group cases were conducted in May, 2000 and in that manner since the A.O. has not taken adverse view on a fall out of the DRI action in May, 2000 while finalizing the assessment order in December, 2002, all the material including information on the D.R.I. action, necessary for assessment have either been made available to the A.O. or that the relevant information was within the knowledge of the A.O. The contention is without merits. It was only on 23.3.2007 that A.D.I.T. (Inv) III, Ludhiana informed the A.O. as regards export of mis- 7 declared goods by the appellant. Before that date, there was no information available with the A.O., which would have suggested that the appellant has mis-declared its exports or that the stated products for export by the name of gear cutting tools were in fact cut pieces of mild steel. The notice u/s 147 issued 4 years from the end of the relevant assessment year as in this case should be supported by the reason that there was failure on the part of the assessee to disclose the facts truly and fully. In this case, the fact that the exported goods were mis-declared came to light only on reference from the DRI and further communication from the ADIT(Inv), Ludhiana. Such facts were not before the A.O. at the time or original scrutiny assessment in December, 2002. I hold therefore, that incriminating material found during the DRI action, statement of Principal Officers and other connected persons before the DRI, the result of investigation from the sales tax authorities, banks and overseas buyers, the result of investigation into the concerns said to be suppliers of material for manufacture of gear cutting tools and heat resistant tension tape being made known to the A.O. only upon the receipt of the letter from A.D.I.T. (Inv) on 23.3.2007, the A.O. was statutorily empowered to issue the notice u/s 147 of the Act for the relevant assessment year. That there is no merit in the contention of the appellant that the initiation of proceedings being later than 4 years from the end of the relevant assessment year, the proceeding is time barred within the meaning of proviso to Section 147.”
After hearing the arguments of both the parties, we do not find any reason to interfere with the order passed by the learned CIT(A). The assessment though has been opened after a period of 4 years from the end of the assessment year, but the same has been reopened on receipt of information. This information was not available at the time of the completion of the earlier assessment and hence in our view the proviso to section 147 will not be applicable.
As regards non-application of mind by the AO and there being no live nexus in the reasons recorded and the formation of the belief, we are in agreement with the contention of the learned DR that at the time of reopening of the assessment only a prima facie view has to be taken on the basis of the information available. In the present case there was information which in our view was sufficient for the AO to reopen the assessment. The AO in the reasons recorded has stated that information. In view of the above, ground no.1 and 2 on the reopening of the assessment in assessee’s appeal are dismissed.
20 . Ground no.3 and 4 in the assessee’s appeal are regarding addition of Rs.49,10,442/-. The AO has made this addition by holding that the assessee has exported cut pieces of bars and rods of mild steel and the value of which cannot be more than 2% of the purchase price shown by the assessee. The learned CIT(A) has confirmed the same relying upon the report of the Commissioner of Customs & Excise. On going through the facts and the material available on record we note that assessee has submitted all the necessary details in the reassessment proceedings. The contention of the assessee all along has been that it has not made any purchases from any of the so-called non-genuine suppliers. Nothing wrong has been found in respect of the exports made by it. The shipment on the basis of which the Custom & Excise authorities have initiated action is not the export which has been made by the assessee during the year. On going through the document placed in the Paper Book we note that the assessee has filed all the details of the purchases made by it before the AO. It has also submitted necessary documents in respect of the export. The AO has not carried out any enquiry or investigation. He has simply assumed that the exports made by the assessee were that of cut pieces of bars and rods of mild steel.
The assessee has maintained regular books of accounts. It is maintaining all the record of purchases, sales, quantity-wise and value- wise. No infirmity has been pointed out by the AO in the record maintained by the assessee. In fact the books of accounts of the assessee have also not been rejected. The fact that assessee has not made any purchases from any non-genuine suppliers during the year under consideration has also not been controverted by the learned DR during the course of the hearing. The fact that the assessee has made purchases from M/s Nandan Auto Tech Ltd. has also not been disputed. The sales of M/s Nandan Auto Tech Ltd. has also not been doubted by the AO in the reassessment proceedings of Nandan Auto Tech Ltd. Further we note that the AO has simply assumed 2% of the purchase price as the cost.There is no basis for coming to such conclusion. Taking into consideration all these facts we are of the view that the addition made by the AO and as upheld by the learned CIT(A) cannot be sustained and we direct the AO to delete this addition. Ground nos. 3 and 4 of assessee’s appeal are accordingly allowed. In the result, the appeal of the assessee is partly allowed.
In the Revenue’s appeal the only issue is regarding deletion of addition of Rs.1,38,32,000/- deleted by the learned CIT(A). The AO has made this addition by holding that the purchases of the assessee company to the extent of Rs.1,38,32,000/- are bogus. It is an admitted fact that assessee has not made any purchases from any of these three parties though it has made payment to these parties for and on behalf of Garg Forging & Castings Ltd. (now Nandan Auto Tech Ltd. and Garg Industries Ltd.). The issue which arises for consideration is whether in the absence of any purchases from these parties, any disallowance can be made in the hands of the assessee company on the allegation that the purchases made by it are bogus. In this regard we note that assessee during the course of the reassessment proceedings before the learned CIT(A) has submitted complete details of the purchases and sales. It has submitted quantitative details and the details of the suppliers also. No infirmity has been pointed out by the AO in the purchases made by it.
The AO is harping only on the one issue that having made these payments to the three parties, the addition has to be made in the hands of the assessee. In our view, the addition or disallowance can be made only of such expenditure which has been claimed by the assessee. In the absence of any claim of any expenditure while computing profit and gains of business or profession no disallowance can be made of such expenditure which has not been deducted while computing profit and gains of business or profession. The AO though has stated that the purchases made by the assessee are bogus to the extent of the payment made by it but he has not co-related any purchases with such payment and which he considers to be not genuine. On the contrary the AO has accepted the sales in the hands of M/s Nandan Auto Tech Ltd. from which assessee had made purchases. Having accepted the sales in the hands of M/s Nandan Auto Tech Ltd. the AO cannot disallow the corresponding purchases in the hands of the assessee company. From the assessment order we also note that the AO has also not rejected the books of accounts. The disallowance of purchases on the ground that the same are bogus thus cannot be sustained. 24. The learned CIT(A) has deleted the addition made by the AO by holding as under:-
“4.3.1 I have considered the submissions of the appellant, the findings of the A.O. and the facts on record. The accounts of the appellant show that for the year under appeal, it made purchases of the following items:- a) Steel clamps 3,18,000 (nos.) b) Alloy Steel Forgings (Machined) Gears 6,421 (nos.) c) Alloy Steel Rough Forging 40,014 (nos.) d) Steel Balls 31,790 (nos.) e) Gear Cutting Tools of Cobalt Bearing High Speed Steel 31,500 (nos.)
4.3.2 Out of the above it has been held in the orders of the it has been held in the orders of the adjudication by the Commissioner of Customs that gear cutting tools purchased by the appellant for exports were in fact cut pieces of bars and mild steel rods. That the concerns from which the appellant sourced its purchases for export were non genuine and fictitious.That exports have been mis-declared in order to avail duty draw back to which the appellant is not legally entitled to. At page 12 of the order of adjudication dated 29.3.2005 of the Commissioner of Customs, it has been stated that the appellant has purchased 31,500 nos. of gear cutting tools from Garg Forging & Castings Ltd. The number of gear cutting tools so referred in the order of the Commissioner is reflected in the quantitative report appended to the audited accounts pertaining to Unit I, where the classification for the product is shown as tool bit. It has been held in the order of adjudication and in the reassessment order that the exports of gear cutting tools having been mis- declared the appellant is not entitled to its claim of duty draw back and as a corollary, there could have been no commensurate purchase for making the so called exports, and in any case the purchase cost of cut pieces of mild steel and steel rods would be 2% of the price as debited under gear cutting tools.
4.3.3 It is a fact that the appellant made payment of Rs.91,62,800/- to Jyoti Steel, Rs.19,00,200/- to Jindal Alloys and Rs.22,70,400/- to Krishna Hardware & Mill Store during the relevant assessment year. In course of assessment proceedings vide letter dated 20.12.2007 it was conveyed that payments to Jyoti Steel and Jindal Alloys have been made on behalf of Garg Forging & Castings Ltd. who had purchased certain items from the said parties. That payments to Krishna Hardware Mill Store was made on behalf of Garg Industries Ltd. on the instruction of the latter since it had made purchases from Krishna Hardware & Mill Store. In the copies of accounts as per books of the appellant, the payments to Jyoti Steel, Jindal Alloys and Krishna Hardware & Mill Store have not been marked against any purchases. But the amounts of payments to the respective party has been transferred to either the account of Garg Forging & Castings Ltd. or Garg Industries Ltd. The fact that there are no purchases from Jyoti Steel, Jindal Alloys or Krishna Hardware Mill Store as per accounts and the amount of payments to these parties have been transferred to the account of either Garg Forgings & Casting Ltd. or Garg Industries Ltd., go on to cumulatively support a position that the payments to these three parties are not in respect of the purchases of the appellant. Since no expense relatable to the payments made has been debited in the accounts, the A.O. technically could not have disallowed any part of such payment to Jyoti Steel Ltd., Krishna Hardware Mill Store and Jindal Alloys.
4.3.4 It is also the AO’s view that since the appellant has made purchases from Garg Forging & Castings Ltd. and Garg Industries Ltd., and the latter two had made purchases from fictitious concerns namely Jindal Alloys, Jyoti Steels and Krishna Hardware ills Store, the appellant has indirectly made purchases from these fictitious concerns. The view could have been supported, had there been any evidence that Krishna Hardware & Mill Store Jyoti Steels and Jindal Alloys have supplied to the group concerns any material other than gear cutting tools of cobalt or heat resistant rubber tension tape or that such supplies other than the items above are also fictitious. There is no such finding in the order of the Commissioner of Customs. Secondly export of gear cutting tools indirectly sourced from the above three concerns has already been held in the case of the appellant as fictitious and engineered for lodging false claim of duty draw back. This being the case, I hold that the appellant not having received any such material from any of the three fictitious entities except 31,500 gear cutting tools indirectly through Garg Forging & Castings Ltd., the payment of Rs.1,38,32,000/- to the three fictitious entities at the instruction of its sister concerns does not become the income of the appellant. The ground is allowed.”
In the background of the aforesaid discussions, in our view the learned CIT(A) has given a detailed reasoning and passed a well reasoned order, which does not need any interference on our part. Accordingly this ground of appeal of the Revenue is dismissed.
26. Since we have deleted both the additions the additional ground regarding 80HHC deduction raised by the assessee has become infructuous and hence needs no adjudication.
In the result assessee’s appeal is partly allowed and the Revenue’s appeal is dismissed.
Order pronounced in the Open Court on 15/01/2016.