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Income Tax Appellate Tribunal, Conducted through E-Court, Rajkot
Before: Ms SUCHITRA KAMBLE & SHRI WASEEM AHMED, ACCOUNTANT, JUDIC MEMBER
आदेश/O R D E R
PER WASEEM AHMED ACCOUNTANT MEMBER:
The captioned two appeals have been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), Rajkot-2, (NFAC, Delhi) (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) r.w.s. 147 f the Income Tax Act 1961 (here-in-after referred to as "the Act") relevant to the Assessment Years 2010-11 & 2012-13.
& 223/Rjt/2022 Asstt. Years 2010-11 & 2012-13 2 First, we take up AY 2010-11
The assessee has raised the following grounds of appeal: “1. The CIT(A) erred in confirming the reopening of the assessment. The confirmation of the reopening is not justified.
2. The CIT(A) erred in confirming that the purchases from M/s. Nazar Impex Pvt. Ltd. were bogus and making an addition of 25% of the purchases.”
3. The assessee in ground No. 1 of its appeal has challenged the validity of reopening of the assessment u/s 147 of the Act.
The necessary facts of the case are that there was a search at the premises of Shri Rajendra Jain Group of Mumbai u/s 132 of the Act dated 3rd October 2013. During the search, it was found that one of the concerns of the group, namely M/s Nazar Impex Pvt. Ltd. is engaged in providing bogus sale bills to various concerns and this fact was also admitted by the director of the said company. It was further unearthed that M/s Nazar Impex Pvt. Ltd. has shown sales amounting to Rs. 11,99,268/- for the year under dispute to the assessee. Accordingly, the Assessing Officer based on the investigation report formed reasons to believe that the assessee has shown bogus expenses of Rs. 11,99,268/- which has escaped assessment. Therefore, the proceedings u/s 147 of the Act were initiated in the name of the assessee by issuing show cause notice u/s 148 of the Act dated 1st March 2017.
The ld. Authorized Representative before us has challenged the reopening on the reasoning that there was already an assessment framed under section 143(3) of the Act in the case of the assessee dated 29th March 2013. Thereafter, the assessee was made subject to the escapement of income tax proceedings and hence, the assessment was again framed u/s 143(3) r.w.s. 147 of the Act vide order dated 12th February 2015. As per the ld. Authorized Representative, the issue relating to the purchase from M/s Nazar Impex Pvt. Ltd. has already been & 223/Rjt/2022 Asstt. Years 2010-11 & 2012-13 3 verified by the Revenue in two different assessment proceedings as discussed above. Thus, further reopening on same set of facts will amount to change of opinion which is not permissible for initiating the proceedings u/s 147 of the Act.
On the contrary, the ld. Departmental Representative submitted that the issue of alleged bogus purchases was not verified by the Revenue on earlier occasions in two different assessment proceedings. Furthermore, the present proceedings were initiated based on the investigation report in pursuant to the search carried out in the case of Shri Rajendra Jain Group at Mumbai. As per the ld. Departmental Representative, there were sufficient materials before the Assessing Officer based on which the Assessing Officer formed reasons to believe that the income has escaped assessment. The ld. Departmental Representative vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The first controversy arises for our adjudication whether the Assessing Officer on the earlier occasion during the proceedings u/s 143(3)/143(3) r.w.s. 147 of the Act has formed any opinion about the purchases shown by the assessee from M/s Nazar Impex Pvt. Ltd. In this regard, we find pertinent to refer the finding of ld. CIT(A) which are reproduced as under:
“4.8 It can be seen from the above that the AO has very systematically brought on record the information received by him from the Investigation Wing, Mumbai and also pointed out that the belief has been formed by him that the assessee has not fully and truly disclosed all material facts, as the information has been received after conclusion of the 2nd reassessment. A perusal of the reasons recorded indicates that the AO has duly and properly applied his mind to the information so received by him. To my mind therefore, the reopening made by the AO cannot be faulted. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx As regards the contention of the assessee that he is covered by the 1st proviso to 4.9 sec 147, it is to be noted that the reopening and subsequent addition is based on specific information received by the AO from the Investigation Wing. No particular enquiries regarding the purchase from Nazar impex were made by the AO either in the regular scrutiny or the 1st reopening. It therefore cannot be said that the assessee has discharged his onus of fully and truly disclosing all material facts before the AO. Based on the facts as narrated above and respectfully following the decisions of the jurisdictional High Court, I & 223/Rjt/2022 Asstt. Years 2010-11 & 2012-13 4 am of the view that the reopening of this assessment is proper and valid. Accordingly, the same is upheld and ground number 1 is dismissed.
7.1 From the above, there is no ambiguity that the Assessing Officer has not formed any opinion with respect to the purchases shown by the assessee from M/s Nazar Impex Pvt. Ltd. in the light of the facts discussed above as a result of search and seizure operation conducted in the case of Shri Rajendra Jain Group. At the time of hearing, the ld. counsel of the assessee has not controverted the findings of the ld. CIT-A. Accordingly, we are of the view that the action of the Assessing Officer cannot be said that it is based on change of opinion.
7.2 Further, we note that the foundation of initiating the proceedings u/s 147 of the Act was the report received from the investigation wing wherein it was alleged that the assessee has made bogus purchases from M/s Nazar Impex Pvt. Ltd. Undisputedly, the report from the investigation wing is a tangible material which was not available to the Assessing Officer during the proceedings carried out on the earlier occasions. The Hon’ble Gujarat High Court in the similar facts and circumstances in the case of M/s Sajani Jewels Vs. DCIT reported in 71 taxmann.com 90 has held as under:
We notice that under letter dated 16.07.2014, the investigation wing of the income tax department had placed the entire report of said investigation alongwith important documents such as the statement of Bhanwarlal Jain and other witnesses whose statements were recorded. If after perusal of such documents, the Assessing Officer recorded the reasons, gist of which is noted above, in our opinion, it cannot be stated that these reasons were not those of the Assessing Officer and merely amounted to mechanical reproduction of the exercise undertaken by the investigation wing of the Income tax department. It is undoubtedly true that the reasons to be recorded before issuance of notice of re-opening have to be those of the Assessing Officer alone. This however, does not mean that the Assessing Officer cannot rely on the exercise undertaken by other wings of the Government departments, if the material so collected through inquiry or investigation provides prima-facie information, a tangible material; which enables the Assessing Officer to form a belief that income chargeable to tax has escaped assessment. There is nothing to prevent the Assessing Officer from recording such satisfaction and to proceed to issue notice for reopening. An independent decision by the Assessing Officer to enable her to come to the conclusion that income chargeable to tax has escaped assessment is sine-qua-non for reopening an assessment. This would undoubtedly require application of mind on her part when certain materials collected by some other wing of the department is placed before her. There can however be no straight-jacket formula of the manner in which, mind can be applied or shown to have been applied. The same may be & 223/Rjt/2022 Asstt. Years 2010-11 & 2012-13 5
gathered from the reasons recorded and other contemporaneous material on record. In this context, we are satisfied that it was the decision of the Assessing Officer, based on the materials collected by the investigation wing that she recorded the reasons to form a belief that income chargeable to tax had escaped assessment, which led her to issue notice of reopening. 7.3 In view of the above, we do not find any infirmity in the initiation of the proceedings by the Revenue under the provisions of section 147 of the Act in the given facts and circumstances. Hence, the ground of appeal of the assessee is hereby dismissed.
8. The second issue raised by the assessee is that the ld. CIT(A) erred in confirming the addition made by the Assessing Officer in part being 25% of bogus purchases instead of deleting the same in entirety.
9. The Assessing Officer during the assessment proceedings found that the assessee has shown bogus purchases amounting to Rs. 11,99,268/- which cannot be allowed as deduction u/s 37(1) of the Act. Thus, the Assessing Officer disallowed the same and added to the total income of the assessee.
10. Aggrieved assessee preferred an appeal before the ld. CIT(A) who has restricted the addition made by the Assessing Officer to the extent of the gross profit embedded in such bogus purchases. The relevant finding of the ld. CIT(A) is extracted as under:
“5.2 It remains to address the contention of the assessee that the CIT(A) in his own case in an earlier year has ruled in his favour and deleted the disallowance of bogus purchase. I have perused that order of the CIT(A) and find that the Ld CIT(A)-2 Rajkot, has not considered the decisions of the jurisdictional High Court cited by me above. In any case, the ratio of the High Court decision would prevail and this contention of the assessee is rejected. The other argument is that the assessee claims to be covered by the decision of the Hon'ble Supreme Court in the case of Odeon Builders. That order of the Supreme Court is a rejection of the Review petition and the assessee is relying on the head note without reference to the facts of his case. In view of the discussion above on facts, it is to be held that the assessee has availed bogus purchase entry from Nazarimpex. In respect of the quantum of disallowance, respectfully following the decisions of the Hon'ble jurisdictional High Court in the case of Jagdish Patel, Vijay Trading and Synbiotics, for the AY 2010-11, the addition of Rs. 11,99,368 is restricted to GP % X Rs. 3,36,030, and for the AY 2011-12, is restricted to the GP % X Rs 56,77,000. Grounds 2 & 3 for both appeals are partly allowed.”
& 223/Rjt/2022 Asstt. Years 2010-11 & 2012-13 6
Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. Authorized Representative before us filed a paper book running from pages 1 to 125 and contended that the assessee has already shown gross profit out of the alleged bogus purchases of Rs. 11,99,268/- which is evident from the financial statement of the assessee. Thus, as per the ld. Authorized Representative if any addition is made on account of gross profit on the value of alleged purchases, it would lead to the double addition which is not desirable under the provisions of law. In sum and substance, the ld. Authorized Representative contended that it is only the net gross profit embedded in such alleged bogus purchases to be added to the total income of the assessee.
On the other hand, the ld. Departmental Representative vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the ld CIT(A) has given a direction to make the addition out of the alleged bogus purchases to the extent of the gross profit embedded therein. Undisputedly, the rate of gross profit, directed by the ld. CIT-A, has not been challenged by the ld. Authorized Representative at the time of hearing. The only controversy is limited to the extent whether the gross profit already shown by the assessee against such alleged bogus purchases should be set of against gross profit determined by the ld. CIT(A). We find force in the argument of the ld. counsel for the assessee which was also not controverted by the ld. Departmental Representative. Accordingly, we direct the Revenue to tax only that portion of gross profit on such alleged purchases which is embedded therein. For example, the gross profit shown by the assessee in the regular financial statement is 15% of the purchases. Thus, it transpires that the bogus purchases have already been suffered to tax to the extent of gross profit shown & 223/Rjt/2022 Asstt. Years 2010-11 & 2012-13 7 by the assessee in its books of accounts. Thus, in the event, the profit on such alleged bogus purchases is decided @ 25%, then, the assessee is entitled to set off the gross profit being 15% of the purchases already shown in the books of accounts.
14.1 In view of the above and after considering the facts in totality, we set aside the issue to the file of the Assessing Officer for fresh adjudication in the light of the above discussion and as per the provisions of law. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes.
In the result, the appeal of the assessee is hereby partly allowed for statistical purposes.
Now coming to the for AY 2012-13.
The assessee has raised the following grounds of appeal: “1. The CIT(A) erred in confirming the reopening of the assessment. The confirmation of the reopening is not justified.
2. The CIT(A) erred in confirming that the purchases from M/s. Nazar Impex Pvt. Ltd. were bogus and making an addition of 25% of the purchases.”
17. The assessee in ground No. 1 of its appeal has challenged the validity of reopening of the assessment u/s 147 of the Act.
At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2012-13 is identical to the issue raised by the assessee in 2010-11. Therefore, the findings given in shall also be applicable for the AY 2012-13. The appeal of the assessee for AY 2010-11 has been decided vide paragraph No. 7 of this order against the assessee. The Ld. AR and DR also agreed that whatever will be findings for the A.Y 2010-11 shall also be applied for the AY 2012-13. Hence, the ground of appeal filed by the assessee is hereby dismissed. & 223/Rjt/2022 Asstt. Years 2010-11 & 2012-13 8
19. The second issue raised by the assessee is that the ld. CIT(A) erred in confirming the addition made by the Assessing Officer in part being 25% of bogus purchases instead of deleting the same in entirety.
At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2012-13 is identical to the issue raised by the assessee in 2010-11. Therefore, the findings given in shall also be applicable for the AY 2012-13. The appeal of the assessee for AY 2010-11 has been decided vide paragraph No. 14 of this order in favour of the assessee in part for statistical purposes. The Ld. AR and DR also agreed that whatever will be findings for the AY 2010-11 shall also be applied for the AY 2012-13. Hence, the ground of appeal filed by the assessee is partly allowed for the statistical purposes.
In the result, the appeal filed by the assessee is partly allowed for the statistical purposes.
In the combined result, both the appeals filed by the assessee are partly allowed for the statistical purposes.
Order pronounced in the Court on 31/10/2023 at Ahmedabad.