RADHEY SHYAM & CO.,DELHI vs ITO, NEW DELHI

Income Tax Appellate Tribunal, DELHI BENCH “SMC-1” NEW DELHI

For Appellant: Shri Ved Jain FCA

For Respondent: Shri P. Dam Kanunjna Sr. DR

Hearing: 13/11/2015

Asstt. Yrs: 2006-07 Radhey Shyam & Co., Vs. Income-tax Officer, Prop. Radhey shyam, Ward-39(3), New Delhi. 5645, Basti Harphool Singh, Sadar Bazar, Delhi. PAN: ABHPS 9513 Q ( Appellant ) (Respondent) Appellant by : Shri Ved Jain FCA Respondent by : Shri P. Dam Kanunjna Sr. DR Date of hearing : 13/11/2015. Date of order : 30/11/2015. O R D E R This appeal has been preferred by the assessee against the order of the CIT(A) dated 15/12/2014, passed u/s 144 read with section 147 of the income-tax Act, 1961, upholding the reassessment order passed u/s 148 and on merits the CIT(A) reduced the addition to Rs. 94,771/- as against Rs. 47,73,855/-, made by the AO.

Brief facts of the case are that the assessee filed the return declaring an income of Rs. 1,24,182/-, which was completed u/s 143(3). Subsequently, the assessment was reopened on the allegation that the assessee had made bogus purchases. The assessment was completed by the AO by making addition of Rs. 4,73,855/-, treating the entire purchases made by the assessee from M/s Shree Bankey Bihari Trading Company, to be the accommodation entries.

3. The assessee went in appeal before the CIT(A). The CIT(A) upheld the validity of the reassessment, but reduced the addition to 20% of the purchases, amounting to Rs. 94,771/-.

The issues involved in various grounds taken by the assessee relate to the validity of the reassessment as well as the sustenance of the addition to the extent of 20%. So far as the validity of the assessment is concerned, I heard the rival submissions and carefully considered the same. I noted that the assessment has been reopened by the AO by recording the following reasons: “Reasons for the belief that the income has escaped assessment in the case of M/s Radhay Shyam & Co. for the assessment year 2006-07 A letter bearing F.No. AddI.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 & 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 :- "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.D.

3. 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. 4. 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. 7. 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 A.Y. 2006-07, it is noticed that the following accommodation entries have been taken by the assessee namely M/s Radhay Shyam & Co.:- Sl. Accommodation entry provided by Name of party to whom Amount of No. Accommodation entry is Accommodation entry provided 1. Shree Bankey Bihari Trading Co. M/s Radhay Shyam & Co. Rs. 4,73,855/- Total amount of entries= Rs. 4,73,855/- Since Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Valbhav 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 Radhay Shyam & Co., whose name is appearing in the said list, has taken accommodation entries from Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to AY. 2006-07. In view of the above, I have reasons to believe that income chargeable to tax of M/s Radhay Shyam & Co. amounting to Rs. 4,73,855/- for the F.Y. 2005-06 relevant to AY. 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. Tax Act, 1961 as the same is getting barred by limitation on 31/3/2013. If approved, notice u/s 148 of the act may be issued. Sd/- 28.3.2013 (Pawan Kumar Vashist) Income Tax Officer Ward-39(3), New Delhi.

I found that the issue regarding the validity of the reassessment is duly covered by the decision of this Bench in the case of Unique Metal Industries Vs. ITO in in which this Tribunal vide its order dated 28-1-2015 quashed the reassessment. I noted that in that case also similar type of reasons were recorded, as reproduced below:

Reasons for the belief that the income has escaped assessment in the case of M/s Radhay Shyam & Co. for the assessment year 2006-07 A letter bearing F.No. AddI.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 & 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 :-

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.

4. 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 A.Y. 2006-07, it is noticed that the following accommodation entries have been taken by the assessee namely M/s Unique Metal Industries:-

Sl. Accommodation entry provided by Name of party to whom Amount of No. Accommodation entry is Accommodation entry provided 1. Shree Shyam Trading Co. M/s Unique Metal Industries Rs. 2,44,399/- 2. Vishnu Trading Co. M/s Unique Metal Industries Rs. 8,12,542/- 3. Shree Bankey Bihari M/s Unique Metal Industries Rs. 3,28,368/- Total amount of entries= Rs. 13,85,309/- Since Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Valbhav 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 Radhay Shyam & Co., whose name is appearing in the said list, has taken accommodation entries from Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain pertaining to AY. 2006-07. In view of the above, I have reasons to believe that income chargeable to tax of M/s Radhay Shyam & Co. amounting to Rs. 4,73,855/- for the F.Y. 2005-06 relevant to AY. 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. Tax Act, 1961 as the same is getting barred by limitation on 31/3/2013. If approved, notice u/s 148 of the act may be issued. Sd/- 28.3.2013 (Pawan Kumar Vashist) Income Tax Officer Ward-39(3), New Delhi.

Since in the case of Unique Metal Industries (supra), similar reasons were recorded, as have been recorded in the case of the assessee and the party from which the assessee made the purchases were Shri Bankey Bihari Trading Co., which is a party in the case of the assessee, therefore, respectfully following the decision of this Tribunal dated 28-1-2015 in the case of Unique Metal Industries (supra), I quash the reassessment.

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 additionof20% 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 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. Ld. DR even though vehemently relied on the order of CIT(A) as well as that of the AO, but 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). I, therefore, respectfully following the decision of this Tribunal in the case of Unique Metal Industries (supra), delete the addition as sustained by the ld. CIT(A) amounting to Rs.94,771/-. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced in open court on 30/11/2015.

RADHEY SHYAM & CO.,DELHI vs. ITO, NEW DELHI