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Facts
The case involves cross-appeals concerning assessment year 2011-12, related to additions made for bogus purchases from M/s Rajdhani Sales Corporation. The assessee had declared a loss, which was later revised to income. Reassessment proceedings were initiated based on information suggesting accommodation entries for bogus purchases.
Held
The Tribunal held that the reassessment proceedings under Section 147/148 of the Act were valid as there was prima facie material to suggest escaped assessment. While the initial addition for the full bogus purchases was not upheld, the addition was sustained to the extent of the profit element embedded in such purchases, considering the overall GP ratio.
Key Issues
Validity of reassessment proceedings initiated beyond four years, and whether the entire amount of bogus purchases or only the profit element should be added back.
Sections Cited
147, 148, 143(3), 68, 92CA, 144C
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Income Tax Appellate Tribunal, DELHI BENCH ‘F’’ : NEW DELHI
ORDER PER KRINWANT SAHAY, AM: These are cross appeals filed by the Revenue and Assessee relating to assessment years 2011-12 against the order of the Ld. CIT(A)-5, New Delhi dated 19.11.2019. Revenue has raised the following grounds:-
1. That on the facts and circumstances of the case and in law, the CIT(A) has erred in sustaining addition of Rs. 2,01,91,047/- and deleting the balance addition of Rs. 8,11,18,773/- made by AO on account of taking accommodation entry in the form of bogus purchases from M/s Rajdhani Sales Corporation.
2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in estimating gross profit 2 19.93% (GP ratio) on the said bogus purchases, despite of confirming that the assessee has neither substantiate the purchase nor the sales of specific purchase made from M/s Rajdhani Sales Corporation.
Brief facts of the case are that the assessee had filed its return of income for the assessment year 2011-12 declaring loss at Rs. 33,05,69,071/- on 30.11.2011 which was later revised on 10.9.2018 at an income of Rs. 33,05,69,071/-. The case was selected for scrutiny and consequently a reference was made to the Transfer Pricing Officer as the assessee company had entered into an international transaction with its associate enterprises within the meaning of section 92CA of the Act. The Transfer Pricing Officer vide order u/s. 92CA(3) dated 28.01.2025 had directed the AO to enhance the income of the assessee by Rs. 15,79,78,123/-. Accordingly, the AO enhanced the income by Rs. 15,79,78,123/- in the Draft Assessment Order sent to the assessee. Later the assessee filed the objections against the TP adjustments before the DRP who vide its order dated 27.11.2015 gave the directions to the TPO to recomputed the TP adjustment as per the directions and also enhance the adjustment by way of penalty of Rs. 13,23,081/-. Consequently, the TPO had given the final adjustments of Rs.6,04,33,483/- to the AO and accordingly, the AO passed the Assessment Order at an income of Rs. 27,12,32,420/- after making additions (i) on account of addition on account of loss in foreign derivatives of Rs. 54,05,44,927/-; (ii) Addition as TP adjustment of Rs. 6,04,33,483/- , (iii) Enhancement on account of penalty made by the DRP Rs. 13,23,081/- thus totaling to Rs. 60,23,01,491/-. Thereafter, reassessment proceeding in the case of the assessee were initiated upon the information received from Investigation Wing, Delhi suggesting that the assessee has taken accommodation entry amounting to Rs. 10,13,09,820/- from Sh. Rajinder Prasad Proprietor of Rajdhani Sales Corporation in the form of bogus purchases which was engaged in the business of providing accommodation entries by providing bogus purchase. Accordingly, assessment proceedings were completed by passing assessment order u/s. 147/143(3) of the Act dated 25.12.2018 at an income of Rs. 37,30,42,240/- after making addition of Rs. 10,13,09,820/- u/s. 68 of the Act on account of bogus purchase from Rajdhani Sales Corporation. In Appeal, Ld. CIT(A) partly allowed the appeal of the assessee. Against the above, Revenue and Assessee are in cross appeals before the Tribunal.
We have heard both the parties and perused the records. We find that assessee has disputed the addition of Rs. 10,13,09,820/- towards bogus purchases on merits. It was the contention of the assessee that the addition in dispute has been made on the basis of the report of Investigation Wing, treating the purchases shown by the appellant from Rajdhani Sales Corporation as bogus, due to the cash withdrawal by them. It was further contended that no statement of any person or any evidences have been brought on record and addition has been made on presumptions only. It was further contended that no further enquiry was made by the AO and the document/details provided such as stock register, bills and other details have not been considered by the AO, where the payment has been made through banking channels. It was also contended that there is no motive of appellant to suppress tax as already showing high losses and the appellant has also entered into transaction with the same person earlier and in the subsequent year. It was submitted that that books of accounts have been duly audited where such alleged bogus purchases have been reflected and no adverse comment has been offered. Ld. CIT(A) on going through the bills of Rajdhani Sales Corporation, has observed that there is no VAT or Sales tax number mentioned on such bills. During assessment proceedings, on enquiry, it was found that the said seller is not available on the given address. Further, from the transporter bills of National Road Carrier, it is observed that bill no. of National Road Carrier, Service Tax no. or GST etc has not been mentioned. The signature of driver is also not there. No value of freight is also mentioned in the said document. Therefore, the genuineness of the said bills are not proved. The stock details provided are basically the purchases, production and sales without details of the specific quality and quantity purchased from Rajdhani Sales Corporation. Further, these stock details are appellant's own register and through this the purchase made from alleged party, its conversion and subsequent sale cannot be matched or corroborated beyond doubt. The appellant could not substantiate/matched the sale of the items purchased from the alleged party or its consumptions/processing. It is true that payments have been made through banking channels but this alone cannot prove the veracity of purchases looking to the investigation carried out by Investigation Wing and the fact that all the payments made by assessee has been withdrawn in 4 cash by the seller party. This is also the allegation as mentioned in the reason to believe. Regarding argument of appellant that books of accounts are duly audited and no qualification has been made by Auditor nor rejected by the AO with respect to the genuineness of purchases, it is seen that it is beyond the scope of audit to make such qualification and state about genuineness or bogus purchases. It is generally stated that the details provided by the client has been examined and considered for preparation of audit report. No physical verification is reported by the auditors. Further, with regard to the argument of appellant that no enquiries made by AO, it is observed that during assessment proceedings the AO has conducted enquiry through ITI and the said person was not found on the given address. It was incumbent upon appellant to produce or substantiate the alleged bogus purchases which was not done and hence, the basic onus has not been discharged. It is a fact that all the payments made by appellant has been withdrawn in cash by the recipient with no cogent reasoning. With regard to the transaction with Rajdhani Sales Corporation in the earlier and subsequent years, it is to be mentioned that the information has been received for the specific year and simply because no adverse view has been taken in earlier years or subsequent years - will not vitiate the investigation and findings of the AO. Therefore, looking to the facts and circumstances of this case where on the basis of information received, enquiries made and bank account analyzed, the purchases were found to be bogus, which was also not duly substantiated either at the assessment stage or appellate stage. As also discussed in detail in the foregoing paragraphs, appellant was not able to support its arguments nor substantiate the transactions, therefore these purchases cannot be held to be genuine. The initial burden in this regard has not been discharged by the appellant hence, the decision relied upon by it were not applicable and distinguishable on facts and ratio. Accordingly, it was held that appellant could not substantiate beyond doubt the genuineness of purchases made from Rajdhani Sales Corporation. During appellate proceedings, it has been stated by the appellant that even if the purchases are not considered genuine, the total amount of such purchases cannot be held as disallowable because the AO has not objected to the sales made by the assessee or doubted the genuineness of such sales. It is also stated that the AO has not rejected the books of accounts. Accordingly it is argued that alternatively the profit element embedded with such bogus purchases can only be considered. Before, Ld. CIT(A), assessee has placed reliance in the case of SHRI MEHUL K. МЕНТА VERSUS INCOME TAX OFFICER 15 (1) (3) in (2017) wherein, ITAT, Mumbai on the similar facts and circumstances has only confirmed the partly enhanced gross profits. It has been also held by the Hon'ble Bombay High Court in the case of M/s NIKUNJ EXIMP ENTERPRISES PVT LTD. [2015] 372 ITR 619 (Bom) that even though the suppliers are nonexistent and one of the parties denied having any business dealing with assessee, the addition cannot be upheld in full for total bogus purchases. In view of the aforesaid background and respectfully following the aforesaid precedents, Ld. CIT(A) held that the addition can only be made with respect to the profit embedded in such unsubstantiated purchases.
It was observed that from the Tax Audit Report of the assessee that it has shown overall GP @19.93% for the year under consideration. The appellant has made payments through banking channels and hence, it cannot be said that source of funds are not explained, especially when it has got the turnover of more than 906 crores. The assessee could not submit the details of the sales of specific purchases made from M/s Rajdhani Sales Corporation and the gross profit earned on the sale of such product. Hence, it was treated that no profit has been earned on the sale of such purchases. Thus, Ld. CIT(A) correctly held that if gross profit is estimated @ 19.93% of such purchases, stated to have been made towards providing bogus entries to the assessee, treating that no profit has been disclosed in the sale of the said alleged bogus purchase. Accordingly, GP ratio @ 19.93% is estimated on the said bogus purchase which comes to Rs. 2,01,91,047 and addition to this extent was rightly sustained and balance addition was deleted, which does not need any interference on our part, hence, we uphold the action of the ld. CIT(A) on this issue. Resultantly, the appeal of the revenue is dismissed.
As regards, Assessee’s cross appeal on the jurisdictional issues are concerned, it was observed in STR, received from FIU through DDIT(Inv) that M/s Rajdhani Sales Corporation (Prop. Sh. Rajendra Prasad) has received huge amount through cheques/RTGS in his bank account, which was withdrawn in cash. On enquiry and analysis of bank account it was observed that Sh. Rajendra Prasad is providing bogus purchases and the appellant has shown purchases from him for an amount of Rs. 10,13,09,820/- during the year under consideration. Accordingly, the AO treated this amount as unexplained and added to the total income of appellant, treating this entire purchases as bogus. The appellant challenged the proceedings u/s 147/148 of the Act by stating that that there is no failure on the part of appellant to truly and fully disclose all material facts in the present case. The notice was issued beyond the period of four years, however, no failure was mentioned on the part of appellant to disclose the full materials. It is also stated that the original assessment was completed u/s 143(3) of the Act and hence, this addition cannot be made, in the absence of any allegation or substantive material, cogent evidence etc. It is further stated that AO has relied upon the report of Investigation Wing and no independent application of mind is done. The appellant has also argued that there is a change of opinion in this case as all the details were submitted before AO during first assessment proceedings and hence, this reopening is not valid, therefore, the proceedings u/s 147/148 of the Act is void and the order is required to be annulled. On going through the details and the reason to believe, it is found that AO has received information regarding purchases made by appellant during the year under consideration, where based on the STR report the seller i.e. Rajdhani Sales Corporation has withdrawn all the cash, received as payments, for which no cogent reasoning has been provided either by the said seller or the appellant. This practice was a clear indication that the said person has been providing accommodation entry, using different bank accounts from where the cash has been withdrawn. Accordingly, after recording the reasons in detail, mentioning clearly that appellant has not fully and truly disclosed the material facts, necessary for this assessment and the income has escaped assessment for an amount of Rs. 10,13,09,820/-, the approval of Competent Authority was obtained and then the notice has been issued. Therefore, it is clear that the provisions of law with respect to reopening of case beyond four years have been duly followed and no force is found in the argument of appellant that due procedure has not been followed. With regard to the argument of appellant that there is no allegation or material, it is observed that the STR report and information of Investigation Wing along with bank statement clearly reveals the allegation regarding cash withdrawal by recipient person. Therefore, prima facie there has been some document/information which lead to the reopening of case after forming believe that income has escaped assessment. Reliance was placed on the decision by Hon'ble Supreme Court in the case of Phool Chand Bajrang Lal vs. ITS (1993) 203 ITR 456, Raymond Woolen Mills Ltd. vs. ITO (1999) 236 ITR 34 (SC), Bawa Abhay Singh vs. DCIT 253 ITR 83 (Del.) and other cases where it is held that it is to be seen whether any prima facie material is available, based on which the Department could reopen the case. Since in this case the cogent information was available regarding bogus purchase shown by appellant, which is also supported by bank account of the recipient i.e. Sh. Rajendra Prasad, therefore, the action of AO u/s 148/147 of the Act is in accordance with law and the contention of appellant in this regard is devoid of merits. Therefore, this ground of appeal was rightly rejected. With regard to the contention of appellant that there is a change of opinion in the present assessment order with respect to bogus purchases, it is to be mentioned that during the first assessment proceedings this STR information from FIU was not available to the AO and pursuant to the said information, the proceedings u/s 147/148 of the Act has been initiated. No opinion was formed by the AO, nor this aspect was examined during first proceedings and no such information was there in the possession of AO regarding bogus purchases during first assessment proceedings. The present assessment proceedings have been initiated after receipt of this fresh information. Therefore, this cannot be treated as change in opinion. Accordingly, the various judgments relied upon by the appellant is not applicable to the facts of this case and liable to be rejected. The appellant has also mentioned that the approval of PCIT is mechanical, however, no further arguments have been placed in this regard. On the other hand it is observed from the reasons recorded that worthy Pr. CIT has duly accorded her approval after having perused the reasons recorded. Therefore, this fact clearly shows that reasons recorded and approval granted by the competent authority is as per law and hence, the contention of appellant is not acceptable. Therefore, in view of the aforesaid factual matrix and the binding precedent as discussed in preceding paragraphs, the proceedings u/s 147/148 of the Act was rightly held to be in accordance with law. During the hearing, the Bench directed the Revenue to file the written submission on the issue of raising /arguing the issue of non- issuance of draft assessment order by the AO. Ld. DR submitted that the in the original assessment proceedings u/s. 143(3) r.w.s. 144C(5) of the Act, the variation on account of TP adjustment u/s. 92CA(3) had been proposed and therefore during the course of assessment proceedings, the assessee was an eligible assessee within the meaning of Section 144C(15) of the Act. It was submitted that during the course of original assessment proceedings, the assessee was provided copy of draft assessment order.
But the present proceedings u/s 147/143 of the I.T. Act 1961 are distinct and separate from original assessment proceedings. Moreover, no TP adjustment has been proposed during the course of such re-assessment proceedings. The addition made during re-assessment proceedings is not arising as a consequence of order of TPO u/s 92C(A)(3) of the I.T. Act 1961. Therefore no question arises to treat the assessee as an eligible assessee as per the provision of I.T. Act, 1961. It may noted that there are separate appellate proceedings in respect of the original assessment u/s 143(3) r.w.s 144C(5) of the I.T. Act, 1961. Thus passing of impugned reassessment order u/s 147/143(3) of the I.T. Act, 1961 does not mean that the original assessment order dated 28.01.2016 has lost its existence as a separate proceedings/order. That is the precise reason that separate appellate proceedings in respect of original assessment order are continuing to exist. It is well accepted principle of interpretation of taxing statute that if language used in a particular provision is plain, simple and unambiguous than the literal interpretation is required to be employed. The appellate authority cannot read beyond what is clearly stated in such statute. Thus in view of the facts discussed in detail, the re-assessment order u/s 147/143(3) of IT Act, 1961 is fully valid as per provisions of the Income Tax Act, 1961 and the assessee's challenge deserve to be dismissed. We hold and direct accordingly. Resultantly, the Assessee’s Appeal is dismissed.