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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
Per Dr. M. L. Meena, A.M.:
This appeal is filed by the assessee against the order dated 12.03.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-3, Ludhiana (Hereinafter referred to as “the CIT(A)”, in respect of the Assessment Year 2011-12 , where the assessee has raised the following grounds of appeal: “1. That the Ld. CIT(A) has erred in confirming the action of the AO in re- opening the case U/s 147 of the Income Tax Act, 1961 based on the
ITA No. 358/Asr/2019 2 Bhai Industries Pvt. Ltd. v. ITO report of the Investigation Wing only and without any independent application of mind by the AO which is sine qua for the purpose of forming reasons to believe.
That the re-opening of assessment beyond 4 years is otherwise not warranted since there is no failure on the part of the assessee to disclose all material facts at the time of filing of the return of income and also there is no reason to believe that the income of the assessee has escaped assessment and as such the re-opening of the assessment is bad in law.
Notwithstanding the above said grounds of appeals, the Ld. CIT(A) has erred in confirming the addition of the genuine purchases of wheat to the tune of Rs.58,74,080/- as bogus purchases, ignoring the fact that the purchases of wheat are duly supported by the relevant bills of the parties and the payment having been made through proper banking channel.
That the CIT(A) has failed to appreciate that there is a documentary evidence of the goods so purchased had crossed the excise and taxation barrier at ‘Shambhu’ and necessary evidence of the actual transportation of the wheat having not been doubted, the finding of the CIT(A) is arbitrary and without any basis.
That the CIT(A) has erred in relying upon the statement recorded at the back of the Assessee of one, Shri Rajesh Mittal and Shri Bhagwan Jain, by the Investigation Wing and no cross-examination have been allowed to the Assessee and, thus, the confirmation of addition is bad in law as per the Judgment of the Hon'ble Apex Court in the case of M/s Andaman Timber Industries reported in 127 DTR 241 and Kishan Chand Chela Ram reported in 125 ITR 713.
That the CIT(A) has failed to appreciate that the part of the purchases from the same party under similar circumstances to the tune of Rs.15,16,294/- have been accepted and non-acceptance of such purchases under similar circumstances from the same party is against the facts and circumstances of the case.
That the CIT(A) has also grossly erred in confirming the addition on account of alleged bogus purchases, ignoring the quantitative tally as maintained by the Assessee and the sales against such purchases of wheat having not been doubted and also not considering the binding
ITA No. 358/Asr/2019 3 Bhai Industries Pvt. Ltd. v. ITO judgment of the Hon'ble Supreme Court in the case of the Pr. CIT Vs. Tejua Rohit kumar Kapadi as reported in 94 taxmann.com 325 and the jurisdictional Hon'ble High Court in the case of Leaders Valves as reported in 285 ITR 435.
That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.”
Briefly, the facts as per record are that the assessee is into the business of flour mill where the basic raw material is wheat converted into the end-products such as Atta, Maida and Suji; that the assessee is maintaining audited books of accounts with day to day stock register; that the return of income, is filed along with the report u/s 44AD, such quantitative details of the wheat purchased and ‘end-products’ obtained therefrom in the form of Atta, Maida and Suji.
At the time of hearing, the Ld. AR narrated the sequence of events leading to the reopening of the case u/s 148 that, the return of income was filed on the basis of such audited books of accounts on 07.09.2011, declaring taxable income of Rs. 7,31,440/- and which was processed u/s 143(1) on 23.01.2012. Later on, the Assessing Officer (in short “the AO”) on the basis of information received from DDIT (Inv.), Karnal, Haryana issued notice u/s 148 which was duly served upon the assessee and in response, to which, the assessee filed the return of income on 11.07.2018 and requested for copy of the reasons as recorded by the AO for submitting his objections in the light of the decision of Hon’ble Supreme Court in the case of GKN Driveshaft, reported in 259 ITR 19.
The AO has supplied the copy of reasons (APB, Pg. 52 & 53); that in the reasons, the AO has mentioned that the information was received from the Investigation Wing, Karnal; that M/s. Kamna Overseas Enterprises,
ITA No. 358/Asr/2019 4 Bhai Industries Pvt. Ltd. v. ITO Delhi had received an amount of Rs. 58,74,080/- through RTGS/NEFT transferred from M/s. Bhai Industries Ltd. through RTGS/NEFT from the regular bank account of the assessee and that during enquiry proceedings by the Investigation Wing, Karnal, it had come to the notice that one Sh. Rajesh Kumar Mittal and Sh. Bhagwan Jain had been shown as proprietor of M/s. Kamna Overseas Enterprises and one Sh. Sanjeev Mittal had deposed in their statements that, the said concern was actually controlled and managed by Sh. Rajesh Kumar Mittal and further, they had stated that, they were paid a very small amount to sign documents including bank cheques etc. It was further deposed by them that, they had not made any sales/purchases from M/s. Kamna Overseas Enterprises to the assessee through whom, following amounts have been received in the bank account of M/s. Kamna Overseas Enterprises and the details of the payments received into the bank account of M/s. Kamna Overseas Enterprises have been mentioned in the reasons as under:
Date on which Amount amount transferred 03.11.2010 Rs. 7,45,470/- 21.12.2010 Rs. 9,00,000/- 27.12.2010 Rs. 5,00,000/- 27.12.2010 Rs. 10,00,000/- 30.12.2010 Rs. 7,00,000/- 03.01.2011 Rs. 7,00,000/- 05.01.2011 Rs. 6,28,610/- 08.01.2011 Rs. 7,00,000/- Total Rs. 58,74,080/-
ITA No. 358/Asr/2019 5 Bhai Industries Pvt. Ltd. v. ITO 5. From the above reasons, it is thus alleged that Sh. Rajesh Mittal & Others had only received some commission and thus, the assessee company had just given accommodation entries to the tune of Rs. 58,74,080/- and, as such, it was a fit case for reopening of case u/s 148 of the Income Tax Act, 1961.
On receipt of the reasons, the assessee has filed a detailed reply, (APB, Pg. 58 to 61) and for the sake of convenience it is reproduced as under:-
“Subject: Objections against Reasons Recorded for issuance of Notice a/s 148 In this regard, respectfully submitted, that my above named client was in receipt of your letter no. ACIT - Moga / Moga / 2018-19 / 173 dated 10(11)/10/2018, where in your goodself had supplied usthe reasons recorded for issuance of notice u/s 148. To this reasons our objections are as under: 1. That we have purchased wheat from M/s Kamna Overseas (PAN: AKIPM5541L), 2087-A, Mandi Narela, Delhi on various occasions during the F.Y. 2010 - 11. In total we have purchased wheat for 19 times during the year from them. The purchase is duly supported by movement of goods from there place to our place. Copy of all the Balties is being submitted for your kind perusal.
Movement of goods can also be established from the fact that the same has moved from one state to another state. The goods were duly reported at the ICC (Information Collection Centre) established by the Punjab Value Added Tax Department. Copy of VAT - XXXVI is also enclosed for your kind perusal. Even during the year they had charged commission on some invoices from us, on, which we had deducted TDS and had duly deposited it as required. From the perusal of record it can be Very well worked out that there was actual movement of goods and that our client had actually production purchased the goods / wheat, which he had used for its The detail of all the purchases is as under:
S. Bill Dated Amount Goods Vehicle GR Transport VAT No. No. Received No. No. Name XXXVI on No. 1. 1444 09/10/2010 395463.00 10/10/10 HR46 3602 Delhi UP 029373 Transport 5794 Company
ITA No. 358/Asr/2019 6 Bhai Industries Pvt. Ltd. v. ITO 2. 1447 09/10/2010 384788.00 10/10/10 NL02G 3605 Delhi UP 029372 Transport 9117 Company 3. 1453 10/10/2010 365957.00 11/10/10 HR59 3613 Delhi UP 0293389 Transport 4278 Company 4. 1456 10/10/2010 369710.40 11/10/10 HR21F 3610 Delhi UP 029389 Transport 2913 Company 5. 1482 25/10/2010 370263.25 28/10/10 HR46 3536 Delhi UP 0277686 Transport 5794 Company 6. 1483 25/10/2010 375583.00 28/10/10 HR61 3537 Delhi UP 0134552 Transport 4041 Company 7. 1638 22/12/2010 403987.50 24/12/10 HR46 1271 Shankar Road 0208953 Carriers 5794 8. 1639 22/12/2010 392323.50 24/12/10 HR39B 1272 Shankar Road 0208952 Carriers 5761 9. 1643 22/12/2010 405162.00 26/12/10 HR46A 1274 Shankar Road 0266675 4349 Carriers 10. 1644 22/12/2010 409554.00 26/12/10 HR39A 1275 Shankar Road 0161287 5585 Carriers 11. 1657 25/12/2010 369965.00 26/12/10 HR58 830 Mohan Road 0193939 Lines 2806 12. 1658 25/12/2010 377773.00 27/12/10 HR46 831 Mohan Road 0193065 Lines 5794 13. 1663 25/12/2010 389856.25 27/12/10 HR62 838 Mohan Road 0209523 Lines 9928
ITA No. 358/Asr/2019 7 Bhai Industries Pvt. Ltd. v. ITO 14. 1664 25/12/2010 398615.00 27/12/10 HR29F 839 Mohan Road 0209616 Lines 2913 15. 1669 26/12/2010 420270.50 29/12/10 RJ31G 983 Ganga 0239823 Transport Co. 1500 986 Ganga 16. 1671 30/12/2010 383714.50 31/12/2010 HR59 0192641 Transport Co. 2748 17. 1673 30/12/2010 391556.75 31/12/10 HR58 988 Ganga 0192641 Transport Co. 4457 18. 1674 30/12/2010 387172.50 01/01/11 HR45 989 Ganga 0193054 Transport Co. 1895 19. 1676 30/12/2010 398660.00 01/01/11 HR12A 3590 Delhi UP 7403 Transport Company
That it is further submitted before your goodself that in total we had made payment of Rs. 7390000/- for total purchase of Rs. 7390374.90/- during the F.Y. 2010-11 to the above said firm instead of Rs. 5874080/- as has been stated by your goodself in the reasons supplied and this payment has been made through proper banking channels. Copy of account is enclosed for your kind perusal. So it cannot be stated that we have over booked expenditure of Rs 5874080/- for the said financial year. 3. Further submitted before your goodself that it is well-settled legal position after the judgment c Hon'ble Supreme Court in the case of Kishinchand Chellaram v. CIT (1980)125 ITR that an material collected by the Assessing Officer behind the back of the assessee cannot be used against him unless the assessee has been allowed a chance to rebut the same. In this case we have never been inquired about the transactions with M/s Kamna Overseas and we have the never been given any opportunity to cross examine the person on whose statement proceedings are being initiated. So issuance of notice u/s 148 without making any inquiry from our end is completely unjustifiable. Further we cannot state under what circumstances the statement on the basis of which these proceedings are being concern person had given his initiated. We have never been supplied any copy of his statement or we have never been called for w.r.t. the proceedings which were ever been initiated against M/s Kamna Overseas, Delhi. Here reliance can also be placed of latest judgment of ITAT Delhi in case Smt. Tarun Verma, Delhi Vs ITO, New Delhi reported on 19/09/2017, ITA No. 2833/Del/2016, wherein proceedings initiated u/s 148 was quashed by the Hon'ble ITAT on the same issue.
ITA No. 358/Asr/2019 8 Bhai Industries Pvt. Ltd. v. ITO So your goodself can clearly make out that proper opportunity was not provided to us and that all the transactions with M/s Kamna Overseas is genuine with actual movement of goods. So your goodself is humbly requested to kindly drop all the proceedings initiated u/s 148 and issue directions accordingly.” 7. In nutshell, the assessee has contended that, the total purchases from ‘M/s. Kamna Overseas’ were to the tune of Rs. 73,90,374.90 and not Rs. 58,74,080/- as per the reasons recorded by the Ld. AO and the assessee gave the details of the purchases made from ‘M/s. Kamna Overseas Enterprises’, along with bill number, date, amount, vehicle number, GR number, copy of bilties, transportation details, copy of declaration of VAT on form XXXVI submitted before the Excise & Taxation Department, Punjab with each & every bill and also requested for cross- examination of the persons, who had given the statements before the Investigation Wing, Karnal.
The Ld. Assessing Officer disposed-off the objections vide letter dated 15.11.2008 again relying upon the report of the Investigation Wing, Karnal, (APB, Pg. 62 & 63) and proceeded to issue the questionnaire and during the assessment proceedings, assessee cooperated in providing the information and submitting the details of the closing stock, produced the books of accounts, relied upon the ‘audit report’ in which, the quantitative details of the purchases of wheat, consumption of raw material and end- product obtained in the shape of Atta, Maida and Suji and closing stock, both in quantity and value had been submitted. Further, in reply to the show-cause notice, the assessee, again reiterated the submission that he had made before the Ld. Assessing Officer in the form of objections to the reasons recorded by the Ld. Assessing Officer. The assessee also furnished copy of account of M/s. Kamna Overseas Enterprises in its books of accounts and copy of each & every bill, declaration as made to the
ITA No. 358/Asr/2019 9 Bhai Industries Pvt. Ltd. v. ITO Excise & Taxation Department, Punjab, VAT-XXXVI, copies of the billties, transportation details and copy of the bank account for the preposition that, the actual movement of the goods have taken place to the premises of the assessee. It was further argued that even the books of accounts of the assessee have not been rejected u/s 145(3) and, the AO raised no doubt, about the sales and closing stock nor any defect have been pointed out in day to day maintenance of books of accounts, in quantitative details and no enquiry have been made by the AO from the ‘Toll Barriers’ and, as such, the whole basis for making the addition on, merits was surmises & conjectures, according to the assessee,
Reliance was placed by the assessee on the judgments of Hon’ble Apex Court and the other judgments of the jurisdictional High Court and of the coordinate benches, for the preposition, that if the purchases are backed by bills and the payments have been made by account payee cheques and that the sales and closing stock has been accepted and there is no evidence to show that the amount was recycled backed to the assessee, then under such circumstances, no addition was called for on account of bogus purchases. Reliance has been placed on the following judgments:
I. Judgment of Hon’ble Apex Court in the case of PCIT vs. Tejua Rohit Kumar Kapadia in SLP No. 12670/2018 reported in 94 taxmann.com 325 (SC) copy placed at pages 303 of judgment set. II. Judgment of Piyush Developers Pvt. Ltd. vs. ACIT in ITA No. 5599/Del/2010 copy placed at pages304 to 306 of judgment set. III. Judgment of Hon’ble Chandigarh Bench in the case of Rajesh Gupta vs. JCIT in ITA No. 264/Chd/2010 copy placed at pages 307 to 308 of judgment set.
ITA No. 358/Asr/2019 10 Bhai Industries Pvt. Ltd. v. ITO IV. Judgment of Hon’ble Chandigarh Bench in the case of Northern India Steel Rolling Mills vs. DCIT in ITA No. 591/Chd/2014 copy placed at pages 339 to 349 of judgment set. V. Judgment of Commissioner of Income Tax vs. Leader Valves Ltd. as reported in 285 ITR 435. VI. Judgment of Hon’ble ITAT Chandigarh Bench in the case of Samrat Plywood Inds in ITA No. 595/Chd/2017 copy placed at pages 354 to 358 of judgment set. 10. It was vehemently argued by the Ld. Counsel that out of the total purchases made amounting to Rs. 73,89,998/-, for which the necessary copy of account has been placed in the paper book at page 77, along with all the supporting invoices and other relevant documents, which proves the movement of goods, the Ld. Assessing Officer have accepted the purchases to the tune of Rs. 15,16,294/- from the same party and, thus, there is inbuilt contradiction in the order of the Ld. Assessing Officer, which have been confirmed by the Ld. CIT(A) and such confirmation of addition by the Ld. CIT(A) is against the documentary evidences against which no adverse view have been drawn by the Ld. Assessing Officer/Ld. CIT(A).
It has further been argued that, though, the assessee has specifically sought the cross-examination, whose statements have been relied upon by the Assessing Officer while passing the order. Reliance was placed on the various judgments including of the ‘Apex Court’ and other coordinate benches of ITAT for the preposition that, if no cross-examination is allowed and the addition is made on the basis of statement recorded at the back of the assessee, then the addition is not sustainable. In support, reliance placed by the Ld. Counsel on the following judgments:
i) Dhanwant Kaur vs ITO in ITA No. 1027/Chd/2014 order dated 19.11.2015 ii) Great India Steel Fabricators in ITA No. 746/Chd/2014 dated 03.03.2017
ITA No. 358/Asr/2019 11 Bhai Industries Pvt. Ltd. v. ITO iii) Smt. Sunita Jain & Others in ITA No. 501 & 502/Ahd/2016 iv) Andaman Timber Industries vs Commissioner of Central Excise 2015 281 CTR 241 v) CIT vs Smt. Sunita Dhadda in ITA No. 197/2012(99 CCH394 Raj HC) order dated 31.07.2017 (Rajasthan HC) vi) CIT vs. Smc. Share Brokers Lt. (2007) 288 ITR 345 (Del) vii) Shree Bishandas Iron Works vs DCIT in ITA No. 1232/Kol/2014 order dated 26.12.2017 viii) Shri Rajeev Agarwal & Sons vs ITO in ITA No. 6087/Del/2018 order dated 21.01.2019 (Del Bench) ix) Smt. Nirmal Sharma vs ITO in ITA No. 4931/Del/2018 order dated 18.01.2019 (Del Bench) x) Anubhav Jain vs ITO in ITA No. 4565/Del/2018 order dated 26.11.2018 (Del Bench) xi) Kishan Chand Chela Ram reported in 125 ITR 713. 12. In respect of the grounds of appeal for reopening of the case, the Ld. Counsel of the assessee argued that the AO had not formed his independent opinion and it is a case of ‘borrowed satisfaction’ and no enquiries were made with any application of mind by the Ld. Assessing Officer concerned before resorting to issuance of notice u/s 148 of the Income Tax Act, 1961. It was, thus, pleaded that, the whole exercise of reopening of the case is based upon the information received from Investigation Wing, Karnal, which is not sustainable in view of the following judgments:
I. Judgment in the case of Holy Faith International Pvt. Ltd. in ITA No. 181/Asr/2017 of Hon’ble ITAT, Amritsar Bench, Amritsar. The copy of the judgment is placed in the judgment set pages 52 to 66. II. Judgment in the case of Principal Commissioner of Income Tax-4 vs. G & G Pharma Ltd. reported in 384 ITR 147 of Hon’ble Delhi High Court. The copy of the judgment is placed in the judgment set pages 46 to 51
ITA No. 358/Asr/2019 12 Bhai Industries Pvt. Ltd. v. ITO III. Judgment in the case of Signature Hotels Pvt. Ltd. vs. ITO and Anr (2011) 338 ITR 51 of Hon’ble Delhi High Court, IV. Judgment in the case of Sh. Gopal Sharan vs. Ito in ITA no. 51/Asr/2012 dated 05.09.2012 (Amritsar ITAT). The copy of the judgment is placed in judgment set pages 125 to 132 V. Judgment in the case of Mohd. Yousuf Wani vs. Ito in ITA no. 372/Asr/2009 (Amritsar ITAT). The copy of the judgment is placed in judgment set pages 141 to 152 VI. Judgment in the case of Sh. Sanjeev Aggarwal vs. DCIT in ITA no. 547/Asr/2011 (Amritsar ITAT). The copy of the judgment is placed in judgment set pages 153 to 162 VII. Judgment in the case of M/s. Supertech Forgings (India) Pvt. Ltd. vs. DCIT in ITA No. 563/Asr/2018 (Amritsar ITAT). The copy of the judgment is placed in judgment set pages 67 to 120. VIII. Judgment in the case of Sh. Charanjiv Lal Aggarwal vs. ITO Ward-4(1), Amritsar in ITA No. 598/Asr/2015. IX. Judgment in the case of Sh. Karanvir Verma vs. ITO, Amritsar in ITA No. 352/Asr/2014. 13. It was argued on the strength on the above said judgment of the Jurisdictional Bench of ITAT, that since it is a case of borrowed satisfaction, the reopening was bad in law and, thus, the assessment deserves to be quashed.
It has further been argued that wrong reasons have been recorded for the purposes of reopening of the case, despite bringing to the knowledge of the Assessing Officer in our objections, that the total purchases from M/s. Kamna Overseas are to the tune of Rs. 73,89,998/- and not Rs. 58,74,080/-, and, further, it is not a case of accommodation entry, since against such payment, the purchases had been debited in the books of accounts and for the preposition of wrong reasons, reliance has been placed on the following judgments:
ITA No. 358/Asr/2019 13 Bhai Industries Pvt. Ltd. v. ITO I. Judgment of Hon’ble ITAT Chandigarh Bench in the case of Smt. Monika Rani in ITA No. 582/Chd/2019 copy placed at pages 165 to 175 of judgment set. II. Judgment of in the case of Sagar Enterprises vs. ACIT reported in 257 ITR 335 copy placed at pages 176 to 179 of judgment set. III. Judgment of Hon’ble ITAT Chandigarh Bench in the case of Baba Karta Singh Dukki Educational Trust vs. ITO reported in 63 Taxmann.com 112 copy placed at pages 180 to 188 of judgment set. IV. Judgment of Hon’ble ITAT Amritsar Bench in the case of Gaurav Joshi vs. ITO reported in 55 CCH 0083 Asr. Trib. copy placed at pages 189 to 194 of judgment set. V. Judgment of Hon’ble ITAT Chandigarh Bench in the case of Smt. Charanjit Kaurreported in 88 ITR (Trib.) 414 copy placed at pages 195 to 199 of judgment set. 15. Thus, wrong reason to believe have been formed to initiate the proceedings u/s 148 as, there is no nexus with the formation of belief viz a viz the reasons recorded, as per the judgment of the Lakhmani Mewal Dass reported in 103 ITR 457 (SC) and, thus, both on the wrong reasons and there being no proper reason to believe, the assessment proceedings deserve to be quashed.
It was further argued that, the assessee had given detailed submissions both on the issue of proceedings initiated u/s 148 and also on merits, before the Ld. CIT(A) and the Ld. CIT(A) has reproduced such submission in para 5.1 of the order in page 3 to 16 of the order and, though, such submissions were both, on legal and on merits, but strangely, the Ld. CIT(A) has totally ignored such submissions and has only relied upon in one of the order passed by her in the name of Golden Wheat & Allied Mills Pvt. Ltd., which was decided by her on 23.10.2018 and has reproduced the findings from page 17 to page 26 of her order and then in para 5.3, by relying upon that decision, has dismissed the appeal of the
ITA No. 358/Asr/2019 14 Bhai Industries Pvt. Ltd. v. ITO assessee. It has vehemently been argued that, the whole basis of the confirmation of addition by the Ld. CIT(A), is on surmises & conjectures and, therefore, such confirmation of addition was liable to be deleted and it was further clarified by the Ld. Counsel that the assessee has no link/connection with the said concern.
Per contra, the ld. Addl. CIT DR stands supported the impugned order.
We have heard the rival contentions and carefully gone through the assessment order, order of the Ld. CIT(A), detailed arguments made before us along with, the brief synopsis and the paper book as filed by the Ld. Counsel of the assessee. After going through the reasons, (APB, Pg. 50 to 53) and, aforesaid objections to the reasons filed by the assessee, we observe that the assessee had challenged the reasons for reopening being based on report of the Investigation Wing and further the appellant brought to the notice of the Assessing Officer, the detail of the Wheat purchased from ‘M/s. Kamna Overseas’ along with the bill-wise details of such purchases, vehicle numbers, GR number, Transportation details and VAT Certificate as submitted to the Excise & Taxation Department in respect of each purchase. The Ld. AR clarified that the total purchases were to the tune of Rs. 73,90,374.90, as against the amount of Rs. 58,74,080/- mentioned in the reasons recorded by the Ld. Assessing Officer and that the appellant sought for the cross-examination of the persons concerned whose statement have been relied upon by the Ld. Assessing Officer, as recorded by the Investigation Wing, Karnal in its back.
ITA No. 358/Asr/2019 15 Bhai Industries Pvt. Ltd. v. ITO 19. It is seen that the AO, while disposing of the objections stuck to the information received from the Investigation Directorate, Karnal, brushing aside the above said submissions made by the assessee, and that the AO did not even take any steps for making any independent enquiries, as regards to the complete details of purchases, with reference to the documentary evidences furnished by the assessee. The AR has filed the copy of the disposal of the objections by the AO before us for the ready reference, (APB, Pg.62 to 63) which reads as under:
“To. M/s Bhai Industries Pvt Ltd, 7th Mile Stone, G.T Road, Moga. Sir. Sub: Disposal of Objections raised against reasons for issuance of notice u/s 148 of Income Tax Act, 1961 in the case of M/s Bhai Industries Pvt Ltd, 7th Mile Stone, G.T Road, Moga for A.Y. 201112 - Regarding Please refer to your letter dated 02.11.2018 on the subject cited above. 2. On the basis of concrete information received from Investigation Directorate in which it is mentioned that the firm, M/s Kamna Overseas, 2087-4. Mandi Narela, Delhi, in actual no goods was ever sold and delivered to the assessee from whom the payment was received through RTGS etc in the bank account of M/s Kamna Overseas, and reasons were recorded after due application of mind and notice u/s 148 was issued thereafter. 3. Further, you have stated that you had made a payments of Rs. 73,90,000/- for total purchase of Rs. 73,90,374/- during the F.Y 2010-11 instead of Rs. 58,74,080/-. During the course of proceedings u/s 131(1A) of the Income Tax Act, 1961, Sh. Rajesh Mittal, Prop M/s Kamna Overseas had admitted in his statement (Q. No: 14 of his statement) that he had not entered into any sale/purchase from M/s Bhai Industries Pvt Ltd. Further, M/s Kamna Overseas/Enterprises has admitted to provide accommodation entries to various parties. The expenditure booked by the assessee company amounting to Rs. 58,74,080/- is nothing but accommodation entry. Further, you have stated in your letter that any material collected by the Assessing Officer behind the back of the assessee cannot be used against him unless he has been allowed a chance to rebut the same. I have gone through
ITA No. 358/Asr/2019 16 Bhai Industries Pvt. Ltd. v. ITO the judgments which you mentioned in your letter and the same is different from your case. It is relevant to stated the decision rendered by the Hon'ble Supreme Court in the case of ACIT V/s Rajesh Jhaveri Stock Brokers P. Limited [2007] reported in 291 ITR 500, at the stage of initiation of reassessment proceedings under section 147 of the Act, it is not required to be conclusively proven that income has actually escaped assessment. The only requirement is that whether there was any relevant material on which a reasonable person can form the requisite belief that taxable income has escaped assessment. In the case of Raymond Wollen Mills Ltd, V/s ITO [1997] reported in 236 ITR 34, the Hon'ble Supreme Court has held that at the stage of initiation of reassessment, the only thing required to be seen is that whether there is any prima facie material on the basis of which a case can be reopened. It further held that the sufficiency or correctness of material is not a thing to be considered at this stage. Therefore, I have duly considered your objections to the reopening of the case u/s 147/T48 and found them unacceptable. The assessment in this case shall be finalized accordingly. This may be considered as speaking order. Yours Faithfully, (Tarun Sharda) Assistant Commissioner of Income Tax, Circle Moga, Moga” 20. It is evident from the above letter of the AO, that while disposing the objections of the assessee, the AO was stick to the addition of Rs. 58,74,080/- without addressing the payments of Rs. 73,90,000/- made for total purchase of Rs. 73,90,374/- with the supporting corroborative documentary evidences, instead of Rs. 58,74,080/- during the financial year under consideration i.e., 2010-11. In our view, it is a case of borrowed satisfaction without independent application of mind by the AO, which is not sustainable as per law and interpretation of the higher judicial forums.
In the case of ‘Holy Faith International Pvt. Ltd. in ITA No. 181/Asr/2017 of Hon’ble ITAT, Amritsar Bench, Amritsar (CLPB. Pg. 52 to 66), it has been held vide para 14 that-
ITA No. 358/Asr/2019 17 Bhai Industries Pvt. Ltd. v. ITO “14. In the present case also, the AO simply acted upon the information received from the Investigation Wing and did not apply his own mind. Therefore, the reopening u/s 147 by issuing the notice u/s 148 of the Act only on the basis of information received from the Investigation Wing was not valid. Accordingly, the reassessment framed by the AO is quashed.” 22. In the case of ‘Principal Commissioner of Income Tax-4 vs. G & G Pharma Ltd.’, reported in 384 ITR 147 of Hon’ble Delhi High Court (CLPB, Pgs. 46 to 51 it has been held that:
“The basic requirement of law for reopening an assessment is application of mind by the Assessing Officer, to the materials produced prior to reopening the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not make an inherently defective reassessment order valid.” It has further been held as under: “Without forming a prima facie opinion, on the basis of such material, it was not possible for him to have simply concluded that it was evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries. The basic jurisdictional requirement was application of mind by the Assessing Officer to the material produced before issuing the notice for reassessment. Without analysing and forming a prima facie opinion on the basis of material produced, it was not possible for the Assessing Officer to conclude that he had reason to believe that income had escaped assessment.” 23. In another case of ‘Signature Hotels Pvt. Ltd. vs. ITO and Anr’, (Supra) the Hon’ble Delhi High Court, held as under:
“Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must have "reason to believe" that an income chargeable to tax has escaped assessment. This is mandatory and the "reasons to believe" are required to be recorded in writing by the Assessing Officer. Sufficiency of reasons is not a matter, which is to be decided by the writ court, but existence on belief is the subject-matter of the scrutiny. A notice under section 148 can be quashed if the "belief" is not bonafide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reason. There should be a link
ITA No. 358/Asr/2019 18 Bhai Industries Pvt. Ltd. v. ITO between the reasons and the evidence/material available with the Assessing Officer. The "reasons to believe” would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and not that the Assessing Officer should have finally ascertained the fact by legal evidence or reached a conclusion, as is determined and decided in the assessment order, which is the final stage before the Assessing Officer.” It has further been held that: “The reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lakhs during financial year 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid-up capital of Rs. 90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September, 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed.” 24. In the case of ‘Mohd. Yousuf Wani vs. Ito’, in ITA no. 372/Asr/2009(Supra) (CLPB, Pgs. 141 to 152), the coordinate Amritsar Bench held as under:
“In our considered view, reliance placed by the A.O on the letter of Vigilance Department was not sufficient to make a belief that the income of the Assessee has escaped assessment. In the present case, the reason for formation of belief was only the information received from the vigilance Organization. In our opinion, the so-called reason recorded by the A.O could not be held the reason for proceedings under section 147/148 of the Act, since it was only an information and was not at all discernible as to whether the A.O has applied his mind to the information and independently arrived at a belief on the basis of material which he has before him the income of the assessee had escaped assessment”.
ITA No. 358/Asr/2019 19 Bhai Industries Pvt. Ltd. v. ITO 25. Further, in the case of ‘Sh. Sanjeev Aggarwal vs. DCIT’, (Supra) ITAT Amritsar Bench, (CLPB, Pgs. 153 to 162), held as under:
“There is no dispute to the facts that the AO has recorded the reason with respect to Rs.501000/- on the basis of information received from the Investigation Wing of the Income Tax department. It was also not in dispute that before recording the reasons, the AO has not applied his mind. Had he applied that mind, the amount of Rs. 5,01,000/- as suggested by the Investigation Wing of the Income tax Department could have been corrected before recording the reasons but the same has not been done, which in facts, has been done and mind has been applied only during the assessment proceedings by making confirmation from the Manager of Punjab & Sind Bank and that too on additional information received from Investigation Wing of the Income Tax Department during assessment proceedings. But the fact remains that the AO did not have any material or was having wrong material to suggest that income of the assessee had escaped assessment.” 26. The coordinate Amritsar Bench in the case of “M/s. Supertech Forgings (India) Pvt. Ltd. vs. DCIT”, (Supra) (CLPB, Pgs., 67 to 120), held as under:
“20. We are of the considered view that the Assessing Officer was duty bound to record his independent satisfaction to arrive at prima facie satisfaction that there is escapement of income during the assessment year under consideration. The reasons to reopen reproduced at page 5 above clearly show that the Assessing Officer has merely relied upon the report of the investigating wing whereas, it is necessary for the Assessing Officer to apply his mind on the information received from the investigating wing. But, the AO did not apply his mind to arrive at an independent satisfaction that there was escapement of income.” 27. In view of the above discussed facts and legal position, we have no hesitation in holding that, the Assessing Officer has merely relied upon the report of the Investigation Wing, Karnal and the above alleged information had not been corroborated and verified by the Ld. Assessing Officer while disposing off the objections raised by the appellant assessee to the reasons and therefore, in our view, the information so received, by the Assessing Officer can be a reason to give rise to mere suspicious.
ITA No. 358/Asr/2019 20 Bhai Industries Pvt. Ltd. v. ITO However, the reasons, to suspect, whatsoever, strong it may be, cannot part take the character of reason to believe which is sine-qua for the purposes of reopening of the case. Thus, the AO without making any enquiries, simply relied upon the report of the Investigation Wing, Karnal which, proves the total non-application of mind by the AO at the time of reopening of the assessment. Accordingly, we conclude in quashing the reopening of the assessment as made by the AO and confirmed by the Ld. CIT(A). Thus, this legal ground of appeal of the assessee is allowed.
Before parting with the judgement, it clarified that we have not given any view, opinion or finding on the merits of the case in quantum addition as the appellant assessee succeeds on legal ground.
In backdrop of the aforesaid discussion, the appeal of the assessee is allowed in the terms indicated as above.
Order pronounced in the open court on 11.08.2022.
Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr.PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T.