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Income Tax Appellate Tribunal, DELHI BENCH, ‘F’: NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI ANUBHAV SHARMA
ORDER PER SHAMIM YAHYA, AM,
This appeal by the assessee is directed against the order of Ld. CIT (Appeals)-7, New Delhi, dated 21.08.2017 for the Assessment Year 2010- 11.
2. The grounds of appeal read as under:-
“1. That order passed us 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-7, New Delhi is against law and facts on the file in as much as he was not justified to arbitrarily uphold the action of the Ld. Assessing Officer in initiating proceedings us 147 of the Act.
2. That he was further not justified to arbitrarily uphold the action of the Ld. Assessing Officer in making an addition of Rs. 1,27,23,330/- on account of alleged bogus purchase.
3. That the Ld. CIT(A) gravely erred in upholding the addition without appreciating the import of detailed submissions made and the fact that the appellant had discharged its onus with respect to the purchase of Rs. 1,27,23,330/- and also the fact that the appellant was maintaining complete quantitative tally of the goods dealt in.
Brief facts of the case are that the return of income for Assessment Year 2010-11 was e-filed by the assessee on 27.09.2010 showing loss of Rs.1,75,33,442/-. Subsequently, the assessment was completed u/s 143(3) of the Act vide order dated 29.12.2012. Subsequently, the AO has reopened the case on the information that the assessee is recipient of bogus purchases bills from M/s Mahavir Hosiery Works for a purchases of Rs.1,27,23,330/-. The AO noted that the assessee has inter-alia informed that there is no failure on the part of the assessee to disclose necessary facts and all information and details were submitted during the course of regular assessment for AY 2010-11, which was completed u/s 143(3) of the Act on 29.12.2012. However, the AO was not convinced and made the impugned addition by observing as under:-
“6. Assessee's submissions were considered. It is observed from the report of ITO Ward 2(2), Ludhiana, referred to above, that transactions- made in the bank account of Shri Raj Kr. Gupta, the man who issued bogus purchase bills, that almost the cheque or RTGS is credited in the bank account and same is withdrawn in cash on same day or next day, and he is only working as entry operator and income received from such entry IT for AYs 2010-11 & 2011-12. Further, ass per ITO Ludhiana's report, the bogus seller also admitted that his bank account was only used for giving accommodation entry i.e. purchase entries to firms. ITO Ludhiana also enclosed copies of certain bogus bills issued by the said Shri Raj Kr. Gupta to M/s R.K. Machine Tools Ltd and from these details, it is established beyond doubt that M/s R.K. Machine Tools Ltd indulged in bogus purchases through the firm M/s Mahavir Hosiery Works during AY 2010- 11.
In view of the facts narrated above & considering the report submitted by IT Ward 2(2), Ludhiana and also considering the findings given by ITO Ward 2(2), Ludhiana while framing the assessment order of Shri Raj Kumar Gupta & Mahavir Hosiery Works for AY 2010-11, the total purchases made by M/s R.K. Machine Tools Ltd. from M/s Mahavir Hosiery Works Ludhiana, throught he said Shri Rajkr. Gupta, amounting to Rs.1,27,23,330/- is treated as bogus purchases and accordingly added to the total income of assessee.”
Against the above order, the assessee appealed before the Ld. CIT(A) challenging both the reopening as well as merits of the case. The Ld. CIT(A)
held that the reopening was valid and he also confirmed the addition on merits.
Against the order of the Ld. CIT(A), the assessee is in appeal before us.
We have heard both the parties and perused the records. Before proceeding further, we may gainfully refer to the copy of the reasons recorded reproduced in assessment order at page 68 of the paper book:-
7. A perusal of the reasons recorded by the AO exhibits that he has recorded the reasons solely on the basis of some information received from the Income Tax Officer, Ward-2(2), Ludhiana vide letter No. ITO W- 2(2)/LDH/2016-17/567 dated 17/03/2017. In this regard, nowhere on record
is that copy of the said letter and the ld. Counsel for the assessee has informed that the copy of the said letter was never made available to the assessee. This proposition, the ld. DR could not rebut. Thus, it is evident that some information from another Assessing Officer is the basis on which the AO formed his satisfaction that some of the income the assessee has escaped assessment. Thus, the contention of the assessee is correct that the AO without making any independent enquiry but on his own has started proceedings u/s 148 of the Act merely on the basis of some information received from some other Income Tax Officer. This makes initiation of proceedings is bad in law.
Furthermore, the ld. Counsel for the assessee has informed that the assessee duly objected to the issue of notice u/s 148 of the Act vide letter dated 13.11.2017 filed before the AO. Thus, in the reasons recorded, neither there is any discussion nor anything has been brought on record that which particular transactions relating to purchases made by the assessee from M/s Mahavir Hosiery Works, Ludhiana is not genuine or bogus. Thus, merely on the basis of the report of the Income Tax Officer, Ward-2(2), Ludhiana, the details of which was never made available to the assessee nor before us, the AO has formed his opinion for the purpose of reopening of completed assessment u/s 143(3) of the Act. Thus, the above makes it amply clear that the jurisdiction has been assumed erroneously u/s 147 without first meeting the ingredients set up in section 147/148 itself. Thus, on the basis of the 148 on the basis of reasons recorded is erroneous, illegal and impermissible under the law and it deserves to be quashed and the same is quashed as such. In this regard, it is worthwhile that some of the cases laws relied upon by the ld. Counsel for the assessee are mentioned (Head notes only)
Principal Commissioner of Income Tax vs RMG Polyvinyl (I)
Ltd. [2017] 83 taxmann.com 348 (Del.)
Section 68, read with section 147, of the Income-tax Act, 1961 - Cash credit (Accommodation entry) - Assessment year 2008- 09 - Information was received from investigation wing that assessee-company was a beneficiary of accommodation entries received from certain established entry operators - During investigation, it was found that entry operators were engaged in money laundering business for beneficiaries - According to Assessing Officer, sources of transactions were not explained - Notice was issued by Assessing Officer to reopen assessment on aforesaid basis that income chargeable to tax to extent of accommodation entry had escaped assessment - Whether information received from investigation wing could not be said to be tangible material per se without a further inquiry being undertaken by Assessing Officer to establish link between 'tangible material' and formation of reason to believe that income had escaped assessment and consequently, reassessment was unjustified - Held, yes [Para 13] [In favour of assessee]
Principal Commissioner of Income Tax vs Meenakshi Overseas (P.) Ltd. [2017] 82 taxmannc.om 300 (Del.)
“Section 68, read with section 147, of the Income-tax Act, 1961 - Cash credit (Accommodation entries) - Assessment year 2004- 05 - Information was received from Director (Investigation) that during year under consideration, assessee had received Notice under section 148 was issued and an assessment order was passed by Assessing Officer treating credit received as unexplained income under section 68 - Whether since there was no independent application of mind by Assessing Officer to tangible material and, conclusions of Assessing Officer were reproduction of conclusion in investigation report, reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment and, consequently, reassessment was unjustified - Held, yes [Paras 36 and 37] [In favour of assessee]”
3. SABH Infrastructure Ltd. vs Assistant Commissioner of Income Tax [2018] 99 taxmann.com 409 (Del.)
“Section 68 of the Income-tax Act, 1961 - Cash credit (Share application money) - Assessment year 2008-09 - Where during assessment proceedings assessee had disclosed all relevant information regarding companies from which it had received share application money and Assessing Officer had not doubted such transaction, mere statement of an entry operator that companies in question were 'paper companies', by itself was insufficient to reopen assessment, unless Assessing Officer had further information that those companies were non-existent after making further inquiries into matter [In favour of assessee] During assessment proceedings the assessee had disclosed all relevant information regarding companies from which it had received share application money and Assessing Officer had not doubted such transaction. Thereafter, the Assessing Officer issued a notice under section 148 on the ground that during investigation by DDIT, an entry operator had admitted that companies from which the assessee had received share application money were only paper companies. Held that during original assessment proceedings, the assessee after initially submitting the details of the companies and the shares subscribed to, further provided confirmations from the said companies. It also submitted copies of the balance sheets of the said companies for the relevant assessment years showing that these amounts were duly reflected therein. The said companies were also assessed to tax. The Assessing Officer was satisfied with the details and information provided by the assessee. On facts, mere statement of an entry operator that the companies in question were 'paper companies', by itself, was insufficient to reopen the assessment, unless the Assessing Officer had further information after making further inquiries into the matter that these companies were non-existent. It was clear that the Assessing Officer did not make any inquiry or investigation, if these companies were in fact 'paper companies'. That being a jurisdictional issue, the assumption of jurisdiction under sections 147 and 148 was erroneous.”
The ratio emanating from the above case laws duly supported the proposition of the ld. Counsel for the assessee and we are placing reliance upon them also in upholding that reopening in this case is bad in law. Although, we have quashed the reopening as above, adjudication on merits of the case though not necessary but we are dealing with it in any case.
As regards merits of the case, it is contention of the ld. Counsel for the assessee that during the course of original assessment proceedings, a detailed questionnaire was issued by the AO on 27.09.2012 copy of which has been placed at pages 49 to 53 of the paper book. In this regard, it is to be noted that in question 26 and 27 at paper book page 52 following specific query was made with respect of the purchase and sales of the company month wise.
Q. No.26 Give the details of purchases and sales month wise. Q.No.27 Please furnish the details of the top 20 parties each from whom purchases were done and from whom sales were made during the F.Y. 2009-10 in the form of name, address and purchases/sales amount.
10.1. The assessee duly replied to both the queries and necessary information was given. Even during the reassessment proceedings, the assessee had given detailed reply dated 22.11.2017 along with relevant details which are available at paper book pages 72 to 74. Other details supplied by the assessee are as under:- a) Details of purchases made from M/s Mahavir Hosiery Works during the year –page 75 b) Copies of bills an store reports in respect of purchases made from M/s Mahavir Hosiery Works – Pages 76-105. c) Copy of certificate from HDFC Bank regarding payment made to M/s Mahavir Hosiery Works- page 106 d) Copy of bank statements clearly highlighting the payments made to M/s Mahavir Hosiery Works – Pages 107-112 e) Copy of ledger account of M/s Mahavir Hosiery Works in the books of the Appellant Company – Page -113 f) Quantity wise tally knitted clot for the year under consideration – Page-115 11. As evident from the order of the Assessing Officer, he did not make any comment on the contents of the reply of the assessee and solely passed his order on the basis of the report of the Income Tax Officer, Ward-2(2), Ludhiana and proceeded to make the impugned addition. Furthermore, the ld. Counsel for the assessee has submitted that all the purchases are fully vouched , payments have been made through account payee cheque and the details have been duly submitted and no fault/defect was pointed out by the Assessing Officer. The ld. Counsel for the assessee has reiterated that the accounts of the assessee company are duly audited. The closing stock as reflected in the balance sheet has been duly accepted. The AO has not pointed out any defect in the maintenance of the books of accounts. In these circumstances, in our considered opinion, the addition on merit is also not sustainable and accordingly, we direct the AO that the addition on merit be also deleted.
In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 26th April, 2023.