TaxTMI 
TaxTMI 
2015 (10) TMI 2432
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.... the reopening of the assessment was rejected and reassessment was completed at an income of Rs. 16,43,78,772/- as against returned loss of Rs. 52,74,450/-. 4. The AO held that purchases of Rs. 16,34,83,676/- made by the assessee are not genuine and accordingly he made addition of the same. The AO further held that export sales declared by the assessee is also bogus and after allowing a deduction of 6.35% against export sale of Rs. 65,87,872/-added back the balance amount of Rs. 61,69,546/- as unexplained credit. 5. Aggrieved by the order of the Assessing Officer, the assessee came in appeal before the learned CIT(A), both on the issue of reopening of the assessment as well as addition made by the Assessing Officer. On the issue of the reopening of the assessment, the learned CIT(A) held that the Assessing Officer was having fresh material which prima facie shows that the income has escaped assessment and such information was sufficient for the Assessing Officer to arrive at a conclusion that income of the appellant has escaped assessment and accordingly he rejected the contention of the assessee on the issue of reopening of the assessment. 6. As regards the addition of Rs. 16,3....
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....n the issue of reopening of the assessment by holding that at the time of initiation of the reassessment proceedings only a prima facie and tentative view is required and ITAT was not correct in quashing the reopening of the assessment. Since ITAT has not decided other grounds raised by the assessee as well as Revenue the appeals were remitted back to the Tribunal for deciding the other aspects or grounds. The High Court, however, clarified that it has not expressed any opinion on any other aspect or grounds which is pending before the Tribunal or raised by the Respondent-assessee. 11. In view of the matter being remitted back to ITAT by the High Court both these appeals were heard together. 12. In the assessee's appeal it has raised six grounds of appeal which read as under:- "1. That on the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in law in holding that the initiation and further completing reassessment proceedings under section 147 of the Income Tax Act, 1961 is valid, even though the Learned Assessing Officer disposed off objection without judicious application of mind and in mechanical manner, without dealing with th....
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.... Para 6 onwards of the Assessment order dated 31.12.2000 including the facts established during enquiries by DRI and Sales Tax Department and the abnormally low yield declared by the assessee. (2) On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in granting relief to the assessee on the basis of additional evidence in the shape of chart of peak value of investment admitted during appellate proceedings without calling for a report from the AO in violation of rule 46A of the Income tax Rules. (3) The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal." 14. In assessee's appeal grounds no. 1 and 2 are relating to reopening of the assessment which as stated hereinabove stand disposed of by the Hon'ble Delhi High Court. 15. Ground no.3 in assessee's appeal is regarding upholding the addition to the extent of Rs. 80,22,802/- out of the total addition of Rs. 16,34,83,676/-made by the AO. Grounds no.1 and 2 in Revenue's appeal are regarding deletion of the balance amount of Rs. 15,54,60,874/- out of the addition of Rs. 16,34,83,676/- made by the AO. Since the issue in these grou....
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....with bills and vouchers, Central Excise records and stock register were also produced for verification and AO has not pointed out any error or deficiency in such documents and books of accounts. 20. It was further contended by the learned AR that it is apparent from the assessment order that no independent enquiry has been carried out by the AO himself. The assessee has submitted all its documents and evidences and the AO has not brought any material to impeach or discredit the evidences submitted by the assessee in support of genuineness of the purchases. The AO has merely relied upon the information which it has received from the DRI for making the addition. 21. It was further contended that information from the DRI may be a starting point for carrying out the investigation but cannot be conclusive particularly in view of the material and evidences brought in support of its contention by the assessee. It was also submitted that the DRI inspection was not carried out during the year under consideration and adverse inference has been drawn for this year on the basis of allegation in the succeeding year. The learned AR submitted that the entire addition is based on the allegation ....
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....tated in the books of accounts enhancement of the gross profit rate is untenable. It was further contended that there is no finding recorded by the Assessing Officer as well as learned CIT(A) that the value of the purchases for which sales have been effected was less than that recorded in the books of accounts. In the absence of any evidence or material that the value of the purchases have been overstated as compared to the market price as on that day, the enhancement of G.P. is not justified. 24. As regards issue of violation of Rule 46A raised by the Ld. DR, it was submitted by the learned AR that there is no violation of Rule 46A as assessee has not submitted any additional evidences before the learned CIT(A). In fact the learned CIT(A) himself has prepared the peak amount of the payment made against purchase as is evident from the order of the learned CIT(A) at Page 36.The same has been enclosed as Annexure A to his order by the learned CIT(A). This chart was prepared by the learned CIT(A) on the basis of copy of accounts of the suppliers filed before Assessing Officer as well as learned CIT(A) and no fresh evidences were filed by the assessee before the learned CIT(A). 25. I....
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....e Assessing Officer has recorded the reason on 28th March, 2007 which reads as under:- "Reasons for reopening the case u/s 147 of the I. Tax Act in the case of M/s Nandan Auto Tech. Ltd. in A.Y. 2000-01.Erstwhile M/s Garg Forgings & Castings Ltd. In this case, return declaring a loss of Rs. 66,05,500/- was filed on 30.11.2000. The assessment under section 143(2) of the I.T. Act was completed on 31.12.2002 at a loss of Rs. 52,74,450/-. The Asst. Director of Income Tax (Inv)-III, Ludhiana vide letter dated 27.03.2007 has reported that as per DRI notice No. 1326 dated 03.10.2002, ShVinod Kumar Garg and Sh. N.D. Garg, directors of the company are indulged in fraudulent claim of drawback and DEPB credit by way of exporting mis-declared goods through M/s Garg Forgings & Casting Ltd., Kanganwal Road, VillJugiana, Ludhiana now known as M/s Nandan Auto Tech Ltd. and their allied concern. On perusal of the Profit and Loss A/c it has been observed that assessee has made export sales of Rs. 65,87,812/- and indirect export of Rs. 37,19,93,945/- and assessee has made huge payments to interrelated parties. In view of the above and the information detailed in the letter of Asstt. Director of I....
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....unt has been made. Asstt. Commissioner of Income Tax, Circle - 13(1), New Delhi." 29. The contention of the learned AR is that in the reasons recorded the allegation is limited to the extent of fraudulent claim of drawback and DEPB credit by way of exporting mis-declared goods and since no addition has been made on account of drawback and DEPB credit and the Assessing Officer having accepted this fact in the office note, the Assessing Officer ought to have closed the reassessment proceedings. 30. Thus, the issue is whether the allegation in the reasons recorded is limited to the fraudulent claim of drawback and DEPB credit. On going through the reasons recorded, as stated hereinabove, we note that in Para 2 it has been stated that the directors of the company are involved in fraudulent claim of drawback and DEPB credit by way of exporting mis-declared goods. Thus this paragraph talks about fraudulent claim of drawback and DEPB credit. In the second paragraph is the statement of facts whereby figures of the profit and loss account has been stated. It has been stated that the export sales of Rs. 65,85,812/- and indirect export of Rs. 37,19,93,945/-has been made and also the fact th....
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..... Now coming to the first issue, we note from the assessment order that the Assessing Officer has held that the purchases are not genuine on the basis of the report he received from the DRI. In para 7.1 of the assessment order the AO has made a reference to the enquiry conducted by the DRI and the Sales Tax Department to the effect that these firms do not exist at the given address on the invoice and in respect of some of the concerns the sales tax number was cancelled much before the issue of the invoices. On the basis of this report the AO issued a show cause notice to the assessee and in response thereto the assessee submitted detailed replies. The assessee vide letter dated 13.12.2007 submitted details of the sales and purchases made by it along with copy of account of each of the supplier. Further vide another letter, it was explained by the assessee that it is registered with the Central Excise Department and the production and the movement of the goods had taken place under the supervision and control of the Central Excise Department. It was further submitted that all these movements and the quantity is recorded in the excise record maintained by the assessee company and the....
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....s, stock record, excise record, etc. No inconsistencies or infirmity has been pointed out by the Assessing Officer in such documents. All the payments have been made through banking channel as is evident from the copy of account of each of the suppliers. There is no whisper in the assessment order about these evidences. The allegation quoted by the Assessing Officer in the assessment order with reference to the DRI enquiry to the effect that firms don't exist at the given address and the allegation that sales tax number stand cancelled before the issue of invoices per se can't be sufficient enough to discard the evidences and to reach a conclusion the purchases are bogus. The fact that sales tax number has been cancelled later on mean that these firms were in existence at one point of time and having sales tax number also. Further nonexistence at the given address at the time of enquiry conducted after a gap of many years per se also can't be conclusive so as to hold that these firms are bogus. The assessee having filed copy of accounts of these firms showing purchases and payments through banking channel, the least the Assessing Officer could have done is to conduct enquiry by iss....
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....er of the ITAT and held as under:- "6. This Court has considered the submissions of the parties. In this case the discussion by the CIT(Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of en....
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.... the same was argued at length by both the parties and also concerns the addition on merit we feel it appropriate to address the second issue also. As stated hereinabove the AO has made addition of the entire purchases holding the same to be not genuine. Now the issue which arises for consideration is if the purchases are not genuine then can the sales be said to be genuine and if the sales are genuine, can entire purchases be held to be non-genuine and addition of entire purchase amount be made. 40. On the issue whether sales are not genuine, from the assessment order we note that the Assessing Officer has not tinkered with the trading account. He has also not rejected the books of accounts. The assessee during the course of the assessment had produced complete books of account which included sales invoices, stock records, excise record and quantitative details. No observation has been made by the Assessing Officer regarding any of these evidences. In these circumstances and facts it cannot be said sales are not genuine. In fact this is not the case of the Assessing Officer also. 41. Now the issue is if sales are genuine then can entire purchases be added back. The objective of ....
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....ir enough to admit that there does not appear to be any factual inaccuracy so far as the peak amount of the payments made against purchases as stated in the Annexure A. The learned CIT(A) has given detailed reasoning for not sustaining the entire addition and restricting the addition to the peak amount of the payments made against purchases and enhancing the gross profit rate to 3% as against 1.42% declared by the assessee. In this regarding the findings of the learned CIT(A) reads as under:- "On the basis of these facts discussed above, the following facts emerges out:- 1. The appellant has shown purchases but those parties were not found in existence. 2. The appellant has shown consequential sales to various parties of such material and which in turn have shown export of such trading goods. 3. The sales of the appellant have not been disputed by the A.O. in the assessment order. 4. It is also the matter of fact that unit of the appellant is under direct supervision by the Excise Department and all inwards as well as outwards movements of goods were under the supervision of the Excise Department. 5. All the payments have been made and received through banking channel a....
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....o U.K. In the manufacturing activities the appellant has declared gross profit @ 7.69% whereas in the trading activities, which has been started during the year under consideration, Gross Profit has been declared @ 1.42%. The gross profit declared in the manufacturing activities is in line with the earlier years and as such no adverse inference is taken by the A.O. However, the gross profit shown in the trading activities of machined and vehicle gears of various size, steel balls and B-S-Blind is quite low as compared to the gross profit declared in this line of trading activities. During the course of appellant proceedings, I have come across to certain cases wherein gross profit in trading activities is around 2% to 2.96%. S. No. Name of concern Sales (in crores) G.P.% 1 Shri Ram Steel Ludhiana 2.25 2.09% 2 M/s Pahwa Steels, Ludhiana The items traded by these companies are some what identical. Hence the gross profit of the appellant in the trading activities is taken at 3% as against gross profit of 1.42% declared by the appellant in the books of accounts. I, therefore, take gross profit @ 3% on the total sales of Rs. 15,01,39,789/- made by the....
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....has estimated the income on the sales made by the assessee. The learned CIT(A) has gone a step further. He has also worked out the investments, the assessee would have made on account of the payments made for so called alleged purchases. Thus the methodology applied by the learned CIT (A) is correct approach once he has held that purchases are not genuine. However since we have held that the findings of the AO that the purchases are not genuine, on the facts and circumstances of the case as discussed hereinabove is untenable, the entire addition made on account of purchases is directed to be deleted. 45. Accordingly ground no.3 of the assessee's appeal is allowed and ground no.1 and 2 of the Revenue appeal are dismissed. 46. Ground no.4 and 5 in assessee appeal is regarding addition of Rs. 61,69,546/- sustained by the learned CIT(A). The assessee during the course of the year has made export sale of Rs. 65,87,872/-. The AO on the basis of the DRI report held that the export sale declared by the assessee is bogus and mis-declared. The Assessing Officer accordingly held that the direct cost of such sale is about 6.35% and allowing cost of Rs. 4,18,326/-, made addition of the balanc....
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....lly incorrect. It was submitted by the learned AR that at no stage of reassessment proceedings the appellant was ever asked to produce the parties. The observation of the learned CIT(A) in this regard are factually incorrect. It is a case where the AO has not carried out any verification or investigation and has solely relied upon the DRI report. The assessee having lead the evidences in support of its sales the AO was not justified in ignoring the same and making the addition. 48. It was further submitted that this export sale was made in the preceding year and not in the year in which the verification has been carried out by the Custom authorities. In this regard reference was made to the judgment of the Hon'ble Punjab & Haryana High Court dated 6th April, 2010 in the petition filed by the assessee company against the order passed by Custom authorities whereby the High Court has observed that the charges of mis-declaration and fraudulent availing of incentives against the appellant are based on suspicion. In this judgment the High Court has further held that in the present case the show cause notice as well as impugned order did not deal with the live consignments but pertain to....
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....e gone through the assessment order and we do not find any such observation made by the Assessing Officer. The assessment order nowhere mentions that the assessee was asked to produce the parties. The learned DR also could not controvert this fact. We also note from the assessment order that the Assessing Officer in Para 11 has simply made a reference to the report of the DRI and in Para 11.1 on the basis of such report he has made the addition. Thus the observation of the learned CIT(A) that assessee was to produce the parties is not borne out by the record. As held while deciding the ground no.3 in assessee's appeal and ground no.1 in Revenue's appeal the Assessing Officer after the assessee has filed all documents and evidences in support of its contention has done nothing except relying on the report of the DRI. In this case the assessee has filed all the documentary evidences in respect of the exports made by it. It has filed the following documents to substantiate export sale made by it:- a) Item wise quantitative details of Direct / Indirect Exports Sales, Purchases, Production and Closing Stock b) Copies of Export Sales Invoices c) Copies of Bank's Certificates for Expor....