AI Drafter 
TaxTMI 
TaxTMI 
2018 (2) TMI 266
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Mumbai (hereinafter called "the tribunal") in ITA no. 1441/Mum/2016, read as under:- "1. Assumption of jurisdiction by the AO for initiating reassessment proceeding is bad in law: 1.1 On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the assumption of jurisdiction by the Ld. Assessing Officer as the conditions laid down under section 147 to 151 of the Act for initiating reassessment proceeding have not been fulfilled. 1.2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the initiation of reassessment proceeding as there is no mention of the fact that satisfaction of the joint Commissioner has been taken for „the reasons for initiating reassessment proceeding' which is supplied to the assessee. 1.3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the initiation of the reassessment proceeding even when the Ld. Assessing Officer erred in solely relying on the information of the investigation wing, Mumbai. The AO had not conducted any independent enquiry before issue of notice under sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the Ld. AO has wrongly rejected the books of accounts. 4. Wrong addition on account of unexplained expenditure u/s 69C of the Act amounting to Rs. 29,09,702/- : 4.1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the addition u/s 69C of the Act when the purchases made are entered in the books of account. 4.2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the addition made by the AO simply because the letter under section 133 (6) of the Act was not responded by M/s Rajiv Impex and ignoring the fact that all the documents of the purchases were furnished to the AO. 4.3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in estimating the net profit of 12.5% of the total purchase particularly when he has accepted that the Ld. AO has wrongly rejected the books of accounts 5. The appellant craved leave to add, alter or amend any of the aforementioned ground or grounds of appeal, which are without prejudice to each other, as and when an occasion may arise at the time of hearing." 3. The grounds of ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....purchases made by the assessee from Rajiv Impex to the tune of Rs. 29,90,702/-. At the very outset , the Ld. Counsel for the assessee submitted before the Bench that the assessee is not pressing grounds of appeal being ground no. 1 and 2 raised by the assessee in memo of appeal filed with the tribunal with respect to the reopening of the concluded assessment by the Revenue u/s. 147 of the Act. . It is pertinent to mention that the Revenue has originally processed return of income u/s. 143(1) of the Act and no scrutiny assessment u/s. 143(3) was framed by the Revenue . The Ld. DR did not objected to dismissal of the grounds of appeal being ground no.1 and 2 raised by the assessee challenged the reopening of the assessment u/s. 147 of the Act. Thus, keeping in view the factual matrix of the case we are inclined to dismiss the ground raised by the assessee being ground no. 1 and 2 challenging the reopening of the concluded assessment u/s. 147 of the Act. We order accordingly. 5. Now , we proceed to decide the appeals filed by the Assessee and the Revenue on merits . The brief facts of the case are that the search and seizure action u/s. 132 of the 1961 Act was carried out by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....income of the assessee by the AO as unexplained expenditure in the hand of the assessee. The assessee also failed to produce these parties before the A.O. Thus, the A.O held that the assessee booked bogus purchases to the tune of Rs. 77,70,765/- and 29,09,702/- which was added to the income of the assessee by the AO u/s. 69C of the Act, vide assessment order dated 27.03.2015 passed by the AO u/s. 143(3) r.w.s 147 of the Act. 6. The assessee carried the matter by filing first appeal before the learned CIT-A . The assessee submitted before learned CIT(A) that merely because notices u/s. 133(6) to M/s. Rajeev Impex was returned unserved, the A.O has rejected the books of accounts which is not correct as the said reasons are not stipulated u/s. 145 of the Act for rejection of the books of accounts . It was submitted that the A.O has not pointed out any defects in the books of accounts as proper books of accounts were maintained which were audited by tax auditors u/s 44AB. It was submitted that the said party might not have replied as verifications are conducted in the month of February 2015 while the purchases relates to F.Y 2006-07 and thus the matter is very old . It was also s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....016:- 7. Aggrieved by the appellate order dated 22-02-2016 passed by learned CIT(A), both the assessee and the Revenue have come in an appeal before the tribunal . The Revenue is aggrieved by the learned CIT-A decision of upholding addition to the tune of 12.5 % by estimating profits on the alleged bogus purchases to the tune of Rs. 1,06,80,467/- and granting relief of Rs. 93,45,409/- as the AO had added 100% of the alleged bogus purchases, while the assessee is aggrieved by the decision of the Ld. CIT-A in upholding the addition to the tune of Rs. 13,35,058/- being profits estimated @ 12.5% of the total alleged bogus purchases to the tune of Rs. 1,06,80,467/-. The Ld. Counsel for the assessee submitted that the assessee in the business of trading and exports of diamond during the assessment year under consideration . It was submitted that originally return of income was processed u/s. 143(1) and no scrutiny assessment u/s 143(3) was framed by the revenue . It was submitted that notices u/s 148 were issued on 26.03.2014 which is after 4 years from the end of the A.Y. . On merits, the Ld. Counsel for the assessee argued for the deletion of the additions to the tune of 12.5% being....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rded that during the search and seizure action which was carried out on 31.10.2013 was noticed that Shri Rajendra Jain, Shri Sanjay Choudhary and Shri Dharmichand Jain are some of the entry providers operating in Mumbai, indulging in providing accommodations entries in the nature of bogus sales and unsecured loans. As per the list provided by DGIT (Inv) Prankit Exports (AAAFP2359D) has taken a accommodation entry from M/s. Avi Exports on account of sale transaction for the amount of Rs. 77,70,765/- during the FY 2006-07. As stated above this is bogus sales shown by the assessee Rs. 77,70,765/-. In view of the above, I have reason to believe that the income of Rs. 77,70,765/- chargeable to tax has escaped assessment for the AY 2007-08 under consideration within the meaning of explanation 2(c) to the provisions of Section 147 of the IT Act 1961." The reopening of the assessment u/s. 147 of the Act was done by the Revenue based upon statement on oath of Shri. Rajendra Jain recorded by Revenue during the course of search proceedings u/s. 132 conducted against Shri Rajendra Jain group cases wherein he admitted that his concerns inter-alia including AVI Exports are e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate the transactions as genuine by producing the proprietor of M/s. AVI Exports i.e. Shri Rajendra Jain. However, Shri Rajendra Jain neither attended nor filed any details. M/s. Rajeev Impex was also one of the purchase party of the appellant. M/s. Rajeev Impex has also not submitted the reply in response to notice u/s.133(6) of the Act. Therefore, the A.O. has rejected the books of accounts u/s.145 of the Act. The AO treated the claim of purchases amounting to Rs. 77,70,765/- from M/s. AVI exports and Rs. 29,09,702/- from M/s. Rajeev Impex as unexplained expenditure u/s.69 C of the Act and added the same to the total income of the assessee. 6.2 In this regard the appellant has submitted that the appellant had maintained regular books of account, according to mercantile system of accounting and in accordance with the Accounting standards. There was neither any change in the method of accounting as compared to earlier year nor any change in any accounting policy. The books of accounts are audited under section 44AB of the I T act, 1961. The entire tax audit report is already submitted before AO during assessment proceedings. There were no adverse remark by Tax Auditor. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re these payments made to these parties through normal banking channel have been reflected were submitted during the assessment proceedings. The appellant has also submitted the decision of Hon'ble ITAT in the case of Shri Hiralal Chunnilal Jain in ITA No.4547/Mum/2014 and Bombay High Court decision in the case M/s. R.W.Promotions P. Ltd., Mumbai in ITA No.1489 of 2013. 6.6 Identical issue came up before the Hon'ble High Court of Gujarat in the case of Commissioner of Income v. Bholanath Poly Fab. P. Ltd. Reported in 355 ITR 290 (Guj.) In this case, the assessee was engaged in the business of trading in finished fabrics. The AO disallowed purchase amounting to Rs. 40,69,546/- as bogus/unexplained. The CIT(A) confirmed the action of the AO. The issue was carried in appeal before the Hon'ble Tribunal which concurred with the finding of the revenue authorities below that such purchase was made from bogus parties. After adverting to the facts and data placed before it, the Hon'ble Tribunal noted that the entire cloth of 1,02,514 metres was sold during the year and therefore, accepted the assessee's contention that finished goods purchased by the appellant m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'s contention that the finished goods were purchased by the assessee though not from the parties shown in the accounts but from other sources. The Tribunal was of the opinion that not the entire amount but the profit margin embedded in such amount would be subject to tax. 6.7 In the case of M/s. Sanjay Oilcake Industries v. Commissioner of Income tax reported in 316 ITR 274 (Guj) The Hon'ble Court had upheld the action of the CIT(A) and ITAT in determining estimated addition of 25% of the purchases in cases involving bogus purchases. The head note is as under:- Assessment income from undisclosed sources - Additions on account of inflated purchase price - Estimate- Not a question of law - No material produce by assessee to disprove inflated purchases - Tribunal's order in accordance with law - Income Tax Act, 1961. Whether an estimate should be at a particular sum or at a different sum can never be a question of law. For the assessment years 1984-85 and 1985-86 the Assessing Officer made additions to the income of the assessee on account of inflated purchase price of oilcakes. The Commissioner (Appeals) held that 25 per cent of the value of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g that purchase recorded by it were not bogus but from other parties not recorded in books - Estimation of profit element embedded in purchases Tribunal justified in estimation on the basis of facts Income tax Act 1961. The assessee was engaged in the business of trading in steel on wholesale basis. During the course of the reassessment proceedings for the year 2006-07, the Assessing Officer noticed that some of the supplies of steel to the assessee had made their statements on oath to the effect that they had not supplied the steel to the assessee but had only provided sale bills. In turn they were receiving a small commission. The Assessing Officer concluded that the total purchase of Rs. 41,04,903/- cumulatively made from the three parties were bogus. He thus treated such purchase as bogus purchases and added the entire amount of Rs. 41,04,903/- to the gross profit of the assessee. He also rejected the books of account and estimated the assessee's business profit at Rs. 5 lakhs. The Commissioner (Appeals) held that the assessee had made purchases from other parties in the open market. Therefore he retained 30 percent of the purchases cost at the probable pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s that appellant could not produce the parties from whom goods are stated to have been purchased. The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. In this regard, the appellant has stated that they had submitted copy of purchases bills, confirmation and corresponding sales in respect of purchases. As mentioned above the AO has never disputed of sales receipts. Since the sales receipts was not doubted or disputed by the A.O and he has accepted the sales receipts of the appellant as it is, therefore, the AO cannot deny that purchases were not made by the appellant and the material was not used for sale. 6.11 The AO had made the addition as Shri Rajendra Jain is engaged in accommodation entries. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....horities had endorsed on the export documents. It was claimed that the purchases and sales were entered in books of accounts and nothing has been found by the AO as to any transaction being carried out by the assessee out of books of accounts . However, Shri Rajendra Jain of AVI Exports has given a statement on oath during search operations u/s 132 that his concerns only provide accommodation entries by way of purchases, sales etc. wherein only bills are issued without actually supplying any material . The assessee being asked could not produce the said party before the AO. With respect to Rajiv Impex, the said party never submitted replies to notices u/s. 133(6) issued by the AO . The assessee also could not produce this party before the authorities below. The said purchases are existing in books of accounts of the assessee and onus is on the assessee to prove that the purchases are genuine. Under these circumstances , the possibility of assessee buying the material actually from grey market at lower rates and obtaining corresponding bills from the said parties namely AVI Export and Rajeev Impex to reconcile the quantitative records and books of accounts cannot be ruled out . Unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 6. M/s. Gem Plaza, engaged in local sales of similar goods declared voluntarily rate of 35 per cent in its assessment for the assessment year 1997-98. 7. M/s. Dhadda Exports, another assessee dealing in same items, but doing export business declared GP rate of 43.8 per cent (even without considering the value of export incentives) in assessment year 1997-98.' 5. Thereafter, the books of account of the assessee were rejected by the Assessing Officer and he resorted to best judgment assessment under section 144 of the Income-tax Act. The Assessing Officer in the assessment order mentioned some comparable cases and was of the view that the case of the assessee is more or less having similar facts as that of M/s. Gem Plaza where the Gross Profit has been taken as 35.48 per cent. The Assessing Officer estimated the Gross Profit of the assessee as 40 per cent. 6. The Assessing Officer further held that the assessee has shown bogus purchases in order to reduce the Gross Profits. 7. In appeal, the Commissioner of Income-tax (Appeals) upheld most of the findings of the Assessing Officer, but reduced the Gross Profit from 40 per cent to 35 per cen....