TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 266
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....) 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 section 148 of the Act. Hence, the Assessing Officer had no reason to be....
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....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 appeal raised by the Revenue in the memo of appeal filed with the tribunal in ITA No. 3133/Mum/2016 read as under:- "On the facts and circumstances....
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....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 DGIT(Inv), Mumbai on 3rd October , 2013 in Shri. Rajendra Jain Group cases wherein statement on oath was recorded by Revenue of Shri. Rajendra Jain during the course of search and seizure operations u/s 132....
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....hases 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 submitted that the A.O has not rejected the sales made by the assessee and assessee has maintained complete quantity wise details of stock and stock register. It was submitted that quantitative reconciliation of th....
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....cision 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 profits estimated of the alleged bogus purchases as sustained by the Ld. CIT-A . It was submitted that it was merely on the basis of statement on oath of Shri. Rajendra Jain recorded during course of search u/s 132....
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....n 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 engaged in providing bogus accommodation entries wherein only accommodation bills were issued for sale, purchase etc without actually supplying any material physically and the assessee was also beneficiary of the accommodation entry by way of bog....
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....pex 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. 6.3 It is clear that when the Assessing Officer does not accept the assessee's method of accounting then he has to resort to the provision of sec. 145(3) for computation of income. The Karnataka High Court in the case of Karnataka State Forest Industries Corpn.....
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....ay 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 may not be from the parties shown in the accounts but from other parties. In view of this the Hon‟ble ITAT was of the view that only profit margin embedded in such purchases would be subjected to tax. The Hon'ble Tribunal relied on its earlier in the case of M/s. Saket Steel Tra....
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..../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 purchase price was not genuine and the addition made by the Assessing Officer was accordingly restricted to 25 percent of the amount paid to the parties from whom the assessing officer had disallowed the entire purchases. On cross appeals by the assessee and the revenue the Tribunal confirmed the order of the Commis....
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....eassessment 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 profit of the assessee. He reduced the additions from Rs. 41,04,903/- to Rs. 12,31,471/- and deleted the balance of Rs. 28,73,432/-. While doing so he deleted the addition of Rs. 5 lakhs as made by the assessing Officer on the ground that the addition on account of bogus purchase had already been made. The Tribunal was of the opinion that twe....
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....bove 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 from their account. No such exercise has been done or findings recorded. There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely ....
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.... 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 . Under these circumstances , we are inclined to confirm aforesaid well reasoned appellate order of the Ld. CIT-A which aimed to make additions to the income by estimating profits embedded in the said alleged bogus purchases which profits the assessee gained by obtaining material from grey market at lower rate while obtaining bills from these parties namely AVI Exports and Raj....
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....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 cent. 8. In further appeal, the Tribunal had given further relief to the assessee and reduced the Gross Profit rate to 30 per cent. 9. The counsel for the assessee has submitted before us that the income- tax authorities wrongly held that appellant has shown bogus purchases, and the books of account were wrongly rejected. 10. In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere w....