TaxTMI 
TaxTMI 
2018 (10) TMI 258
X X X X Extracts X X X X
X X X X Extracts X X X X
....n and further the objections raised by the assessee for re-opening the case under section 147 were ignored. 3. On the other hand, the learned DR Shri Satishchandra Rajore defended the reopening of assessment by submitting that the assessee made purchases from Hawala parties and the notices issued under section 133(6) of the Act were never served upon them as the addresses were fictitious and the parties never appeared before the learned Assessing Officer. At this stage, the Bench asked the assessee whether the concerned parties can be produced before the learned Assessing Officer, the learned counsel for the assessee contended that he is unable to produce the parties. At this stage, the learned DR also contended that no corroborative evidence relating to transaction of goods and genuineness of purchases were ever filed by the assessee. 4. We have considered the rival submissions and perused the material available on record. So far as, reopening of assessment u/s 147/148 of the Act on the plea that the Ld. Assessing Officer ignored the fact that there was no reason to believe that income has escaped assessment as there was no tangible material with the Assessing Officer and in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is chargeable to tax and has escaped assessment. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jay Bharat Maruti Ltd. Vs CIT (2010) Tax LR 476 (Del.) and V. Lakshmi Reddy vs ITO (2011) 196 taxman 78 (Mad.). The provision of the Act is very much clear as with effect from 01/04/1989, the Assessing Officer has wide powers to initiate proceedings of reopening. The Hon'ble Kerala High Court in CIT vs Abdul Khadar Ahmad (2006) 156 taxman 206 (Kerala) even went to the extent so long as the AO has independently applied his mind to all the relevant aspect and has arrived to a belief the reopening cannot be said to be invalid. 4.3. We are aware that "mere change of opinion" cannot form the basis of reopening when the necessary facts were fully and truly disclosed by the assessee in that situation, the ITO is not entitled to reopen the assessment merely on the basis of change of opinion. However, powers under amended provision are wide enough where there is a reasonable belief with the Assessing Officer, that income has escaped assessment, because the powers with effect from 01/04/1989 are contextually different and the cumulative conditions spelt out in clauses (a) and (b) of section 147, prior to its amendment are not present in the amended provision. The only condition for ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y income chargeable to tax has escaped assessment for any assessment year. The Hon'ble Gujarat High Court in Prafull Chunnilal Patel vs ACIT (supra) even went to the extent that at the initiation stage formation of reasonable belief is needed and not a conclusive finding of facts. Identical ratio was laid down in Brijmohan Agrawal vs ACIT (2004) 268 ITR 400, 405 (All.) and Ratnachudamani S. Utnal vs ITO (2004) 269 ITR 272, 277 (Karnataka) applying Sowdagar Ahmed Khan vs ITO (1968) 70 ITR 79(SC). 4.5 So far as, the meaning of expression, "reason to believe" is concerned, it refers to belief which prompts the Assessing Officer to apply section 147 to a particular case. It depend upon the facts of each case. The belief must be of an honest and reasonable person based on reasonable grounds. The Assessing Officer is required to act, not on mere suspicion, but on direct or circumstantial evidence. Our view find support from the ratio laid down in following cases:- i. Epica Laboratories Ltd. vs DCIT 251 ITR 420, 425-426 (Bom.), ii. Vishnu Borewell vs ITO (2002) 257 ITR 512 (Orissa), iii. Central India Electric Supply Company Ltd. vs ITO (2011) 333 IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The Hon'ble jurisdictional High Court in Girilal & Co. v. S.L. Meena, ITO, (2008) 300 ITR 432 (Bom), held that in order to invoke the extraordinary jurisdiction of the court the petitioner must also make out a case that no part of the relevant material had been kept out from the Assessing Officer). The information was in the annexures and consequently Explanation 2(c)(iv) of section 147 would apply. The reassessment proceedings after four years were valid. 4.9. In the case of Deputy CIT v. Gopal Ramnarayan Kasat, (2010) 328 ITR 556 (Bom), it was not the case of the assessee that the notice issued was after the expiry of the time limit provided in section 153(2). The reassessment proceedings were held to be valid. In Indian Hume Pipe Co. Ltd. v. Asst. CIT, (2012) 348 ITR 439 (Bom), both in the computation of taxable long-term capital gains in the original return of income and in the computation that was submitted in response to the query of the Assessing Officer there was a complete silence in regard to the dates on which the amounts were invested, as such there being a failure to disclose fully and truly material facts necessary for assessment. The reassessment proceedings wer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the purpose of making the assessment, the Assessing Officer shall have to confront the petitioner with the entire material in his possession on the basis of which he proposes to make the additions. In Punjab Leasing Pvt. Ltd. v. Asst. CIT, (2004) 267 ITR 779, 781-82 (P & H), where depreciation was allowed to the assessee, who was engaged in the business of financing of vehicles and consumer durables on 'hire-purchase basis' as well as on 'lease/rent basis', a reassessment notice issued after four years has been held not to suffer from any illegality as the same was based on the bona fide action of the competent authority to determine whether or not the vehicles in respect of which the petitioner had been claiming depreciation, were actually owned by it. 4.12. In Jawand Sons v. CIT(A), (2010) 326 ITR 39 (P & H), in the initial assessment, the benefit of deduction of the duty drawback and DEPB under section 80-IB was wrongly granted to the assessee, for which it was not entitled. Therefore, reassessment proceedings to withdraw the deduction were held to be valid. Likewise, in CIT v. Hindustan Tools & Forgings P. Ltd., (2008) 306 ITR 209 (P & H), where, the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....petitioner-assessee to disclose true and full facts, income had been grossly under assessed, reassessment proceedings were held validly initiated. 4.15. In the case of Kapoor Brothers v. Union of India, (2001) 247 ITR 324, 331, 332-33 (Pat), where the material evidence for the purpose of reopening of the assessment already completed has been brought to the notice of the authority during the course of enquiry. The notice was held to be valid by the Hon'ble High Court. In the case of Vippy Processors Pvt. Ltd. v. CIT, (2001) 249 ITR 7, 8 (MP), where the need to issue notice arose due to noticing of vast difference in value of properties disclosed by the assessee and that of the report of the Valuation Officer and the reasons that led to the issue of the notice were duly recorded and the same were also adequate and based on relevant facts and material, initiation was upheld. In Triple A Trading & Investment Pvt. Ltd. v. Asst. CIT, (2001) 249 ITR 109, 110-11 (MP), where the notice was issued after recording reasons in that regard, initiation was upheld. 4.16. Likewise, Hon'ble Gujarat High Court in Garden Finance Ltd. v. Add/. CIT, (2002) 257 ITR 481, 489, 494-95, special leave p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8 for assessment years 2005-06 and 2006-07 was legal and in accordance with law. 4.18. Likewise, in the case of Sunil Kumar lain: Suresh Chandra lain v. ITO, (2006) 284 ITR 626 (All), notwithstanding the fact that the amount had been assessed to tax in the hands of P, he had taken a stand that the amount did not belong to him and instead belonged to S. Thus, it was not clear as to in whose hands the amount in question had to be assessed. The ITO was justified in taking proceedings under section 147 for assessing the amounts in the hands of the petitioners according to the claim made by the petitioners. Likewise, Hon'ble Kerala High Court in CIT v. Dr. Sadique Ummer, (2010) 322 ITR 602 (Ker), where, the Assessing Officer collected further information to complete the reassessments which was also permissible under the Act. The finding of the first appellate authority as well as the Tribunal, that the Assessing Officer had no material to believe that the income had escaped assessment was wrong and contrary to facts. The assessee had not maintained any books of account. Therefore, the reopening of assessments was held to be valid and within time. In the case of CIT v. Uttam Chand Nah....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on'ble Kerala High Court in CIT v. Indo Marine Agencies (Kerala) P. Ltd., (2005) 279 ITR 372 (Ker), held that the entry would amount to an order under section 144. The mere fact that it was not communicated to the assessee would not make such an assessment recorded in the order sheet illegal and that would not bar further proceedings under section 147. Thus, the assessment was held to be validly reopened under Explanation 2(c) to section 147. Likewise, in CIT v. N. Jayaprakash, (2006) 285 ITR 369 (Ker), where, the assessee could not, after having persuaded the assessing authority to withdraw the notice dated 1-10-1993, pointing out that it was not in conformity with law, be allowed to contend that the notice was valid due to the omission of the time-limit by the Finance (No.2) Act, 1996, with effect from 1-4-1989. In the absence of specific provision in the Finance (No. 2) Act, 1996, invalidating proceedings initiated by the Income-tax Officer, the action taken by him applying the then existing law could not be said to be invalid. 4.21. Likewise, in CIT v. S.R. Talwar, (2008) 305 ITR 286 (All), the factum of taking advances or loan from T and K, in which the assessee was one ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or entertaining a belief of escaped income in the years under consideration. The reassessment proceeding was held to be valid. 4.24. In Aurobindo Sanitary Stores v. CIT, (2005) 276 ITR 549 (Ori), there being a substantial difference between the figures of liabilities towards sundry creditors in the party ledgers of the assessee-firm and the figures of liabilities towards sundry creditors in the balance-sheet of the assessee-firm for the previous year relevant to the assessment year 1989-90. These materials had a direct link and nexus for formation of a belief by the Assessing Officer that income of the assessee-firm had escaped assessment because of failure of the assessee to disclose fully and truly all material facts necessary for the assessment. In the case of CIT v. Best Wood Industries & Saw Mills, (2011) 331 ITR 63 (Ker), the assessee challenged the validity of the reassessment on the ground that the AO had exceeded his jurisdiction under section 147 and both the first appellate authority as well as the Tribunal accepted the contention of the assessee holding that so far as the reassessments related to assessment of unexplained trade credits, they were invalid. On appeal, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Karn)]; x. Siemens Information Systems Ltd. v. Asst. CIT [(2012) 343 ITR 188 (Bom)]; xi. I.P. Patel & Co. v. Deputy CIT [(2012) 346 ITR 207 (Guj)]; xii. Dishman Pharmaceuticals & Chemicals Ltd. v. Deputy CIT [(2012) 346 ITR 228 (Guj)]; xiii. Video Electronics Ltd. v. Joint CIT [(2013) 353 ITR 73 (Del)]; xiv. A G Group Corporation v. Harsh Prakash [(2013) 353 ITR 158 (Guj)]; xv. Inductotherm (India) P. Ltd. v. M. GopaLan, Deputy CIT [(2013) 356 ITR 481 (Guj)]; CIT v. Dhanalekshmi Bank Ltd. [(2013) 357 ITR 448 (Ker)]; xvi. Sitara Diamond Pvt. Ltd. v. ITO [(2013) 358 ITR 424 (Bom)]; xvii. Rayala Corporation P. Ltd. v. Asst. CIT [(2014) 363 ITR 630 (Mad)]. 4.27. So far as, the decision in the case of CIT vs Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) is concerned, the Hon'ble Apex Court, while coming to a particular conclusion, only in a situation, when not a single piece of paper or document was recovered, therefore, the Hon'ble Court held that since there was no tangible material found and the addition was merely on the basis of statement only then reopening of assessment u/s 147 of the Act was not perm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the assessee having failed to disclose truly and fully all facts. [Para 7] Section 147 provides inter alia that if the Assessing Officer has the reason to believe that any income chargeable to tax has escaped assessment, he may subject to the provisions of sections 148 to 153, assess or reassess such income. Proviso to section 147 of course requires that where the assessment under sub-section (3) of section 143 has been made for the relevant assessment year, no action shall be taken under this section after the expiry of the four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on part of the assessee to make return under section 139 or in response to a notice issued under sub-section (1) of section 142 or 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. In this context, it is well settled that the requirement of full and true disclosure on part of the assessee is not confined to filing of return alone but would continue all throughout during the assessment proceedings also. In this context, the materials on record would sugg....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the basis of disclosures made and materials supplied by the assessee. Such material is found to be prima facie untrue and disclosures not truthful. Earlier scrutiny or examination on the basis of such disclosures or materials would not debar a fresh assessment. Each individual case of this nature is bound to have slight difference in facts. [Para 11] The next contention that the Assessing Officer did not demonstrate any material enabling him to form a belief that income chargeable to tax has escaped assessment is fallacious. The Assessing Officer recorded detailed reasons pointing out the material available which had a live link with formation of belief that the income chargeable to tax had escaped assessment. At this stage, as is often repeated, one would not go into sufficiency of such reasons. [Para 13] Section 68 as is well known, provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 12); II. Raymond Woolen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) (para 13); III. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 13) IV. Pr. CIT v. Gokul Ceramics [2016] 241 Taxman 1/71 taxmann.com 341 (Guj.) (para 16) And distinguished the following decisions i. Allied Strips Ltd. v. Asstt. CIT [2016] 384 ITR 424/69 taxmann.com 444 (Delhi) (para 11) and ii. Yogendrakumar Gupta v. ITO [2014] 366 ITR 186/46 taxmann.com 56 (Guj.) (para 11) The Hon'ble High Court while upholding the validity of reopening also considered following decision, which were referred by both sides- I. Allied Strips Ltd. v. Asstt. CIT [2016] 384 ITR 424/69 taxmann.com 444 (Delhi) (para 5), II. Harikrishan Sunderlal Virmani v. Dy. CIT [2017] 394 ITR 146 (Guj.) (para 5), III. Raymond Woolen Mills Ltd.v. ITO [1999] 236 ITR 34 (SC) (para 6), IV. Yogendrakumar Gupta v. ITO [2014] 366 ITR 186/46 taxmann.com 56 (Guj.) (para 6), V. Aaspas Multimedia Ltd. v. Dy. CIT [2017] 83 taxmann.com 82/249 Taxman 568 (Guj.) (para 6), VI. Jayant Security & Finance Ltd. v. Ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court in Raymond Woolen Mills Ltd. vs Income Tax Officer throws light on the issue and further by Hon'ble jurisdictional High Court in M/s Girilal & Company vs Income Tax Officer 300 ITR 432 (Bom.). It is also noted that originally the assessee declared income of Rs. 4,23,760/- in its return filed on 29.09.2009 and scrutiny assessment under section. 143(3) was not done originally. Subsequently, the case was reopened under section 147 as there was information from the Investigation Wing and Sales Tax Department that the assessee obtained accommodation bills in respect of purchases made from Hawala parties amounting to Rs. 3,14,51,949/-. Notice under section 148 dated 14th March 2014, was served upon the assessee along with the reasons of reopening. Thereafter, notice under section 142(1) and 143(2) were issued and served upon the assessee. Another notice under section 142(1) dated 24.11.2014, was served upon the assessee calling for specific details. As per the Revenue, assessee could not submit the documentary evidence to prove the genuineness of the transaction/purchases of the said parties. Even no confirmation from the parties was submitted. Even the addresses of the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rting further, we deem it appropriate to consider various decisions from Hon'ble High Courts/Hon'ble Apex Court, so that we can reach to a proper conclusion. The Hon'ble Gujarat High Court in Sanjay Oilcakes Industries vs CIT (2009) 316 ITR 274 (Guj.) held as under:- "11. Having heard the learned advocates appearing for the respective parties, it is apparent that no interference is called for in the impugned order of the Tribunal dated April 29, 1994, read with the order dated September 29, 1994, made in miscellaneous application. In the principal order the Tribunal has recorded the following findings : "8.3. We have considered the rival submissions and perused the facts on record. In our opinion, the action of the Commissioner of Income-tax (Appeals) confirming 25 per cent. of the amounts claimed is fair and reasonable and no interference is called for. The Commis sioner of Income-tax (Appeals) has gone through the purchase prices of the raw material prevalent at the time and rightly came to the con clusion that the disallowance to the extent of 25 per cent. was called for. It is established that the parties were not traceable ; they opened the bank a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law." 7.1 In the aforesaid case, the Hon'ble High Court accepted that the apparent sellers, who issued the said bills were not traceable and the goods received from parties other than the persons, who had issued the bills for such goods. The purchases were shown to have been made by making payments, through banking channel and thus the apparent sellers were not genuine or were acting as conduit between the assessee and the actual seller. In such a situation, the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal) as well as by the Tribunal was affirmed. Hon'ble Apex Court in Kachwala Gems vs JCIT (2007) 158 taxman 71 observed that an element of guesswork is inevitable in cases, where estimation of income is warranted. 7.2. The Hon'ble Gujarat High Court in CIT vs Bholanath Poly Fab. Pvt.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ied in disallowing the entire amount. He, however, was of the view that the assessee had inflated the purchases and, accordingly, by placing reliance on the decision of the Tribunal in the case of Vijay Proteins (supra) restricted the disallowance to 20 per cent. The Tribunal in the impugned order has followed its earlier order in the case of Vijay Proteins to the letter and enhanced the disallowance to 25 per cent. Thus, in both cases, the decision of the Commissioner (Appeals) as well as that of the Tribunal is based on estimate. This High Court in the case of Sanjay Oil Cake [2009] 316 ITR 274 (Guj) has held that whether an estimate should be at a particular sum or at a different sum can never be a question of law. 7. The apex court in the case of Kachwala Gems [2007] 288 ITR 10 (SC) has held that in a best judgment assessment there is always a certain degree of guess work. No doubt, the authorities should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily but there is necessarily some amount of guess work involved in a best judgment assessment. 8. Examining the facts of the present ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l inflation of rates and deleted the addition. 12. The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has found that the assessee had made purchases from MMTC at the prevailing market rates and that MMTC had incurred certain expenditure in engaging personnel in the office and other operations and would make some income from the entire exercise. In the circumstances, the purchases made by the assessee from MMTC would not be hit by the provisions of section 40A(2) of the Act. 13. Thus, the conclusion arrived at by the Tribunal is based on concurrent findings of fact recorded by the Commissioner (Appeals) as well as the Tribunal. It is not the case of the Revenue that the Tribunal has taken into account any irrelevant material or that any relevant material has not been taken into consideration. In the absence of any material to the contrary being pointed out on behalf of the Revenue, the impugned order being based on concurrent findings of fact recorded by the Tribunal upon appreciation of the evidence on record, does not give rise to any question of law in so far as the present ground of appeal is concerne....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Appeals) was legally and factually correct in deleting the disallowance of cost of crane as well as depreciation thereon. 16. From the facts emerging from the record, it is apparent that the assessee had never claimed the cost of the crane in the return nor had it debited the expenses to the profit and loss account, and as such the question of disallowing the same and adding the same to the income would not arise. Moreover, in the absence of any evidence to indicate that the purchase was bogus or that the crane in fact did not exist, the question of disallowing the deprecation in respect of the same also would not arise. When the assessee had conclusively proved the purchase and existence of the crane, and had not debited the expenses to the profit and loss account, no addition could have been made in respect of the purchase price nor could have depreciation been disallowed in respect thereof. The Tribunal was, therefore, justified in deleting the addition as well as disallowance of depreciation. 17. In the light of the aforesaid discussion, it is not possible to state that there is any legal infirmity in the impugned order made by the Tribunal so as to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gly, did not sustain the addition retained by the Appellate Assistant Commissioner. Hence, at the instance of the Revenue, the aforesaid question has been referred to this court for opinion. On a perusal of the order of the Tribunal, it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations, the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made in the books of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....delivered in the case of Western Extrusion Industries. (ITA/6579/Mum/2010-dated 13.11.2013). Authrorised representative (AR) contended that payments made by the assessee were supported by the banker's statement, that goods received by the assessee from the supplie was part of closing stock,that the transporter had admitted the transportation of goods to the site.He relied upon the case of Babula Borana (282 ITR251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon'ble Bombay High Court. 2.4.We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the decidin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Ld. Commissioner of Income Tax (Appeal) as well as this Tribunal has followed the decisions from Hon'ble Gujarat High Court in the case of Simit P. Seth (2013) 356 ITR 451 (Guj.), CIT vs Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.), CIT vs Bhola Nath Poly Fab. (P.) Ltd. (2013) 355 ITR 290 (Guj.) and various other decisions of the Tribunal and the decision of M/s Nikunj Eximp(supra) from Hon'ble jurisdictional High Court, wherein, the aggregate disallowance was restricted to 12.5%. Admittedly, there cannot be sale without purchases. The case of the Revenue is that there is bogus nature of purchases made from suppliers and the parties were not found existing at the given addresses. 7.10. The Ahmedabad Bench of the Tribunal in the case of N K Proteins Ltd. vs. DCIT (2004) 83 TTJ Ahd 904 made an elaborate discussion with respect to the issue on bogus purchases, the relevant portion from the order is reproduced here under: "49. We will now deal with the main ground raised by the assessee in relation to addition of Rs. 11.99 crores made in respect of bogus purchases. We have carefully considered the elaborate arguments made by the learned representa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India(1971) 3 SCR 9 : AIR 1971 SC 530, this Court cautioned (at p. 578 of AIR 1971 SC): 'It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment'." 52. A useful reference may be made to the judgment of the Hon'ble Gujarat High Court in the case of Gujarat State Co-operative Bank Ltd. v. CIT (2001) 250 ITR 229 (Guj). At p. 265, the Hon'ble High Court has observed as under: "As per the settled legal position, a decision is an authority for what it actually decides and not necessarily for what logically follows from it. Equally well settled is the principle that a decision to be law under Article 141 must not be a mere conclusion by which the case is disposed of. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssments and it operated in a different field from the assessment of undisclosed income which was not and would not have been disclosed for the purpose of the Act. Undisclosed income, by Chapter XIV-B, is classified separately for the purposes of assessment and is required to be worked out in the manner prescribed therein and treated to a higher rate of tax. This process did not disturb the assessments already made, of the previous years, and was only intended to sniff out what had remained hidden and not disclosed by the assessee. There would, therefore, be no overlapping in the nature of the assessment made under this chapter of undisclosed income and the regular assessment made under Section 143(3). The powers of regular assessment are kept intact and so are all the appellate, revisional and other powers affecting such regular assessment and all the statutory consequences flowing from the exercise of such powers would follow along side of this special assessment procedure devised for dealing with undisclosed income as a result of search. It, therefore, follows that the inquiry under Section 143(3) for regular assessment which was pending when the block assessment was made, the AO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome which was not and would not have been disclosed for the purposes of the Act. Undisclosed income, by this chapter, is classified separately for the purposes of assessment and is required to be worked out in the manner prescribed therein and treated to a higher rate of tax. This process did not disturb the assessments already made, of the previous years, and was only intended to sniff out what had remained hidden and would not have been disclosed by the assessee. There would, therefore, be no overlapping in the nature of the assessment made under chapter of undisclosed income and the regular assessment made under Section 143(3) of the Act. If the pending regular assessment proceedings were to be frozen and got substituted by the assessment of the undisclosed income of the block period, the legislature would have been specific on that aspect and would have made it clear that the pending regular assessment proceedings should be dropped. The provisions of this chapter do not either expressly or by necessary implication even remotely indicate that the regular assessment proceedings of a previous year covered in the block period, were required to be stayed or dropped or subst....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onclusion that what the ITO can assess in regular assessment cannot be assessed in block assessment. The Hon'ble Gujarat High Court while dealing with the reference application under Section 256(2) has declined to refer the various questions suggested by the CIT mainly on the ground that the questions proposed by the Revenue did not raise any question of law and it has also been observed that where the assessee has disclosed the particulars of income or expenditure in the return/books of accounts, the AO cannot take a different view on the basis of "same material". Such observations have been made by following the judgment reported in (1998) 234 ITR 733 (Guj) (supra). The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd., if read in the context of questions raised before the Court, cannot be read as having held that even if the material found during the course of search exposes the falsity of the entries made in the regular books of accounts, the consequent concealed income cannot be assessed as undisclosed income in block assessment under Chapter XIV-B. In the present case the addition in respect of purchases made from the alleged bogus sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined......" 57. A plain reading of Section 158B(b) clearly indicates that any expense, deduction or allowance claimed under this chapter which is found to be false as a result of search will come within the ambit of undisclosed income under Chapter XIV-B. The expressions "on the basis of evidence found as a result of search" or "other documents and such other materials of information as are available with the AO and relatable to such evidence, the undisclosed income so detected as a result of search and/or as a result of other material or information as are available with the AO, will be assessable as undisclosed income in assessment for the block period. It may be relevant here to mention that such other material or information as are available with the AO used in Section 158BB(1) would include material, information and evidence gathered as a result of postsearch investigation on the basis of evidence found during the search or found as a result of search. Such info....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts on which the AO has placed reliance were obtained by the investigation wing. The AO has simply relied on the appraisal report. The learned counsel has vehemently argued that the Addl. DIT/Dy. DIT have no power to conduct enquiry after the search. The CIT(A) has placed reliance on the judgment of the Hon'ble Gujarat High Court in the case of Arti Gases v. Dy. DIT (supra). The Hon'ble Gujarat High Court in that case at p. 63 has observed as under: "We are of the view that the notices under Section 131(1A) can also be issued after completion of the search undertaken under the provisions of Section 132 of the Act. In our opinion, it would be absolutely logical to call for information so as to have better particulars or to have a complete idea about the material seized during the search. If some material is seized at the time of the search and the authorised officer wants to have some details so as to understand the nature of the documents, he may issue notice under Section 131(1A) of the Act. In our opinion, in a given case such a notice cannot only help the Department but can also help the assessee. If the assessee is in a position to giv....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../Dy. DIT before using the same against the assessee in the assessment order. The AO has thus fully complied with the relevant provisions of law and the principles of natural justice before using the material against the assessee. This contention of the learned counsel also, therefore, has no merit. 61. We have carefully gone through all the decisions cited by the learned representatives of the parties. It is well settled law that each case will depend on the facts and circumstances of that case. The decision in every case has to be arrived at on the basis of appreciation of facts, material and evidence existing on records. However, such evidence existing on records should be appreciated and evaluated on the basis of principles of law emerging from various decisions cited by the learned representatives. We have also indicated hereinbefore as to how the facts of various cases relied upon by the learned counsel are different and distinguishable from the facts of the present case. We will however bear in mind the various principles laid down by the Hon'ble Courts while considering the facts and material relating to the present case. 62. The most important principl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y cheque given by the assessee towards payment of purchase price to this party was credited in their bank account, on that very day, on most of the occasions, an equivalent amount had been withdrawn by a self cheque. For instance, cheque of Rs. 3,69,857 was credited in their bank account on 23rd April, 1998 and there is a cash withdrawal of an equivalent amount on that very day. Most of the times, there is a withdrawal of an equivalent amount by self cheque on the date of deposit of the cheque on their account. This bank account was introduced by Shri Nileshbhai K. Patel, as director of the appellant-company. The balance in this bank account after such withdrawal soon after the deposit of the cheque mostly remained at the same figure of Rs. 5041. The learned Departmental Representative has submitted a copy of letter dt. 20th March, 2001 from Mehsana Urban Co-op. Bank Ltd. stating that as per the statement of account of Adinath Corporation account No. 531, all credit entries by transfer during the period from 17th April, 1998 to 7th July, 1998 are from NKPL. It clearly shows that so far in bank account of Adinath Corporation is concerned, the entire cheques deposited in thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,000 on 29th Sept., 1997. The cheques deposited in this account which are mostly from NKPL (assessee-company) are also followed by immediate withdrawal of an equivalent amount on most of the occasions leaving a balance of Rs. 7,616 on most of the days. Most of the cheques are either cash withdrawn or have been issued in favour of Triveni Corporation, as is apparent from the narration given in the copy of bank statement placed at pp. 67 and 68 of the paper book dt. 1st July, 2002 submitted by the assessee. (B)(iii) The bank account of M/e Vimal Industries was also opened with an initial deposit of Rs. 1,000 on 18th June, 1998. The transactions of purchase bills obtained from this party pertained to the period from July, 1998 to December, 1998. M/s Vimal Industries had also withdrawn the amounts from time to time by way of self cheques soon after the respective cheques from various parties were credited. It is true that the total deposits in the account of M/s Vimal Industries with Mehsana Urban Co-op. Bank Ltd. account No. 1117 as per the assessment order for the period from 18th June, 1998 to 19th April, 1999 is Rs. 10,50,05,834 and purchases made by the assessee from this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ank are also by way of self cheques but there are other few withdrawals by way of cheques/DDs. For example there is a debit of Rs. 6,50,100 by way of demand draft dt. 28th July, 1998. Likewise, there are some withdrawals by cheques also. But most of the withdrawals from this bank account are by way of self cheques of substantial amounts withdrawn almost on the same day when corresponding cheques were credited in the said bank account. (B)(v) Karnavati Industries : They also opened their account on 29th Dec., 1997 with initial deposit of Rs. 1,000. The total deposits in the said account from 29th Dec., 1997 to 29th Dec., 1998 are Rs. 12,30,13,608 as per copy of bank statement submitted at pp. 87 to 101 of the said paper book. The total purchase bills obtained by the assessee from this party were only of Rs. 38,10,000, A copy of account of Karnavati Industries in the books of assessee submitted at pp. 57 to 59 shows the total debits in this account to the tune of Rs. 2,28,77,001. The total credits have been shown at Rs. 2,26,14,069 for the period from 18th June, 1998 to 31st March, 1999. There is a closing balance of Rs. 2,62,932 as on 31st March, 1999. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... through the inspector revealed that none of them existed at the given addresses. (E) Most vital and significant evidence brought on records by the IT authorities is clear and categorical admission by all these parties in the form of affidavits/statements. Copies of affidavits/statements given by all these supplier concerns referred to in the assessment orders clearly indicate that all of them have clearly denied having supplied any material to the assessee, They also stated that they were being paid petty monthly amounts by Shri Nilesh K. Patel for signing cheques, bills and other documents in the names of these bogus concerns. The assessee contended, that no reliance on these affidavits/statements obtained by the Dy. DIT/Addl. DIT behind back of the assessee, should be placed, as they were not examined in the presence of the assessee nor the assessee was allowed to cross-examine them. It is pertinent to mention here that the AO vide very first questionnaire dt. 4th Dec., 2000 which is reproduced at p. 2 and 3 of the assessment order gave complete gist of inquiries conducted in respect of purchases made from these parties. Copies of all relevant statements/affida....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... different parties, contents are bound to be different." The assessee did not ask the AO even at this stage to examine or cross-examine the suppliers and the brokers in their presence. The assessee only repeated the arguments that material had really been received and the payments had been made by account payee cheques. It was also stated that since these transactions are recorded in the regular books of accounts, therefore, the question of considering the same in block assessment does not arise. 65. Thereafter, it appears that the affidavits of some of these suppliers retracting from their earlier affidavits given to Dy. DIT, were furnished in the course of assessment proceedings in the case of Shri Nilesh K. Patel. A copy of letter dt. 23rd Feb., 2001 from Shri Nileshbhai Patel to the Dy. CIT has been placed at pp. 30 to 32 of the Department's paper book. In this letter it has been stated that the original affidavits of proprietors of eight concerns including all these five parties in question in the present case are enclosed herewith. The affidavit of Shri J.J. Doshi, proprietor of M/s Adinath Corporation and M/s Tirupati Corporation, though specif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the reality in rebuttal of those affidavits/statements obtained behind his back by the Dy. DIT. The assessee simply submitted the affidavits of these suppliers at the fag end of the assessment proceedings and did not produce these suppliers before the AO along with their books of accounts and records from which the capacity of the suppliers and the reality and genuineness of credit sales of such large magnitude made by them to the assessee could have been verified. The assessee also did not produce the brokers through whom it was stated by Shri Nileshbhai Patel that the purchases from these parties were made through them. The suppliers who could give their affidavits subsequently in which they have retracted from their earlier affidavits/statements to Dy. DIT, were therefore fully co-operating with the assessee and there is no reason as to why the assessee did not or could not produce them before the AO for their examination along with the relevant records. 67. In the interest of fair play and justice, a specific opportunity was given to the learned counsel appearing for the assessee during the course of hearing before us, to produce all these suppliers along with their re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scale. None of them appear to be existing income-tax assessee as GIR Number/PAN Number and ward, etc. are not stated in any of their affidavits. We therefore agree with the findings of the learned Departmental authorities that all these suppliers were only name lenders/billing agents. The purchases claimed to have been made by the assessee from them do not represent genuine purchases made from those parties. 68. The question still remains to be considered is as to whether the assessee had in fact received the material in question which was claimed as allegedly purchased from these name lenders/billing agents. The evidence existing on records, which will be discussed in details hereinafter, indicates that the material in question "wash cotton seed oil" shown as purchased through such fictitious invoices obtained in the names of five bogus parties, appear to have really been received. Such evidence on records are briefly as follows: (A) Various records of contemporary period including general inward register, daily gate outward register were found and seized during the course of search. Gate outward register was maintained by security staff of the factory of NKPL. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of contemporary period such as weighment of the material inward receipts and analysis reports etc. All these documents were furnished to the AO to prove the fact of real receipt of material shown as purchased through such fictitious invoices. (C) The learned CIT(A) called for a remand report from the AO during the course of appellate proceedings before him. As already stated hereinbefore, the AO in his remand report dt. 26th Dec., 2001 has clearly stated that the test check of the purchase bills and other supporting documents with reference to inward register, stock register etc. have been made and it is found that the entries in respect of purchases made from the above parties are entered and consumed. This remand report given by the AO after verifying the relevant facts stated in the documents produced by the assessee with the contents of seized registers, provide a clinching proof in favour of the assessee's contention that the material in question had really been received and used in the process of production. (D) One more vital evidence which supports the assessee's contention about real receipt of material in question is that a detailed stock inven....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has not produced those suppliers/brokers before the AO along with the relevant records. The Tribunal also gave the assessee a specific opportunity to produce those suppliers/brokers along with their books of accounts and other relevant records. The assessee has expressed their inability to produce them before the Tribunal. The facts of those two cases are therefore totally distinguishable as in those cases there was no such clear but categorical denial by the brokers/suppliers. The assessee must have obtained fictitious bills from such billing agents/name lenders with a view to derive some definite gain. It is true that the material in question was received by the assessee but those materials were not received from these billing agents/name lenders" but were received from undisclosed sources or from unknown parties, which was within special and exclusive knowledge of the assessee and the assessee is not willing to disclose the true facts to the Department. It is well known that unaccounted material may be available in the market at much lower price as compared to the purchases made from genuine dealers on the strength of genuine bills. The real suppliers may be willing to sell thos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ively known to the assessee, The assessee does not want to tell the truth but simply wants to have total deletion on technical and legal grounds which have no valid base whatsoever. 70. The question which now arises for our consideration is as to whether the entire amount of the said bogus purchases should be disallowed or the assessee should be held to be eligible for grant of deduction of a reasonable amount of purchase price of wash cotton seed oil which in fact had really been received by the assessee but was sought to be supported by fictitious invoices obtained from billing agents/name lenders. It is well settled law that tax can be levied only on real income. It is an elementary rule of accountancy as well as of taxation laws that profit cannot be ascertained without deducting cost of purchases from sales, otherwise it would amount to levy of incometax on gross receipts or on sales. Such recourse is not permissible under any provisions contained in the IT Act. The facts and discussion made hereinabove show that the purchase invoices obtained from five name lenders/billing agents are fictitious. The material and evidence found during the course of search and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....regating to Rs. 11.99 crores, the question relating to unexplained non-genuine credit shown in the accounts of these name lenders/billing agents will have to be kept in mind. The assessee's counsel contended that no such addition was made by the AO under Section 68 nor Section 68 applies in relation to such credit purchases. All these facts and decisions submitted by the learned counsel are not relevant because we are not making any fresh addition in respect of any unexplained cash credit but this vital factor is being taken into consideration while estimating the amount of undisclosed income liable to tax in the block assessment in relation to such purchases of Rs. 11.99 crores. The peak credit as on any one date in the account of one of these billing agents/name lenders is Rs. 1,54,14,534. This chart was submitted by the learned Senior Departmental Representative and copies were given to the learned counsel for the assessee. No mistake in the said peak statements were pointed out by the learned counsel. The addition in respect of such unexplained part credit in the accounts of bogus suppliers can be made under Section 68 or 69C in view of decisions in the cases of Vijay Prote....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y raised certain sale bills in favour of Triveni Corporation and Tirupati Corporation in anticipation of goods to be purchased from NKIL. Finally, NKIL could not deliver the goods and therefore, the company also did not give delivery to Triveni Corporation and Tirupati Corporation. Therefore all these purchase and sale bills are cancelled bills. No actual purchase of goods or sale of goods was made by the assessee. The delivery of the goods was also not effected. This fact was verifiable from the inward register lying seized with the Department in which such transactions are not recorded. The assessee-company has also not received any payment from Triveni Corporation and Tirupati Corporation in respect of these sale bills which can be verified from their bank statements available with the IT Department. The company also passed a board resolution for cancellation of the bills in respect of abovereferred transactions. A copy of board resolution was also submitted to the AO. The AO considered the submissions made on behalf of the assessee. It was found that the seized bills bear the gate entry numbers at the factory premises of NKPL. Therefore, there is no doubt that the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amounting to Rs. 3,86,968 can be taxed. The CIT(A) after considering these submissions confirmed the addition to the extent of Rs. 3,86,968. The learned counsel on the strength of similar arguments urged that the addition of Rs. 3,86,968 should be cancelled. 75. The learned Senior Departmental Representative, on the other hand, vehemently contended that the CIT(A) has erred in deleting the addition of Rs. 2,01,99,793 being purchases made from NKIL, which are proved beyond doubts from the sales invoices issued by NKIL in favour of NKPL, which were found and seized from the business premises of NKPL. Those sale bills bear the gate entry number. It also contains all other particulars such as truck number etc. A subsequent resolution of the board cannot nullify the facts so clearly revealed from the documents found and seized during the course of search. The CIT(A) has grossly erred in directing the AO to restrict the addition to Rs. 3,86,968. The learned Senior Departmental Representative made elaborate arguments in this regard in para 3.12 of his written submissions dt. 29th Oct., 2002 which have been reproduced hereinbefore. It has been mentioned in the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntention of the assessee that submissions made with reference to entries of material received from Kothari Global constitute additional evidence, is not correct. Such a submission has been made on the basis of seized inward register of NKPL lying seized with the Department. The assessee has himself heavily relied upon the entries of the said register while dealing with the main ground of addition relating to receipt of material purchased from bogus suppliers. It is evident from the photo copies of sale invoices issued by NKIL to NKPL and from copies of sale basis issued by NKPL to Triveni Corporation and Tirupati Corporation that what was purchased by the assessee from NKIL was wash cotton seed oil and what was sold by the assessee to Triveni Corporation and Tirupati Corporation was soyabean oil. These two items of purchase and sale reflected from the seized invoices have no nexus with each other. The entries in the seized inward register and outward register are also required to be thoroughly checked with reference to the quantity weight and truck numbers mentioned in these invoices forming part of A-6 in the light of similar material claimed to have been recorded as received from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d as under: "7. Unaccounted payments: As already discussed in the preceding paras, certain bank accounts were found during the course of search of different concerns. After inquiries it was held that these concerns are bogus and purchases made by the assessee from these concerns are added as bogus purchases. From the perusal of these bank accounts, it is noticed that these are in following names : Rs. 1. 2,10,54,076 Adinath Corporation 2. 3,33,07,324 Tirupati Corporation 3. 7,26,74,355 Vimal Industries 4. 12,34,73,600 Karnavati Industries 5. 2,79,01,621 Krishna Industries 6 3,64,01,356 . Triveni Corporation --------- ------- Total 31,48,12,332 --------- ------ These also represent payments made by assessee group concerns for purchases and other expenses. Inquiries are being conducted from banks to find out the concerns which made these payments for purchases and other expenses. Substantive disallowance will be made in these concerns after conclusion of inquiries. However, protectively t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in respect of deposits in the accounts of these alleged bogus suppliers have also been made in the case of Shri Nileshbhai K. Patel on substantive basis. A show-cause notice was issued by the AO on 18th Jan., 2001 to Shri Nileshbhai K. Patel in which it was stated that several blank cheque books and vouchers of number of concerns were found and seized at the office premises of NKPL. The affidavits were filed by the owners of those concerns. From all these affidavits it is clear that these are bogus concerns created by you. The business of these concerns were totally managed by you. The bank accounts relating to those concerns were also managed by you as stated by so-called proprietors of these concerns. The AO, therefore, required the assessee to explain as to why the amounts deposited in the bank accounts of these suppliers be not treated as unaccounted income of the assessee. The details of amounts deposited in these bank accounts were given in the aforesaid show-cause notice as under; No. Name of the holder Amount credited 1. Krishna Industries 29,93,310 2. Triveni Corporation 3,64,01,356 3. Karnavati Industries 12,30,13,600 4. Adinath C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1,26,48,060 from NKPL 2,83,41,440 4,14,78,250 5,71,71,630 Vimal Industries 1,48,34,121 5,78,40,234 7,26,74,355 Karnavati Industries 38,10,000 11,96,63,600 12,34,73,600 Adinath Corporation 2,16,13276 2,10,54076 Tirupati Corporation 4,76,93,575 3,33,07,324 Krishna Industries 31,95,67,82 27902721 11,99,07,754 17,75,03834 27,84,12,076 Triveni Corporation(Goods are sold by NKPLand sale proceeds areaccounted for in thebooks) 3,64,01,316 Total 14,82,49,194 21,89,82,084 37,19,85,062 87. It was submitted before the CIT(A) that so far as payments aggregating to Rs. 2,83,41,440 and Rs. 11,99,07,754 mentioned in the aforesaid chart are concerned, these payments were made by NKIL and NKPL respectively to these suppliers by cheques. Hence deposits in the bank accounts of these suppliers to the extent the deposits representing cheques received from NKIL and NKPL, cannot be treated as unexplained deposits. The issue relating to alleged bogus purchases made by NKPL and NKIL from these concerns has been dealt with separately in the respective assessment orders but those payments made by cheques by NKIL and NKPL by no stretch of imagination be treated as unexplained deposits in the bank acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e not discussed again. The same have been elaborately discussed therein. In the case of Sejal Enterprises, addition of Rs. 1,26,48,060 was upheld on account of bogus purchases in the case of NKIL whereas finding was given that, in respect of Somnath Industries and Krishna Marketing, there was no material for considering the additions under Section 158BC, in the absence of any material discovered during the course of search. Similarly, in respect of bogus purchases relating to Vimal Industries, Karnavati Industries, Adinath Corporation, Tirupati Corporation, Krishna Industries totalling Rs. 11,99,07,754 was upheld in the orders of NKPL as discussed above. It was noted that the said payments originated in the books of NKIL and NKPL and were through cheque payments and the transactions have been duly reflected in the books of NKIL and NKPL. Thus, the source of the said deposits stands established. (b) In respect of deposits of Rs. 21,89,82,084, the amount is stated to be received from outsiders i.e. other than NKIL and NKPL. The AO has not brought any evidence in this respect that the appellant was benamidar of such parties. As a matter of fact, even the nam....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the case of NKPL in para 7.4 on pp. 23 and 24 of his order: "7.4 I have considered the submissions made and also perused the facts. It is noted that the AO has treated the total of deposits appearing in the bank accounts of the said 5 parties pointed out by the appellant in para 3.2 of the submissions. It is submitted that purchases from the appellant recorded only for Rs. 11.99 crores and the rest is from the outside parties for which no findings have been given by the AO. In respect of the amount of Rs. 3,64,01,316, no finding has been given by the AO and the transaction has already been considered in the case of NKIL. It is noted that the contention of the appellant are correct and the appeal of NKIL bearing Appeal No. CIT(A)-VI (now III)/CC2/54/01-02 has already been disposed of as per order dt. 16th Jan., 2002. After perusing the points made by the appellant, I find that there is no justification in making double addition first by way of treating the same as bogus purchases and than considering the same as unexplained deposits in the bank accounts of the proprietors/concerns. It is relevant to note that it is observed by the AO that withdrawals made relating to pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....considered payment made by the company without any basis and evidences. Further, the payment for purchases is by cheques and they are reflected in the accounts regularly maintained by the company and, therefore, such payment for purchases is accounted payment and cannot be considered as unaccounted payments. 10.4 Even if it is considered as unaccounted payment, the addition is already made for purchases and, therefore, there is no question of making for further addition for unaccounted payments, if so made, it is double addition. 10.5 The protective assessment is normally made, if the Department is in doubt about the person in whose hands the income is taxable. The learned AO has also stated that the inquiries would be made in the hands of the said suppliers and, therefore, the substantive addition would be made in the hands of the suppliers. Now, the said concerns are treated as benamidar and the deposits in the accounts of suppliers of NKIL and NKPL is treated as undisclosed income in the case of Nilesh K. Patel and therefore, the question of treating any such payments as unaccounted in the case of NKIL even on protective basis does not arise." 6.1 Simi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve basis will be made after completing those inquiries in the cases of such other concerns who gave those cheques. The learned Senior Departmental Representative submitted a letter dt. 18th Dec., 2002. The relevant extracts of the said letter are reproduced as below: "As directed during the course of hearing by your honour, I am submitting herewith details of bank enquiries carried out in the group cases of N.K. concerns. It is submitted that there are large number of cheques and banks are involved due to which enquiries have not conducted yet. There are practical difficulties also due to which enquiries have not reached its conclusion. Kindly see the page No. 6 of the enclosure which is the reply from the Mehsana Urban Co-op. Bank Ltd. The bank has submitted as follows: "You are requested to note that we present all our bank clearing in computerised floppy and maintain our all records in computers. You are requested to note that we have the record of the name of the branch through which the instruments were presented by our bank. Moreover, all original instruments are presented to the concerned branch of the bank. Therefore it is not possible to furnish ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... attention has been invited towards bank account opening form in respect of account No. 4002 in the name of Swastik Overseas Ltd. placed at p. 37 of the documents submitted along with the letter dt. 18th Dec., 2002. This account was introduced by N.K. Industries. The persons authorised to operate the bank account in the name of Swastik Overseas Ltd. is Shri R.B. Mehta and one other Mehta. The learned Senior Departmental Representative was requested to show the photo copy of the statement of Rajesh Mehta-broker with a view to find out whether the signature on this bank account opening form tallies with the signature of the said broker. It was found that signature on this bank account opening form appears to be of the same person viz. Shri Rajesh Mehta-broker. The Bench required the learned Senior Departmental Representative to state as to whether Shri Rajesh Mehtabroker has been interrogated in relation to transactions carried out in the name of Swastik Overseas Ltd. The learned Senior Departmental Representative admitted that no such interrogation of Shri Rajesh Mehta was made. The extracts from the statement of Shri Rajesh Mehta reproduced on p. 10 of the assessment order in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rious efforts have been made for finding out the complete particulars of various debits and credits in the bank accounts of all such bogus suppliers except locating details of cheques given by NKPL and NKIL as per books of accounts of these two concerns. The learned Senior Departmental Representative simply relied upon the reasons mentioned in the assessment orders to support such a ground raised in all the aforesaid three appeals by the Revenue; one in the case of NKPL; NKIL and Shri Nileshbhai K. Patel. The learned Senior Departmental Representative also drew our attention to letter dt. 23rd May, 2001 sent by Madhavpura Mercantile Co-op. Bank Ltd. to the AO informing them that cheque No. 162824 and 162854 were issued by M/s Madhukant Agrotech (P) Ltd. in favour of Karnavati Industries. Copy of current account card was also annexed with this letter which shows details of a/c No. 362 in the name of M/s Madhukant Agrotech (P) Ltd. The address of M/s Madhukant Agrotech (P) Ltd. as given in the account opening form is as under: Madhukant Agrotech (P) Ltd. Aarohi, Nr Vijay Restaurant, University Road, Navrangpura, Ahmedabad. 94. The persons authorised to oper....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on all the persons and concerns belonging to this group show that no unaccounted money, bullion, jewellery, stock or any other valuable assets were found from any of the persons or concerns except meagre quantity of jewellery and cash etc. The unexplained jewellery was disclosed by the assessees of this group in the block return which have been accepted by the Department, The addition made on account of unexplained cash in the hands of different persons of this group was made by the AO but same was deleted by the CIT(A) and no further appeal has been preferred by the Revenue in relation to such deletion. This clearly proves that the assessee, did not own any other unaccounted assets or deposits whatsoever. The learned counsel contended that no addition could be validly made in the hands of Shri Nilesh K. Patel as he was not carrying on any personal business. The entire evidence which contains reference of his name is in his capacity as MD/director in NKPL and NKIL. There is no material or evidence on record that any funds were provided by Shri Nileshbhai Patel for deposits in all or any of these bank accounts. Shri Nileshbhai Patel had no transactions with any of these suppliers. M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CC or any of these places which are hand written and which have been highlighted in the copies of those bank statements submitted by the learned Senior Departmental Representative. The Department has miserably failed to bring any evidence on record to show that any of the cheques of outside parties/third parties were in any way connected with any of the persons or concerns of N.K. Group. The learned counsel strongly supported the orders of the CIT(A) in all these three cases in relation to the aforesaid common ground. 96. We have carefully considered the submissions made by the learned representatives of the parties and have gone through the orders of the learned Departmental authorities and all other documents submitted in the compilation to which our attention was drawn during the hearing. It is evident from the facts discussed hereinbefore that the addition in respect of unexplained deposits in the bank accounts of various suppliers were made in the cases of NKPL and NKIL on protective basis with the observation that further inquiries will be made from various branches of banks to ascertain that which other concerns have given such cheques which have been deposited in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was on the assessees to prove genuineness of purchases but the same principle would not apply when the Department wants to treat the entire deposits in these bank accounts in the names of various suppliers as benami deposits/benami accounts of these assessees. The Hon'ble Supreme Court in the case of Daulatram Rawatmal (supra) has observed at p. 360 as under: "The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the Department which claimed that the amount of fixed deposit receipt belonged to the respondent-firm even though the receipt had been issued in the name of Biswanath, the burden lay on the Department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of Biswanath. A simple way of discharging the onus and resolving the controversy was to trace the source and origin of the amount and find out its ultimate destination. So far as the source is concerned, there is no material on the record to show that the amount came from the coffers of the respondent-firm or that it was tendered in Burrabazar Calcutta Branch of the Central Bank, on 15th Nov., 1944, on behalf ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by other cheques given to other parties. The Department has thus failed to discharge the burden of proving that the origin and destination of these funds were these assessees and none else. The CIT(A), in our view, has rightly deleted the additions so made by the AO in all these three cases under consideration. 100. We will, however, like to observe that the officers of the Department cannot leave the investigation of such an important matter in a lamentable and incomplete position like this. The Department has vast powers under Section 131(1A) or Section 133 and other relevant provisions by which they can compell the concerned banks to give them complete details of the concerns/persons whose cheques have been deposited in the bank accounts of all these bogus suppliers/billing agents/name lenders. The Department can also find out the details of amounts withdrawn from these bank accounts of bogus suppliers otherwise than by way of self cheques. The names and addresses of the parties to whom such cheques/demand drafts have been given can be obtained from the respective branch of the concerned banks. The Department can also obtain photo copies of self cheques by which the nam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould be much more stronger than the reasons to suspect, If the AO comes across evidence and material which were not found or made available in the process of block assessment but are discovered as a result of postsearch investigation, he can certainly use such information for making regular assessment under Section 143(3) which also includes reassessment under Section 147 subject to fulfilment of conditions precedent mentioned in the other provisions of the Act. It will be the duty of the learned Senior Departmental Representative who represented this case before us to bring this fact to the notice of the learned Chief CIT, learned CIT, and learned DG (Investigation) so that further investigation in this regard may receive serious attention, which it deserves, and timely action can be initiated against such other concerns/persons under Sections 147, 158BD or other relevant provisions. 101. Now we will deal with Ground No. (2) in Revenue's appeal in the case of NKPL [IT (SS) A No. 41/A/2002]. This ground relates to deletion of addition of Rs. 2,01,99,792 made on account of unaccounted purchase. As already stated hereinbefore, this addition was made on the basis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Dy. CIT has not made any independent inquiry and therefore, the addition made on the basis of inquiry made by learned Addl. DIT under Section 131(1A) is illegal and not warranted since the learned Addl. DIT also cannot make inquiry under Section 131(1A) after the conclusion of search. 2.4 The learned CIT(A) has erred in confirming the finding of the Dy. CIT as stated on from page No. 6 to 16 of the assessment order which is nothing but reproduction of appraisal report and that the AO has not made any independent inquiry whatsoever. The AO has relied only on the finding given by the Addl. DIT and that the AO has also not examined the supplier. 2.5 The appellant further says and submits that the learned Addl. DIT has obtained affidavit from the proprietor of Sejal Enterprises behind the back of the assessee and that the learned Dy. CIT has placed the reliance on such affidavit. 2.6 The appellant further says and submits that the affidavit obtained by the learned Addl. DIT is similar in contents with the affidavits and statements obtained in the case of N.K. Proteins Ltd. and therefore, it appears that such affidavit is obtained under undue influence, ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... evidences were adduced by the learned Dy. CIT as undisclosed income of the appellant. 5.2 The appellant further says and submits that the disclosure under VDIS Scheme was made by the appellant on the basis of the notice issued by the Department. Now, Department cannot change the stand and is permitted to state that the amount was more than disclosed under VDIS Scheme. 6.1 The order of block assessment is bad in law and illegal inasmuch as the approval of Jt, CIT is granted under Section 158BG without giving any opportunity to the assessee of being heard. The power to grant approval is quasi-judicial and not administrative and therefore, there has to be a judicial approach on entire facts, material and evidence (Kirtilal Kalidas & Co. (1999) 64 TTJ (Mad) 77 : (1998) 67 ITD 573 (Mad). The Jt. CIT has a supervisory role and therefore, approval granted is administrative in nature in the normal course but in block assessment in Chapter XIV-B a specific provision is made under Section 158BG for granting approval. It means that the power is quasi-judicial and not of administrative nature. 6.2 The appellant says and submits that the approval granted by the Jt. C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f his statement has been extracted on pp. 7 and 8 of the assessment order. Shri K.R. Soni has categorically denied having supplied any such material. He admitted that he was signing bill books, blank cheque books, application for registration of sales-tax in the name of Somnath Industries at the instance of Shri Nileshbhai Patel who used to give him Rs. 2000 p.m. for all this work. The bank account of Somnath Industries was opened on 24th Aug., 1998 with initial deposit of Rs. 1,000 in cash. It has been closed on 12th May, 1999. One more bank account of Somnath Industries was also opened. The total amount of deposit in these two bank accounts upto the date of search was Rs. 2,24,57,568 as mentioned on p. 9 of the assessment order. The AO has also observed that in almost all cases, the deposits and withdrawals are on the same day. The AO on the basis of aforesaid evidence gave similar findings that Somnath Industries is fictitious entity and purchases shown by NKIL from them represented bogus purchases. The findings so given are recorded on p. 9 of the assessment order. 107. The facts relating to Krishna Marketing have been discussed on pp. 9 and 10 of the assessme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o other blank bill or voucher was found during the course of search. The CIT(A) asked the AO to verify this fact vide letter dt. 4th Jan., 2002. The AO in reply to the said letter submitted that no blank bills or cheques were found and seized in respect of M/s Somnath Industries and Krishna Marketing. The CIT(A) following the judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards (supra) and also the fact that no statement under Section 132(4) during the search in respect of these purchases was recorded, he deleted the addition made by the AO in respect of purchases made from Somnath Industries and Krishna Marketing amounting to Rs. 1,14,78,000 and Rs. 51,67,228 respectively. The CIT(A) however confirmed the addition in respect of purchases of Rs. 1,26,48,060 made from Sejal Enterprises. The CIT(A) has observed that two blank bills of Sejal Enterprises were found during the search. The AO issued summons at the address given on the said bills but the same were returned back. The entire deposits made in the bank account of this concern was by way of transfer entries from the appellant and moneys were immediately withdrawn from the said bank account. The CIT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting the addition of Rs. 1,14,78,000 and Rs. 51,67,228 in respect of purchases made from Somnath Industries and Krishna Marketing, is not justified, The CIT(A) relying upon the judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards (supra) has agreed with the assessee's contention that so far as purchases from these two concerns are concerned, they cannot be considered in the block assessment under Chapter XIV-B for the block period because no documents relating to those two parties were found during the course of search. The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards has been read by the CIT(A) out of context. We have already discussed this issue while dealing with the similar grounds in the case of NKPL. The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper and Boards if read in the light of context and the question decided by the Hon'ble Gujarat High Court, it would be amply clear that the ratio of the Hon'ble Gujarat High Court laid down in those cases does not in any manner support the view so taken by the CIT(A). The basic facts that the concerns of N.K. Group viz. NKPL and NK....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om these three parties had really been received as per facts and evidence brought on record, which are similar as in the case of NKPL. 116. It may also be relevant here to mention that the Bench required the learned Senior Departmental Representative to submit a peak statement in relation to the amounts of these three parties. The learned Senior Departmental Representative submitted copies of those statements which show that the transactions in the accounts of Somnath Industries cover the period from 26th Aug., 1998 to 1st Jan., 1999. The peak credit in these accounts as on 27th Sept., 1998 was Rs. 47,33,270. The peak credits in the accounts of Krishna Marketing covers period from 27th Aug., 1998 to 22nd Sept., 1998. The peak credit in this account as on 10th Sept., 1998 was Rs. 33,26,780, the entries in the account of Sejal Enterprises covers the period from 19th Dec., 1997 to 13th Nov., 1998 in the aforesaid peak statement submitted by the Department. The peak balance in this account is Rs. 11,77,456 as on 1st May, 1998. These figures have been given just with a view to show that credit purchases were shown as having been made from these billing agents/name lend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sent appeal the assessee is a manufacturer/trader/both (which is to be established by the assessee), therefore, the assessee is directed to establish the genuineness of the transactions, which has not been done by the assessee. The observation of the learned CIT(A) that it was a case of non-compliance to the notice issued u/s. 133(6) is concerned, itself is an admission that the party either did not respond or was not available at the given address. Under section 68 of the Act or under section 69C of the Act, the assessee is expected to satisfy the conditions laid down therein. U/s. 69C where the assessee incurred any expenditure and offers no explanation about the source of such expenditure or part thereof or explanation, if any, offered by the assessee, in the opinion of the Assessing Officer is not found satisfactory then such expenditure may be deemed to be the income of the assessee and such income shall not be allowed as deduction. The learned CIT(A) did not controvert the factual finding recorded in the assessment order and merely granted relief to the assessee. Even right from the assessment stage till the stage of this Tribunal, the assessee did not produce the party. Befo....