TaxTMI 
TaxTMI 
2017 (9) TMI 1761
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....rom the assessment order passed u/s 143(3) r.w.s 147, dated 20.03.2015. That as certain common issues are involved, therefore, the said respective appeals are taken up together and disposed of by way of a consolidate order. We first advert to the appeal filed by the assessee for A.Y. 2007-08, wherein assailing the order passed by the CIT(A) the following grounds of appeal had been raised before us: "The following grounds of appeal are without prejudice to one another: 1. As regards the notice of Reassessment u/s. 147/148 of Income-Tax Act. 1.1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in reopening u/s 148 of the Income Tax Act of the assessment which was completed u/s. 143(3) of the Income Tax Act,1961. 1.2. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Assessing Officer in reopening the case u/s 148 of the IT Act on the basis of the statement of third party, without considering the facts and circumstances of the case. 1.3. The Learned CIT(A) has erred in c....
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.... the same may be deleted. 3. Appellant prays that, a. Set aside the reassessment order passed u/s 143(3) r.w.s 147 of the Income Tax act. b. Delete the addition of Rs. 33,73,126 on account of unexplained expenditure in respect alleged purchased from suspicious dealer being 5% of Rs. 6,74,62,523. c. Any other relief your honor may deem it. 4. Appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 2. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of trading of all kinds of Furniture & Arteffects etc. had e-filed its 'Return of income' for A.Y. 2007-08 on 27.10.2007, declaring total income of Rs. 1,16,52,069/-. That regular assessment was framed in the hands of the assessee vide order passed u/s 143(3)(ii) of the 'Act', dated. 31.12.2008. The A.O was in receipt of information from the Investigation wing of the department that the assessee as a beneficiary had taken accommodation entries and booked bogus purchases through various companies ....
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....alers working in the organized sector. That as per the A.O such additional profit margin that would be generated by an assessee from purchasing the goods from the open/grey market at a lower price, and booking the same in its books of accounts at a higher value on the basis of the bogus bills of the aforementioned supplier companies, could safely be taken at 12.5% of the value for which such purchases had been booked in the books of accounts. The A.O on the basis of his aforesaid deliberations, thus concluded that the profit margin generated by the assessee from making of the aforementioned bogus purchases of Rs. 7,58,95,339/- could safely be taken at Rs. 94,86,917/- (i.e. 12.5% of Rs. 7,58,95,339/-). 4. The assessee being aggrieved with the order of the A.O therein assailed the same in appeal before the CIT(A). The assessee assailed before the CIT(A) the very assumption of jurisdiction by the A.O in respect of the reassessment proceedings initiated by him under Sec. 147 of the 'Act'. However, the CIT(A) not finding favor with the claim of the assessee that the A.O had wrongly assumed jurisdiction u/s 147/148 on the basis of the statement of a third party, rejected the....
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.... Sh. Jitendra Tater, director of JPK Trading (I) Pvt. Ltd. confirming the transaction with the assessee company with regard to purchases of Rs. 1,91,92,660/- ; and affidavit dated 06.06.2016 of Sh. Jitendra Tater, Director of Ostwal Trading (I) Pvt. Ltd. confirming the transaction with the assessee company with regard to purchases of Rs. 2,98,29,408/-. It was submitted by the assessee that as the respective confirmations along with affidavits from the aforementioned parties could only be obtained from the supplier parties after lots of persuasion, therefore, the same not being available prior to culmination of the assessment proceedings, thus, could not be filed before the A.O. The CIT(A) called for the report from the A.O on the additional evidence, wherein the latter submitted his comments on merits and stated that as the respective affidavits filed by the aforesaid parties only affirmed the form of the impugned transaction, therefore, the same thus did not have any bearing on the disallowance of Rs. 94,86,917/- which was made by the A.O. after thorough deliberations on the substance of the transactions. The CIT(A) after deliberating on the reply filed by the A.O, therein being o....
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.... as a revenue expenditure, therefore, the net purchases of Rs. 6,74,62,523/- [i.e Rs. 7,58,95,339/-(minus) Rs. 84,32,816/-] only stood debited in the 'Profit & Loss A/c' of the assessee. 6. The CIT(A) after accepting the aforesaid observations of the A.O, however, took strong cognizance of three material aspects, viz (i) the statement of Sh. Praveen Jain was a third party statement and no opportunity was afforded to the assessee to cross examine the said party; (ii) the statement of Sh. Praveen Jain stood retracted; and (iii) that no cash trail was established by the A.O to support his conclusion. The CIT(A) on cumulative deliberations of the aforesaid facts, thus, restricted the addition in the hands of the assessee to 5% of the total purchases of Rs. 6,74,62,523/- (net of sales tax) which were claimed by the assessee to have been made from the aforementioned parties and 'debited' in its profit and loss account. The CIT(A) on the basis of his aforesaid observations restricted the addition in the hands of the assessee to Rs. 33,73,126/-. 7. The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The Ld. Authorized Representative....
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....diction to grant such approval/sanction. It was submitted by the Ld. A.R that now when the very assumption of jurisdiction by the A.O was bereft and devoid of any force of law, therefore, on the said count itself the entire reassessment proceedings initiated by the A.O were liable to be quashed. The Ld. A.R in support of his aforesaid contention relied on the judgment of the Hon'ble High Court of Bombay in the case of Ghanshyam K. Khabrani Vs. ACIT and Ors. (2012) 346 ITR 443 (Bom). The Ld. A.R while relying on the aforesaid judgment submitted that in the case before the Hon'ble High Court, the A.O as per the mandate of law was required to get sanction for issuing the notice under Sec. 148 from the Joint Commissioner of Income Tax, however, the same despite having been obtained from a superior authority, viz. Commissioner of Income Tax, was however quashed by the Hon'ble High Court for the reason that the said power could not be exercised by any authority except for that contemplated in the statute. In the backdrop of the aforesaid facts which were there before the Hon'ble High Court, it was submitted by the Ld. A.R. that the facts of the present case stood on a better footing, for....
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....om the A.O and finally after deliberating on the reply of the A.O who had addressed the said material on merits, therein concluded that as the said documents had not been filed by the assessee before the A.O during the course of the assessment proceedings, therefore, the same could not be admitted by way of additional evidence. The Ld. A.R. vehemently assailed the declining on the part of the CIT(A) to admit the additional evidence after the same had been commented upon on merits by the A.O. It was submitted by the ld. A.R that now when the A.O after deliberating on the documents filed by the assessee as additional evidence had commented on the same on merits and not raised any technical objection on the admission of the same, but merely assailed the purpose which the assessee sought to achieve by filing the same, therefore, the CIT(A) was not right in law in declining to admit the additional evidence for the reason that the assessee had failed to file the same before the A.O during the course of the assessment proceedings. That it was further submitted by the Ld. A.R that the CIT(A) though took strong cognizance of three material aspects, viz (i) that the statement recorded of Sh.....
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.... purchases made by the assesses during the year under consideration, therefore, only after being duly satisfied that the income of the assessee chargeable to tax had escaped assessment, that the A.O had validly initiated reassessment proceedings in the hands of the assessee. The Ld. D.R in order to support his contention relied on the judgment of the Hon'ble High Court of Gujarat in the case of Peass Industrial Engineers (P) Ltd. Vs. DCIT (2016) 73 Taxmann.com 185 Guj. That on merits of the case the Ld. D.R relied on the observations recorded by the A.O in the assessment order. 9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the validity of the reassessment proceedings which had been assailed by the assessee before us. We have perused the 'Reasons to believe' recorded by the A.O for the year under consideration, viz. A.Y. 2007-08, which reads as under :- "ANNEXURE M/s VAMAN INTERNATIONAL PVT LTD A.Y. 2007-08 1. The assessee has e-filed the return of income on 27.10.2007 declaring income of Rs. 1,16,52,069/-. The return of income was processed ....
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....a bonafide belief by the A.O that the income of the assessee chargeable to tax had escaped assessment. We would not hesitate to observe that if a mere reference to the 'material' forming the basis for initiating the reassessment proceedings is to be construed as the recording of satisfaction, then it would in a way lead to transposing the satisfaction/belief of the authority from whom the 'material'/ 'information' had been obtained, as against that of the A.O, which would seriously jeopardize and frustrate the very working of the statutory provisions regulating the framing of the reassessment proceedings contemplated in Sec. 147 of the 'Act'. We are not oblivious of the settled position of law that for valid assumption of jurisdiction under Sec. 147, the recording of satisfaction remains within the exclusive domain of the A.O and no authority howsoever superior can be allowed to either intervene or dictate the formation of belief on the part of the A.O, much the less usurp upon themselves the said powers of the A.O, which we would reiterate remains within the exclusive realm of the A.O alone. The legislative intent in respect of the exclusive vesting of the jurisdiction with the A.....
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....3) in the hands of the assessee was not controverted by the Ld. D.R. We thus proceeding on the basis of the aforesaid factual matrix, thus, find substantial force in the contention of the Ld. A.R that now when a period of four years from the end of the relevant assessment year, viz. A.Y. 2007-08 had already expired on 31.03.2012, therefore, the A.O while issuing the notice u/s 148, dated 21.03.2014 remained under a statutory obligation to have obtained the sanction of either of the authorities contemplated under the proviso of Sec. 151(1) of the 'Act'. We find that a perusal of the 'Reasons to believe' clearly reveals that the A.O had obtained the approval of the Additional CIT, Range-9(3), Mumbai u/s 151(2) of the 'Act', which had been granted by the latter authority, vide letter No. Addl.CIT/RG.9(3)/Reopening Approval/05 cases of ITO 9(3)(3)/2013-14. That on deliberation on the aforesaid facts as stands gathered from the copy of the 'Reasons to believe' (footnote), reveals that the A.O was absolutely aware that it was a case of reopening and not as that of a fresh assessment u/s 147. We further find that the lower authorities had most callously provided wholesale approvals in res....
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....arties, as against their corresponding sales which are found to be duly accounted for in the books of accounts of the assessee. We are of the considered view that the lower authorities before rushing to the view that the purchases of the goods under consideration claimed by the assessee to have been made from the aforementioned parties, were purchased by the assessee from unregistered sellers operating in the open/grey market, before so concluding, should have duly weighed the relevant facts which were established by the assessee in the course of the discharging of the Onus as regards proving the genuineness and veracity of the purchase transactions under consideration. We though are not oblivious of the fact that now when the assessee had claimed purchases from certain parties as an expense in its books of accounts, therefore, it was obligatory on his part to produce the respective parties for examination before the A.O, in order to substantiate the genuineness and veracity of the purchases made from them. We are also well conversant of the fact that the Inspector of Income tax deputed by the A.O to serve the notices issued to them u/s 133(6) could not find the said parties at the....
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....stwal Trading (I) Pvt. Ltd. confirming the transaction with the assessee company with regard to purchase of Rs. 2,98,29,408/-. We are of the considered view that in the backdrop of the fact that the documentary evidences furnished by the assessee as additional evidence could not be obtained by the assessee from the respective suppliers despite persistent requests, therefore, there was a justifiable cause on the part of the assessee to have tendered the said documents for the very first time by way of additional evidence before the CIT(A). We are unable to persuade ourselves to accept the reasoning of the CIT(A) that the documents furnished by the assessee by way of additional evidence were not liable to be admitted because they had not been submitted before the A.O, and are of the considered view that such a finding of the CIT(A) is seriously falling short of a justifiable reason for rejecting the admission of the additional evidence which was tendered before him, specifically when the A.O himself had deliberated and commented on the same on merits. We though are not oblivious of the settled position of law that it is the satisfaction of the CIT(A) for allowing admission of additio....
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....ecifically assailed by the revenue before us, nor the findings/observations of the CIT(A) had been demonstrated to be perverse by the Ld. D.R. before us; (iii) that without prejudice to the fact that the statement of Sh. Praveen Jain had subsequently been retracted, even otherwise, no cross examination of the said person was facilitated to the assessee by the A.O, as a result whereof the assessee failed to dislodge the allegations raised against it by the aforesaid person, nor could rebut the adverse inferences drawn by the A.O by placing reliance on the same; (iv) that the confirmations along with the affidavits of the respective supplier parties furnished by the assessee before the CIT(A) substantially proved the genuineness and veracity of the purchase transactions; (v) that as observed by the CIT(A), the A.O had failed to establish any cash trail which could go to evidence purchase of the goods under consideration by the assessee from the open/grey market; (vi) that substantial documentary evidence in support of the genuineness of the purchases made by the assessee from the aforementioned supplier parties had been furnished during the course of the assessment proceedings; and (....
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.... grounds of appeal : "1. Whether on the facts and the circumstances of the case and in law, the Id. CIT (A) erred in restricting the disallowance to 5% of the impugned purchase of Rs. 6,74,62,523/- i.e. Rs. 33,73,126 without any material basis instead of 12% of the impugned purchase of Rs. 6.74,62,523/- i.e. Rs. 94,86.917/-. 2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer he restored. 3. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 17. We find that the issue involved in the present appeal stands squarely covered by our adjudication of the appeal of the assessee for the year under consideration, viz. A.Y. 2007-08, marked as ITA No. 1040/Mum/2017. That as we have already allowed the appeal of the assessee both on the grounds as regards the validity of assumption of jurisdiction by the A.O u/s 147, as well as on merits, therefore, in the backdrop of our aforesaid observations, the appeal of the revenue stands dismissed. 18. The appeal of the revenue is dismissed. ITA No. 1041/Mum/2017 AY: 2008-09 19 We no....
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....quiry and verification. 2.3. The Learned CIT(A) has erred in confirming the action of Assessing Officer in relying on the statement of Pravin Kumar lain with respect to M/s, Ostwal Trading (I) P. Ltd. as recorded by the Investigate Agency without giving any reasonable opportunity of cross examination to the appellant company. 2.4. The Learned CIT(A) failed to appreciate that the material purchased during the year are duly accounted in the book of the Appellant and the same are supported by proper stock ledgers. The said material was subsequently sold by the Appellant and the profit earned thereon is offered for tax. Hence, the estimated addition at the rate 5% that is amounting to Rs. 1,68,656/- on alleged purchases is unjustified and the same may be deleted. 2.5. The Learned CIT(A), further, failed to the appreciate that the Ld. AC, has neither rejected the books of accounts of the Appellant nor pointed any discrepancies in the same. The Ld. AC. also accepted the sales made during the year. Hence, the estimated addition in the said circumstances is unjustified and the same may be deleted. 3. Appellant prays that, a. Set aside the reassessment order passed u/s 143(3....
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....e value of the purchases claimed by the assessee to have been made from the aforesaid supplier parties, i.e. 5% of Rs. 33,08,518/- (net of sales tax), and thus scaled down the addition in the hands of the assessee to an amount of Rs. 1,68,656/-. 23. We find that as the facts and issue involved in the present appeal of the assessee in respect of the addition made by the A.O on merits are the same as were involved in the appeal of the assessee for A.Y 2007-08, marked as ITA No. 1040/Mum/2017, therefore, our order passed while disposing of the said appeal of the assessee for A.Y. 2007-08 on merits shall apply mutatis mutandis for adjudicating the assailing of the addition by the assessee on merits before us in the present appeal for A.Y. 2008-09. The Ground of appeal no. 2 raised by the assessee before us is allowed in terms of our observations recorded while disposing of the Ground of appeal No. 2 in the appeal of the assessee for A.Y. 207-08, marked as ITA No. 1040/Mum/2017. The Ground of Appeal No. 2 raised by assessee is allowed in terms of our aforesaid observations. 24. The assessee had not raised any contention in respect of the validity of the reassessment proceedings ....
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....confirming the action of Assessing Officer in treating the alleged purchases of Rs. 2,81,77,464 made by the appellant company as unexplained expenditure merely on the basis of the suspicious and surmises without any independent inquiry and verification. 2.3. The Learned CIT(A) has erred in confirming the action of Assessing Officer in relying on the statement of Pravin Kumar jain with respect to M/s JPK Trading (I) P. Ltd. and M/s Ostwal Trading (I) P. Ltd. as recorded by the Investigate Agency without giving any reasonable opportunity of cross examination to the appellant company. 2.4. The Learned CIT(A) failed to appreciate that the material purchased during the year are duly accounted in the book of the Appellant and the same are supported by proper stock ledgers. The said material was subsequently sold by the Appellant and the profit earned thereon is offered for tax. Hence, the estimated addition at the rate 5% that is amounting to Rs. 12,52,331/- on alleged purchases is unjustified and the same may be deleted. 2.5. The Learned CIT(A), further, failed to the appreciate that the Ld. A.O. has neither rejected the books of accounts of the Appellant nor pointed any discrepan....
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....out of the three parties, one party, i.e. M/s Faststone Trading Co. P. Ltd was a sale party and no purchases were made by the assessee from it. The A.O in backdrop of the aforesaid facts thus concluded that the assessee had as a matter of fact purchased the goods under consideration from the open/grey market. The A.O on the basis of his aforesaid conviction thus worked out the average GP rate of the assessee for the last five years, which worked out to 50.24%. The A.O being of the view that as the declared GP rate of the year under consideration was 48.74%, which was 1.5% lower than the average GP rate of last five years, therefore, to plug the possible revenue leakage and to meet the interest of justice made an addition of 1.5% of total turnover of Rs. 25,24,16,070/- of the assessee for the year under consideration, leading to a consequential addition of Rs. 37,86,241/- in the hands of the assessee. 30. The CIT(A) after deliberating on the contention of the assessee in the backdrop of the facts of the case observed that out of the three parties, purchases were claimed by the assessee to have been made from two parties, while for there was a sale transaction in respect of the thir....