TaxTMI 
TaxTMI 
2017 (9) TMI 1761
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....ted.20.12.2016, which in itself arises from 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 circum....
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..... 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) 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 th....
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....ket would generate an additional profit margin by procuring the goods at a lower price as in comparison to the price at which it would have purchased the said goods from the registered dealers 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'....
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....sh Jain, director of M/s New Planet Trading Company Pvt. Ltd. confirming the transaction with the assessee company with regard to purchases of Rs. 2,68,73,274/-; affidavit dated 06.06.2016 of 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 disallowanc....
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.... the assessee from the aforementioned parties aggregated to Rs. 7,58,95,339/-, however, as the MVAT of Rs. 84,32,816/- paid by the assessee was treated as a balance sheet item and not claimed 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 i....
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....after obtaining the approval of Additional Commissioner of Income Tax, Range-9, Mumbai, who in the backdrop of the facts involved in the case of the present assessee was not vested with any jurisdiction 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....
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.... CIT(A) by way of Additional evidence U/Rule 46A of the Income Tax Rules, 1963. It was submitted by the Ld. A.R that the CIT(A) after perusing the additional evidence, called for a remand report from 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 c....
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....ground of 'borrowed satisfaction', it was submitted by the Ld. D.R that as the A.O had acted on the information which he had received from the investigation wing of the department in respect of the 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 :....
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....h it could safely be concluded that he had failed to arrive at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. We are afraid to say that mere reference to the 'material' in the 'Reasons to believe' cannot be equated or suffice the requirement of recording of 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 eithe....
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....d find that as submitted by the Ld. A.R, it remains as a matter of fact that assessment in the case of the assessee for the year under consideration, viz. A.Y. 2007-08 earlier stood framed u/s 143(3)(ii) as on 31.12.2008. The contention raised before us that an assessment had earlier been framed u/s 143(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 af....
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.... been sustained. We have given a thoughtful consideration to the facts of the case and find that it remains as a matter of an undisputed that the assessee had duly established a one to one correlation between the purchases of the goods under consideration claimed to have been made from the aforementioned parties, 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 respecti....
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....ard to purchases of Rs. 2,68,73,274/-; (ii). affidavit dated 06.06.2016 of 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 (iii). 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 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 ....
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....t of Sh. Praveen Jain wherein it was alleged that the aforementioned supplier companies were paper companies was retracted by him on Oath, which retraction had neither been held by the lower authorities to be incorrect, nor the findings of the CIT(A) arrived at by referring to the said retraction had been specifically 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 p....
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....e of purchases made by the assessee from the aforementioned supplier parties to 5% of the impugned purchases of Rs. 6,74,62,523/-, which resultantly had led to sustaining of the addition only to the extent of Rs. 33,73,126/- as against the addition of Rs. 94,86,917/- made by the A.O, had raised before us the following 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 assesse....
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....08,518, ouL of the total addition of Rs. 4,65,260 on account of unexplained expenditure in respect of purchases made by the appellant company. 2.2 The Learned CIT(A) has erred in confirming the action of Assessing Officer in treating the alleged purchases of Rs. 37,22,083 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 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 delet....
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....sessee for making the aforesaid purchases from the open/grey market @ 12.5% of the aggregate value of purchases aggregating to Rs. 37,22,083/-, and made an addition of Rs. 4,65,260/- in the hands of the assessee. 22. The assessee being aggrieved with the order of the A.O therein carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, restricted the disallowance to 5% of the aggregate 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 m....
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....er sec.148 is itself bad in law, void ab-initio, illegal and liable to be quashed. 2. As regard disallowance of Rs. 12,52,331 as unexplained expenditure in respect of 5% of Rs. 2,50,46,633/- of purchases made by the appellant company. 2.1. The learned CIT(A) erred in law and on facts in confirming addition to the extent of Rs. 12,52,331 being 5% of Rs. 2,50,46,633, out of the total addition of Rs. 37,86,241 on account of unexplained expenditure in respect of purchases made by the appellant company. 2.2 The Learned CIT(A) has erred in 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) fa....
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....aststone Trading Co. P. Ltd Rs. 50,90,927/- Total Rs.3,32,68,391/- 29. That during the course of the assessment proceedings it was observed by the A.O that the assessee had failed to substantiate the genuineness and veracity of the purchases claimed to have been made from the aforesaid supplier parties during the year under consideration. However, the A.O observed that the sales of the goods under consideration which were claimed by the assessee to have been purchased from the aforesaid party were found to be duly recorded in the books of accounts in the assessee. It was further submitted by the assessee before the A.O that 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 consider....