AI Drafter 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2020 (1) TMI 74
X X X X Extracts X X X X
X X X X Extracts X X X X
....validity of the reassessment proceedings u/s. 147, which is resorted to merely on the basis of information received from the Investigation wing of the Department and without verification of facts and without application of mind by the learned AO to the case or having her own reason to believe that any income chargeable to tax has escaped assessment which is s/ne qua non for reopening. 2. On the facts and in the circumstances of the case, the learned CIT (A) erred in upholding the addition made by the teamed AO u/s. 69C of the Income tax Ad (though quantum addition is reduced from 12.5% to 3% of the alleged bogus purchase made), which is purely on suspicion, surmises and conjectures and even though all evidences in support of the impugned purchases and the source of such expenditure were filed, payments having been made through banking channel. 3. On the facts and in the circumstances of the case, the teamed CIT (A) erred in upholding the addition made by the teamed AO u/s. 69C of the Income tax Act (though quantum addition is reduced from 12.5% to 3% of the alleged bogus purchase made), even though the statement given by Shri Pravin Kumar Jain, on which heavy reli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me. As regards addition made towards alleged bogus purchases, the assessee has reiterated its submissions made before the Ld. AO and argued that purchases from above party is genuine, which is supported by necessary evidences. The assessee has filed all details, including books of accounts, but the Ld. AO has made additions, only on the basis of information collected during search in case of Bhanwarlal Jain group, ignoring fact that the statements given during course of search has been retracted by the parties with affidavits . The Ld. CIT(A) after considering relevant submissions of the assessee and also by relied upon various judicial precedents rejected legal ground taken by the assessee challenging reopening of assessment. As regards addition towards alleged bogus purchases, the ld. CIT(A) after considering nature of business of the assessee and facts brought out by the AO, including information collected during search in case of Bhanwarlal Jain group and also by relied upon various case laws, including the decision of Hon'ble Gujarath High Court, in the case of Simith P. Sheth vs CIT 356 ITR 451 scaled down additions made by the Ld. AO towards alleged bogus purchases to 3% of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cases that when there is no discussion on this issue and no details are called for by the AO or filed by the appellant and no findings either positive or negative in the original assessment proceedings, reopening cannot be construed as change of opinion. 1. ALA fir vs. CIT (102 ITR 622) (Mad HC) 2. Ess Kay Engineering Company Pvt.Ltd. vs. CiT (247 ITR 818) (SC) 3. Revathi CP Equipments Ltd vs DCIT & Ors (241 ITR 856) (Mad HC) 4. EMA India Ltd vs. ACIT (30 DTR 82) (All.HC) (iv) The Hon'ble Supreme Court in the case of Kalyanji Mavji & Company v. CIT (102 ITR 287)(SC) (1976) has held that there is no change of opinion if the assessment is reopened on new facts which came to notice subsequently, even though they are already on record. (v) The Hon'ble Gujarat High court in the case of Praful Chunilal Patel and Vasanth Chunilal Patel v. ACIT (236 ITR 832) (1999) has held that where the AO had overlooked something at the first assessment, there can be no question of any change of opinion, when the income which was chargeable to tax is actually taxed as it ought to have been under the Law but was not taxed due to an error committed at ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase of Eleganza Jewllery Ltd. (2014) 52 taxmann.com 46 has held that it is a trite law that at this stage only a prima facie view of the AO is necessary to issue notices and not a cast iron case of escapement of income. Similarly views were also expressed in the following cases, 1. High Court of Delhi in the case of Mahanagar Telephone Nigam Ltd. (2000) 112 Taxman 337 2. SC in the case of Central Provinces Manganese Ore co Ltd. (1991) 191 ITR 662 3. SC in the case of Selected Dalurband Coal Co P Ltd (1996) 217 ITR 597 (xi) The Hon'ble High court of Bombay in the recent decisions in the following cases while dealing with bogus purchases/loans issues has ruled that the initiation of reassessment proceedings on the basis of survey operations is held valid even though there was scrutiny u/s 143(3). The opened that it will not tantamount to change of opinion: (1) Nikunj Exim Enterprises Pvt.Ltd. (2014) 49 taxmann.com10 (2) Bright Star Syntex(P.) Ltd.(2016) 71 taxmann.com 64 (3) Naresh K.Pauja (2015) 54 taxmann.com 258 held that mere payments routing through bank channels would not by itself establish the genuineness of the g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R when the quantity details of stock is tallying with the stock register, the purchases also cannot be doubted. The only possibility is that the appellant might have inflated its purchases by taking into account the invoices in the names of the bogus suppliers. The presumption is that the material might have been purchased from grey market at a lower rate and made good the entries with bogus bills to reduce the profits. Under similar circumstances the Hon'ble High Court of Gujarat in the case of Simit P Sheth, 2013 (356ITR451) had an occasion to deliver its judgment by confirming the decision of the ITAT which has estimated the disallowance at 12.5% of the disputed bogus purchases to meet the ends of justice. The head-note of the decision is reproduced as under:- "Section 145 of the Income-tax Act, 1961-Method of accounting-Estimation of Profits[Bogus purchases]-Assessment Year 2006-07. Assessee was engaged in business of trading in steel on wholesale basis-Assessing Officer having found that some of alleged suppliers of steel to assessee had not supplied steel to assesee but had only provided sale bills, held that purchases made from said parties were bogus-He, accordingl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave decided the issue in favour of the assessee, they are not uniform in all the cases as they were decided as per the facts and circumstances of that particular case before them. I am of the opinion that the theory laid down by the Hon'ble Gujarat High Court in the case of Simit P Seth (supra) should be applied in the instant case. However, the decision rendered by Gujarat High Court in the above case is on the basis of VAT benefit the appellant might have saved by taking accommodation entries since the goods dealt by them were excisable commodities, where the VAT rates are on a higher side. In the case of diamond business the VAT charges are only 1% and the customs duty is about 2%. Keeping in view the above tax rates the intention of the assesee to save from the transactions should be viewed only to the extent of saving from the above taxes by indulging in unethical practice of taking accommodation entries. It is also pertinent to mention here the relevance of the Board's Instruction No.02/2008 dated February22,2008 wherein it has laid down a guideline in the form of benign assessment procedure for assessee's engaged in diamond manufacturing and/or trading, wherein it has stated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore the lower authorities that purchases from the above party is supported by necessary evidences. It has furnished all possible evidences, including books of accounts, stock details and bank statement to prove that payment against said purchases have been made through proper banking channels. 6 Having considered arguments of both the sides and also, material available on record, we find that both the sides have failed to prove the case in their favour with necessary evidences. Although, assessee has filed certain basic evidences, but failed to file further evidences to conclusively prove purchases to the satisfactions of the Ld.AO. At the same time, the Ld. AO had also failed to take the investigation to a logical conclusion by carrying out necessary enquires, but he solely relied upon information received from investigation wing, which was further supported by search conducted in case of Bhanwarlal Jain group cases. Under these circumstances, it is difficult for us to accept arguments of both the sides. Further, various High Courts and Tribunals had considered an identical issue in light of investigation carried out in case of Bhanwarlal Jain and held that in case of purchas....