TaxTMI 
TaxTMI 
2021 (9) TMI 338
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....old the addition of Rs. 4,26,93,470/-, as made by the ld.AO, alleging that the purchases made by assessee of the said value, were bogus. 3.That the ld.CIT(A) was wholly unjustified in holding that the assessee failed to produce one Mr Madan Lal Pahuja, the supplier, whose statement, recorded by ADIT, (Inv), Ludhiana, not witnessed by anyone else, was the sole basis to initiate proceedings u/s.147/148. 4.That Mr Madan Lal Pahuja, being the sole witness of revenue, ought to have been allowed cross examination by the assessee, which having not been allowed by the AO even when asked for, rendered the impugned assessment illegal, being in gross violation of sacred principles of natural justice. The ld.CIT(A), not only erred in not holding the impugned order bad on this score, but also committed a grave legal error to shift the onus on assessee to produce the said person. 5.That when neither the stock tally, nor the sales made were disputed, holding the purchases bogus was prime facie uncalled for, which the ld.CIT(A) ought to have appreciated to delete the addition made by ld.AO. 6.That the revenue itself having taken a contrary stand in the reassessm....
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....rop. M/s Shiv BholeKirpa Traders ,Shirnlapuri, Ludhiana AAJHM9232R 2009-10 1.05 Cr M/s Lovy Steel & Allied Industries, Dr. Bansal Clinic, sector-3C, Mandi Gobindgarh 2009-10 0.17 Cr. Sh. Jatinder Kumar Prop. M/s Shree Nath Ispat Udyog, Bank of India Road, Mandi Gobindgarh ASYPK2358M 2009-10 2.06 Cr. Total 4.28 cr. The statement of Sh. Madan Lal Pahuja was recorded on oath on 07.01.2015 by the ADIT (Inv.), Ludhiana in which Sh. Madan Lal Pahuja himself admitted that he was providing bogus bills to the assessee company through his HUB' Proprietory concern named as M/s Shiv BholeKirpa Traders, Ludhiana and other concern named as M/s Lovy Steel & Allied Industries, Mandi Gobindgarh. Further, Sh. Madan Lal Pahuja admitted in the statement recorded on oath on 07.01.2015 by the ADIT(Inv.), Ludhiana that he had not made any physical transactions with the above mentioned assessee company during the relevant period and all the transactions were only paper transactions. He was charging commission @ Rs. 5000 per month from the assessee company. Thus, Sh. Madan Lal Pahuja through its HUF Proprietary concern named as ....
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.... assessment and which comes to notice subsequently in the course of the assessment, it is expedient to issue notice under section 148 of the Income-tax Act, 1961. Approval to issue notice under Section 148 is, therefore, solicited as provided under section 151(1) of the Income-tax Act, 1961. 4. The assessee after receipt of the reasons to believe, filed the objection vide letter dated 10th of July 2017 mentioning therein that, the assessment proceedings of the assessee were completed under section 143 (3) of the Act, and the entire transaction of the assessee was examined by the assessing officer, therefore in view of first proviso of section 147, no reopening could be made by the assessing officer. It was submitted that there was no failure on the part of the assessee to disclose either the purchase of goods purchased from the parties named in the reasons for reopening or is no material failure on the part of the assessee to disclose fully and truly all material is necessary for that assessment year. In the reply it was submitted as under: " Even otherwise, on a bare perusal of the reasons recorded, it crystals out that the ld.AO in this case, but for mechanically rely....
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....ident beyond doubt that he failed on both the counts viz (i) firstly that there was any real escapement of income as envisaged u/s.147 and (ii) that it was on account of assessee's failure to fully and truly disclose the material facts necessary for assessment. He merely resorted to action u/s.147 in the subtle realm of suspicion fueled by the ADIT's report. • Apart from above, the reopening on a borrowed satisfaction of another authority has been held to be bad in numerous judicial authorities. Even the Hon'ble P&H High Court in CIT vs. Paramjit kaur reported in (2009) 311 ITR 38(P&H), held as follows (head note): "-Reason to believe-Information from Survey Wing of the Department-AO can assume jurisdiction under s. 147 provided there is sufficient material before him and the existence of material must be real-Further, there must be nexus between the material and the escapement of income-AO has to record reasons showing due application of mind before taking recourse to reassessment proceedings-AO cannot take recourse to reassessment proceedings merely on the basis of reasons to suspect-In the instant case, AO had initiated reassessment proceedings simply on th....
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..... What is explicit from the above discussion is that the so called 'reasons recorded' are merely the ipsi dixit of ADIT (Inv) Ludhiana, simply rewritten by the AO, without application of his own independent mind, as to facts and the information/material in his possession, if any. For all purposes, the report received from ADI, in total exclusion to anything else, seems to have been taken as holy and sacrosanct, with no efforts made to reach necessary satisfaction, much opposed to the basic postulate of section 147. Obviously, therefore, it is the borrowed satisfaction of the ADI, which is central to the reasons recorded, with no effort visibly made by AO to further dilate on the issue by making any enquiry or by gathering any further corroborative evidence of his own. It is settled law that the provisions of section 147 envisage personal satisfaction of the AO recording the reasons and not of any other superior/parallel authority. Such substituted satisfaction vitiates the very assumption of jurisdiction u/s.147. In CIT v Self Stock broking Ltd (2010) 325 ITR 285(Del), their lordships, in identical facts, while dismissing revenue's appeal, held as under(Head note): 5. A....
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....CIT [2002] 260 ITR 202 (P&H) One of the purposes of section 147 appears to us to ensure that a party cannot get away by willfully making a false statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would be a travesty of justice to allow the assessee that latitude. 6. Phool Chand Bajrang Lal Vs ITO[1993]203 ITR 456(SC) He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some informatin with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfullness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. In view of the above, your objections to the initiation of proceedings u/s 147 are hereby rejected as not sustainable and you are requested to cooperate in the early finalization of the assessment proceedings. Further it is also hereby intimat....
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.... TOTAL 4.26 Cr 7. Feeling aggrieved by the order passed by the assessing officer the assessee preferred the appeal before the CIT(A). During the appellate proceeding, the CIT(A) had sought the remand report on the documents submitted by the assessee from the assessing officer, however after receipt of the remand report and reply, the CIT(A) was not convinced with the reasoning given by the assessee, he had also not considered the fact that the objections were not dispose of in terms of the judgement of the Hon'ble Supreme Court in the matter of, G.K.N Drive shaft. Further he had also not considered that, the parties which were considered to be providing the bogus bills to the assessee was subject matter of the assessment in the subsequent assessment years 11-12 and 12-13 and where transaction have been accepted by the assessing officer. The same fact was brought to the knowledge of CIT(A) through letter dated 15-10-18. However, the same was not considered while desposing off the appeal. Further the assessee has submitted that in the case of Shri Madan Lal Pahuja FIR was registered in the year 2009 and thereafter the VAT assessment was completed for the Financial Yea....
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....d upon the decision in the case of Punjab and Haryana High Court in the matter of Leader Valves (P.) Ltd [2006] 285 ITR 435 (PUNJ. & HAR.) wherein it was held as regards question No. (i) Shri Patwalia, learned counsel for the Revenue, has vehemently argued that the findings of the Tribunal pertaining to deletion of the addition of Rs. 1,48,93,286 in the income of the assessee on account of bogus purchases, are totally perverse. We are, however, unable to persuade ourselves to agree with learned counsel. We find from the Tribunal's order that the analysis and conclusions drawn by the Commissioner of Income-tax (Appeals) on the appreciation of material on record, have been concurred with the Tribunal after taking notice of the fact that the trading results of the assessee had all along been accepted and the purchases of scrap from the seven parties could also be not termed as bogus for the reason that in the subsequent assessment year, i.e., 1987-88, the purchases from these very parties stood accepted by the Department to a very substantial extent. The Tribunal, as a matter of fact, noticed that no sale invoices were found to be undervalued or the purchases inflated, yet the ext....
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....ahuja. The appellant has vehemently submitted that purchases made froth these four concerns are genuine and duly supported with all supporting. evidence in the form of transport receipts, VAT payment etc. It is submitted that payments for these purchases have been made by cheque and therefore, these purchases have to be accepted as such. It is submitted that AO has not provided an opportunity of cross' examination of Shri Madan LalPahuja, on whose statement reliance has been placed for malcing addition on this account. 4.14 The primary issue for consideration is with regard to the genuineness of purchases made from the above mentioned four parties by the appellant, the primary onus for which lies upon the appellant to substantiate. The appellant has expressed inability to do so and submitted that there was no physical contact with the seller of goods. It is stated that no transactions of purchases have been made in the last few years from the said party. The, appellant, on being confronted by the. AO with the statement recorded by the ADIT(Inv.), Ludhiana has still reiterated the contentions that purchases made are genuine as all supporting papers are there. The appell....
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.... same date or next date ofdeposition of cheque in the account. 4.19 This, based oil the material available on record, 'it is clear that the person who has issued the bills to the appellant did not have either the capacity to produce or purchase that material from the market. Further, the transport receipts could not be provided and few receipts which were produced have 'been found to be of vehicles :'which cannot be used for transporting material. The appellant has failed to produce the person with whom the transactions of 'more. than Rs. .4crore have been made during the year which is about, 10% of the total purchases declared for the period under consideration. The appellant has also failed to "produce any other person who was intermediary in this transaction of, purchases. In either case, the so called seller himself has denied having sold any material, therefore, the issue for consideration is whether these purchases have to be accepted on the, ground that by treating them as bogus the GP Fate would increase to 10%, ihich is fat' more 'than what has been declared by the appellant over a period of time. 4.20 It is well known that in the ....
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....[refer Page 1-3 of case law paper book] II. BORROWED SATISFCATION. Since there was no material available with the department, as such, this is a case of borrowed satisfaction and suspicion, particularly considering the facts that Sh. Madan Lal Pahuja has nowhere taken the name of the appellant in the statement. The reliance is being placed upon the following case law along with other case laws enclosed separately (refer page no.4-46 of case law paper book) [2018] 93 taxmann.com 153 HIGH COURT OF BOMBAY PCIT-5 v. Shodiman Investments (P.) Ltd][Refer page 4-8of case law paper book] IT :Where Assessing Officer had issued a reassessment notice on basis of intimation from DDIT (Inv.) about a particular entity entering into suspicious transactions, this was clearly in breach of settled position in law that reopening notice has to be issued by Assessing Officer on his own satisfaction and not on borrowed satisfaction III. NO REFERENCE TO ANY MATERIAL However, in the case of the appellant, neither the statement was made part of the reasons recorded, nor was it supplied to the appellant along with the copy of reasons. The copy of stateme....
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....axmann.com 355 HIGH COURT OF DELHI KrownAgro Foods (P.) Ltd. V. ACIT, Circle 5(1), New Delhi] [refer page no. 70-75 of case law paper book] Section 69A, read with section 147, of the Income-tax Act, 1961 - Unexplained money (Cash) - Assessment year 2012-13 - One of Directors of assessee company namely 'A' was carrying Rs. 5 lakhs from Delhi to Ghaziabad for payment of wages and other normal expenses - 'A' was stopped by UP Police on border of Delhi and said cash was seized - On basis of information received from DDIT (Inv.) Assessing Officer initiated reassessment proceedings for relevant year by recording reason that information so received needed to be examined and creditworthiness of assessee had to be proved beyond doubt to accept claim of its director that money seized infact belonged to assessee-company - Whether since 'reason to believe' recorded by Assessing Officer did not refer to any material that came to his knowledge whereby it could be inferred that he could have formed a reasonable belief that amount in question had escaped assessment, initiation of reassessment proceedings on basis of mere suspicion was not sustainable - Held, yes [Para 14] [....
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.... proposition he relied of the decision of the honourable Delhi High Court in case of principal Commissioner of income tax vs. Best infrastructure (India) private limited wherein it has been held that the statements recorded u/s 132 (4) do not by themselves constitute incriminating material for the purpose of assessment u/s 153A of the act. He further relied upon the decision of the coordinate bench in Brahmputra http://itatonline.org Agson Global Pvt. Ltd Vs. ACIT, ITA No. 3741to 3746/Del/2019 (assessee) ITA No. 5264 to 5269/Del/2019 (Revenue) (Assessment Year: 2012-13 to 2017-18) Page | 17 Finlease (private) Ltd in ITA number 3332/del/2017 dated 29/12/2017 to support his contention. He even otherwise submitted that that the managing director of the company retracted his statement immediately on 24/3/2017. He referred to the copy of retraction placed at page number 169 - 171 of the paper book number 1. He further referred to the circular number F. NO. 286/2/2003 - IT (INV) dated 10/3/2003 and 286/98/2013 - IT dated 18/12/2014. He further referred to the decision of the honourable Gujarat High Court in principal Commissioner of income tax vs. Sayumya construction private Ltd (2016) ....
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....Assessment year 1958-59 - Whether reasons for formation of belief contemplated by section 147(a) for reopening of assessment must have rational connection with or relevant bearing on formation of belief, and rational connection postulates that there must be direct nexus or live link between material coming to Income-tax Officer's notice and formation of his belief that there has been escapement of assessee's income from assessment in particular year because of his failure to disclose fully and truly all material facts - Held, yes - Whether duty cast upon assessee is to make true and full disclosure of primary facts at time original assessment, and it is for Income-tax Officer to draw correct inference from primary facts - Held, yes - Whether if Income-tax Officer draws inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment - Held, yes - ITO completed original assessment by allowing deduction of interest paid to certain creditors - Subsequently, he reopened assessment for reasons recorded in report submitted to Commissioner for obtaining sanction under section ....
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....ment cannot proceed to make additions without granting the same. "IT: Where revenue relies on statements of certain persons to implicate an assessee, principles of cross-examination have to be invariably followed as not providing opportunity to cross-examine is violative of principles of natural justice 9. Keeping in view of the facts and circumstances of the case and respectfully following and applying principles in aforesaid Hon'ble Supreme Court, Hon'ble High Court and this Tribunal rulings, second issue framed by me above on consequential impact of lack of cross-examination and violation of principle of natural justice, I have no hesitation to accept the plea of Ld AR that lack of cross-examination and violation of principle of natural justice results is total nullity of the entire addition, hence, the additions in dispute is hereby deleted." IX NO APPLICATION FO MIND Even in the statement, Mr. Madan Lal Pahuja has stated that he and his relatives were the proprietors of firms as per Question No 6 (page No. 171- 174). The department has not specified all the proprietors of the said firms and the stand-alone statement of Madan Lal Pahu....
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.... the goods were purchased on FOR basis. It has already been clarified that the goods were delivered at the end of supplier and the truck number given on the bills were not checked precisely, as, the delivery was on FOR basis. The department has been able to provide only 7 copies out of 33 bills and that too cannot be relied upon considering the facts that parties in question are registered with the VAT Authorities and that payments have been made through cheques except for the fact that there are somenon-transport trucks. The appellant has specifically mentioned that the goods were purchased through broker Ankur Garg, whose name has not been mentioned at Q No. 8 in the statement (at Page No. 173), as otherwise being relied upon by the department. Therefore, at the best, it can be domain of suspicion which cannot be converted into a belief that no goods were purchased. Furthermore, we are also enclosing herewith the RC status of other vehicle numbers as mentioned in the purchase bills not considered by the department which clearly states that the vehicles are Goods Carriers [Refer page no. 246-251]. Therefore, it is a clear case of cherry picking by the department. The total of all ....
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.... 143(3) r.w.s 147 by applying GP of 1.2% (as per the market rate) on total turnover of Rs. 12.43 crores [Refer Page no. 223-225]. Therefore, this is not the case where the assessment in the case of the parties from whom the purchases have been made has not been made. The income tax returns of Madan Lal Pahujahas been framed u/s 147 r.w.s 143(3) in which although books of accounts have been rejected, but, sales have been accepted and profit has been estimated on such sales. The department has not accepted the statement of Madan Lal Pahuja in his case. G) The allegation of the Ld. AO that the goods purchased against alleged bogus billing were consumed in manufacturing is baseless, since, quantitative tally of manufacturing goods was also submitted and no defect whatsoever was pointed out. That the total sales of trading goods made during the year were to the tune of Rs. 10.99 Cr and the Ld. AO has made addition to the tune of Rs. 4.28 Cr against the said sales by relying upon the statement of Sh. Madan lalPahuja. Even for the sake of argument, the stand of the department is taken as correct, then also, the revised gross profit works out to 46.22% which, by no stretc....
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....f fact returned by Tribunal led to an irresistible conclusion that these were pure findings of fact giving rise to no question of law - Held, yes 5. ENTIRE PUCHASES CANNOT BE ADDED 5.1 Even otherwise, entire purchases cannot be added and only GP element can be taxed, particularly in a situation where the appellant has submitted stock tally, VAT returns, purchase bills and sales have been accepted by the department, without pointing out any defects. In this regard reliance is being placed on the case of [2013] 40 taxmann.com 494 HIGH COURT OF GUJARAT Commissioner of Income-tax v. Bholanath Poly Fab (P.) Ltd. [refer page No. 419-489 relevant page no 419-421 of case law paper book] The account books of the assessee were never rejected by the Assessing officer, In the case of CIT v Bholanath Poly Fab Pvt Ltd (2013) 355 ITR 290 (Gujarat), the Hon'ble High Court held as under:- "5. Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchasesthemselves were not bogus. The Tribunal adverted to the facts and data on record and came to the concl....
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....count payee cheque which were duly debited in assessee's bank account and credited in bank account of suppliers - Whether since assessee had made purchases in actual which had been paid by account payee cheques, no disallowance could be made - Held, yes [Paras 5 and 6] [In favour of assessee] 6. NON-APPEARANCE OF CREDITORS The non-appearance of creditors cannot lead to the conclusion that the purchases are bogus. In this regard reliance is being placed on the case of Vishnu Prasad Vs DCIT (ITAT Jaipur) ITA No. 1503/JP/2018 Date of Judgement/ Order: 15/02/2021. [Refer Page No. 490-510 of case law paper book] 14. The ld. DR placed reliance upon the assessment order. She contended that the ld. CIT(A) has rightly confirmed the addition of Rs. 4.26 cr which was made by the AO on account of unverifiable purchases. However, after going through the paper book and the evidence of assessment order, sale tax assessment order of Madan lalPahuja and considering the sale tax assessment order of the appellant; the DR contended that the AR of the appellant was not able to substantiate the defects to the tune of Rs. 0.53 Cr out of total alleged bogus purchases of Rs. 4.26 C....
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.... the assessment year 2010-11, and mentioned that the assessee had received bogus purchase bills Rs. 2.06crore and Rs. 1.05 crore from M/s Shree Nath Ispat Udyog, Mandi Gobindgarh and M/s Shiv BholeKirpa Traders, Ludhiana. 17. In order to decide, the issue of legality of reopening by the AO, we consider it essential to narrate the sequence of events in the present case, as follows: Date Event 13.9.2009 A FIR was registered by AETC Ludhiana against Madan Lal Pahuja, alleging providing bogus sale bills 1.3.2012 VAT assessment was completed for the Financial Year 2009-10 vide order dated 01-03-12 in hands of Ms Shiv BholeKirpa traders ,HUF concern of Madan Lal Pahuja 8.5.2012 VAT assessment in the case of appellant was completed in the hands of the assessee , wherein the purchase made by the assessee were accepted by the VAT department -05-2012 18.6.2012 Assessment order was passed in the case of assessee under section 143(3) of the Act for AY 2010-11. 4.6.2013 Assessment order was passed in the case of assessee under section 143(3) of the Act for AY 2011-12. 1.4.2014 Concerns of Madan Lal Pahuja are no more operational, as per the statement....
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..... 19. The Assessing Officer has formed his opinion for reopening the assessment on the basis of the report of the investigating wing of the revenue. During the recording of the statement of Shri Madan Lal Pahuja, the investigating wing observed that he was in to the activity of providing the bogus purchase invoices to various persons. While recording the reasons to reopen the assessment, the Assessing Officer has only mentioned the details of the statement recorded by the investigating wing. He had merely relied upon the report of the investigating wing. Further, the Assessing Officer has not provided the copy of the statement of Shri Madan Lal Pahuja recorded on 07.01.2015 to the Assessee. In our view, it is essential for the Assessing Officer to provide the copy of the foundation fact ,namely the statement of Shri Madan Lal Pahuja,to the Assessee at the time of providing reasons for reopen the assessment. The same has not been done by the Assessing Officer, which is contrary to the law laid down by Delhi High Court in the matter of Sabh Infrastructure IN THE HIGH COURT OF DELHI AT NEW DELHI, W.P.(C) 1357/2016. Further, from the reading of the answer given by Shri Madan Lal Pah....
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....sessing Officer was duty bound to record his independent satisfaction to arrive at prima facie satisfaction that there is escapement of income during the assessment year under consideration. The reasons to reopen reproduced at page 5 above clearly show that the Assessing Officer has merely relied upon the report of the investigating wing whereas, it is necessary for the Assessing Officer to apply his mind on the informationreceived from the investigating wing. But, the AO did not apply his mindto arrive at an independent satisfaction that there was escapement of income. Firstly,that the statement of Shri Madan Lal Pahuja is silent about giving any benefit to the Assessee( answer to question no 8 at page 173) , and Secondly, the Assessing Officer, before initiation the proceedings of reopening, was required to examine the record like VAT Assessment completed in the case of Shri Madan Lal Pahuja on 01.03.2012, whereby the VAT Department accepted the sales made by Shri Madan Lal Pahuja to the Assessee therein. Further, in the assessment under VAT for the Assessee, the VAT Department has accepted the purchases made by the Assessee from Shri Madan Lal Pahuja. Once the sale by Shri Madan....
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....ks of accounts of the Assessee etc. Quite contrary to this, the Assessing Officer in the reasons to reopen, at page above had mentioned as under:- "Further, on doing the independent verification of the assessment record of the assessee company for AY 2010-11, it was noticed that the amount of purchases made by the assessee company from M/s Shree Nath Ispat Udyog, Mandi Gobindgarh amounting to Rs. 2.06 crores and from M/s Shiv BholeKirpa Traders, Ludhiana amounting to Rs. 1.05 crores matched with the information received from the office of ADIT (Inv.), Ludhiana." 22. In our opinion, once the information was available in the assessment record of the Assessee company for the assessment year 2010-11, which was subject matter of scrutiny assessment and on the basis of this information, the assessment was completed and the additions were made. In our opinion, the same information was admitted to be correct by the Assessing Officer in the reasons to reopen as it is matching with the information received from the Investigation wing. In our considered opinion, once the Assessing Officer formed an opinion on the information available on record and framed the assessment, then the ....
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.... also. The Assessing Officer made the additions/reopening of assessment were made by the Assessing Officer solely on the basis of the statement recorded by the investigating wing of Shri Madan Lal Pahuja on 07.01.2015. The recording of the statement was the foundation fact as whole case of the Assessing Officer revolves around that statement. The said statement recorded by the investigating wing is not sacrosanct and was required to be proved on the anvil of cross-examination during the assessment proceedings. The Assessee, after receiving the copy of the statement on 08.12.2017 had requested the Assessing Officer to permit the Assessee to cross-examine Shri Madan Lal Pahuja. However, the notice sent through the Inspector for recording the statement of Shri Madan Lal Pahuja had not yielded any result as he failed to turned up for examination and cross-examination during the re-assessment proceedings. In our opinion, the statement recorded by the investigating wing cannot form the basis of making the addition unless it is proved in accordance with law in the assessment proceedings. It was the duty of revenue to produce the witness namely Shri Madan Lal Pahuja as the revenue was rely....