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 
2023 (7) TMI 731
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereby erred in confirming the addition of Rs.2,41,18,024 on the ground of alleged lower GP shown during the year. It is, therefore, submitted that the reassessment made by the AO be held to be bad-in-law and the consequential assessment made be cancelled. WITHOUT PREJUDICE TO THE ABOVE, 2. In the CIT (Appeals) further erred in confirming the addition of Rs. 2,41,18,024 made by the A.O on the ground of alleged lower GP of 10.75% as against the G.P. of 15.25% in the immediately preceding year without ensuring the compliance/non-compliance of the pre-conditions prescribed u/s 145(1) or the accounting standards or policies notified u/s 145(2) of the Act. It is submitted that the addition of Rs. 24118024/- made on the ground of lower GP is bad-in- law and on facts of the case as the purchases and sales are supported by quantitative records and the rejection of books of account by the A.O. is also not in accordance with the provisions of section 145(3) of the Act and consequently, the same be deleted and that the assessment may be directed to be modified accordingly. 3. That the CIT(Appeals) further erred in confirming the disallowance in respect of the Employe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tated that he is only a name lender and all the business activity including maintenance of regular books of accounts are carried out by Dinesh Parekh, who is a brother of Shri Suresh Parekh, who is a master mind behind the Hawala racket. Similarly, statement of Shri Kiran Patil, proprietor of M/s. Param Trading Company was recorded on 11.07.2012 in which he categorically stated that he received salary from Shri Dinesh Parekh and he is not aware of any activities carried out under the name of M/s. Param Trading Company and the business activities of M/s. Param Trading Company are being looked being looked after by Shri Suresh Parekh and Shri Dinesh Parekh and he is only a name lender. Shri Suresh Parekh submitted a list of beneficiaries to whom such bills were issued and cash was returned back against cheque received from such beneficiaries towards bills issued. Accordingly, the Assessing Officer formed the view that assessee had debited bogus purchases / expenses from the aforesaid two parties i.e. M/s. Param Trading Company and M/s. RHEEM Tradelink Pvt. Ltd. amounting to Rs. 21,31,49,900/-. Accordingly, since Assessing Officer was of the view that the assessee had debited bogus pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sing Officer should have reason to believe that any income chargeable to tax has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words 'reason to believe' cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he covers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed, though he may have taken an erroneous view of the law with regard to the mistake committed at the first assessment proceedings that he has found out. Therefore, unless it is shown that the Assessing Officer never enquired into the matter at all or that he never honestly believed that a mistake has been made, the result of his investigation and initiation of the proceedings under section 147 cannot be challenged on the ground of want of jurisdiction. The Assessing Officer has to determine the facts and the law in order to give him jurisdiction to proceed and if in the determination of this he goes wrong, proper remedy for the assessee would be to go up in appeal and to have the case referred to the High Court under the provisions of the Act. A writ of prohibition under article 226 could not be issued against the Assessing Officer in such cases. In the instant case from the first assessment it appeared to the Assessing Officer, while making an order in respect of the assessment year 1993- 94, that the amount of taxable income in the form of capital gains in respect of the transfer of the land which was treated as stock-in-trade on 19-9-1990, in favour of the firm and the tax paya....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s decision on the question whether there was sufficient justification or cause for formation of the belief in view of the error committed in the first assessment was wrong, the only remedy would be by way of an appeal against his ultimate order and not by a writ of prohibition; for, the Assessing Officer had not assumed jurisdiction not vested in him, but had merely exercised jurisdiction, the existence of which is necessarily involved by the scope of his functions under the Act, pursuant to the said provision of section 147. In view of the facts noted above, it was utterly impossible to say that there was no evidence of primary facts upon which the Assessing Officer might apply his mind and exercise his power and proceed further under the said provision. It was not for the High Court in exercise of its extraordinary jurisdiction under the Constitution, to examine the sufficiency of the reason which led the Assessing Officer to believe that the income had escaped assessment. Under the circumstances, there was no merit in the petition and the same was dismissed." Considering the facts discussed herein above, reassessment notice and order passed by Assessing Officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses. It is a well settled law that in order to initiate re- assessment proceedings, only a prima facie belief is required to initiate re- assessment proceedings. In the case of Raymond Woolen Mills Ltd. vs. ITO 236 ITR 34 (SC), the Hon'ble Supreme Court held that what was to be seen was whether there was prima facie material on the basis of which the department could reopen the case. The sufficiency or correctness of the material was not a thing to be considered at this stage. The Supreme Court held that it could not strike down the reopening of the case in the instant facts and it would be open to the assessee to prove that the assumption of facts made in the notice was erroneous. In the case of Kedarnath Babbar vs. ACIT 139 taxmann.com 129 (Delhi), the Delhi High Court held that where Assessing Officer on perusal of tax evasion petition received from investigation observed that significant sums from over draft account of petitioner was being transferred to the petitioners is not as interest free loan and interest expenses incurred on said over draft was being fraudulently claimed as revenue expenditure to reduce taxable income of the petitioner, since there was prima facie ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bills issued. Further, from the details / information provided by Shri Suresh Parekh, he categorically admitted that in the transactions between M/s. Param Trading Company and M/s. Rheem Tradelinks Pvt. Ltd. with the assessee, the same were only accommodation entries and in respect of such bills issued, no physical goods were sold to the assessee and further there was no physical movement of goods. In the assessment order, the Assessing Officer observed that it cannot be denied that the assessee had made purchases and had also made sales in respect of certain educational books etc. However, what is doubtful is that such purchases were not made from the aforesaid two parties i.e. M/s. Param Trading Company and M/s. Rheem Tradelinks Pvt. Ltd. The Assessing Officer was of the view that in the facts it was found that the parties were either withdrawing cash after routing some cheques through the above mentioned parties and cash were withdrawn from this account. In short, the cheque payments made by the assessee are finally withdrawn in cash and the some are handed over to the assessee. Accordingly, the Assessing Officer held that the assessee has failed to prove that the purchases made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT(Appeals) upheld the order of Ld. CIT(Appeals) and dismissed the appeal of the assessee with the following observations:- "3.6. I have carefully considered the Assessment Order and the submission filed by the Appellant. The Assessing Officer has referred to information received from The ADIT (Inv.) Unit-III, Kolhapur, vide letter dated 15/05/2014, has intimated that during the course of investigation in respect of cash transactions, certain parties were indulging in Hawala Business. It is found that Assessee Company has obtained bogus bills from Param Trading and Rheem Tradelinks and in turn it has stated to sold to Maharashtra Prathmik Shikshan Parishad, Sarva Shiksha Abhiyan at its various centers. During the course of such investigation, the statement of master-mind of hawala racket Shri Suresh Parekh was recorded. Statements were also recorded Shri Yogesh Maruti Koli, Director of Rheem Tradelink Pvt. Ltd. who in his statement, recorded on 13/07/2012, in reply to Q. No. 5, categorically stated that he is only a name lender and all the business activities including maintenance of regular books of account are carried out by Shri Dinesh Amrutlal Parekh, brother of Shri ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the assesses failed to prove that the purchases made from Param Trading Company and Rheem Trade/ink Pvt. Ltd. were genuine. Another important feature of the assesses s purchases and sales from the above parties is also very intriguing and complicated. As stated above, the purchases were made from Sangli and the assessee had transported the goods all the way from Sangali to Ahmedabad only for a check and such goods again transported all the way from Ahmedabad to Nasik, Jalgon, Nandurbar, Kohlapur etc. all the stations are in and around Sangli. This all have been done by the appellant for the reason known to him. The facts of the case clearly points to what the A.O. has been dealing in the relevant para of his assessment order. 3.8. The assessee has shown transactions with the entry provider only during the year which resulted in lower G.P. of 10.75%. As stated above, the purchases shown to have been made from Param Trading Company and Rheem Tradelink Pvt. Ltd. amounting to Rs. 21,30,49,900/- which is almost 40% of the total turnover are found to be bogus in nature by the AO. Considering the fact that the assessee has made sales to the government authority, it was held by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso argued that when Assessing Officer is relying upon statement of third parties and Appellant has asked for cross examination of such party, the onus is on Department to produce such party for allowing cross examination to Appellant and addition made without such cross examination cannot be sustained in view of decision of Hon'ble Gujarat High Court in the case of Chartered Speed Pvt. Limited (Tax Appeal No. 126 of 2015, referred supra). The Appellant has also argued that it is engaged in trading and printing of booklets and sales made out of above referred purchases are accepted by Assessing Officer as such and held as genuine sale, corresponding purchase cannot be treated as non- genuine. Even the Tax Audit Report also gives details of opening stock, inward quantity, closing quantity and sales quantity, which are not disputed by Assessing Officer. Once books of account of Appellant are accepted as such, addition of bogus purchase cannot be made. The appellant made a request for admitting the additional evidences under Rule 46A of I.T. Rules, stating that during the course of assessment proceedings, the appellant was unable to submit certain details. The appellant r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecisions and judgment cited of various Court's the disallowance of the entire purchase made, would not on sound footings. But at the same time it is also a fact that the appellant have inflated its purchases for which some disallowance are required. For similar facts the Hon'ble ITAT Ahmedabad in the case of Gujarat Ambuja Export Ltd Vs. ACIT in IT(SS)A 123, 124 & 481/Ahd/2012 dtd. 17.4.2013 has confirmed the disallowance of such purchases and subsequently this was confirmed by the Hon'ble Gujarat High Court in Tax Appeal No,845/A/2013 vide order dtd.10.2.2014. Thus considering the decisions, it would be fair and reasonable to make the G.P. at 15.25% as taken by the A.O. by applying the G.P. at 15.25% the G.P. works out to Rs. 8,19,18,213/- as against the same the assessee has shown G.P. at Rs. 5,78,00,189/-, the difference of Rs. 2,41,18,024/- is added to the total income. Thus, the addition made by the A.O. of Rs. 2,41,18,024/- is confirmed. The ground of the appellant is dismissed. 10. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) confirming the addition in the hands of the assessee. Before us, the Counsel for the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In the case of PCIT vs. Swati Bajaj 139 taxmann.com 352 (Calcutta), the Calcutta High Court held that the report submitted by the Investigation Department could not be brushed aside and it is the duty of the Department to give due weightage to the report submitted by the Investigation Department. In this regard, the Hon'ble Calcutta High Court made the following observations in its order:- "The report submitted by the Investigation department could not be thrown out on the grounds urged on behalf of the assessees. The assessees have not been shown to be prejudiced on account of non- furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (Investigation) of all the States of the country. It is thereafter the concerned Assessing Officers ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessees have not made out any case. [Para 65]" 13. The above principal was again upheld by the Calcutta Tribunal in the case of Shyam Sunder Bajaj vs. ITO 145 taxmann.com 315 wherein the ITAT held that the report of Investigation Wing, wherein the Investigation Wing of the Department had stated the modus operandi of rigging the prices of penny stocks and generation of capital gain / trading loss therefrom, had to be given due weightage. We further observe, the Pune ITAT in the case of Shri Dinesh Kumar (HUF) vs. ITO 149 taxmann.com 98 (Pune Tribunal) has made the following observations on the reliance which needs to be placed on the report submitted by the Investigation Wing. The relevant extract of the ruling are reproduced below for ready reference:- "9. We also find that Hon'ble Supreme Court in the case of Mc Dowell & Co. v. CTO [1985] 22 Taxman 11/154 ITR 148/47 CTR 126 has given a strong verdict against any such arrangements by stating that "colourable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of taxes by resorting to dubious methods. It is the obligation of ever....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... application of test of human probabilities in the given set of facts while deciding the issue, in the following words:- "The transaction about purchase of winning ticket took place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase had to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record, an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. The majority opinion after considering surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim about the amount being her winning from races, was not genuine. It could not be said that the explanation offered by the appellant in respect of the said amounts had been rejected unreasonably and that the finding that the said amounts were income of the appellant from other sources was not based on evidence." 15. Now coming to the facts of the instant case, we observe that the Investigation Wing of the Department af....