TaxTMI 
TaxTMI 
2023 (12) TMI 25
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....0 The learned CIT(A) erred in law and on facts in upholding the reassessment made by the learned A.O. u/s 147 of the Act. 1.1 The learned CIT(A) failed to appreciate that there was no reason to believe on the part of the learned A.O. that income has escaped assessment and that the entire exercise of reassessment was done on the basis of borrowed satisfaction of Investigation Wing. 1.2 The learned CIT(A) also erred in law and on facts in upholding reassessment u/s 147 in spite of the fact that original assessment was u/s 143 (3) of the Act and the reassessment was done on change of opinion. It is submitted that reassessment done by the learned A.O. and confirmed by CIT(A) be quashed. 2.0 Without prejudice to the Ground No. I alongwith its sub-grounds above, the learned CIT(A) erred in upholding disallowance of Rs. 41,70,774/- as bogus purchase made by the appellant and claimed from its income. 2.1 Without prejudice to the foregoings, if at all the disallowance/addition is to be made toward bogus purchases, the same has to be restricted to Rs. 37,66,550/- being the amount of purchase from Sampada Chemicals Ltd. debited in the books of the ....
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....information has been received from the Investigation Wing Mumbai that a Search and Seizure action was carried out in the case of Shri Vipul Vidur Bhatt and other related entities on 05.02.2016. In the statement recorded on oath, Shri Vipul Vidur Bhatt accepted that he is an entry operator and all the entities/ companies are bogus entities/companies which were used by him for providing various bogus accommodation entries to the various beneficiaries for commission. It is gathered that the assessee has received bogus accommodation entries from Sampada Chemicals Limited (Bogus Entity related to Shri Vipul Vidur Bhatt) of Rs. 82,38,462/- Rs. 41,70,774/- (Debit) and Rs. 40,67,688(credit)]." 3.3 In response to notice issued by AO under section 148, the assessee submitted copy of acknowledgment of return filed on 7.4.2017 and requested to provide reasons recorded for reopening of the concluded assessment , which were provided by the AO to the assessee. The assessee vide letter dated 14.07.2017 filed objections to the reopening of the assessment ,and the same were disposed of by the AO by passing a speaking order dated 30.11.2017. The AO issued show cause notice under section 142(1) of ....
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....es of Rs. 37,66,650/- and debit entries of Rs. 36,67,688/-. The assessee submitted that as per AO , the credit entries are Rs. 40,67,688/- and debit entries of Rs. 41,70,774/-. The assessee requested AO to provide copy of statement received by AO from Sampada Chemicals Ltd. in order to verify the statement and point out the differences, if any.The assessee also submitted before the AO , copies of invoices for supply of materials as under:- Bill No. Dated Rs. 12091308 13.09.12 9,13,500 12112602 27.11.12 10,77,300 13022610 26.02.13 3,04,500 3.5 The assessee also submitted copies of transport bilti with each and every supply invoice for verification by the AO. The assessee also submitted bank statement of the assessee's bank account with Bank of India ,from where the payments were made to Sampada Chemical Ltd by the assessee, were reflected. The assessee also submitted copy of credit note no. 3 issued by Sampada Chemical Ltd. for return of 675 kg of Sodium Alginate returned by the assessee to Sampada Chemicals Ltd.. The assessee also enclosed credit note issued by Sampada Chemicals Limited alongwith copy of the Transport Receipt of Premal Road Li....
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....mission. That Sh. Vipul Vidur Bhatt also confessed that he controls entire activities and affairs of the entities / companies ,and these entities/ companies were incorporated for providing bogus accommodation entries only. During the search operation under section 132, the entire books of accounts, income tax related documents, company law and other matter related documents, VAT / Sales Tax rubber stamp and common seals and PAN of all the 347 bogus entities/companies were found at an undisclosed premise 1407, 14th Floor, New Jaiphalwadi, Police Colony, Tardeo, Mumbai-400034.On perusal of the ledger accounts of these bogus entities/companies controlled , managed and operated by Shri.VipulVidur Bhatt, it was seen that the assessee has taken bogus accommodation entries to the extent of Rs. 82,38,462/- from Sampada Chemicals Ltd., [Rs. 41,70,774/- Debit] and Rs. [40,67,688/- Credit]. 3.7 The AO also observed that the assessee has tried to justify that the purchases made by assessee from Sampada Chemicals Limited were genuine, and in order to justify its contention, the assessee has submitted bills/vouchers . It was also observed by AO that entire books of accounts, income tax relate....
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....lly, the AO told the AR orally that there is no need for Directors to appear before the AO. Thereafter, the assessee did not received any call or communication from the AO. It was submitted thereafter mail was received from AO on 01.12.2017 , wherein the copy of order dated 30.11.2017 passed by the AO disposing off the objections filed by the assessee against reopening of the assessment , was received. The assessee submitted that , thereafter, the counsel of the assessee appeared before the AO and submitted replies to SCN on 08.12.2017. It was submitted thereafter no further queries were raised by the AO, and rather the office of the AO indicated orally that the additions would have to be made as it is a case referred to by the Investigation Wing, Mumbai. The assessee submitted before ld. CIT(A) that the AO totally ignored the evidences and proofs of transactions made by assessee with Sampada Chemicals Ltd.. It was submitted that no enquiry was made by the AO on the evidences submitted by the assessee. The assessee submitted that the AO completely ignored the statement of account, purchase bills, transport receipts, bank statements, consumption register , and has merely relied on t....
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....at no further enquiry was made by AO ,and the additions were made by the AO without any application of mind by treating the purchases as bogus without verification of facts and evidences submitted by the assessee. It was also submitted that no opportunity was provided by the AO to the assessee to cross examine Shri Vipul Vidur Bhatt, and If the statement of Shri Vipul Vidur Bhatt was to be relied , the AO ought to have forced Shri Vipul Vidur Bhatt to appear before him , so that the assessee could have cross examined him. 4.4 It was also submitted by the assessee before ld. CIT(A) that the assessee is a business entity and it was not necessary for assessee to enquire the salesman of the suppliers of Colour Chemicals about who is the Director of the company and what are his other activities. It was submitted that the assessee company had bought Colour Chemical from Sampada Chemicals Ltd. in ordinary course of business on credit terms for which payments were made through banking channel, and there was no necessity for the assessee to make enquiries about the ownership of Sampada Chemicals Ltd..It was also submitted that the AO has erred in adding Rs. 82,38,462/- without applicatio....
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....u/s 133(6) , but no replies were received nor Directors appeared before the AO, which clearly proves that the said company was providing bogus sale bills. The ld. CIT(A) observed that the onus was on the assessee to establish genuineness of the transaction. The ld. CIT(A) further observed that it is the assessee company who purchased the material from Sampada Chemicals Limited , and hence onus was on assessee company to prove genuineness of the transactions. The ld. CIT(A) further observed that even AO asked Directors of assessee company to be present before the AO as summons were issued as well notices were issued u/s 133(6), but that remained un-complied with, but rather the assessee is now claiming that the AO told them orally to be not present. The assessee ought to have complied with directions of the AO. The ld. CIT(A) observed that merely submitting invoices as well making cheque payments are not sufficient, when searches conducted on the other party reveals that the said party was providing bogus accommodation entries. The ld. CIT(A) observed that the supplier was assessee's witness and the AO was not required to force his attendance. When the amount is shown to be in the n....
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....tion was drawn to page 3 of the paper book wherein reasons recorded for reopening of the concluded assessment were placed. It was submitted that original assessment was made under section 143(3) and reopening of the assessment was done within four years from the end of the assessment year , as notice u/s 148 was issued on 24.03.2017 and impugned assessment year is 2017-18. Our attention was also drawn to page 4-16 of the paper book, wherein reply/objections to the reasons recorded for reopening of the assessment , was made by the assessee before the AO. It was submitted that the assessee was not confronted with the relied upon documents. The assessee relied upon the following decision(s) , as under:- "1. PCIT v. Ganga Glazed Tiles (P.) Ltd. (2020) 117 taxmann.com 108 (SC). 2. PCIT v. Ganga Glazed Tiles (P.) Ltd. - (2020) 117 taxmann.com 107 (Guj- HC). 3. Ashapura Minechem Ltd. v. DCIT - (2020) 116 taxmann.com 860 (Mumbai- Trib.) 4. PCIT v. Shodiman Investments (P) Ltd. - (2018) 93 taxmann.com 153 (Bombay-HC) 5. Surani Steel Tubes Ltd. v. ITO - (2022) 136 taxmann.com 139 (Guj-HC)." 5.2 Our attention was drawn by ld. Counsel for the ass....
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....or the assessee to page 29 of the paper book, wherein Company Master Data of Sampada Chemical Ltd., as downloaded from the MCA web-site is placed , and it was submitted that the company status is showing 'Active' , although the said company has defaulted in filing of Annual Return and Balance Sheet for the financial year 2015-16. Our attention was also drawn to page 50 of the paper book wherein credit note of Rs. 2,05,538/- issued by Sampada Chemicals Ltd. is placed w.r.t. goods returned by the assessee. Our attention was also drawn to page 51 of the paper book wherein transport receipt issued by 'Premal Road Links' with respect to material returned by assessee to Sampada Chemicals Ltd. is placed. Our attention was also drawn by ld. Counsel for the assessee to page 62-67 of the paper book, wherein consumption record of material purchased from Sampada Chemicals Limited is placed. Our attention was also drawn to Form no. 35 filed before ld. CIT(A), and it was submitted that Directors did not appeared before AO, and our attention was drawn to Para 9 of the Statement of Facts filed before ld. CIT(A). With regard to Ground no. 2 which is an alternate ground, it was submitted by ld. Coun....
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....ation was asked for by the assessee of Shri Vipul Vidhur Bhatt as as well statements and other documents were asked for by the assessee which were not provided by the Revenue. Our attention was drawn to Statement of Facts filed before ld. CIT(A) 6. We have carefully considered rival contentions and perused the material on record . We have also carefully gone through the cited case laws. We have elaborately culled out the factual background of the instant appeal in preceding para's of this order, and for the sake of brevity the same are not repeated again . We have observed that the assessee has claimed itself to be engaged in the business of Cloth Dying, Printing and Processes. It has claimed that it owns a processing house which has machinery for Bleaching, Dyeing , Printing and Finishing of Cloth, and mainly does Job Work for its customers. The assessee filed its return of income originally on 28.09.2013 u/s 139(1) for the impugned assessment year 2013-14, returning loss of Rs. 1,73,67,374/-. The said return of income was originally selected by Revenue for framing scrutiny assessment u/s 143(3) read with Section 143(2) of the 1961 Act assessing/computing loss of Rs. 1,57,75,21....
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....en accommodation purchase entry of purchasing Color Chemical(Sodium Alginate(Textile Grade) from said company to the tune of Rs. 41,70,774/- and correspondingly there were credit entries for Rs. 40,67,688/-. The AO made additions of the aggregate amount of Rs. 82,38,462/-, while ld. CIT(A) restricted the additions to the tune of Rs. 41,70,774/- towards accommodation entries for bogus purchases made by the assessee from said Sampada Chemicals Limited during the year under consideration , wherein the credit entry was held by ld. CIT(A) to be duplication of the addition and consequently deleted by ld. CIT(A), as the same were towards payments made by assessee to said Sampada Chemicals Limited through banking channel for aforesaid accommodation entries towards bogus purchases made during the year under consideration . We are now concerned with the additions to the tune of Rs. 41,70,774/- sustained by ld. CIT(A). Coming back, based on information received from DDIT, Inv. , Mumbai and further enquiries as were made by the AO, it was concluded by the AO that income of the assessee has escaped assessment for which reasons for reopening of the concluded assessment u/s 147 were recorded by t....
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....opportunity of cross examination be granted although the right to cross examination is not absolute. Thus, clearly principles of natural justice are breached. The assessee on its part provided all the necessary documents to support that purchases made from Sampada Chemicals Limited were genuine. The copies of the invoices, transport bilti, bank statements, credit notes for returning the goods, purchase register, consumption record etc. were all produced before the authorities below. The AO as well ld. CIT(A) did not find any fault with the records produced by the assessee, except that in the search and seizure proceedings conducted by Revenue u/s 132 on 05.02.2016 in the case of Mr. Vipul Vidur Bhatt , it emerged that Mr. Vipul Vidur Bhatt was using 347 entities/companies for providing bogus accommodation entries by way of bogus capital gains, bogus purchases , share capital/share premium and unsecured loans, and Sampada Chemicals were one of the company used by Mr. Vipul Vidur Bhatt to provide bogus accommodation entries , and the said Mr. Vipul Vidur Bhatt was admittedly Director of the said company during the year under consideration . The assessee has admittedly dealt with Samp....
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.... told the AR of the assessee that there was no need to comply with the same. The ld. CIT(A) did not called for the Directors of the assessee to appear before him for recording their statements , nor any fresh summons were issued by ld. CIT(A) to the Directors of Sampada Chemicals Limited, nor notices u/s 133(6) were issued by ld. CIT(A) to the said company, during appellate proceedings. The powers of ld. CIT(A) are co-terminus with the powers of the AO, and proceedings before ld. CIT(A) are extension of assessment proceedings. It is also observed that the reassessment proceedings were initiated within 4 years from the end of assessment year and proviso to Section 147 is not applicable. It is also true that information was received by the AO from DDIT, Inv., Mumbai as to the 347 entities / companies operated by said Mr. Vipul Vidur Bhatt to provide accommodation entries towards bogus capital gains, bogus purchases , share capital/share premium and unsecured loans which was supported by statement u/s 132(4) of Shri Vipul Vidur Bhatt. On further enquiries by the AO of the assessee , it also transpired that the assessee is beneficiary of accommodation entries to the tune of Rs. 82,38,4....
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....nciples of natural justice as copies of statements as well other relied upon incriminating material ought to have been provided by AO to the assessee, before condemning assessee and saddling with tax liabilities. Further, before prejudicing assessee and saddling with tax liability , the said Mr. Vipul Vidur Bhatt ought to have been offered by Revenue for cross examination by the assessee. If the AO did not do so, it was incumbent on ld. CIT(A) to have provided the copies of relied upon documents including statement of Mr. Vipul Vidur Bhatt as well offered said Mr. Vipul Vidur Bhatt for cross examination by the assessee. Right of cross examination is a valuable right but at the same time the said right is not absolute. It will depends upon the factual matrix of the case. Fair hearing as well adherence to principles of natural justice are the two important pillars in robust judicial delivery system. The Revenue has also not brought on record as to the manner in which assessments were framed in the case of Mr. Vipul Vidur Bhatt as well in the case of M/s Sampada Chemicals Limited, and whether finality was achieved in the tax-proceedings against them under the 1961 Act. The assessee on....
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.... were genuine, as discovery of the incriminating material during search and post search enquiries have cast serious doubt on the purchases made by the assessee from said company. There could be several reasons for arranging bogus accommodation entries towards bogus purchases, which could be to suppress profits and evade taxes, or to arrange for the invoices at higher value to reflect purchases in the books of accounts etc. so on and so forth. Reference is drawn to the judgment and order of Hon'ble Gujarat High Court in the case of CIT v. Simit P. Sheth , reported in (2013) 38 taxmann.com 385(Guj.), wherein Hon'ble High Court of Gujarat held as under: "4. In the present case, however, we notice that before the Commissioner (Appeals), the assessee pointed out that the assessee was trading in steel. Once his sale of "x" quantity of steel is accepted, the purchases of the same quantity had to be believed. It was canvassed that the assessee had made sales of 1,10,786 metric tons of steel. Therefore, there had to be a matching quantity of purchase of steel also. It was argued that since the Assessing Officer accepted the sales of the steel, equivalent of purchase also must be be....
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....ses. In essence, therefore, the Commissioner (Appeals) believed the assessee's theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. 7. That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. So much is clear by the decision of this court. In particular, the court has also taken a similar view in the case of CIT v. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and in the case of CIT v. Bholanath Poly Fab (P.) Ltd. [2013] 355 ITR 290 (Guj). The view taken by the Tribunal in the case of Vijay Proteins Ltd. v. Asstt. CIT [1996] 58 ITD 428 (Ahd.) came to be approved. 8. If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, counsel for the Revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in the case of Pawanraj B. Bokadia (supra). 9. This being the position, the only question that survives is what should be ....