TaxTMI 
TaxTMI 
TaxTMI 
2020 (8) TMI 947
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....ircumstances of the case, the ld. CIT(A) is wrong, unjust and has erred in law in upholding the rejecting of books of accounts of the appellant company by the Assessing Officer U/s. 145(3) of the I.T. Act, 1961 on account of alleged unverifiable purchases of Rs. 15024461 and in further upholding addition of Rs. 1500000 to the income of the appellant on this count as trading addition. 3. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them." 2. The hearing of the appeals was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. Ground No. 1 of all these appeals is regarding validity of reopening of the assessment. The assessee company is engaged in the business of manufacturing and exports of coloured gems stones and gold studded jewellery and diamonds. The assessee has one Export Oriented Unit (EOU) at Jaipur, two Domestic Tariff Area (DTA) units. The assessee also has one Santacruz Electronics Export Processing Zone located in Mumbai. The assessee filed its return of income for the year under consideration declaring loss of Rs. 86,49,010/-. The scrutiny assessment ....
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....booked during the year. Similarly, list of all such persons against whom total purchases/any expenses above Rs. 5.00 lacs have been booked. These requisite information and details were duly filed by the assessee in the reply dated 15/09/2010. After verification of all the details and recording, the A.O. passed scrutiny assessment and made various additions but has not found anything wrong with the purchases and sales of the assessee. Thus, the A.O. examined all the details and the claim of purchases for these two years in the scrutiny assessment. In the reasons recorded, the A.O. has not pointed out any default on the part of the assessee to disclose fully and truly all the materials necessary for the assessment. Thus, in absence of failure on the part of the assessee to produce fully and truly all necessary material and facts necessary for assessment, the reopening after four years in case of scrutiny, assessment was completed U/s. 143(3) of the Act is not valid. He has referred to proviso to Section 147 of the Act and submitted that the A.O. is barred to invoke provisions of Section 147 of the Act after expiry of four years when the original assessment was completed U/s. 143(3) a....
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....the Act which is attached with a questionnaire containing 21 queries to be replied by the assessee. Question No. 7 is relevant for the purpose of considering whether the assessee has disclosed fully and truly all material facts necessary for the assessment. For ready reference, we reproduce question No. 7 raised by the A.O. alongwith notice U/s. 142(1) of the Act dated 26/08/2010. "7. Furnish a list of all the person to whom total sales/any other receipt of above 5 lacs has ben booked during the A.Y. 2008-09. Similarly, furnish a list of all such persons against whom total purchase/any other expense above 5 lacs has been booked." Thus, it is clear that the A.O. asked the assessee to furnish list of all the persons from whom the purchases were made above Rs. 5.00 lacs. The assessee vide reply dated 15/09/2016 has furnished details in the format as given by the A.O. The reply to question No. 7 of the assessee is also reproduced as under: "7. Details of purchases and sales exceeding Rs. 5 lacs made during the year under assessment in the given format are enclosed." Thus, the A.O. has taken up the issue of verifying the purchases and sales both of the assessee at the time of scru....
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.... be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:" Even the explanation 1 to Section 147 of the Act would not support the case of the A.O. when the A.O. has specifically called all the details and documents including purchases and verified/examined the same at the time of scrutiny assessment. All the purchases were undisputedly recorded in the books of account and also supported by the bills/vouchers as well as payment made by the assessee. Further the corresponding export of the assessee was not disputed by the A.O., therefore, when all these relevant documents were produced before the A.O. as called for by the A.O. vide notice issued U/s. 142(1) of the Act then the subsequent information received by the A.O. from the Investigation Wing, Mumbai regarding some of the s....
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....f accounts of all the directors. 6. Please produce all books of account, bills/vouchers and relevant records maintained for the year under consideration. The above details should reach this office by 27.08.2010 at 11.30 A.M., the date on which your case is fixed for hearing. Notice u/s. 142(1) is enclosed. Encl.: As above. Yours faithfully, Income-tax Officer Ward-2(2), Jaipur. The AO asked the assessee to furnish comparative chart of turnover, GP for last 3 years to justify the reason for decline in the GP rate, if any. In question no. 4, the AO has specifically asked the details of the shareholders from whom the paid-up share capital, share application money and premium money received during the year. The details ca led by the AO include name, address, PAN of all the shareholders. The AO also asked the assessee to produce all the books of account, bills/vouchers and relevant record maintained for the year under consideration. The AO has stated in the order that in response to the notice issued under section 142(1) the ld. A/R of the assessee attended from to time and furnished the requisite information/details and case was discussed with him. The AO has again stated in....
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....0 crore from the following group concerns details on which is as under:- On the basis of this information, survey action u/s. 133A (1) of the Income Tax Act, 1961 was carried on in the case of Zari Silk (India) Pvt. Ltd. on 26.11.2014. Bogus Share Application Money: The issue regarding introduction of share capital totaling Rs. 1.10 crores through 08 shell companies of Mumbai was explored during survey operation. It was found that 1,10,000 shares of face value Rs. 10/- had been allotted to these shell companies at premium of Rs. 90/- each. The Director, Sh. Arun Kumar Palawat and his in-house Chartered Accountant Sh. Virendra Dadhich were repeatedly questioned and cross questioned on this issue. They were asked to produce the share Application Forms supposedly submitted by these companies for allocation of shares of the assessee Company (as also recorded in the Minutes of Board meeting dated 1.10.2007, original minutes impounded at exhibit A-9). However, both these persons failed to produce any documents or information in respect of shares so allotted to 08 companies at huge premium. No justification for computation of high premium was given despite specific questioning. Thus....
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....ecorded and proceedings of survey all these facts and details were part of the books of account already produced before the AO during the scrutiny assessment and were subjected to verification and examination. The third part of the reasons recorded is regarding the purchases worth Rs. 21,57,500/- from the company M/s. New Planet Trading Co. Pvt. Ltd. The AO has considered the said company as shell company owned and operated by Shri Praveen Kumar Jain. This belief was formed by the AO on the basis of the information received from the Investigation Wing Mumbai. Except the Inward Register, no other incriminating material found during the survey to say that the purchases made by the assessee are bogus. It is pertinent to mention that the purchases were made by the assessee when the assessee was having its only show room at M.I. Road, Jaipur whereas the survey was conducted at the show room at Narain Singh Circle, Jaipur. Subsequently the assessee has filed this record of inventory register showing the entries of the alleged purchases. Moreover, during the assessment proceedings under section 143(3), the AO has specifically called for purchase and sales vouchers, bills along with cash b....
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....2008-09 was filed on 20.07.2009 at an income of Rs. 1,83,170/-. During the course of assessment proceedings for A.Y. 2012-13 it is found that the assessee is a builder and developer and has developed a commercial complex Silver Square at C-18, Bhagwan Das Road, Jaipur. The project was started on 15.08.2003 and was completed on 10.08.2005. The assessee was requested to file the details of total area constructed and year-wise area sold. In response, the assessee filed details of opening stock as on 1.4.2011 and closing stock as on 31.03.2012. One more request was made vide letter dated 17.03.2015 to file year-wise details of area sold from the date of completion of project but no compliance was made. Assessment for A.Y. 2012-13 has been completed u/s. 143(3) of the I.T. Act, treating the income from unsold portion of project under the head Income from house property keeping in view the finding of Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. in ITA 18/1999 dated 31.10.2012 wherein it is held that the income from unsold portion of stock in trade is also assessable under the head Income from house property. ....
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....assessments and therefore, the said assessment order for the assessment year 2012-13 may constitute tangible material apart from the decision of the Hon'ble Delhi High Court in case of CIT vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. (supra) for forming the belief that income assessable to tax on account of notional rent in respect of unsold stock of the assessee escaped assessment. However, even if the decision of Hon'ble Delhi High Court and the assessment order passed under section 143(3) for the assessment year 2012-13 may constitute tangible material for forming the belief, the same shall be subject to the fulfillment of the conditions as prescribed in the first proviso to section 147 of the IT Act. There is no allegation by the Assessing Officer in the reasons recorded that the income proposed to be assessed in the reassessment proceedings has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, we find that all the relevant material in respect of the issue of assessment of rental income of the unsold stock was already available with the Assessing Officer at the ....
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....ompleted u/s. 143 (3) of the I.T. Act, treating the income from unsold portion of project under the head income from house property keeping in view the finding of Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. in ITA 18/1999 dated 31.10.2012 wherein it is held that the income from unsold portion of stock in trade is also assessable under the head Income from house property. On examination of details filed, it is found that the assessee was having 12722.82 Sq. ft. unsold area as on 1.4.2011, measuring thereby that at least this portion of stock 12722.82 Sq. ft. was unsold during the F.Y. 2007-08 also. Further, as per the rent agreement dated 27.06.2006 entered by the assessee with M/s. Dominos. Pizza India Ltd. as regards 447.32 Sq.ft. of the ground floor of the project, rent of Rs. 70 per Sq.ft. per month is shown to be receivable on the let out portion. Since no details of unsold portion for the F.Y. 2007-08 have been filed by the assessee, and unsold portion of 12722.82 Sq. ft. was available with the assessee as on 01.04.2011, it is clear that at least area of 12722.82 Sq. ft. was unsold during the F.....
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....ming part of accounts for the year ended on 31st March, 2008". Thus, it is evident that the reasons recorded by the AO for initiating proceedings u/s. 147 of the Act were prima facie wrong and based on incorrect facts. Thus, the proceedings initiated u/s. 147 on a wrong premise, cannot be legally sustained. It may be mentioned that in the case of CIT vs. Corporation Bank Ltd [2002] 122 Taxman 826/254 ITR 791 (SC) in a case wherein the balance sheet filed along with the income-tax return, the assessee furnished particulars of interest suspense account showing a sum which was not recoverable for the relevant account year, it was held that the proceedings under Section 147 of the Act was not justified since there was no failure on the part of the assessee to disclose fully and truly the material facts necessary for the assessment. (vi) In the reasons recorded, the AO has made reference to the addition made in the A.Y. 2012-13 on the similar issue on the basis of judgment of Hon'ble Delhi High Court in the case of CIT vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. (Supra). It is to be noted that this is not a relevant reason for initiating proceedings u/s. 147 of the Act as th....
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.... be vitiated." (emphasis supplied) (viii) In the case of Cadila Healthcare Ltd. Vs. ACIT [2017] 85 taxmann.com 257 (Gujarat], it was held by the Hon'ble High Court of Gujarat that: "Claim of exemption of income of Rs. 130 crores by way of remuneration as a partner of the firm had come up for consideration before the Assessing Officer in the original assessment proceedings. The Assessing Officer had called upon the assessee to explain the said deduction as remuneration from partnership firm. He called upon the assessee to state how such income was exempt in the hands of the company. In reply to such question, the assessee had explained that such income was not chargeable to tax since the same was added to the total income of the firm and disallowed under section 40(b), the assessee would therefore get the benefit of section 28(v). The assessee also drew the attention of the Assessing Officer to the addendum to the partnership deed, in which, the provision for payment of remuneration to the partner at the prescribed percentage was made. The assessee also pointed out that identical question had come up for consideration during the scrutiny assessments for the assessment years....
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....for that assessment year'.[Para 21] * It has been repeatedly emphasized in several decisions that the re-opening of an assessment on the same material that was available with an Assessing Officer during the original assessment proceedings would be a case of mere change of opinion.[Para 23] * What Explanation (I) does is to clarify that the mere production of the account books or other evidence by the assessee before an Assessing Officer from which the Assessing Officer, with due diligence, could have discovered 'material evidence' would not necessarily amount to disclosure. In other words, the fact of production of the account books and other evidence should not be presumed to be the making of a disclosure of 'all material facts' by the assessee. Nevertheless, the burden is on the Assessing Officer to show that there has been a failure by the assessee to disclose fully and truly all material facts necessary for the assessment.[Para 24] * In a situation where the assessee has already produced all the account books and other evidence, while Explanation (I) may not lead to an automatic presumption of disclosure, unless there is some fresh tangible material av....
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.... a subsequent attempt to supply the omission at the stage of an order disposing of the objections raised by the assessee or providing them in the counter-affidavit in reply to the writ petition or even worse, making good that defect in the course of arguments before the Court, will simply not suffice.[Para 28]" (x) In the case of CIT Vs. Hindustan Zinc Ltd. [2016] 70 taxmann.com 262 (Rajasthan), it was held by the Hon'ble High Court of Rajasthan that: * In the matter of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the Supreme Court while dealing with the ambit and scope of the provisions of section 34 of the Indian Income Tax, 1922, which were similar to the provisions of section 147 of the Act of 1961 observed that it is duty of every assessee to disclose fully and truly all material facts necessary for his assessment. But, his duty does not extend beyond this. The Supreme Court opined that once all primary facts are before the Assessing Authority, he requires no further assistance by way of disclosure. If is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. [Para 6] (emphasis supplied) (xi)....
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....and circumstances of the case, it is held that the initiation of proceedings u/s. 147 of the Act by the AO for the year under consideration was not in conformity with the provisions of section 147 of the Act. Further, the assessment was reopened after 4 years from the end of the relevant assessment year, which was earlier completed u/s. 143(3] of the Act, therefore, proviso to the section 14/ of the Act is clearly applicable to the facts of the instant case under consideration. (xiii) It has already been discussed in the earlier part of this order that the details of unsold portion of the closing stock was stated In the tax audit report and 'Notes to Accounts' to the audit report filed under the Companies Act and thus, there was no failure on the part of the appellant to disclose, truly and fully all material facts, which are necessary, for its assessment for the year under consideration, at the time of original assessment proceedings. Hence, it is held that the conditions required for initiation of reassessment proceedings, as stipulated in the proviso to section 147 of the Act were not satisfied. Therefore, in view of the above discussion, looking to the facts and circu....
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....y all material facts necessary for assessment does not extend beyond furnishing of the primary facts before the assessing authority. Hence, in absence of any failure on the part of the assessee to disclose fully and truly all relevant material facts for reopening of the assessment is not valid as the condition precedent for exercising the power of reopening of assessment as provided U/s. 147 of the Act was absent and consequently the A.O. acted beyond his power while issuing notice U/s. 148 of the Act. Accordingly, the reopening of the assessment for the A.Y. 2008-09 and 2010-11 are invalid and the same is quashed. 8. For the A.Y. 2011-12, since the assessment was not completed U/s. 143(3) of the Act and return was processed U/s. 143(1), therefore, the proviso to Section 147 of the Act cannot be invoked. Therefore, ground No. 1 of the appeal for the A.Y. 2011-12 is dismissed. 9. Ground No. 2 of the appeals is regarding the addition made by the A.O., which was partly sustained by the ld. CIT(A) on account of unverifiable purchases. For the purpose of recording the facts, appeal for the A.Y. 2008-09 is taken as a lead case for deciding this issue in ground No. 2, which is common in....
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....ed by considering either the G.P. declared by the assessee in past years or the G.P. prevailing in the particular trade and business. It is settled proposition of law that for estimation of the income after rejection of books of account, the average of the past history of the G.P. declared by the assessee is a proper guidance. The Hon'ble Jurisdictional High Court in the case of CIT(A) Vs. Gupta K.N. Construction Co. 371 ITR 325 as well as in the case Clarity Gold (P) ltd. Vs. PCIT 102 taxmann.com 421 has held that the average of past history by the assessee is a reasonable and proper guidance for estimation of the income of the assessee after rejection of books of account. The ld. CIT(A), though, considered the G.P. declared by the assessee in the preceding years and also considered the decision of this Tribunal in the case of Allied Gems Corporation in ITA No. 794/JP/2011 and in the case of Rajkumar Agarwal in ITA No. 504/JP/2013, however, while restricting the addition, the ld. CIT(A) has not strictly followed the principle as laid down by the various binding precedents. For ready reference, we reproduce the finding of the ld. CIT(A) in para 3.3.2 and 3.3.4 as under: "3.3.....