TaxTMI 
TaxTMI 
2026 (10) TMI 535
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....e annulled. 2. That Worthy CIT(A)- NFAC, Delhi, erred in law and on facts in upholding the decision of the Assessing Officer in making addition without confronting to the appellant any evidence to be used against it. Directions be given to set aside the order of Worthy CIT(A)- NFAC, and directions be given to delete the entire addition of Rs. 29,41,753/-, based on unacceptable evidence. 3. That the appellant craves, leave to add, amend, alter, modify or substitute all or any of the above mentioned grounds of appeal before the appeal is finally heard and disposed off. 3. The Assessee has also raised following additional grounds vide letter dt. 06/04/2023: That Ld. National Faceless Appeal Centre (NFAC) erred in law & on facts, in considering the purchases, from one party M/s. Vinayak Traders, as bogus purchases without any documentary evidence on record against the appellant company and further erred in adding, the profit element Rs. 29,41,753/- on consumption of alleged raw material from the said party. to the income. Directions may be given to delete the said addition of Rs. 29,41,753/- as profit element on consumption of raw materia....
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....ies to various beneficiaries. The AO therefore treated the purchase claimed to have been made of Rs. 3,62,73,160/- as unverifiable. He however made an addition of 8.11% being the declared gross profit by the assessee. 9. During the assessment proceedings the assessee had requested a copy of the statement recorded alongwith opportunity for cross examination of the Proprietor of M/s Vinayak Traders and also requested for all the evidences in the possession of the AO on the basis of which the case was reopened. It is necessary to mention here that the assessment in this case was made earlier on 19/02/2015 under section 143(3) making substantial additions and the case was reopened for escapement of income of Rs. 3,62,73,160/-. The returned income was a loss of more than Rs. 100 Crores and even after the addition in the first round and also in the second round i.e; under section 147. The final assessed income is a loss of Rs. 1,06,07,04,932/-. 10. The Ld. CIT(A) dismissed the appeal of the assessee. The operative part of the order starts from para 10 onwards of the order of the Ld. CIT(A) in the order. The Ld. CIT(A) has dealt with various judicial pronouncements by various courts....
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....icer. On perusal of the order u/s 143(3) r.w.s. 147 dated 27.12.2019, it is noticed that during the course of assessment proceedings u/s 143(3) r.w.s. 147, the appellant requested for providing the reasons recorded for issuing notice u/s 148. In response, the assessing officer supplied copy of the same. Further, the assessment was re-opened u/s 147 of the Income Tax Act, 1961 basing on the information forwarded by the ADIT(Inv-III), Indore. From the information it was found by the Assessing Officer that Proprietor of M/s Vinayak Traders was summoned and statement was recorded on oath by the ADIT(Inv-iii), Indore. As per the statement recorded on oath, it was informed that M/s Vijayak Traders had converted the unaccounted cash of various companies through banking channel for providing benefit of various persons by way of accommodation entries. Statement was recorded on oath and proved beyond doubt that beneficiaries including the appellant (M/s Nahar Industrial Enterprises Ltd., Ludiana) transferred the money through RTGS/NEFT in the account of entry provider for rotating their money in form of bogus purchases. 10.3 In support of assessee's contention, he relied upon th....
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....tion 69C, read with sections 148 and 148A, the Income-tax Act, 1961 Unexplained expenditure (Bogus purchase) Assessment year 2013-14 Assessee-company had filed income and assessment was completed for same Thereafter assessment was reopened. issue a notice under section 148 Assessee sought revenue to reopen income-tax portal and allow three working days file reply However, reassessment order was passed under section 148A(d) Assessee filed petition seeking to quash impugned order and notice issued ground that said order was passed by relying on completely ineligible and unreadable documents and without granting sufficient time respond notice was violation principle natural justice It was noted that revenue had furnished legible copies documents based on which reopening was initiated to assessee initial stage itself, was further noted that one alleged supplier of assessee had made statement that had not carried out transactions with assessee which were appearing his bank account High Court impugned order held that view of testimony supplier prima facie case escapement income was made out and, thus, matter was be proceeded further and Assessing Officer was to decide matter its own meri....
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....made disallowance at GP rate basis 8.11%, which comes to Rs. 29,41,753/- (36273160 X 8.11%). In this regard, it is pertinent to go through the following case laws: 11.4. The relevant paragraphs in (2022) 139 taxmann.com 352 (Calcutta) High Court of Calcutta in the case of Principal Commissioner of Income Tax vs. Swati Bajaj is reproduced as under: 55. The first argument on behalf of the assessee is that the copy of the investigation report was not furnished to them despite specific written request made on behalf of the assesses to furnish the copy of the report, the statements recorded and provide those persons from whom statements were recorded to be cross examined on behalf of the assessee. There is no dispute to the fact that the copy of the statement said to have been recorded during the course of investigation has not been furnished to the assessees and the request made by some of them for cross examining of those persons was not considered. The question would be as to whether the non-compliance of the above would render the assessments had in law. The argument of the revenue is that the assessments cannot be held to be illegal merely on the grounds ....
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....the circumstances, the delinquent officer/employee did or did not have a fair hearing and the orders to be made shall depend upon the answers to the said query. Further it was held that there may be a situation where interest of the state or public interest may call for curtailing of rule of audi alteram partem and in such a situation the Court may have to balance public/state interest with the requirements of natural justice and arrive at an appropriate decision. 57. In a very recent decision of the Hon'ble Supreme Court in MJ James (supra) after referring to a catena of decisions on the point the Hon'ble Supreme Court pointed out that natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more lead to the conclusion that prejudice is thereby caused. Where procedural and/or substantive provisions of law embodied the principles of natural justice, their infraction per-se doe not lead to invalidity of the order passed. The prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only ....
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....l cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable opportunity would receive, comment and criticize the evidence, statements or records on which the charges is being against him, the demand and tests of natural justice are satisfied. 60. In Bakshi Ghulam Mohammad (supra) the Hon'ble Supreme Court held that the right of hearing cannot include the right of cross examination and the right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being enquired into 61. Having noted the above legal position, it goes without saying there is no vested right for the assessee to cross examine the persons who have not deposed anything against the assessee. The investigation report proceeds on a different perspective commencing from a different point and this has led to the enquiry being conducted by the assessing officer calling upon the assessee to prove the genuineness of the claim of LTCG. 65. Thus, the report submitted by the investigation department cannot be thrown out on the grou....
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....t to 25 per cent, Commissioner (Appeals) took view that 17.5 per cent as profit element would meet ends of justice and accordingly, Assessing Office was directed to estimate profit of 17.5 per cent on total alleged bogus purchases and, thereafter, to delete balance addition Tribunal concurred with said view Whether, on facts, there was no infirmity in said order - Held, yes." 12.1 The Head note of the order passed by the Hon'ble High Court of Bombay in the case of Principal Commissioner of Income Tax Vs. Batliboi Environmental Engineering Ltd [2022] 141 taxmann.com 245 (Bombay)/[2022] 446 ITR 238 (Bombay) [10-06-2022] has held as under. "Section 69C of the Income Tax Act, 1961 unexplained expenditure (Bogus Purchases) -Assessment year 2011-12-Assessing Officer treated purchases made by assessee as bogus purchases and disallowed a totality Commissioner(Appeals) directed Assessing officer to disallow 12.5 per cent of bogus purchase and to add 12.5 percent of amount of purchases to income of assessee- Tribunal upheld view of Commissioner (Appeals) - Revenue contended before High Court than bogus purchases out to have been disallowed in totality it was noted that ....
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....ccordingly, Tribunal restricted. addition limited to extent of bringing gross profit rate on purchases at same rate as applied in other genuine purchases - Whether, on facts, no substantial question of law arose from Tribunal's order - Held, yes [Paras 8 and 9][In favour of assessee) 12.4 The issues involved in the instant case also similar to the issues involved in the aforementioned case laws. In the instant case, the assessing office made addition of Rs. 29,41,753/- by disallowing on GP rate basis @ 8.11% on total bogus purchases of Rs. 3,62,73,160/-. The Hon'ble High Court and Tribunal adjudicated to compute the addition at 17.5% or 12.5% on total bogus purchases, in some of the aforementioned case laws treating the impugned purchases as bogus purchase and in some case laws, the addition was restricted to gross profit on the alleged bogus purchases as applied in other genuine purchases. The Assessing Officer in the instant case keeping in view the Gross Profit percentage in the case of appellant, made addition on par with the Gross Profit rate of 8.11% on the total bogus purchases of Rs. 3,62,73,160/- and made addition of only Rs. 29,41,753/-. 12.5 In ....
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....ly by saying that it was not tenable. He made an addition of Rs. 29,41,753/- by applying G.P rate of 8.11 percent on the purchases made alleged to be bogus. The said addition was made without any documentary evidence and without any legal tenable reasons against the Appellant Company. The said goods purchased by the Company from the said party alleged to be bogus were duly received by appellant at Companys premises and duly entered in the stock register. The consumption of the said goods and production thereof as well as sale of finished goods have not been doubted by the Assessing Officer and accepted by him which includes consumption of the said material and profit has been derived thereafter. Further, for making alleged illegal addition, the Ld. Assessing Officer has relied upon the alleged report of some Investigation Wing, without confronting the Appellant, the statement if any, recorded by the department in our absence which is not acceptable in the eyes of law. He also erred in law not giving us the opportunity to cross examine the party. 15. In this statement of Facts No.2, the appellant raised objection in respect of addition of Rs. 29,41,753/- made by the Assessi....
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...., in considering the purchases, from one party M/s. Vinayak Traders, as bogus purchases without any documentary evidence on record against the appellant company and further erred in adding, the profit element Rs. 29,41,753/- on consumption of alleged raw material from the said party, to the income. Directions may be given to delete the said addition of Rs. 29,41,753/- as profit element on consumption of raw material which is already included in the profitability already assessed and in the absence of any finding that G.P. of the company was low. In this regard, it is humbly submitted that the appellant company contested about the jurisdictions and powers of the assessing officer to reopening already concluded the assessment u/s 143(3) of the Income-tax Act. The facts of the case are as under- That the appellant company filed its Income-tax return at a loss of Rs. 116.24 Cr on 28.09.2012. The assessment u/s 143(3) of the Income-tax Act was completed on 19.02.2015 by making few additions and assessed at a loss of Rs. 106.366 Cr. During the assessment proceedings u/s 143(3) questionnaire dated 13.01.20214 (Copy enclosed as Annexure-1) was issued by the then ....
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....from Additional Director of Income-tax (Investigation) which is totally bad and against the express provisions of law. Mere reliance by the assessing officer on information obtained from other department and specially without any evidence on record to conclusively proved that the said purchases were bogus. The assessee relies upon the decision of ITAT Bombay in the case of ACIT V/s Mahesh K Shah (copy enclosed as Annexure-V). In the said decision the assessing officer received the information from sales tax department about the bogus purchases. The Hon'ble Tribunal has held that mere reliance by the assessing officer on opinion obtained from sales tax department, was not itself suffice to treat the purchases as bogus and make the additions. Even if the information has been received by the assessing officer from Investigation Department, the onus was on the revenue to prove that purchases were bogus and income related to such purchases belong to the appellant company. Furthermore, reopening the assessment was made simply on report of Investigation Wing but without any conclusive evidence and on the basis of presumptions, surmises and conjectures and by making t....
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....ore, reassessment made by the assessing officer deserved to be annulled and the addition should be deleted. In this regard, the appellant company relies upon the decision of Bombay ITAT Bench in the case of Fancy Wear V/s ITO (Copy enclosed as Annexure-VI). In the said case also the Assessing Officer received its information from sales tax department as well as DCIT (Investigation). The Hon'ble ITAT had categorically held that the assessee had asked for cross examination of the supplier. The Assessing Officer did not furnish copy of statement of the party and sales made by the assessee were duly accepted by the assessing officer. It was also mentioned that the material was available to the assessing officer, but it was never shared with the assessee. They have held that in their opinion the information received by the assessing officer was a very good starting point for further investigation, but he did not take to logical end. It can be said that he left the starting point as and where it was. The Hon'ble ITAT struck down the order of the assessing officer on the basis of violation of principle of natural justice. In another case of Bombay High Court in CIT V/s Nikunj....
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....le Apex Court. The copy of order of Gujrat High Court in the said case is also enclosed as Annexure-IX. In the said decision, Hon'ble Gujarat High Court has held that, since sales made by the assessee were duly accepted by department and no adverse inference was drawn as far as sales are concerned the SLP filed by the department was dismissed by Apex Court. The appellant also relies upon the decision of Gujarat High Court in the case of CIT V/s Manzil Dineshkumar Shah (Copy enclosed as Annexure-X) The appellant also relies upon the decision of Bombay High Court in the case of CIT V/s Vaman International P. Ltd. (Copy enclosed as Annexure-XI). This case is directly applicable on the facts of the appellant company. Further it is submitted that, since sale of finished goods manufactured from the raw material purchased has been accepted by deptt,, therefore, it is obvious that whatever profit has been earned by the appellant has already been included in the profit of the company for financial year. We may also mention that since books of account i.e. consumption stock, sales were accepted and books of account are not rejected therefore addition m....
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....ished in respect thereof, and thereafter, assessment Order had been passed; and therefore, the non rejection of the explanation in the assessment Order would amount to accepting the view of the assessee by the Assessing Officer and thereafter, initiation of reassessment proceedings would be a mere change of opinion and completely without jurisdiction. In support of the aforesaid submission the appellant relies upon the following decisions of High Courts including that of the Hon'ble Supreme Court wherein the position stands settled namely, that silence in the assessment Order on a particular issue which stands replied by the assessee to the query raised by the Assessing Officer during the original assessment gives no right to the Assessing Officer to reopen the assessment and would amount to re-appreciation of the same material amounting to change of opinion: (a) Marico Ltd. Vs. Asst. CIT (2020) 425 ITR 177 (Bom.); (b)Assistant Commissioner of Income-tax v. Marico Ltd. [2020] 117 taxmann.com 244 (SC); (c) Deputy/Assistant Commissioner of Income-tax vs. Financial Software and Systems (P.) Ltd. [2022] 447 ITR 370 (SC); (d) Financial Software an....
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....to the issuance of sanction. But it is settled law today that an omission of the rules of natural justice in a statute should rather be filled in by an implication that the legislature intended the rules of natural justice to be obeyed rather than that the gap should be filled in by an opposite implication that adverse civil consequence should follow without observance of the rules of natural justice. 21. Indeed if an assessee is heard after four years of completion of assessment prior to grant of sanction by the Commissioner the assessee might well be able to bring before the Commissioner materials which would prevent a reopening of assessment on the materials which have been placed by the Income-tax Officer unilaterally before the Commissioner. Such a hearing would ensure the proper application of mind by the Commissioner and the giving of reasons for his sanction and this would rather aid the cause of justice than obstruct the same. No doubt revenue that is due to the authorities should be collected, but it is equally free from doubt that in the matter of such collection the citizens should be given their ordinary rights which they have under any special or general law ....
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....rial has not been supplied to the appellant along with the reasons recorded and /or the Order of sanction and/or before the framing of the assessment by the Assessing Officer under Section 143(3) read with Section 147/148 of the Act to the appellant, which demonstrates that sanction has been granted mechanically, is a result of non-application of mind and therefore, the notice under Section 148 and resultant reassessment flowing there from is illegal and without jurisdiction. The appellant for the aforesaid submission seeks support from and relies upon the following decisions: (a) Chhugamal Rajpal v. S.P. Chaliha (1971) 79 ITR 603, 607 (SC); (b) Central India Electric Supply Co. Ltd. V/s. ACIT-333 ITR-237 (Delhi) Para 19 (c) CIT Vs. Manmohan Das (1996) 218 ITR 730, 731-32 (MP); (d) Suganchand Chandanmal v. ITO (1976) 105 ITR 743 (Cal); (e) Soorajmal Srigopal v. ITO (1979) 117 ITR 326 (Cal); (f) Asstt. Commissioner of Income Tax Vs. Serajuddin and Co. (2023) 454 ITR 312 (Orissa); (g) CIT v. Maharaja Pratapsingh, (1961) 41 ITR 421 (SC); (h) CIT v. Dumraon Cold Storage & Refrigeration Service (1974) 97 ITR 137 (Pa....
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....ement of Sh. Mukesh Chouhan is a violation of Principles of Natural Justice and therefore, the reassessment deserves to be annulled. The appellant for the aforesaid submissions relies upon the following decisions: (a) CIT v. Smt. Sunita Dhadda (2018) 406 ITR 220 (Raj.). The Supreme Court has dismissed Special Leave Petition filed by the Department against his judgment: {(2018) 403 ITR (St.) 309 - Ed.}; (b) State of Kerala v. K.T. Shaduli Grocery Dealer (1977) 2 SCC (c) Lakshman Exports Ltd. V. Collector of Central Excise (2005) 10 SCC 634; (d) Andaman Timber Industries v. CCE; (2016) 38 GSTR 117, 120 (SC); Re: Exercise of Jurisdiction by Assessing Officer is illegal and without jurisdiction: 1. The Assessing Officer, has issued notice under Section 148 of the Act acting on the information alone received from the Assistant Director of Income Tax (Inv -III), Indore without making any independent enquiry and without confronting the relevant material or providing an opportunity of right of cross examination of the third party i.e. M/s Vinayak Traders (Prop.) Sh. Mukesh Chouhan, the reassessment proceedings have been initiated which ....
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....mann.com 153 (Bombay)/[2020] 422 ITR 337 (Bombay); (d) Commissioner of Income-tax, Jalandhar vs. Smt. Paramjit Kaur [2008] 168 Taxman 39 (Punjab & Haryana)/[2009] 311 ITR 38 (Punjab & Haryana); (e) B.U. Bhandari Autolines (P.) Ltd. vs. Assistant Commissioner of Income-tax [2023] 456 ITR 56 (Bombay); (Special Leave Petition against the aforesaid decision stands dismissed by the Hon'ble Supreme Court as per the judgment reported in (2025) 472 ITR 1 (SC)) 4. That it is well settled that on the basis of the information itself, received from another agency, without an independent inquiry by the Assessing Officer, there cannot be any reassessment proceedings. After considering the information/ material received from other source, the Assessing Officer is required to consider the material on record in case of the assessee by applying his mind and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment. Therefore, the exercise of reopening....
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....here is no evidence and/or material brought on record by the Assessing Officer which demonstrates that in lieu of cheque cash has been paid by the supplier of goods i.e. M/s Vinayak Traders to the appellant i.e. the purchaser of goods. Therefore, the reopening of the assessment even on merits is wholly without jurisdiction apart from being illegal and a result of fishing and roving enquiry not permitted by law. Reliance for the aforesaid submission is placed on the decision rendered by the Hon'ble Supreme Court in the case of CIT Vs. Odeon Builders (P) Ltd. reported in 266 Taxman 461 (SC) = (2019) 418 ITR 315 (SC), wherein in view of similar situation as in the case of the assessee, it has been held: "3. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: "Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independent....
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....val submissions and perused the material available on record. The assessee has filed its return of income on 30.09.2016 for AY 2016-17 declaring total income of Rs. 81,12,900/- which was duly processed u/s 143(1) of the Act on 14.11.2016 accepting the return of income. A search and seizure action u/s 132(1) of the Act was carried out on Shri Anand Jain and Shri Naresh Jain Group of cases on 17.12.2015. Based on the said search, the ld AO reopened the assessment of the assessee u/s 147 of the Act vide issuance of notice u/s 148 of the Act on 13.03.2019. The reasons recorded for reopening the assessment together with the approval granted by the Additional CIT, Central Circle-7, New Delhi in terms of section 151 of the Act are enclosed in pages 28 to 30 of the Paper Book. On perusal of the proforma seeking approval u/s 151 of the Act, we find that the ld Addl CIT had merely stated that he is satisfied that this is fit case for reopening. This sort of approval granted u/s 151 of the Act was held to be approval granted without application of mind and construed as mechanical by the Hon'ble Madhya Pradesh High Court in the case of CIT Vs. S. Goyenka Lime and Chemicals Ltd reported in 56 t....
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....1(1)(c) of the Act will have no legs to stand. 6. In the result, both the appeals of the assessee are allowed. 13. The Ld. DR argued vehemently in support of the decision of Ld. CIT(A). In respect of legal ground raised, the Ld. DR submitted that at the time of reopening, the AO had received an information from the Investigation Wing on the basis of statement on oath of the Proprietor of M/s Vinayak Traders. 14. In this background the Ld. DR filed a letter dt. 27/03/2019 which was the inquiry report of the Investigation Wing. The following para of the same is relevant and reproduced herein under: " A.3 It is pertinent to note that the subject himself has admitted in the statement that he was unaware of any business in this proprietary concern as his friends used his identity fraudulently for running this business. Thus, it is clear that the subject has not sold any goods and just provided accommodation entries to various beneficiaries. " 15. The letter in the end says, one volume C.R is enclosed, which establishes that all the evidence with the Investigation Wing was sent to the AO and this material fact of accommodation entries was not disclosed....
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....hat the assessee had disclosed, during the original assessment proceedings, the name of M/s Vinayak Traders amongst the parties from whom purchases were made cannot, by itself, amount to disclosure of the subsequent information regarding the alleged activities of that concern as an accommodation-entry provider. 20. The law is well settled that reassessment cannot be resorted to merely because the Assessing Officer seeks to take a different view on the very same material which was available at the time of the original assessment. At the same time, where subsequent tangible material comes into the possession of the Assessing Officer and such material has a rational nexus with the formation of the belief that income has escaped assessment, the reopening cannot be characterised as a mere change of opinion. There is a distinction between a mere change of opinion and reassessment founded upon tangible material. 21. In the present case, the information concerning the alleged accommodation-entry activities of M/s Vinayak Traders was subsequent to the original assessment and was not shown to have been available to the Assessing Officer at that stage. We, therefore, hold that the reass....
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....sment and to arrive at its own satisfaction that the case is a fit case for issuance of notice under Section 148. The approval must, therefore, reflect due application of mind to the material placed before the authority. 27. In the present case, the approval granted by the specified authority merely records, in the prescribed pro forma, in two words "fit case". There is no indication in the approval itself that the specified authority independently examined the reasons recorded by the Assessing Officer, considered the material relied upon for reopening the assessment, or applied its mind to whether the statutory conditions for assumption of jurisdiction under Section 148 stood satisfied. The mere fact that the proposal, the reasons recorded by the Assessing Officer and the accompanying material were placed before the specified authority cannot, by itself, establish due application of mind. The statutory safeguard under Section 151 requires the competent authority to consider the proposal and exercise its own judgment; a mechanical reproduction of the prescribed expression "fit case" does not demonstrate such consideration. The existence of material before the authority and the a....
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....s profit rate is also relevant. If the case of the Revenue was that the purchases were wholly fictitious and that no goods were actually purchased, there would ordinarily be no basis for restricting the addition merely to the profit element embedded in such purchases. The manner in which the addition has been quantified indicates that the Assessing Officer himself proceeded on the footing that the assessee had, in substance, made purchases of goods but that the bills obtained from M/s Vinayak Traders did not represent the actual source of such purchases. 34. If that be the basis of the addition, the Revenue was required to establish, by cogent material, the extent of the profit element allegedly suppressed by the assessee. No such independent exercise has been demonstrated on record. The addition cannot rest merely upon an inference drawn from the statement of the proprietor of M/s Vinayak Traders, particularly when the said statement was not subjected to cross-examination and no adequate corroborative material has been brought on record. 35. We are conscious of the fact that proceedings under the Income-tax Act are not governed by the strict rules of evidence applicable to a....