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TMI Blog2012 (11) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. There was a search in the business premises of Bharat Kothari Group. During search his statement was recorded, wherein he confessed that he has issued bills for sale of iron goods without making any delivery of the goods and for this purpose, he received commission at Rs. 40/- per ton. In the list of concerns to whom Bharat Kothari has made the sales also contained name of the assessee. On the basis of this, assessment of the present assessees were reopened by issuing notice u/s 148 by observing that bogus purchases have been shown in the books of account. In the course of assessment framed u/s 143(3)/147, the Assessing Officer rejected the books of account u/s 145 and applied net profit rate of 6% on sales. By observing that the assessee could neither give any evidence nor details of transportation of goods from sellers' business premises to his business premises, he concluded that the assessee has not purchased the goods sold from the parties declared in the books of account. As per the Assessing Officer, the assessee has debited the value of purchases in his trading account at his sweet will and it was for the assessee to prove the existence of the fact as recorded in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- are satisfied, no disallowance can be made. It was further emphasized that as per record and copy of Ledger A/ c filed all payments to suppliers were made by cheque. Further reliance have been placed on the decision of ITAT, Mumbai Bench in the case of G.G. Diamond International vs. CIT (2006) 104 TTJ 809 (Mumbai). 4.3.3 It is further contended that AO has made the presumption that purchases from alternate sources were made and has made further presumption that such payment was made in cash and since this was AO's inference and presumption the onus rested on the AO to establish said fact. Further, without prejudice to contentions advanced in respect of rejection of book result and disallowance of 6% of purchase price, it was also contended that if the books of account were rejected and such purchases were already subjected to disallowance on estimate there was no basis left for invoking provisions of section 40A(3). Thus it was summed up that whichever way the issue was looked at there was no case for disallowance u/s 40A(3) making one after another presumption. In other. connected cases reliance has also been placed in support of such grounds on the decision of Hon'ble M.P. Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt's contention, that as far as the contention, that as far as the claim of purchase on record is concerned, the same has been paid through banking channel only and it is not the AO's case that payment for purchases claimed to be made from bogus bill providers was paid in cash. The AO on the facts of the case has drawn a logical inference that alternate purchases must be made since sales of matching quantity as per such bogus bills have been made and in absence of any details and evidence for such alternate purchases the AO has invoked the provisions of section 40A(3) . 4.3.6 The said action of the AO cannot be said to be justified in law as it will amount to extending the provisions of section 40A(3) in respect of such deemed purchases which are neither recorded in books of account nor any claim of deduction has been made in respect thereof. Such an action of extension of the provision of section 40A(3) is not apparently authorized by law and disallowance can be considered by AO only in respect of expenditure for which deduction has been actually claimed by appellant. In these facts the decision of Hon'ble Gujarat High court in the case of Hynop Food & Oil Industries (supra) is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ministerial staff. The intimation u/s 143(1)(a) is deemed to be a notice of demand u'/ s 156. For the apparent purpose of making machinery provision relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation becomes permissible and nothing more can be inferred from the deeming provision. Thus, there is no assessment u/s 143(1)(a) of the Act. 17. It is crystal clear from the above decision of the Hon'ble Supreme Court which is having binding effect on us under Constitution of India that the processing of return u/s 143(1) does not amount to assessment order. Therefore, neither any opinion is formed nor there is a question of change of opinion. Since intimation u/s 143(1) is not an assessment, there is no question of any new material to empower the AO to reopen the assessment u/s 147, when there is a reason to believe that there is escapement of income. In the instant case before us, the return was processed u/s 143(1) and no assessment was framed by issue of notice u/s 143(2). Under these facts and circumstances, the proposition of law laid down by the Hon'ble Supreme Court in the case of Rajesh Jhaveri is clearly applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the original return of the appellant was processed u] s 143(1)(a) only at ministerial staff level and no finding had been or even can be recorded, by the AO during such processing, about the genuineness of purchase constituting the reasons for issue of notice u/s 148. The AO was therefore, fully justified in invoking provisions of section 147, as has been held by the Apex Court in ACIT v Rajesh Jhaveri Stock Brokers P Ltd. 291 ITR 500 (2007). There is thus absolutely no merit in the appellant's contention challenging the reopening of assessment u/s 147 and issue of notice u/s 148 and the same are found to be validly initiated and in accordance with law. Thus in view of aforesaid clear position of law and discussion made above appellant cannot draw any supportL from any of the various cases decision cited in cases of other appellant's also. Ground No. 1 is thus rejected. 5. Rejection of books of account by the Assessing Officer u/s 147 was also upheld by the ld.CIT(A) by observing as under :- "4.2.1 First, the issue of rejection of book results is taken up for consideration. The AO has brought necessary and relevant details and findings on record wherefrom it is clearly est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y no merit. The appellant has not been able to lead any definite evidences except the photo copy of bills and the entries in respect of purchases in books of accounts that such books were actually received by indicating evidence of transportation of freight payment. Similar position prevails in respect of subsequent sales against such goods purchases as no definite evidences of transportation to the subsequent buyer's premises are available or reliance is placed on subsequent sales bills where such goods are claimed to be sold in piecemeal bastes. Thus, there is no definite and verifiable evidences to support the purchases as well as subsequent sales thereof. Thus in these facts and circumstances, sale price stated in such purchase bills cannot be accepted to be genuine and reliable purchase price. It is again settled position of law that the onus rests on the appellant to establish any claim of expenditure to the satisfaction of Assessing Officer. Hence, on over all consideration of facts and circumstances of the case, considering the nature of commodity purchased being iron steel involving high rotation and thin profit margin, the disallowance of 6 % of the purchase value as made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Ground No.2 is rejected. 7. The ld. CIT(A) allowed set off of 6% of profit against the addition made by the Assessing Officer on account of unexplained investment in purchases, after having the following observations :- " 4.4. The fourth and last ground is directed against addition made by AO for unexplained peak investment in unrecorded purchases at Rs. 13,46,949/-. The AO, in view of the findings arrived as earlier in the matter of the appellant having made alternate purchases, took up the issue of investment in such alternate purchases which were not recorded in the books of account. The AO after incorporating the contentions of the appellant has made addition for peak investment, with findings reading as under: "The assessee has submitted that if it is presumed that initial investment is made in cash for purchase of goods it is submitted that there may be number of presumptions such as payments have been made as and when appropriated by Bharat Kothari group. Thus, in absence of any evidence presumption of initial investment should not be applied. The reply of the assessee is not acceptable. The assessee has not even cared to give complete name and address of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to AO to establish the findings as arrived by him. It 'was also asserted that once there was no question of providing names and addresses of the parties from whom alternate purchases were made when the appellant has never accepted such inference and propositions made by AO. Further without prejudice to the contentions advanced in respect of other grounds it was contended that in absence of any definite evidence in the possession of AO about the date of payment for alternate purchases the appellant's contention about availability of cash received back from bogus bill providers and further profit estimation made would also from source of investment in such unrecorded purchases ' and going by AO's own logic credit for such funds available, being excess inflated price of purchases should be 'considered against peak investment determined. 4.4.2 The contentions advanced by appellant and AO's findings are further examined in view of findings arrived on other grounds of appeal above, whereby disallowance of purchase price to the extent of 6% of purchase price amounting to Rs.14,49,190/- has been confirmed. It is again clearly admitted position on record that no evidences or detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 While holding so, the ld. CIT(A) failed to appreciate that the sales are preceded by purchases and being unaccounted the peak investment is taxable which was worked out by the Assessing Officer on the basis of statement submitted by the assessee. 2.2 While holding so, the ld. CIT(A) also failed to appreciate that the fact of purchases made in cash from third parties was not denied by the assessee and the addition on account of 6% of the purchase price being on its peculiar facts was not eligible for set off against unaccounted investment. 3. That on the facts and in the circumstances of the case, the ld. CIT(A) erred in denying the disallowance u/s 40A(3) without appreciating the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Sai Metal Works, in I.T.No.125 of 2004 of dated 1.3.2011. 9. The grounds taken by the assessees in the cross appeals are also common, in case of all the assessees. Precise ground taken by the assessee in case of Shree Steels reads as under : 1. The ld. CIT(A) has erred in holding that the reopening of the assessment was valid and as such the assessment framed is legal. 1.1 The assessment framed is bad in law since it could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, after recording reasons and obtaining necessary approval a notice u/s 148 was issued on 26.03.2010 to the assessee. 11. The reopening was justified by the ld.CIT(A) and the assessee has taken a ground that reopening was not valid. We found that issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri, wherein Hon'ble Supreme Court has categorically dealt with reopening of assessment with regard to mode under which assessment has been done either by way of intimation u/s 143(1) or by way of scrutiny assessment u/s 143(3). It was observed that the proceedings u/s 143(1) does not amount to assessment order, wherein neither any opinion is formed nor there is question of opinion. Since intimation u/s 143(1) is not an assessment, there is no question of any new material to empower the Assessing Officer to reopen the assessment u/s 147, when there is a reason to believe that there is escapement of income. In the instant case before us, returns of asses were processed u/s 143(1) and no assessments were made u/s 143(3). Under these facts and circumstances, the proposition of law laid down by the Hon'ble Supreme Court in the case of Rajesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in respect of purchases made from Kothari Group. The ld. CIT(A) found that all the purchases made from Kothari Group was paid by cheque and when entire books of accounts were rejected and profit was estimated at 6 % of such purchases made from Kothari Group, there was no reason or making further disallowance u/s 40A(3) in respect of alternative purchases alleged to be made. The ld. CIT(A) has also discussed various judicial pronouncements, including one in respect of case decided by the Hon'ble M. P. High Court in the case of Purshottamlal Tamrakar, 270 ITR 314, wherein it was held that Section 40A(3) was not applicable when the net profit rate was applied by the Assessing Officer. The ld. CIT(A) has also considered the decision of I.T.A.T., Special Bench in the case of Kenaram Saha and Subhash Saha, 301 ITR (AT) 171, wherein it was held that when a net profit rate is applied, there remains no scope for further disallowance of any expenditure. The ld. CIT(A) also held that the Assessing Officer was not justified in law in extending the provisions of Section 40A(3) in respect of deemed purchases, which are neither recorded in the books of accounts and for which any claim or deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has been made with respect to peak unexplained investment worked out as on a particular date in respect of alternative purchases made by the assessee, and not in respect of entire alternate purchases made by assessee. Here the question arises as to whether entire addition of 6 % out of total purchases made from Kothari Group was available to the assessee at the point of time the Assessing Officer has taken the peak unexplained investment. After verifying different purchases made by the assessee, the Assessing Officer has worked out peak unexplained investment as on a particular point of time. It is not the case of the assessee that entire alternative purchases made by assessee has been added by the Assessing Officer. Addition has been made only up to date of working out peak investment. Under these facts and circumstances, we are inclined to agree with the contention of ld. Sr. DR, Shri R. A. Verma that the order of CIT(A) is not correct to the extent of allowing setting off entire 6% of profit which was added in respect of entire purchases made from Kothari Group against peak unexplained investment worked out on a particular date. We, therefore, modify the order of the CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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