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TMI Blog2017 (9) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer till fag end of the reassessment proceedings, a fact admitted by the Assessing Officer himself in the assessment order. Initiation of reassessment proceedings as well as issuance of notice u/s 147/148 of the Act was not valid and the same was void ab initio and thus, liable to be quashed along with assessment order passed in pursuance thereto. Also addition of 20% of the purchases sustained by the ld. CIT(A) need to be deleted. - Decided in favour of assessee. - ITA No. 1367/Del./2015 And ITA No. 1373/Del./2015 - - - Dated:- 30-8-2017 - Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member For The Appellants : Shri Ved Jain, Advocate For The Respondent : Shri Arun Kumar Yadav, Sr. DR ORDER Per L.P. Sahu, A.M.: These two appeals filed by different assesses, are directed against the separate orders of the CIT(A)-XX, New Delhi for the assessment year 2006-07. Since the facts and circumstances of these cases are similar, common questions of law and facts are involved therein and both these appeals were 2 heard together, therefore, for the sake of brevity and convenience, both the appeals are being disposed of by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of the search substantial inventory in respect of the material being purchased by the assessee were found which confirm the fact that this firm was doing actual business. ( ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts in law in rejecting that the inference drawn by the AO merely on the basis of a statement that these firms are not in actual business is baseless and contrary to the facts on record. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts in law in rejecting the contention of the assessee in ignoring the fact that there being a complete tally of the quantity purchased and sold the allegation that the assessee has not made purchases cannot be sustained. 9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts in law in confirming the addition to the extent of 20% of such purchases rejecting the material and evidences brought on record by the assessee to show that the purchases were made in regular course of the business and material so purchased was sold in the regular course of business. 10. On the facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent orders of the ITAT Delhi vide order dated 30.11.2015 passed in ITA No. 1429/Del/2015 for A.Y 2006-07, in the case of Radhey Shyam Co. Vs. ITO, ITAT F Bench order dated 2.12.2015 passed in ITA No. 1376/Del/2015 for A.Y 2006-07 in the case of Kishan Lal Gambhir Sons; M/s. Punjab Metal Sore vs. ITO ITA no. 1512/Del/2015 dated 02/12/2015; M/s. Karshini Metals vs. ITO, ITA no. 1366/Del/2015 dated 23/03/2016 and the legal grounds as well as grounds on merits are squarely covered in favour of the assessee by these orders of the Tribunal. 7. Replying to the above, the ld. DR supported the action of the AO for reopening of assessment, initiation of proceedings and issuance of notice u/s 147/148 of the Act. The ld. DR further submitted that the ld. CIT(A) was quite correct and justified in upholding the conclusion of the AO on legal issues as well as on merits. However, on a specific query from the bench, the ld. DR 6 fairly submitted that the facts and circumstances of the case as well as reasons recorded by the AO in the case of Unique Metal Industries Vs. ITO (supra) and other cases mentioned hereinabove, are similar to the facts of the present case. 8. On a careful c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enclosed as annexure-C, duly signed by Sh. Vaibhav Jain. Thus, the firms mention in the list B have provided accommodation entries to the firms mentioned in list C . 5. The soft copy of the information in respect to annexure A, B C is also enclosed. 6. The information of accommodation entry includes A.Y. 2006- 07 also, which is a time baring year for taking action u/s 148. 7. This information is forwarded to you for early dissemination to various field offices in Delhi. On examining the list of accommodation entries provided by Shri Rakesh Gupta Shri Vishesh Gupta and Shri Navneet Jain Shri Vaibhav Jain pertaining to A.Y. 2006- 07. It is noticed that the following accommodation entries have been taken by the assessee namely M/s Krishan Lal Gambhir Sons: 8 S. No. Accommodation entry provided by Name of party to whom Accommodation entry is provided Amount of Accommodation n entry 1. VishuTrading Co. M/s Bright Metal Agencies 17,63,016 2. Om Agencies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on the basis of this information. The basis given by the Assessing Officer in the reasons is that these persons have admitted that they have given accommodation entries to the parties whose lists have been provided by them. From the above facts it is apparent that the Assessing Officer at that point of time when he recorded the reasons was not having the copy of the statement or any other material in which these people have alleged to have provided accommodation entries to the assessee. This position gets also corroborated from the facts stated by the Assessing Officer himself in the reassessment order in para 3 page 5 which read as under:- Here it is pertinent to mention that in the intervening period, this office had conversations with the ACIT, Central Circle-10, New Delhi from whom vide this office s letter dated 23.07.2013, 02.09.2013, 14.10.2013, 06.11.2013, 22.11.2013, 09.12.2013 24.12.2013 and vide Joint CIT, Range-39, New Delhi s letter dated 16.12.2013, the following details/documents were sought:- ( i) Copies of the statements recorded of Sh. Rakeh Gupta Sh. Vishesh Gupta,Sh. Navneet Jain Sh. Vaibhav Jain in search/post search/assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent but at the same time, it also means that the Assessing Officer is required to examine the facts on the basis of the information and satisfy himself that the taxable income has escaped assessment. In the present case, on going through the reasons it is quite evident that the Assessing Officer was also not aware of the nature of the accommodation entries. In the reasons recorded he has simply mentioned the name of the party and the amount and nowhere has stated the nature of 11 such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. This fact gets further supported from the sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item no. 7, whether the assessment is proposed to be made for the first time, the Assessing Officer has stated Yes , and in Column no. 7(a), whether any voluntary return had already been filed and in Column no. 8 (b), date of filing the said return NA has been stated. Thus this is a clear case of non-application of mind by the Assessing Officer. It may also be relevant that on page 2 of the assessment order, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that SS Ltd. is a non-existing and a fictitious entity/person. For the reasons stated above, writ of certiorari is issued quashing the proceedings under s. 148 12. In the case of CIT vs. SFIL Stockbroking Co. (2010) 325 ITR 285 (Del) also the Hon ble High Court has quashed the reopening proceedings on the ground that from the reasons it is not discernible as to whether the AO has applied his mind to the information and independently arrived at a belief that income has escaped assessment. The Hon ble Court has held as under:- The first sentence of the so-called reasons recorded by the AO is mere information received from the Dy. Director of IT (Inv.). The second sentence is a direction given by the very same Dy. Director to issue a notice under s. 148 and the third sentence again comprises of a direction given by the Addl. CIT to initiate proceedings under s. 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons : Thus, I have sufficient information in my possession to issue notice under s. 148 in the case of M/s SFIL Stock Broking Ltd. on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving in para 27 as under: 27. As regards the addition of 20% sustained by the ld. CIT(A) I am of the view that since purchases are not bogus the addition on this account cannot be sustained. Even otherwise the addition of 20% on the facts and circumstances is apparently too high. The ld. CIT(A) having held that tax has to be levied on real income and the profit cannot be ascertained without deducting the cost of purchases from the sales as otherwise it amount to levy of tax on gross receipt, she ought to have applied profit rate in this nature of trade. Estimating profit @ 20% by taking into consideration the or visions of section 40A(3) will not lead to determination of correct real income. Section 40A(3) is meant for a different purpose when the assessee has made purchases in cash. This provision cannot be applied in such cases. Once the purchases are held to be bogus then the trading results declared by the assessee cannot be accepted and right course in such case is to reject books of accounts and profit has to be estimated by applying a comparative profit rate in the same trade. Though there can be a little guess work in estimating profit rate but such profit rate c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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