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TMI Blog2017 (9) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... (A)' for short) dated 19.09.2016 for the concerned assessment years. 2. The first common issue raised reads as under: 1. In the facts and the circumstances of the case and in law, the learned Commissioner of Income Tax (A) erred in passing the order u/s. 143 r.w.s. 147 and therefore rendering the whole assessment bad in law, that too after a gap of four years and also on the basis of borrowed satisfaction. 3. The second common issue raised is that the ld. CIT(A) erred in confirming the disallowance of 25% of the alleged bogus purchases. 4. Since the facts are identical, these appeals have been adjudicated with reference to facts and figures from A.Y. 2007-08. The return of income for this year was filed by the assessee on 31.07.2007 declaring a total income of ₹ 95,400/-. The same was merely processed u/s. 143(1) of the Act. Subsequently the A.O. received information from the Sales Tax Department and also from the office of the DGIT(Inv), Mumbai that the assessee is a beneficiary of accommodation bill of purchases from certain bogus hawala dealers. The information was that the concerned dealers had not sold any actual goods but had given accommodation entries of sales m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion wing of the department he could not produce any proof regarding Shri Bharat Mody even after ample time given to him. It is therefore clear from his statement given to me on 22.1.2015 that even if he had kept his books of account in soft copy regarding which Mr. Arun Kumar Agarwal specified in the statement dated 22.01.2015 regarding the nature of books kept in soft copy that "they had the audited books (they had the back-up of the Trio Software in which has all our transaction entries)". However, even if his statement is taken to be true then the big question arises that from where he has arranged the bills regarding sale made to the assessee during the year and also delivery challans were produced which certainly cannot be kept in the soft format and hence their genuineness remained non-verifiable. 4.5 On further investigation of the documentary evidences provided by the hawala party M/s. Arun Paper and Iron Traders and the by the assessee, it is found that there are serious discrepancies in the all bills and delivery challans provided both the parties, the discrepancies are is summarized as under:- 1. The entries made on the bills and delivery challans differ in their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, u/s. 143(1)(a) the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief. The Supreme Court further noted that intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2). In the words of the Supreme Court "Thus, the legislative intent is very clear from the use of the word "intimation" as substituted for "assessment" that two different concepts emerged". While making an assessment, the Assessing Officer is free to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e does not prima facie disclose the satisfaction of the two conditions precedent enjoined under section 147(a), but in the counter affidavit filed by the Income tax Officer in the High Court, he stated all the material facts. The respondent had inspected the record and the record also bears out the existence of the material facts. The proceedings drawn up which are abstracted earlier also show that the Income tax Officer had applied his mind to the fact on record and was prima facie satisfied that the reopening of the assessment for the assessment year 1957-58 was needed due to those stated facts. Thus, though ex facie the notice does not disclose the satisfaction of the requirement of section 147(a),from the record and the averments in the counter affidavit, it is clear that the Income tax Officer had applied his mind to the facts and, after prima facie satisfying himself of the existence of those two conditions precedent, reached the conclusion for reopening the assessment. It is settled law that, in an administrative action, though the order does not ex facie disclose the satisfaction by the officer of the necessary facts of the record discloses the same, the notice or the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P&L Ale as an expenses. the assessee has shown less profit to the extent of the amount of Bogus Purchases. (2) In view of the above facts of the case. I have reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the I. T. Act, 1961 to the extent of ₹ 30.65.639/- for the A.Y. 2009-10." The High Court noted that a perusal of the reasons recorded reveals that the Assessing Officer on verification of the details available on record has noticed that there were bogus purchases. However from the reasons there is nothing whatsoever to show as to which is the record which shows that there were bogus purchases to the extent stated therein. No details have been mentioned by the Assessing Officer as to what is the basis on which he says that the purchases are bogus. In this case the AO subsequently informed the assessee at the time of disposing of the objections to the issue of notice u/s. 148 that a report had been received in this case form the DGIT(Inv) informing the AO of the bogus purchases. The High Court cited various judgments to stress the point that the AO gets the necessary jurisdiction only through the reasons rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assertion that there were bogus purchases, the Assessing Officer has not refer-red to any material on the basis of which he proceeded to invoke the provisions of section 147 of the Act. The assertion made by the Assessing Officer is a bare one, without any reference to the material on the basis of which he made such assertion." For the above reasons the High Court in Varshaben Sanatbhai Patel case had quashed the notices u/s.148 of the case. It is apparent that the assessee cannot draw the conclusion as it had from this case law and the conclusion argued appears to be a case of wrong head note given by the publisher. This case law is not applicable to the case at hand since the facts are totally different. Further the Court had not considered the decision of the Supreme Court in the case of Biju Patnaik (supra) wherein it was held that: 'Thus, though ex facie the notice does not disclose the satisfaction of the requirement of section 147(a), from the record and the averments in the counter affidavit, it is clear that the Income tax Officer had applied his mind to the facts and, after prima facie satisfying himself of the existence of those two conditions precedent, reache ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is engaged in the business of manufacturing of textile machinery and spare parts. The assessee has filed his return of income on 30/09/2009 declaring total income at ₹ 83,21,390/-. Thereafter, the assessee has filed revised e-return of income on 26/0212010 declaring total income ofRs.59,09,837/-. The case was selected for scrutiny and assessment was completed u/s. 143(3) dated 24/10/2011 assessing income at ₹ 65,60,070/-. 2. In this case, information has been received by DGIT (Investigation), Ahmedabad vide No.DGIT (Inv.)/AHD/VATlBogus Purchase/2014-15 dated 26.03.2015. It is stated in letter that two surveys were carried out by the Pr. DIT (lnv.), Kolkata on Vikrant Kayan and Arvind Kayan respectively. The Kayans are known entry operators of Kolkata and have been giving entries of bogus share capital, bogus bills of expenses and bogus long terms capital gains to various beneficiaries throughout the country. The above mentioned assessee is also a beneficiary of ₹ 39.94 lacs (accommodating co. Agnes Bruno Ltd.) pertaining to A.Y. 2009-10. 3. Considering the facts stated above, I have reason to believe that the income of the assessee to the tune of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are of the opinion that the information which has been received is on 26.3.2015 from the DGIT, Investigation Branch, Ahmedabad, whereby it has been revealed that present petitioner is also the beneficiaries of those Kayan brothers, who are in the activity of entry operation throughout the country and therefore, it cannot be said that this is not justifiable material to form a reason to belief by the Authority and therefore, this being a case, the Authority is justified in issuing notice under Section 148 of the Act to reopen the assessment and therefore, the challenge contained in the petition being devoid of merits, same deserves to be dismissed." In view of the above judgment in Peass case (supra) and also in view of the facts and the various case laws including the Supreme Court decision in Biju Pattnail case (supra) discussed above the assessee's challenge to the reopening of the assessment is rejected. It is also held that the reasons recorded u/s 148 are only tentative and not final. It is also held that the AO had tangible information from an outside source and the issuance of notice u/s 148 on that basis cannot be faulted. 8. On merits of the case, the ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the hilt. In this regard, I refer to the decision of the Hon'ble Apex Court in the case of CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. td, 291 ITR 500:- "Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the AO has cause or justification to know or suppose (hat income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith others has been dismissed by the honourable apex court vide order dt. 16.1.2017. 14. However, I find that this is not an appeal by the Revenue. In such circumstances it will not be appropriate to take away the relief already granted by the learned CIT(A). Further, I find that in this case the sales have not been doubted it is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. This proposition is supported from honourable jurisdictional High Court decision in the case of Nikunj Eximp Enterprises. However the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. In such situation in my considered opinion on the facts and circumstances of the case a 12.5% disallowance out of the bogus purchases would meet the end of justice, following the Hon'ble Gujarat High Court's decision in the case of Simit P. Seth This has been followed at ITAT, Mumbai bench in a number of cases. Accordingly, I direct that the disallowance in this case should be restricte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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