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TMI Blog2015 (10) TMI 2753X X X X Extracts X X X X X X X X Extracts X X X X ..... t the taxable income has escaped assessment. In the Present case on going through the reasons it is quite evident that AO 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 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. From 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 clear case of non-application of mind by the Assessing Officer. The reopening of the assessment is without application of mind and examination of the facts and accordingly the reopening is held to be invalid and accordingly the same is quashed. Bogus purchases - addition to 20% of the purchases as profit earned by the assessee on these purchases by CIT-A - HELD THAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by issue of notice under section 148 after recording the reasons on 28.3.2013. The Assessing Officer thereafter completed the reassessment whereby an addition of ₹ 13,85,309/- was made by holding that the purchases made by the assessee are bogus. 3. Aggrieved by the order of the Assessing Officer, the assessee came in appeal before the learned CIT(A). It was contended by the assessee that the reopening of assessment is bad in law. It was further contended that the addition made by the Assessing Officer is unsustainable as the assessee has maintained complete books of accounts and in the absence of any defects pointed out therein, no addition could be made. The learned CIT(A) vide impugned order dated 22.12.2014 upheld the action of the Assessing Officer of reopening theassessment. On the issue of addition of entire purchases of ₹ 13,85,309/-, the learned CIT(A) held that the sale made by the assessee have been accepted as genuine by the Assessing Officer and accordingly entire purchases cannot be disallowed keeping more particularly the fact that the payments for the purchases have been made from disclosed sources. The learned CIT(A) was of the view that the total sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition to the extent of 20% of such purchases, without there being any basis for the same. 7. (i) On the facts and circumstances of the case, the [earned CIT(A) has erred both on facts & in law in confirming that the firms ws Vishnu Trading Company, M/S Shree Shyam Trading Company & M/S Shree BankeyBihari Trading Co. are not engaged in the actual business poring the fact. that during the 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 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 conlen.tion 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 circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to have recorded the reasons. It is a case of non-application of mind and the Assessing Officer reopened the assessment merely on the basis of the direction received from the highe authorities. 6.2 It was further contended that the Joint Commissioner has also nol applied its mind as is evident from the approval given. He has also not looked into the facts of the case so as to have a reason to believe that income has escaped assessment. It was further stated that the above facts can be corroborated from the assessment order itself whereby the Assessing Officer himself has stated that he was not having copy of the statement and other information at the time of recording reasons which was important for him to apply his mind while forming belief of income escaping assessment. In this regard attention was invited to para 3 on page 5 of the assessment order where the Assessing Officer has stated that post reopening of the assessment it had conversations with the ACIT, Central Circle-10, New Delhi and has written various letters starting from 23.07.2013 to 24.12.2013 asking basic information which included copy of statements recorded about the allegation levied against the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his power to reopen the asSessment. The learned DR further submitted that the learned CIT(A) was justified in rejecting this ground of the assessee. In support thereof the learned DR placed reliance on the judgment of the Hon'ble Supreme Court in the case of Rajesh Jhaveri stock Brokers (P) Ltd.291 ITR 500. 7. I have perused the assessment order, order passed by the learned CIT(A) as well as the paper book. It will be relevant to refer to the reasons Recorded by the Assessing Officer and the approval of the Joint Commissioner of Income Tax which reads as under:- "Reasons for the belief that the income has escaped assessment in the case of M/s. unique Metal Ind. For the assessment year 2006-07. A letter bearing F.No. Addl. CIT/(Hq)/(Coord.)/Accommodation entry/2012-13/15016 dated 26.03.2013 was received from the Office of the Chief Commissioner of I. Tax, Delhi-I, New Delhi herein forwarding letter bearing F, No. CIT@-II/2012-13/3898 dated 19.3.2013 received from the Commissioner of I. Tax, Central-Il, New Delhi along with a CD containing the details of accommodation entries provided by Sh. Rakesh Gupta & Sh. Vishesh Gupta and Sh. Navneet Jain & Sh. Vaibhav Jain and dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry is provided Amount of Accommodation entry 1 Shree Shyam Trading Co. M/S Unique Metal Industries ₹ 2,44,399/- 2 Vishnu Trading Co. M/S Unique Metal Industries ₹ 8,12,542/- 3 Shree BankeyBihari M/S Unique Metal Industries ₹ 3,28,368/- Total amount of entries= ₹ 13,85,309/- Since Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh Navneet Jain & Sh. Vaibhav Jain during the course of assessment proceedings u/s 153A of I. Tax Act have admitted that they have given accommodation entries to the parties whose lists have been provided by them to the ACIT, Central Circle-10, New Delhi, therefore, it is fair to conclude that ws Unique Metal Industries whose name is appearing in the said list, has taken accommodation entries from Sh Rakeh Gupta & She Vishesh Gupta dn Sh .Navneet Jain & Sh. Vaibhav Jain pertaining to A.Y. 2006-07. In view of the above, I have reasons to believe that income chargeable To fix of M/S Unique Metal Industries amounting to ₹ 13, 85,309/-for The F.Y. 2005-06 relevant to A. Y. 2006-07 has escaped assessment And it is a fit case for initiation of proceedings u/s 147 of the Act. Proposal in the prescribed form for the A. Y. 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details documents were sought:- (i) Copies of the statements recorded of Sh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain in search/post search/assessment proceedings. (ii) Soft copies of the tatements recorded ofSh. Rakeh Gupta & Sh. Vishesh Gupta dn Sh. Navneet Jain & Sh. Vaibhav Jain in search/post search/assessment proceedings. (iii) Hard copy ofassessment orders passed in these cases for A. Y. 2006-07 (iv) Soft copy of assessment orders passed in these cases for A. Y. 2006-07 (v) Any other detail/document you may deem fit that need to be confronted with the parties whose cases have been reopened u/s 148 ofl. Tax Act. 4. In response to these letters, the ACIC Central Circle-IQ New Delhi vide his letter dated 20.12.2013, received by this dice on 27.12.2013, forwarded his reply along with supporting documents, which were running into 92 pages. After going through the reply forwarded by the ACIT, Central Circle-IQ New Delhi and the annexure enclosed therein, this office was of the view that the purchase bills provided by the 11 firms/concers controlled and managed by Sh. Rakesh Gupta and Sh. VisheshGupt or their family members is nothing but b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this is 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 himself has stated that in this case the retum of income for the year under consideration was filed with thig ward on 27.09.2006. These facts clearly demonstrate that the return was with the same ward and at the time of recording of the reasons for reopening the assessment, the Assessing Officer has not looked at the return and in a mechanical way, on receipt of the letter from the CIT, Central-2, New Delhi the assessment has been reopened. It is a settled position of law that there must be material for formation of a belief that income has escaped assessment. Further reasons referred to must disclose process of reasoning by which the Assessing Officer holds reason to believe. There must be nexus between such material and belief. Further and most importantly the reasons referred to must show application of mind by the Assessing Officer. It is also a settled law that the validity of the initiation of the reassessment proceeding is to be judged with reference to the material available with the Assessing Officer at the point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted Resultantly, the initiation of proceedings under s. 147 and issuance of notice under s. 148 are hereby quashed. " 11. Similarly in Signature Hotels (P) Ltd. vs. ITO (2011) 338 ITR 51 (Del) the Hon 'ble Court has also quashed the reopening of the assessment on the ground that the AO did not independently apply his mind to the information received from the Director of Income Tax (Inv.). The relevant observation of the Court reads as under:- "The first sentence of the reasons states that information had been received from Director of IT (Inv.) that the petitioner had introduced money amounting to ₹ 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure relates to a cheque received by the petitioner on 9th Oct., 2002 from SS Ltd. from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the basis of reasons recorded as above. From the above, it is clear that the AO referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under s. 148. These cannot be the reasons for proceeding under s. 147/148. The first part is only an information and the second and the third parts of the beginning para of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the AO had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, the Tribunal has arrived at the correct conclusion on facts. There is no substantial question of law which arises for consideration. " 13. In view of the above discussed facts of the present case, the reopening of the assessment is without application of mind and examination of the facts and accordingly the reopening is held to be invalid and according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that these persons, in order to save their own skin, have made such statement and got scot free by getting taxed on a small percentage on accommodation charges. The Assessing Officer as well as learned CIT(A) has ignored the most important aspect that these persons were engaged in the scrap trade. It is not a case where these persons are alien to the trade. The whole basis of making the allegation is the survey carried out by the department on these persons on 26fr April, 2010. At the time of the survey, inventory of the stock was prepared and at that time these persons were found holding substantial amount of stock in the form of copper and brass scrap as is evident from the inventory prepared at that time. In this regard attention was invited to PB Pg. 232 which is the inventory of the stock prepared at the time of survey on 26th April, 2010 in the case of Sh. Rakesh Gupta, Proprietor, ws Vishnu Trading Co., one of the firms from whom assessee has made purchases. Attention was also invited to assessment order passed in the case of M/S Vishesh Gupta, another person on the basis of which allegation has been Made of bogus purchases for the assessment year 2011-12 (i.e. date of surve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nference cannot be drawn against the assessee because of non-appearance of these persons consequent to the summons issued by the Assessing Officer. On the contrary, the non-appearance by these persons for cross examination supports assessee's stand that the purchases were genuine and that is why in order to avoid their lie getting exposed these people have opted not to appear for cross examination. My attention was also invited to the observation of the learned CIT(A) whereby she having accepted the fact that the Assessing Officer could have enforced attendance but still has drawn adverse inference against the assessee. It was submitted by the learned AR that the learned CIT(A) has placed reliance entirely on the statement of these persons which in the present case cannot be relied upon in the absence of the facts brought on record that these persons were in scrap trade and further the fact that these persons have not appeared for cross examination. It was further submitted that credence cannot be given to statement of a person who by his own admission is engaged in dubious activities. It was further submitted that the observation made by the learned CIT(A) that name of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the Assessing Offcer regarding understatement of sales or overstatement of the purchase consideration. In the absence of any adverse finding regarding the value of the sales, the learned CIT(A) was not correct in enhancing the profit by 20%. On the issue of invoking provision of section 40A(3) it was argued that the leamed CIT(A) is not correct in applying this provision as all payments have been made by account payee cheque. It is not the case of the Assessing Officer also that the payments have been made in cash. Further there is no material or evidence brought on record that assessee has made purchases from any person outside the books of accounts. In the absence of any material or evidence, provision of section 40A(3) cannot be invoked. In the alternative and without prejudice it was submitted that in case it is being alleged that the purchases are not genuine then obviously corollary should have been that the sale are not genuine as is being held in the case of Sh. Rakesh Gupta and Sh. Vishesh Gupta and Sh. Naveenet Jain & Sh. Vaibhav Jain instead of assuming that the assessee would have made purchases from outside sources in cash. 22. In reply the learned DR vehemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of the survey it is not the case of the department that they were not found not carrying on the same businesS. On the contrary there is evidence on record that these persons were not only in the business of scrap but also stock of scrap was also found with them. 25. The departrnent has also made assessment of these persons in respect of the business of scrap carried on by them. The Revenue is doubting the purchases of the assessee on the basis that these persons have made a statement that they have issued accommodation bills and have not made actual sales to the assessee. Can such statements be taken at its face value? If these people were engaged in the scrap trade as contended by the learned AR then there is every possibility that these persons would have collected the scrap for which they were not having any invoices or source of supply and have sold the same to the assessee and to various other parties. On being caught at wrong foot these persons have taken the defence that the sales made by them are not genuine and' they have issued accommodation bills. In the present case the assessee has made purchases and there are corresponding sales. These sales are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse inference on the basis of the transportation. As rightly pointed by the learned AR that these were local movements. The purchases and sales were within the walled city of Delhi where the transportation is by manual driven cans and the charges for the same are debited under the head cartage. Further when sales are accepted as genuine, then definitely the transactions have occurred and movements of goods have taken place. It is also not the case of the learned CIT(A) that transactions has not happened. Thus transportation on such facts cannot be a basis to draw adverse inference against the assessee. I further note that the learned CIT(A) has upheld the allegation of the Assessing officer of the bogus purchases by making an observation that the appellant's dealing with these parties is not free from any doubt. It is a settled law that doubt cannot be a basis for sustaining the allegation. On the contrary the assessee had lead sufficient evidences in support of its purchases which the Assessing Officer in my view has not been able to rebut. Accordingly I am of the view that in the facts and circumstances of the case it cannot be said that the purchases made by the assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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