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TMI Blog2022 (7) TMI 1296X X X X Extracts X X X X X X X X Extracts X X X X ..... & in law, the Ld. Assessment order passed u/s 143(3) r.w.s. 147 of the Income Tax Act is invalid and bad in law. 3. We have heard rival submission of the parties on the issue of admissibility of additional ground. We find that ground raised is purely legal in nature and no investigation of fresh facts is required and therefore in view of the decision of the Hon'ble Supreme Court in the case of National thermal Power Co Ltd vs CIT reported in 229 ITR 383 (SC), the additional grounds raised by the assessee are admitted for adjudication. 4. Briefly stated facts of the case are that the assessee filed return of income on 30/08/2010 declaring total income of Rs.49,705/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (in short 'the Act'). Subsequently on receipt of information from the Sales Tax Department, Maharashtra [through the DirectorGeneral of Income Tax (Investigation) Mumbai] to the effect that assessee has taken accommodation bills for purchase from some parties, who were engaged in issuing only bogus bills without any physical delivery of goods, the Assessing Officer recorded reasons to believe that income escaped assessment and reopened the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing stock of the material. Hence, it is not Fully ascertainable that which items were used in manufacturing activity or resold during the year, vi) In para 28(a) and 28(b) of Form 3CD of Audit Report, no details have been given reg. quantitative details of principal items of goods either traded or used in manufacturing activity. 5. The Ld. Assessing Officer was of the view that assessee failed to prove that material purchased from bogus parties was actually used in the manufacturing activity. The Assessing Officer has given detailed finding in para 12 of the assessment order as why the purchases of the assessee are not genuine. On further appeal, the Ld. CIT(A) noted that in absence of daily stock and production register, it could not be said that the purchase material was used in the manufacturing activity. There was no supporting evidence from the transporters. The assessee also failed to substantiate receipt of goods from bogus parties as well as possibility of purchase of goods from unknown sellers in the grey market. In view of the failure on the part of the assessee in linking the impugned purchase with the manufacturing products, the Ld. CIT(A) upheld disallowance of enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliable sources, which was gathered by way of searches and surveys action by the relevant investigating authorities of the Sales Tax Department of Maharashtra and Income Tax Department Mumbai. He submitted that in view of the decision of the Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Broker P. Ltd. [2007] (7 SCR 765) for reopening of the assessment, it is sufficient if a reasonable person can form requisite belief on the basis of the relevant material. He accordingly submitted that assessment has been reopened validly. He also submitted that during the course of the reassessment, the assessee did not file any objections against the reopening. 10. We have heard rival submission of the parties on the issue-indispute and perused the relevant material on record. We find that the assessee has neither objected the reassessment before the Assessing Officer nor challenged before the Ld. CIT(A). It is for the first time before the Tribunal the assessee has challenged the validity of the reassessment. Before us, the Ld. counsel of assessee has relied on the decision of the Hon'ble Bombay High Court in the case of Hindustan Lever Ltd (supra). The relevant finding of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. This requirement of failure on the part of the assessee to disclose fully and truly all materials is as per first proviso to section 147 of the Act, which apply wherever assessment is reopened beyond the period of four years from the end of the relevant assessment year. But in the instant case assessment year involved is 2010-11 and the assessment has been reopened on 19/03/2015, which is within four years from the end of the relevant assessment year. Thus, the reliance placed by the Ld. counsel of the assessee on the decision of the Hon'ble Bombay High Court in the case of Hindustan Lever Ltd (supra) is of no assistance being distinguishable on facts. Further, the Ld. counsel has placed reliance on the decision of the Hon'ble Bombay High Court in the case of Shodiman investment Private Limited (supra), where the Hon'ble High Court has held as under: "12 The reopening of an Assessment is an exercise of extraordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is fit case for the issue of such notice. In view of the above, sanction of issue of notice u/s. 148 of the I.T. Act, 1961 for A.Y. 2003-04 may be accorded if deemed fit." (emphasis supplied externally) 10.3 From the above reasons recorded in the case of Shodiman investment Private Limited (supra), it is evident that suspicious transactions in the case of Mahasagar Securities Private Limited was the foundation for making requisite belief and therefore Hon'ble High Court held that there was no rational connection between the reasons recorded and formation of the belief. The Hon'ble high court also held that there was no live link between the material coming to the notice and formation of the belief regarding escapement of income. 10.4 But in the instant case before us there is a tangible information received from the Director-general of Income-tax (Investigation), Mumbai that assessee had taken accommodation entries from two parties namely M/s SM Trading company (Rs.3,14,600/-) and M/s RidhiSidhi Corporation (Rs.5,60,835/-) totalling to Rs.8,74,835/-. The parties from whom the assessee obtained bogus bills have been duly mentioned along with their respective amount of bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]." (emphasis supplied externally by us) 10.5 In view of above discussion, we reject the argument of the Ld. counsel of the assessee challenging the validity of the reassessment and accordingly the additional grounds raised by the assessee are dismissed. 11. As far as the regular ground challenging addition on merit is concerned, the Ld. Assessing Officer held that the purchases from the two parties amounting to Rs.8,74,835/- as non-genuine, observing as under: "12. Moreover, contention of the assessee that the purchases are genuine is not acceptable for the following reasons: i. The assessee submitted invoices from the alleged bogus parties but failed to produce delivery challans and it was claimed by the assessee that in their line of business there is no system of issuing delivery challan. On perusing the same, it was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is engaged in the business of manufacturing and reselling of plastic granules/powder. It is trite that if purchases are genuinely made by the assessee, the same can either be consumed in the manufacturing business or diverted by sale elsewhere. The assessee can succeed in his claim only if he can prove that the material purchased was utilized by it to make some products. For this, the assessee should have maintained relevant daily stock and production registers. It is matter of record that the assessee has not maintained any such record. The assessee has not explained how the impugned material was utilized. On the contrary the AO had information that the alleged suppliers were hawala dealers who only supplied accommodation bills. The suppliers were not traceable at the given address and the assessee was unable to produce the parties. There is no supporting evidence from any transporters or any manufacturing record. In the appellate proceedings also, the assessee was allowed full opportunity to justify and prove his purchases. In the letter filed on 03.06.2019 the assessee claimed to show that the disposal of purchases can be linked through sale bills. However this is not found to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITAT has not accepted such an argument in the case of Shri Ganpatraj A Sanghavi vs. Assistant Commissioner of IncomeTax-15(3) dated 5.11.2014]. However, if the bogus purchases are unproved and/or are declared consumed by assessee itself in its trading, manufacturing or non-trading activities without any evidence, the entire addition can be made as it only goes to inflate the expenses of the assessee. (refer the case of M/s. Shoreline Hotel Pvt. Ltd detailed below). 6.2.1 In the case of M/s. Shoreline Hotel Pvt. Ltd vs. CIT Central-1 in ITA No.964/M/2015 dated 19.06.2015 the ITAT E' Bench Mumbai has dealt with a similar case. In this case, the assessee was in hotel business and running a hotel in the name of Hotel Marine Plaza. During the course of scrutiny assessment, the AO found that assessee has made purchases from black-listed parties and obtained accommodation bills. Such parties were entry providers as identified by the Sales Tax Department of Maharashtra. The AO had initially rejected the books of account under section 145(3) of the IT Act and after taking average GP rate of 15%, made an addition of Rs.54,03,687/- computed on such bogus purchases/expenses. This orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand submitted that decision relied upon by the Ld. counsel of the assessee are distinguishable on facts. 16. We have heard rival submission of the parties on the issue-indispute and perused the relevant material on record. We find that Assessing Officer issued notice under 133(6) of the Act for verification of the purchase parties however those notices were returned un-served with the remark by the postal authorities as parties 'left' or 'not known'. The Assessing Officer made effort to serve notice on those purchase parties through inspector of his office, however those parties could not be located at the given address. The Assessing Officer asked the assessee to provide the current address of those parties, however the assessee failed to provide the address from where an independent verification of existence of those parties could have been done. The Assessing Officer also asked the assessee to produce those parties, however the assessee also failed in compliance. The Assessing Officer, then ask the assessee to substantiate the purchases from those parties by way of evidence in support of the delivery or payment for transport of the goods, but the assessee failed on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble High Court in the case of Nikunj Eximp enterprises (supra), cannot be imported. 16.3 In the case of Vaman international Private Limited (supra), the Hon'ble High Court held as under: "4.4.3 In the factual matrix of the case, where the AO failed to cause any enquiry to be made to establish his suspicions that the said purchases are bogus, the assessee has brought on record documentary evidences to establish the genuineness of the purchase transactions, the action of the AO in ignoring these evidences cannot be accepted. Further, the Hon'ble Bombay High Court in the case of Ashish International (supra) has held that the genuineness of the statements relied upon by Revenue is not established when the assessee disputes the correctness of those statements and has not been aforded adequate opportunity to cross examine these parties even though he has asked for the same. Moreover, as correctly observed by the learned CIT(A), when the payment for the said purchases to the concerned two parties is through proper banking channels and there is no evidence brought on record by the AO to establish that the said payments were routed back to the assessee, the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case where the disallowance has been made solely on the third-party information. 16.6 The Ld. counsel in support of the contention that entire bogus purchase should not be disallowed, has relied on the decision of the Hon'ble Bombay High Court in the case of Mohommad Haji Adam and company (supra), wherein the Hon'ble High Court has observed as under: "8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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