9911796707
TMI Blog2023 (12) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... to conclusively prove that income has escaped assessment is not required but a prima-facie view is required based on material on record having live nexus with formation of reasons to believe that income has escaped assessment. Thus, it is not a case of borrowed satisfaction , but there was application of mind by the AO also as he made enquiries after receipt of material from DDIT, Inv., Mumbai , and then arrived at the decision that income of the assessee has escaped assessment based on incriminating material available with the AO and it is a fit case which warrant invocation of Section 147. Denial of natural justice - There is a breach of principles of natural justice as copies of statements as well other relied upon incriminating material ought to have been provided by AO to the assessee, before condemning assessee and saddling with tax liabilities. Further, before prejudicing assessee and saddling with tax liability , the said Mr. Vipul Vidur Bhatt ought to have been offered by Revenue for cross examination by the assessee. If the AO did not do so, it was incumbent on ld. CIT(A) to have provided the copies of relied upon documents including statement of Mr. Vipul Vidur Bhat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chases as held by us to be added to the income of the assessee is fair, reasonable and honest. The reference is drawn to the decision of Hon ble Supreme Court in the case of Kachwala Gems v. JCIT, Jaipur [ 2006 (12) TMI 83 - SUPREME COURT ] Decided partly in favour of assessee. - Shri Ramit Kochar, Accountant Member And Ms. Madhumita Roy, Judicial Member For the Assessee : CA Sh. Sanjay R. Shah, AR For the Revenue : Sh. Ashok Kumar Suthar, Sr. DR ORDER PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, arising out of the appellate order passed by the learned Commissioner of Income-Tax(Appeals)-1 (hereinafter called the CIT(A) ), Ahmadabad , dated 28.09.2018 in Appeal No. CIT(A)-1/DCIT Circle- 1(1)(1)/10353/2017-18 for assessment year 2013-14 , which in turn has arisen from assessment order dated 26.12.2017 passed by learned Assessing Officer( hereinafter called the AO ) u/s 143(3) read with Section 147 of the Income-tax Act, 1961(hereinafter called the Act ). 2. The assessee has raised following grounds of appeal in Memo of Appeal filed with Income Tax Appellate Tribunal, Ahmadabad Bench, Ahmadabad, which reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were used by him for providing various bogus accommodation entries to various beneficiaries for commission. It was further gathered that the assessee company has received bogus accommodation entries from Sampada Chemicals Limited (Bogus Entity related to Shri Vipul Vidur Bhatt) of Rs. 82,38,462/- [Rs. 41,70,774 (Debit) and Rs. 40,67,688 (Credit). The reasons for reopening of the concluded assessment were recorded that income of Rs. 82,38,462/- had escaped assessment within the meaning of Section 147 of the 1961 Act. The AO issued notice under section 148 dated 24.03.2017 , after recording reasons for re-opening of the concluded assessment and after taking prior approval from the competent authority. The reopening of the concluded assessment was done within four years from the end of the assessment year. The reasons recorded by the AO are reproduced hereunder:- The assessee had filed return of Income for A.Y. 2013-14 on 28.09.2013 declaring total loss at Rs. 1,73,67,374/-. The same was processed u/s 143(1) of the I.T. Act on 25.03.2015. The case was selected for scrutiny and order u/s 143(3) was passed assessing total at Rs. 1,57,75,211/-. In this case information has been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from various parties including one Sampada Chemicals Ltd having address at 5/5/9,Navjivan Commercial Society No. 3, Lamington Road, Mumbai-400008. The assessee submitted the e-mail address of the said party as well the VAT and CST number of the party. The assessee denied any knowledge about the Directors of Sampada Chemicals Ltd. and their activities. The assessee submitted that it had purchased colour chemicals from said Sampada Chemicals Ltd. which is normally consumed in its factory. It was submitted that the assessee have no knowledge about the activities of any Directors of Sampada Chemicals Ltd. It was also submitted that the assessee is not aware of the 347 bogus activities controlled by said Mr. Vipul Vidur Bhatt. It was submitted that the assessee has genuinely purchased chemicals from Sampada Chemicals Ltd. and paid the purchased amount by banking channel. The assessee submitted that the assessee has complete record to prove the genuineness of its business dealings with Sampada Chemicals Limited. The assessee submitted before the AO ledger account of the Sampada Chemicals Limited in its books of accounts. It was submitted that there were credit entries of Rs. 37,66,650/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cals Limited ,and payment was made through banking channel against their invoice. The assessee submitted that they are not aware of any other activities of Directors of Sampada Chemicals Ltd., and assessee is not involved in any illegal activities with the said Shri Vipul Vidhur Bhatt or with any body else. The assessee submitted that it has nothing to do with the statement given by Mr. Vipul Vidhur Bhatt before investigation wing in Mumbai. It was also submitted that the assessee has no connection with 347 entities, the said Sh. Vipul Vidur Bhatt is running. The assessee also submitted that the said Director of Sampada Chemical Ltd. be called to appear before the AO and prove that business transaction entered by the assessee with Sampada Chemicals Limited are ingenuine. Thus, it was submitted that the reliance cannot be placed on statement ignoring all the facts placed before the authorities. 3.6 The AO rejected the contention of the assessee. The AO observed that search and seizure action u/s 132 was carried out in the case of Sh. Vipul Vidur Bhatt and his other related entities. Statement of Sh. Vipul Vidur Bhatt under section 132(4) was recorded on oath wherein he accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which as per AO indicated that the Directors of the assessee company are trying to avoid the questions to be asked them with respect to said transactions. The AO held that this also proves that the transactions are non-genuine. The AO , therefore, observed that the transactions entered into by the assessee with the Sampada Chemicals Ltd. are non-genuine and are merely accommodation entries, therefore the same was added by the AO to the total income of the assessee, vide reassessment order dated 26.12.2017 under section 143(3) r.w.s. 147 of the Act. 4. The assessee being aggrieved by the reassessment order passed by the AO, filed first appeal with ld. CIT(A) , and reiterated its contention as were made before the AO. The assessee further submitted before ld. CIT(A)(recorded at para 10/page 12 of ld. CIT(A) order) that the assertions of ld. AO in paragraph 9 of reassessment order are not correct. The assessee submitted that in response to SCN and summons issued by the AO to the assessee, the Authorized Representative of the assessee CA Mr.Raichand Lunia appeared before the AO on 16.11.2017 and informed the AO that the assessee has filed objections on 14.07.2017 challenging reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vipul Vidur Bhatt who was a Director in Sampada Chemical Ltd., are bogus. It was submitted that the AO did not made any third party enquiry about the genuineness of the transactions. The assessee duly supplied the copy of invoices, transport receipts, bank statement, purchase register, consumption register, VAT number, CST registration number and e-mail address of Sampada Chemicals Ltd. before the AO, but all these evidences were ignored by the AO. 4.2 The assessee enclosed copy of Company Master Data of Sampada Chemicals Ltd., downloaded from MCA web-site, which showed that the company Sampada Chemicals Ltd., was formed on 20.02.1983 having a paid up capital of Rs. 4,98,00,000/-. Sh. Vipul Vidur Bhatt became Director of the company on 13.08.2010, and thus the claim of AO that this company Sampada Chemicals Limited was formed by Sh. Vipul Vidur Bhatt for accommodation entries is not supported, as the company is in existence since 1983. The said company is still active as per MCA records ,though they have defaulted in filing of Annual Return and Balance Sheet for the financial year 2015-16. 4.3 It was submitted by assessee before ld. CIT(A) that complete proof and evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited and in support thereof the assessee has submitted copies of bills issued by said party, transport receipts and claim is made that the payments were made through banking channel. The ld. CIT(A) observed that information was provided by the Deputy Director of Income-tax(Inv) Unit 7(4), Mumbai that a search and seizure action was carried out in the case of Shri Vipul Vidur Bhatt and other related entities on 05.02.2016 and in the statement recorded on oath, Shri Vipul Vidur Bhatt accepted that he is an entry operator and all the companies/entities are bogus which were used for providing various bogus accommodation entries to various beneficiaries for commission. The ld. CIT(A) observed that Shri Vipul Vidur Bhatt has admitted that bogus entries includes entries (i) entries of bogus LTCG and STCG (ii) One time Share Capital/Share Premium entries(iii) Unsecured Loan Entries (iv) Turnover Entries(bogus sales entries). The ld. CIT(A) observed that Shri Vipul Vidur Bhatt has used Sampada Chemicals Limited for providing accommodation entries and which fact was revealed during searches conducted by department. The said Mr. Vipul Vidur Bhatt is Director of Sampada Chemicals Limited sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for payments made by the assessee through banking channel w.r.t. these purchases made by the assessee as it will lead to double addition. Thus, the ld. CIT(A) granted part relief to the assessee, vide appellate order dated 28.09.2018 passed by ld. CIT(A), wherein additions to the tune of Rs. 41,70,774/- were upheld by ld. CIT(A) as against additions to the tune of Rs. 82,38,462/- made by the AO. 5. Still aggrieved, the assessee filed second appeal with Tribunal . The learned counsel for the assessee C.A. Sh. Sanjay R. Shah opened arguments before the Bench and submitted that legal challenge to reopening of the assessment by invoking provisions of Section 147 was not taken by the assessee before ld. CIT(A) and is now taken for the first time before the Tribunal. Our attention was drawn to Ground No. 1,1.1 and 1.2 raised by the assessee in memo of appeal filed with Tribunal. It was submitted that legal ground can be taken at any time . The ld. Counsel for the assessee placed reliance on the decision of Hon ble Gujarat High Court in the case of P.V. Doshi v. Commissioner Of Income-Tax, reported in (1978) 113 ITR 22(Guj. HC) . The learned counsel for the assessee submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee were Rs. 37,66,650/-. Our attention was drawn by ld. Counsel for the assessee to page 127 of the paper book wherein the reply dated 23.10.2015 filed with the AO during original assessment under section 143(3) is placed. Our attention was also drawn to page 151 to 154 of the paper book wherein Manufacturing Expense account as well detail of Raw Material consumed including colour chemical consumed is placed, being part of audited accounts. Our attention was also drawn to page 164 of the paper book wherein details of trade payable for goods is placed , wherein amount payable to Sampada Chemicals Ltd. as on 31.03.2013 is shown payable at Rs. 98,962/-. Our attention was also drawn by ld. Counsel for the assessee to assessment order dated 30.10.2015 passed by AO under section 143(3) in original assessment proceedings, which is placed in paper book at page no. 70 . It was submitted that no additions were made towards purchases made by assessee in original assessment proceedings . Our attention was further drawn to page 28 of the paper book wherein ledger account in the books of the assessee of the Creditor Sampada Chemicals Ltd. is placed , and it was submitted that total purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year. There was a search and seizure operations conducted by Investigation Wing, Mumbai in the case of Sh. Vipul Vidur Bhatt, wherein search report was prepared and statement under section 132(4) of Sh. Vipul Vidur Bhatt were recorded wherein he stated that he is involved in providing accommodation entries , and 347 entities were being used by Sh. Vipul Vidur Bhatt to provide bogus accommodation entries. Sh. Vipul Vidur Bhatt was Director of the Sampada Chemicals Ltd. and he stated that Sampada Chemicals Limited was one of the 347 entities engaged in providing bogus accommodation entries. The case of the assessee was reopened by invoking provisions of Section 147. The assessee has purchased material from Sampada Chemical Ltd., which is not denied by the assessee. The AO wanted to verify the purchase transactions, and summons under section 131 as well as notice under section 133(6) were issued , but none appeared for Sampada Chemicals Ltd. nor any reply was received. The assessee never asked for documents / cross examination of the said Mr. Vipul Vidur Bhatt . It was submitted that summons u/s 131 were issued by AO but the Directors of the assessee did not appear befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodation entries in lieu of commission. The said companies/entities were put to use for providing alleged accommodation entries for (i) bogus capital gains (ii) bogus purchases (iii) bogus unsecured loans and (iv) bogus share capital/share premium. There was seizure of incriminating material by Revenue during aforesaid search operations conducted on 05.02.2016 w.r.t. 347 entities/companies operated by said Mr. Vipul Vidur Bhatt for providing accommodation entries in lieu of commission. On further enquiries conducted by AO of the assessee based on the information received from DDIT, Inv. , Mumbai, it transpires that one of the company named by said Mr. Vipul Vidur Bhatt in the statement recorded u/s 132(4) was M/s Sampada Chemicals Limited , which company was used by said Mr. Vipul Vidur Bhatt to provide accommodation entries towards bogus purchases, wherein the assessee is one of the beneficiary of the said bogus purchases from Sampada Chemicals Limited . The said Mr. Vipul Vidur Bhatt is admittedly Director of Sampada Chemicals Limited since 2010 , and was Director of Sampada Chemicals Limited during the year under consideration. The assessee s name emerged as one of beneficiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets include Land , Factory buildings ,Staff quarters, Plant and Machinery, Electrification, Water Treatment Plant and so on and so forth. The assessee has declared gross turnover of Rs. 48.00 crores during the year under consideration. There is no adverse finding of the authorities that the assessee is not engaged in the business of Job Work of Cloth Dying, Printing and Processes , or that the assessee is itself engaged in providing bogus accommodation entries. The assessee , during proceedings before authorities below , did asked for providing statement of said Mr. Vipul Vidur Bhatt as well asked for providing relied upon incriminating material , but the same were not provided by the AO as well by ld. CIT(A). The assessee did asked for cross examination of Mr. Vipul Vidur Bhatt , but the same was not allowed by AO as well ld. CIT(A). If the AO has not provided incriminating material or not allowed the cross examination , it was incumbent on ld. CIT(A) to do so . It is well settled that the powers of ld. CIT(A) are co-terminus with the powers of the AO. The proceedings before ld. CIT(A) are merely extension of the assessment proceedings. It is well settled that principles of na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to verify the genuineness of the transactions of the assessee with said Sampada Chemicals Limited, the AO of the assessee during reassessment proceedings issued summons u/s 131 to Directors of the said company Sampada Chemicals Limited, as well notices u/s 133(6) were issued by the AO to the said company to seek relevant information . The said Mr. Vipul Vidhur Bhatt on being summoned u/s 131 by the AO during assessment proceedings did not appear before the AO, nor the notices issued to Sampada Chemicals Limited u/s 133(6) were complied with by the said company . It is undisputed that Mr. Vipul Vidur Bhatt was Director of M/s Sampada Chemicals Limited during the impugned year under consideration. The MCA- Company Master data downloaded from MCA Web-site(page 29/PB) clearly evidences that Mr. Vipul Vidur Bhatt is Director of Sampada Chemicals Limited since 13.08.2010 , and presently we are concerned with financial year 2012-13(ay:2013-14). The said company has defaulted in filing of Annual Return and Balance Sheet for the financial year 2015-16. The said company held last AGM on 27.09.2012 and date of Balance sheet is 31.03.2012. The summons issued by the AO u/s 131 to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idur Bhatt who was searched in the statement recorded u/s 132(4) that it was used to provide bogus accommodation entries, we donot find any merit in the contention of the assessee that reopening of the assessment was not validly made nor it could be said that there is no application of mind by the AO before reopening of the concluded assessment in the case of the assessee, as the AO after receipt of information from DDIT, Inv. , Mumbai made its own enquiries before reopening of the assessment u/s 147 in the case of the assessee . There was a live nexus between the incriminating material available with the AO and reasons to believe that income of the assessee has escaped assessment, as at the time of reopening , the sufficiency of material to conclusively prove that income has escaped assessment is not required but a primafacie view is required based on material on record having live nexus with formation of reasons to believe that income has escaped assessment. Thus, it is not a case of borrowed satisfaction , but there was application of mind by the AO also as he made enquiries after receipt of material from DDIT, Inv., Mumbai , and then arrived at the decision that income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate(Textile Grade)) to the tune of Rs. 41,70,774/- from Sampada Chemicals Limited, as per information provided by the Investigation Wing, Mumbai . The invoices, transport bilti, bank statements, purchase register, store consumption record of material including colour chemicals were produced by the assessee before the authorities below, and no specific defect is pointed out by AO as well ld. CIT(A). The purchases are appearing in the books of the assessee, and it was for the assessee to have proved genuineness of the transaction , more so burden is heavy after the aforesaid search proceedings and discovery of incriminating material, for which the assessee ought to have brought conclusive evidences to prove that the purchases were genuine by way of bringing Balance Sheet of Sampada Chemicals Limited to prove that it is infact engaged in manufacturing of Sodium Alginite(Textile Grade), and the supplies were genuine. The allegation is that Sampada Chemicals Limited is merely a paper entity used by Mr. Vipul Vidur Bhatt to provide bogus accommodation entries. The fresh confirmation letters post search, affidavits from the said company, production of the responsible functionaries of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Taking into account all the relevant facts of the case I hold that 30 per cent of the purchase cost would be a reasonable amount to be confirmed, to cover the profits of the appellant. Hence, the addition to the extent of Rs. 12,31,471 is confirmed and the balance of Rs. 28,73,432 is directed to be deleted. 5. We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, the vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. 6. In the present case, the Commissioner of Income-tax (Appeals) believed that when as a trader in steel the assessee sold cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of justice and fairness, and also with a view to end this litigation, it will be fair that profit element embedded in the aforesaid purchase @12.5% be brought to tax instead of bringing to tax the entire purchase price as the assessee had produced purchase register, consumption register but no defect per-se in consumption of Sodium Alginate(Textile Grade) was pointed out by the AO or by ld. CIT(A), which lead to the conclusion that the purchases of Sodium Alginate(Textile Grade) were made by the assessee from some other suppliers but the bogus invoices were taken from Sampada Chemicals Limited to suppress the profits , and end of justice will be met if profit embedded in these purchases are estimated @12.5% which shall be brought to tax. Thus, the assessee gets part relief, wherein additions to the tune of Rs. 5,21,347/- are sustained. The estimation requires some guess work, but the same has to be reasonable, fair and honest, which we hold that 12.5% estimated profit embedded in purchases as held by us to be added to the income of the assessee is fair, reasonable and honest. The reference is drawn to the decision of Hon ble Supreme Court in the case of Kachwala Gems v. JCIT, Jaip ..... X X X X Extracts X X X X X X X X Extracts X X X X
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