Surana Enterprises Vs ITO (ITAT Delhi)
The issue under consideration is whether the addition made by AO u/s 69C by considering the purchases as Bogus Purchase is justified in law?
ITAT states that, in present case, the assessee has shown sales of the goods, or otherwise the goods are lying in the closing stock. If the goods have been sold, the assessee in its trading operation has disclosed the resultant gross profit.Assessee submitted that goods purchased by the assessee has not entered in quantity terms in the books of accounts of the assessee and same has been sold during the year at market rate, thus gross profit on such sales have been embed in the trading account of the assessee. In the SIl Gold ( supra) ITAT have not confirmed the addition on account of investment in the purchase of goods outside it books to match the bogus purchase invoice, but at any time understanding of the situation and consequent results if not visualized properly earlier , can be corrected. In view of this, ITAT direct the assessing officer to confirm the addition to the extent of 2% of the purchase amount involved in the alleged accommodation entry obtained by the assessee and further addition of 5 % to the extent of investment in goods procured by the assessee which has been sold. Accordingly, AO is directed to delete the balance addition. In view of above facts, appeal filed by the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
1. These are the three appeals involving the similar issue, those are heard together having common arguments from both the parties, and therefore, they are disposed of by this common order.
2. Facts involved in all these three appeals arecommon that assessee has booked alleged bogus purchase bills from M/s Mohit International, surat, operated by Mr. Praveen Kumar Jain, an accommodation entry provider, and also booked the sales of those material, shown necessary gross profit in its Trading account, but ld AO reopened assessment and made total addition of purchases and CIT (A) confirmed the same.
3. ITA number 5414/Del/2018 is filed by Surana Enterprises against the order of THE COMMISSIONER OF INCOME TAX APPEALS – 16, New Delhi dated 29/05/2018 raising following grounds of appeal; –
i. That the Honourable Commissioner of income tax (appeals) has erred in law as much as on the facts of the case by upholding the addition of ₹ 802600/– alleged to be bogus purchases without appreciating the fact that the learned assessing officer did not assume the jurisdiction to complete the assessment proceedings as the notice under section 143 (2) of The Income Tax Act, 1961 have been issued by him on the same day when the return of income has been filed by the appellant in compliance to notice under section 148 of the act, which clearly shows nonapplication of mind by him to the return of income filed by the appellant before the issuance of notice under section 143 (2) of the act and thus the reassessment is liable to be quashed.
ii. That the Honourable Commissioner of income tax (appeals) has erred in law as much as on facts of the case by upholding the addition of ₹ 820600/– alleged to be bogus purchases made by the appellant from M/s Mohit international, are concerned alleged to have been controlled and managed by Sri Praveen Jan and his associates being alleged to be the entry operators.
iii. That the Honourable Commissioner of income tax (appeals) has erred in law as much as on the facts of the case by confirming the aforesaid addition of ₹ 8 20600/– with regard to the alleged bogus purchases made by the appellant from Mohit international when the same have been duly confirmed by the proprietor of Mohit international through his affidavit that they have sold the goods to the appellant vide invoice number and I/PD/8YA – 2007 – 08 dated 4/7/2007. This affidavit have been arbitrarily rejected without holding that the affidavit is false and has no evidentiary value and also without affording the opportunity to cross examine that deponent of affidavit. This action is not only bad but also against the principles of natural justice.
iv. That the Honourable Commissioner of income tax (appeals) has erred in law as much as on the facts of the case without appreciating and giving cognizance to the fact that the payment for purchase has been made through proper banking channels and the appellant had produced before him and also before the learned assessing officer all the necessary supporting documents like purchase bill, bank statements, stock records, affidavit etc. To discharge the initial onus cast upon the appellant and that the same have been rejected by the learned assessing officer without giving any specific reasons for rejection.
v. That the Honourable Commissioner of income tax (appeals) has further failed to appreciate the fact that the learned assessing officer and the honourable joint Commissioner of income tax had reopened the assessment of the appellant in a hurried manner and only on the basis of the information received from the investigation wing, Mumbai without independent application of their own mind, without carrying out further enquiry and without recording of satisfaction in this regard. The sanction granted by the learned Joint Commissioner of income tax that „yes this is a fit case‟ is not sufficient to comply with the requirement of section 151 of the act and means that the satisfaction is granted in a mechanical manner. Thus the assessment completed by the learned assessing officer under section 147/143 (3) of the income tax act, 1961 is not sustainable in law.
vi. That the Honourable Commissioner of income tax (appeals) have further failed to appreciate the fact that the learned assessing officer while making the aforesaid addition of ₹ 8 20600/– have relied upon the statement of the Praveen Jan and Shri Nilesh Parmar however the copies of the statements were never provided to the appellant and no opportunity was provided to cross examine these persons in spite of the fact that specific request was made by the appellant from during the reassessment proceedings. Such a denial of opportunity of cross-examination is against the principle of natural justice and the rear smiled reassessment proceedings are liable to be quashed.
vii. That the Honourable Commissioner of income tax appeals has failed to appreciate the fact that the learned assessing officer has failed to provide the appellant the copy of report of the investigation wing, Mumbai in case of Sri Praveen Kumar Jan whereby it was held that the appellant have been provided with the accommodation entry in this action of the learned assessing officer is not only bad in law but also against the principles of natural justice.
viii. That the Honourable Commissioner of income tax (appeals) have further failed to appreciate the fact that though the learned assessing officer has made the addition with regard to the bogus purchases but at the same time, he has accepted the books of accounts in the trading results as declared by the appellant and also the figures of sales and closing stock without appreciating the fact that without purchase, sale is could not have been effected by the appellant.
ix. That without prejudice to the above, the Honourable Commissioner of income tax (appeals) have further failed to appreciate the fact that even if it is presumed that the purchases have been made from the bogus parties, the purchases themselves are not bogus as the figures of sales, stocks have been accepted by the learned assessing officer and thus the addition, if any, to be made, can only be restricted to the profit margin embedded in such purchases and not the entire purchase amount.”
4. Though assessee has raised several grounds of appeal and their argumentative in nature, despite this, they are admitted and assessee is allowed to argue its case. According to the grounds of appeal, the assessee has challenged the reopening of the assessment as well as the addition on its merit.
5. Assessee is a partnership firm. It filed its original return on 23/7/2008. Subsequently action under section 147 of the income tax act was taken based on information received from The Director General of Income Tax (Investigation) Mumbai that the assessee has received accommodation entries from a group owned by Shri Praveen Jain. During the course of search and seizure in the group companies of Shri Jan it was found that he is a leading entry operator in Mumbai indulging in providing accommodation entries like bogus purchases, sales, loan, share capital et cetera. The search and seizure action was carried out on him on 1/10/2013 by investigation wing of the Department. Evidences were collected and statement of various person including Sri Praveen Jain was taken during the course of post such enquiries the AO found that the assessee has made a purchase of ₹ 820600 from Mohit international, a concern controlled and managed by Sri Praveen Jain and his associates. Therefore, notice under section 148 of the income tax act was issued. Assessee submitted that return originally filed may be treated as return filed in response to the above notice. The reasons recorded were provided to the authorized representative of the assessee and objections raised by him were disposed of as per note sheet entry dated 05/9/2015.
6. The assessee was asked after showing the information received from the investigation wing about the genuineness of the above purchases made by the assessee. The assessee submitted a copy of the affidavit of the proprietor of Mohit international along with the copy of the bill along with many other evidences of payment etc. The learned AO rejected the contention of the assessee for the reason that proprietor of Mohit international was summoned under section 131 of the act and on2/10/2013, statement was recorded. He submitted that Mr. Praveen Jain is managing and controlling the numerous companies and Nilesh Parmar[Prop. Of Mohit International] is an accountant of approximately 30 companies controlled and managed by Mr. Jain. M/s Mohit international is also controlled by him. No genuine business activities carried out in any of the said accounts. He has never seen any stock in any of the said concern. There is no warehouse for goods where any stock is maintained. There is no place from where any genuine business activities are being carried out in any of the concerned. Mr.Praveen Jain‟sstatement was also recorded on 1/10/2013 where the whole gamut of providing the accommodation entry was confessed. Therefore, based on the above facts, and in absence of any further details submitted by the assessee, with respect to the genuineness of the purchases, learned assessing officer passed an order under section 147 read with section 143 (3) of the act on 21/3/2016 wherein the returned income filed by the assessee of ₹ 31358/– was assessed at ₹ 851960/– making the addition on account of bogus purchases of ₹ 8,20,600/–.
7. The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT – A. The learned CIT – A on examination of the remand report by the assessing officer as well as based on examination of the case record found that approval from joint Commissioner of income tax has properly been taken by the assessee. Therefore, he dismissed the issue raised by the assessee against the reopening of the assessment. On the merits of the addition, the learned CIT – A noted that purchases made by the assessee from Mohit international is a bogus purchase. Thereafter relying on the decision of the honourable Supreme Court in M/s NK proteins Ltd versus deputy commissioner of income tax 250 taxman 22 where the special leave petition is dismissed by the honourable Supreme Court against the decision of the honourable Gujarat High Court, he confirmed the total addition of ₹ 820600. The assessee aggrieved with the order of the learned CIT A has preferred the appeal before us.
8. The learned authorized representative vehemently objected to the reopening of the assessment. It was submitted that that the learned assessing officer has recorded the reasons for reopening of the assessment purely based on the information received from the investigation wing of the income tax department. Therefore, the reopening based on the investigation wing without any application of mind by the learned assessing officer, the reopening is not sustainable.
9. He further referred to the satisfaction recorded by the joint Commissioner of income tax wherein he stated that he has, this is a fit case of approval under section 151 of the income tax act 1961 to issue notice under section 148 of the income tax act, 1961. The learned authorized representative also submitted that the satisfaction recorded by the approving authority is non-application of mind.
10. Assessee further submitted that notice under section 148 of the income tax act was issued on 23/3/2015. The assessee complied with the above notice on 4/8/2015 and on the same date the learned assessing officer issued notice under section 143 (2) of the income tax act. Therefore the argument was that the movement the assessee complied with the notice under section 148 of the income tax act by saying that the return filed originally may be treated as return in response to the above notice, the learned assessing officer issued the notice under section 143 (2) of the income tax act. Therefore it was submitted that the notice has been issued on the same date, therefore there is no application of mind by the learned assessing officer and therefore notice issued under section 143 (two) is bad in law.
11. He also raised all other issues mentioned in grounds of appeal.
12. The learned authorized representative submitted that purchases have been confirmed by the seller by Mr. Nilesh Parmar, proprietor of Mohit international wherein the goods sold have been confirmed and delivered to the assessee and payment received from the assessee is confirmed. He referred to the affidavit placed at page number 33 and 34 of the paper book. It was further stated that purchases have been made by the assessee and payment have been made by the assessee by account payee cheques. The assessee also referred to the copy of the invoice dated 4/7/2007 of Mohit international Surat issuedto the assessee. Assessee also submitted the copy of Accounts and submitted that when the records shows that the impugned purchases entered into the purchases and there is a corresponding sale in the books of accounts of the assessee which have been accounted for by the assessee, the addition made by the learned assessing officer is not proper. He further referred to the copy of purchase and sales registers as on 31st of March 2008 and the D VAT – 16 for the above. He submitted that the gross profit arising on the bogus purchases but quantity entered and sold subsequently , resulting GP already shown in Trading account, addition made by the d AO is double and incorrect addition Therefore he submitted that on the merits of the case the addition cannot be made.
13. The authorized representative submitted one more paper book wherein the permanent account number of Mr. Nilesh H Parmar, the copy of the return of income for assessment year 2007 – 08, the copies of the balance sheet and profit and loss account of Mohit international for assessment year 2007 – 08, copies of the account is furnished. Identical information is also furnished of that supplier for assessment year 2008 – 09. Therefore, it was submitted that the purchases made by the assessee from the above party is genuine.
14. The learned authorized representative has also submitted a detailed paper book containing 28 judicial pronouncements of various authorities and submitted that the case of the assessee is covered by the decision of SIL Gold versus ITO in ITA number 1049/del/2018 placed at page number 39 – 43 of the paper book. Thus, the issue is squarely covered in favour of assessee.
15. The learned departmental representative vehemently supported the orders of the lower authorities. It was submitted that the reasons recorded by the learned assessing officer were based on the statement recorded by the person who has given the accommodation entry of the purchase of goods. He further submitted that the proprietor of the supplier have also submitted in a statement that he is merely an accountant and does not supply any goods. The learned CIT – A also noted the above fact and stated that based on these information which are clinching, the learned assessing officer after recording his reasons, reopened the case of the assessee. Therefore he submitted that when the information received from the investigation wing was so crystal-clear that the purchases made by the assessee are bogus, it is merely an accommodation entry and goods have never passed on by the seller to the assessee, there is no reason to disbelieve the fact that the learned assessing officer has a reasonable belief that assessee has booked bogus purchases. Therefore he confirmed the reopening of assessment. With respect to the satisfaction, it was submitted that the issue is squarely covered in favour of the revenue by the decision of Mrs.Sonia Gandhi and M/s Meenakshi oversees of Honorable Jurisdictional High court in case where the identical satisfaction recorded by the approving authority was accepted as in accordance with the law. Therefore he submitted that there is no infirmity in reopening the assessment of the assessee as assessee has obtained an accommodation entry of ₹ 8 20600/–.He submitted that assessee has produced the bill, if assessee claims it to be genuine, it is assessee who should have brought Mr. Nilesh Parmer before Ao for verification to state that his earlier statement is wrong and how he has supplied to goods to the assessee. He submitted that merely an affidavit does not support the case of the assessee he submitted that in all these three appeals assessee has booked bogus bills and has shown the lower profits so addition is correctly made. With respect to the addition on the merit, it was submitted that the genuineness of the purchases have not been proved by the assessee. Merely because the assessee has been billed purchases, payment have been made by cheque, when the seller has confessed to be bogus, the addition has correctly been made. It was further submitted that the learned and CIT – A while confirming the addition has relied on the decision of the honourable Supreme Court. On the issue of applicability of decision of SIL Gold (supra) he submitted that it did not consider the decision of Honourable supreme court so it cannot be relied up on. Even otherwise, he submitted that there is no correlation between any goods received by assessee and its corresponding sales. These is no stock register, there is no track when the goods are received and when they are sold. In this circumstances, the addition cannot be deleted. Therefore, it was submitted that there is no infirmity in reopening of the assessment as well as making the addition in the hands of the assessee.
16. The ld AR in rejoinder submitted that assessee has shown the trading account where the purchases have been entered and sales have been booked, therefore there is no reason to say that assessee has not booked corresponding sales.
17. We have carefully considered the rival contention and perused the orders of the lower authorities.
18. We first come to the issue of reopening of the assessment. In the present case, revenue has conclusively shown that assessee has purchased only the bill and goods along with the bill has not been received. This is confirmed by the seller during the course of search. The seller is also controlled by one accommodation entry provider he also confirmed the same. During the course of search it was found that the seller was not at all engaged in any business except providing an accommodation entry. The investigation wing of the income tax department on the basis of search, on the basis of posts such inquiries, and on the basis of the statement of the accommodation entry provider, conclusively provided evidence to the ld AO that the assessee by purchase of goods from Mohit international has obtained an accommodation entry of purchase of goods. The case of the assess was never scrutinized in response to return filed by the assessee. There is a tangible material available with the assessee. There is live link in the material as well as income of the assessee as the party issuing the bill has confirmed that it has not supplied by the material but has provided accommodation entry. Identical issue arise before honorable Gujarat high court in case of [2017] 394 ITR 65 PUSHPAK BULLION PVT LTD VERSUS DEPUTY COMMISSIONER OF INCOME TAX where in the same accommodation entry operators, same bill provider and same modus operandi in the same period with the assessee‟s original return not picked up for scrutiny, the case of the assessee was reopen and in writ petition same was upheld. Honourable High court held as under :-
“5. We have perused materials on record. We may recall that the original assessment was not framed after scrutiny. The return filed by the assessee was accepted under section 143(1) of the Act. In this context, we may refer the decision of the Supreme Court in the case of Assistant Commissioner of Income- Tax v. Rajesh Jhaveri Stock Brokers P.Ltd. reported in 291 ITR 500 in which it was held and observed as under:
“13 In the scheme of things, as noted above, the intimation under section 143(1) (a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to April 1,1 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimise the Departmental work to scrutiniseeach and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D.K.Jain,J) in Apogee International Limited v. Union of India (1996) 220 nITR 248 (Delhi). It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section1 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any “assessment” is done by them ? The reply is an emphatic “no”. The intimation under section 143(1) (a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise.”
6. With this background, dealing with the petitioner’s sole contention of the Assessing Officer having abandoned reasons for re-opening the assessment while dealing with the objections raised by the petitioner regarding the share application money, it was stated as under:
“6. The undersigned has gone through the objections filed by the assessee. The sole objection of the assessee is that the information on basis of which the reopening has been initiated is erroneous and ill conceived. As per the reasons recorded the company has received share application money from the three parties tabulated below.
