Goyal Synthetics Pvt. Ltd., Surat V. The Dy.CIT, Circle-1, Surat

CO 209/AHD/2009

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6513 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-10-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 05-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Reassessment proceedings
• Section: 143(3); 142(1); 234B; 147; 148; 139

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' BEFORE SHRI D K TYAGI JUDICIAL MEMBER & A MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NOS.2581 & 2582/AHD/2009 WITH C O NOS.209 & 210/AHD/2009 (ASSESSMENT YEARS:-2002-03 & 2003-04) THE DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT V/S M/S GOYAL SYNTHETICS PVT. LTD., 701, TRIVIDH CHAMBERS, RING ROAD, SURAT PAN: AABCG 8634 M [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI SAMIR TEKRIWAL, SR. DR ASSESSEE BY:- WRITTEN SUBMISSIONS DATE OF HEARING:- 31-10-2011 DATE OF PRONOUNCEMENT:- 30-11-2011 O R D E R PER A MOHAN ALANKAMONY (AM) :- THESE TWO APPEALS BY THE REVENUE AND TWO CROSS OBJECTIONS FILED BY THE A SSESSEE ARE DIRECTED AGAINST TWO SEPARATE ORDERS BOTH DATED 14- 07-2009 PASSED BY LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS)-I, SURAT IN APPEAL NO. CAS-I/207 & 206/08-09 FOR THE ASSESSMENT YEARS (AYS) 2002-03 AND 2003-04 RESPECTIVELY. 2 AMONGST THE THREE GROUNDS THE ONLY EFFECTIVE GROU ND RAISED BY THE REVENUE IN THEIR APPEALS WHICH IS COMMON, RE ADS AS UNDER:- 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)-I, SURAT HAS ERRED IN DELETING T HE ADDITION MADE BY THE AO OF ` .9,78,304 FOR AY 2002-03 & 6,01,502 FOR AY 2003-04, ON ACCOUNT OF 5% EXTRA PROFIT ON SALES MADE TO OTHER PARTIES IN THE OPEN MARKET. 3 THE ASSESSEE HAS RAISED THE FOLLOWING COMMON GROU NDS IN THEIR CROSS OBJECTIONS:- [1] THAT THE ID. CIT (A) HAS ERRED IN UPHOLDING THE VALIDITY OF THE RE-ASSESSMENT PROCEEDINGS EARNED BY THE AO U/S 147/ 148 OF THE ACT AND THEREBY ERRED IN NOT QUASHING THE RE-ASSESS MENT ORDER PASSED U/S 147 TO BE INVALID, BAD IN LAW, BEYOND TH E LAW AND TIME BARRED AS PER PROVISO BELOW SECTION 147 OF THE ACT. [2] THE ID. CIT (A) HAS ERRED IN UPHOLDING THE ACTI ON OF AO OF NOT DROPPING THE PROCEEDINGS U/S 147/148 OF ACT DESPITE FINDING THAT THE REASONS RECORDED FOR INITIATING PROCEEDING S U/S 147/148 OF THE ACT WERE FACTUALLY WRONG AND INCORRECT. [3] THAT ID. CIT (A) HAS ERRED IN NOT HOLDING THAT THE ADDITION MADE BY ID. AO OF RS.9,78,304/- FOR AY 2002-03 AND RS.6 ,01,502 FOR AY 2003-04, WAS BEYOND THE SCOPE OF PROVISIONS OF SECTION 147/148 OF THE ACT. [4] WITHOUT PREJUDICE TO ABOVE GROUNDS, ID. CIT (A) HAS ERRED IN UPHOLDING CHARGING OF INTEREST U/S 234A/234B OF THE ACT. [5] THE ASSESSEE (RESPONDENT) CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ANY GROUND OF CROSS-OBJECTION. 4 NONE APPEARED ON BEHALF OF THE ASSESSEE HOWEVER W RITTEN SUBMISSIONS HAVE BEEN FILED BY THE ASSESSEE. WE, TH EREFORE, DECIDED TO DISPOSE OF THE APPEALS / CROSS OBJECTION S AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE AND AFTER C ONSIDERING THE WRITTEN SUBMISSIONS MADE BY THE ASSESSEE. 3 5 WE HEREBY PROCEED TO DEAL WITH THE CROSS OBJECTI ONS FILED BY THE ASSESSEE. COMMON GROUND NO.1 IN BOTH THE CRO SS OBJECTIONS RELATES TO VALIDITY OF RE-ASSESSMENT PRO CEEDINGS. THE FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT FOR AY 2002-03, ORIGINAL ORDER U/S 143(3) OF THE I.T. ACT, 1961 [HE REINAFTER REFERRED TO THE ACT] WAS PASSED ON 10-10-2005 AND ORDER GIVING EFFECT TO THE ORDER OF THE LEARNED CIT(A) WAS PASSE D ON 30-06- 2006. THEREAFTER INFORMATION WAS RECEIVED FROM CENT RAL EXCISE AUTHORITIES THAT THE ASSESSEE COMPANY HAS IMPORTED POLYSTER DRAW TWISTED YARN PDTY AND POLYESTER TEXTURISED YAR N PTY OF 3,03,960/- KGS., OF VALUE RS.1,88,00,815/- AND, PFT Y/ PTY/ PFY OF 1,83,859KGS.,VALUING RS.1,27,95,300/- THROUGH BO GUS INVOICES IN THE NAME OF ONE M/S RAJU FABRICS FROM FEBRUARY T O MAY, 2002. THE AO HAS FURTHER NOTED THAT THE ASSESSEE HA S BEEN REMOVING THE GOODS IN THE NAME OF FICTITIOUS ENTITY AND SELLING THESE GOODS TO MANY INTERESTED PARTIES CLANDESTINEL Y BY RAISING THE INVOICES IN THE NAME OF RAJU FABRICS. SUCH ACTI VITIES OF THE ASSESSEE CAME TO LIGHT FROM THE INFORMATION RECEIVE D FROM THE CENTRAL EXCISE AUTHORITY. THEREFORE THE AO HELD THA T THERE WERE REASONS TO BELIEVE THAT THE INCOME CHARGEABLE TO TA X HAD ESCAPED ASSESSMENT AND THEREAFTER RECORDING REASONS IN WRIT ING NOTICE U/S 148 OF THE ACT WAS ISSUED TO THE ASSESSEE ON 28-03- 2008, WHICH WAS DULY SERVED UPON THE ASSESSEE. IN RESPONSE, THE ASSESSEE COMPANY VIDE LETTER DATED 08-04-2008, REQUESTED TO TREAT THE RETURN OF INCOME ORIGINALLY FILED BY IT U/S 139 OF THE ACT TO BE THE RETURN FILED IN RESPONSE TO THE NOTICE U/S 148 OF T HE ACT. SUBSEQUENTLY, NOTICE U/S 143(2) AS WELL AS A NOTICE U/S 4 142(1) ALONG WITH COPY OF THE REASONS RECORDED U/S 148 WAS ISSUED TO THE ASSESSEE ON 05-12-2008 WHICH WERE DUL Y SERVED UPON THE ASSESSEE. 6 AS PER THE INFORMATION RECEIVED FROM THE CENTRAL EXCISE AUTHORITY THE SALE OF THESE ITEM FALLS IN TWO ASSES SMENT YEARS I.E. AY 2002-03 (FEBRUARY AND MARCH 2002) AND AY 2003-04 (APRIL AND MAY 2002) AS SHOWN BELOW:- AY ITEM AMOUNT (RS.) ============================================== 2002-03 PDTY AND PTY 71,48,556 IMPORTED PFTY, PTY AND PFY 1,24,17,517 --------------- 1,95,66,073/- 2003-2004 PDTY AND PTY 1,16,52,25 9 IMPORTED PFTY, PTY AND PFY 3,77,783 --------------- 1,20,30,042 THE AO OBSERVED THAT THE ONLY CONCLUSION WHICH CAN BE DRAWN FROM THE FACTS GATHERED THROUGH THE SHOW CAUSE NOTI CE ISSUED BY THE EXCISE AUTHORITIES IS THAT THE ASSESSEE HAD BEE N REMOVING THE GOODS FROM ITS POSSESSION IN THE NAME OF THE FICTIT IOUS ENTITY. THEREFORE, VIDE LETTER DATED 05-12-2008 ALONG WITH NOTICE U/S 142(1) OF THE ACT, THE ASSESSEE WAS ASKED TO SHOW C AUSE AS TO WHY THE AMOUNT OF RS.1,95,66,073/- AND RS. 1,20,30 ,042/- BEING THE SALES MADE TO M/S RAJU FABRICS FROM FEBRUARY TO MARCH 2002 AND APRIL AND MAY 2002 RESPECTIVELY WHICH WAS IN TH E OPINION OF THE CENTRAL EXCISE AUTHORITIES BEING PARTLY FICTITI OUS, NOT BE 5 TREATED AS UNDISCLOSED SALES AND ADDED BACK TO TOTA L INCOME OF THE ASSESSEE. 7 IN RESPONSE, THE ASSESSEE VIDE LETTER DATED 18-12 -2008, SUBMITTED AS UNDER:- '1) FIRST OF ALL WE SUBMIT THAT THE RE-ASSESSMENT P ROCEEDINGS ARE NOT VALID IN LAW. THE REASONS RECORDED DO NOT LEAD TO A NY BELIEF THAT ANY OF OUR INCOME HAD ESCAPED ASSESSMENT. THE SALES TO M/S . RAJU FABRICS, AS POINTED OUT IN YOUR LETTER, HAS ALREADY BEEN RECORDED IN OUR BOOKS OF ACCOUNT AND INCLUDED IN THE FIGURE OF 'SALES' AS APPEARING IN OUR AUDITED P & L A/C ATTACHED WITH OUR RETURN O F INCOME. THE PURCHASES/IMPORT OF THESE GOODS ARE ALSO DULY ACCOU NTED FOR AND INCLUDED IN TOTAL PURCHASES AS APPEARING IN OUR AUD ITED P & L A/C. THE CASE OF THE EXCISE AUTHORITIES IS A TECHNICAL C ASE AND IS HAVING NO BEARING WITH OUR I.T. ASSESSMENT. WE ARE A 100% E.O .U. AND PURCHASED/IMPORTED GOODS WITH DUTY BENEFITS. WE CAN RE-SELL THESE GOODS OR SALE THE GOODS MADE FROM THESE PURCHASES E ITHER AS 'EXPORT SALES' OR 'TO ANOTHER 100% E.O.U. (I.E. EOU TO EOU SALES). IF WE SELL SUCH GOODS OTHERWISE THAN AS ABOVE I.E. IN DOMESTIC TARIFF AREA (DTA), THEN WE ARE LIABLE TO PAY DUTY ON THE SAME. M/S. RA JU FABRICS WAS A 100% E.O.U. REGD. AS SUCH BY THE. DEVELOPMENT COM MISSIONER AND THE EXCISE AUTHORITIES THEMSELVES. WE HAD SOLD THE GOODS TO SAID M/S. RAJU FABRICS, AGAINST FORMS NO. CT3. CT 3 FORMS W ERE ISSUED TO THIS PARTY I.E. M/S. RAJU FABRICS BY THE EXCISE AUTHORITIES THEMSELVES. THESE WERE AUTHENTICATED BY EXCISE AUTH ORITIES. THUS, OUR SALES WERE TO ANOTHER EOU AGAINST PRESCRIBED FORM ( I.E. EOU TO EOU SALES). HOWEVER, EXCISE AUTHORITIES HAVE TAKEN A VI EW THAT SAID M/S. RAJU FABRICS WAS A FACTITIOUS ENTITY AND OUR SALES TO THAT PARTY WAS NOT TREATED BY THEM TO BE EOU TO EOU SALES BUT WAS TREATED TO BE DTA SALES AND THEY DEMANDED DUTY ON SUCH SALES BY T REATING THESE SALES AS DTA SALES AND NOT EOU TO EOU SALES. THUS, THE CASE OF EXCISE AUTHORITIES IS PURELY TECH NICAL CASE I.E. WHETHER THE SALES TO TINS PARTY WAS EOU TO EOU SALE S OR DTA SALES FOR THE PURPOSE OF LEVY OF DUTY. THE MATTER IS UNDE R LITIGATION. BUT, THIS MATTER HAS NO BEARING WITH OUR I.T. ASSESSMENT. THE SE PURCHASES AND SALES ARE DULY ACCOUNTED FOR IN OUR BOOKS OF ACCOUN TS AND INCLUDED IN OUR AUDITED P & L A/C. WE HAVE NO MACHINES OR FACIL ITY FOR MANUFACTURING OF FABRICS. ALL THE PAYMENTS WERE REC EIVED FROM SAID 6 PARTY M/S. RAJU FABRICS BY 'A/C PAYEE ONLY' CHEQUES . THIS PARTY WAS REGISTERED AS 100% EOU BY THE EXCISE AUTH ORITIES THEMSELVES AND HAS ISSUED FORMS NO. CT-3 TO US. THE ONLY REASONS RECORDED BY YOUR HONOUR ARE THE ABOVE FACTS OF EXCI SE CASE. IN THESE REASONS THERE IS NOTHING FOR BELIEVING THAT ANY OF OUR INCOME ESCAPED THE ASSESSMENT. ALL OUR PURCHASES AND SALES (INCLUD ING THOSE MADE TO SAID M/S. RAJU FABRICS) ARE DULY ACCOUNTED, FOR. WE PRODUCE HEREWITH OUR BOOKS OF ACCOUNT IN SUPPORT OF ABOVE. THUS, THERE ARE NO REASONS TO BELIEVE THAT ANY OF OUR SALES, PURCHASES OR INCOME ESCAPED ASSESSMENT. IN VIEW OF THIS, RE-ASSESSMENT PROCEEDI NGS ARE NOT BASED ON VALID REASONS AND WE REQUEST YOUR HONOURS TO KIN DLY DROP THE SAME. 2) WITHOUT PREJUDICE TO OUR ABOVE CONTENTIONS AND A S REQUIRED BY YOUR HONOUR WE SUBMIT THAT THE SAID SALES TO M/S. R AJU FABRICS HAVE ALREADY BEEN RECORDED IN OUR BOOKS OF ACCOUNT AND INCLUDED IN THE FIGURE OF TOTAL SALES AS APPEARING IN OUR AUDIT ED P&L A/C ATTACHED WITH OUR RETURN OF INCOME. WE FURNISH HEREWITH FOLL OWING DOCUMENTARY EVIDENCES:- I) LEDGER A/C COPY OF SAID M/S. RAJU FABRICS IN OUR BOOKS OF A/C. ALL THESE SALES TO THIS PARTY ARE DULY RECORDE D IN OUR ACCOUNTS. PAYMENTS ARE RECEIVED FROM THIS PARTY BY 'A/C PAYEE ONLY CHEQUES '. ALL THESE SALES ARE AGAINST FORM C. T - 3 ISSUED AND DULY AUTHENTICATED BY THE EXCISE AUTHORITIES TO SAID M/S. RAJU FABRICS. WE PRODUCE HEREWITH FORMS NO. CT - 3. II) WE PRODUCE HEREWITH OUR BOOKS OF ACCOUNT FROM W HICH IT IS EVIDENT THAT PURCHASES OF THE GOODS AND SALES OF TH E GOODS (INCLUDING TO SAID M/S. RAJU FABRICS) ARE DULY ACCO UNTED FOR. WE ALSO PRODUCE HEREWITH FORM NOS. AR - 3A DUL Y AUTHENTICATED BY THE EXCISE AUTHORITIES AND SIGNED BY M/S. RAJU FABRICS REGARDING RECEIPT OF DELIVERY BY THEM. MODE S OF TRANSPORTATION OF THESE GOODS ARE MENTION IN INVOIC ES AS WELL IN FORM NO. AR - 3A. THESE FORMS WERE GAUNTER TALLIED BY EXCISE AUTHORITIES WITH FORM NO. D - 3 FILED BY THE BUYER PARTY. HENCE, OUR SALES TO THIS PARTY ARE ACTUAL AND GENUI NE AND CONSTANTLY MONITORED BY EXCISE AUTHORITIES. THUS, ALL THE TRANSACTIONS ARE DULY RECORDED IN OUR ACCOUNTS AND INCLUDED IN OUR AUDITED P -& L A/C AS ATTACHED WITH OUR LT. RETURN. HENCE, THERE REMAINS NO BASIS AT ALL FOR NICKING AN Y ADDITION IN OUR 7 HANDS. THE CASE OF THE EXCISE AUTHORITIES IS PURELY TECHNICAL ONE. MERELY BECAUSE THEY COULD NOT FIND THIS PARTY FOR R ECOVERY OF DUTY FROM HIM, THEY SHIFTED BURDEN TO US BY TREATING OUR SALES TO THIS PARTY AS DTA SALES INSTEAD OF EOU TO EOU SALES. WHILE DOI NG SO THEY HAVE IGNORED AND OVERLOOKED ALL THE ABOVE VITAL EVIDENCE S SUCH AS FORM NO. CT - 3, AR-3A ETC. IN ANY CASE THIS IS A TECHNICAL CASE I.E. WHETHER THESE ARE DTA SALES OR EOU TO EOU SALES. THIS MATTE R HAS NO BEARING WITH OUR IT. ASSESSMENT AS ALL THE TRANSACTIONS ARE DULY ACCOUNTED FOR BY US. HENCE, NO ADDITION CAN BE MADE IN OUR HANDS. ' 8 HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS MA DE BY THE ASSESSEE AND PROCEEDED TO MAKE RE-ASSESSMENT AN D MADE AN ADDITION OF RS.9,78,304/- FOR THE ASSESSMENT YEAR 2 002-03 :- 7. I HAVE CAREFULLY CONSIDERED THE SUBMISSION MADE IN THIS REGARD BY THE ASSESSEE COMPANY. HOWEVER, THE SAME IS NOT A CCEPTABLE. 7.1 FIRSTLY, THE OBJECTION RAISED BY THE ASSESSEE T HAT THE REASSESSMENT PROCEEDINGS ARE NOT VALID IS NOT CORRE CT. THERE ARE SUFFICIENT REASONS ON RECORD TO BELIEVE THAT THE IN COME HAS ESCAPED ASSESSMENT. THE EXCISE AUTHORITIES HAVE CLEARLY FOU ND THAT THE ASSESSEE COMPANY WAS INVOLVED IN REMOVING THE GOODS IN THE N AME OF M/S. RAJU FABRICS FROM FEBRUARY TO MAY 2002. THESE GOODS MAY HAVE BEEN SOLD TO MANY INTERESTED PARTIES CLANDESTINELY BY RA ISING THE INVOICE IN THE NAME OF M/S. RAJU FABRICS. 7.2 SINCE THE SALES MADE TO M/S. RAJU FABRICS HAVE NOT FOUND TO BE GENUINE BY THE EXCISE' AUTHORITIES, THESE ARE THE S UFFICIENT REASONS FOR INVOKING THE PROVISIONS OF SECTION 147/148 OF THE I T ACT, 1961. HENCE, THIS OBJECTION OF ASSESSEE IS NOT VALID AND ACCEPTABLE. THE SECOND POINT RAISED BY THE ASSESSEE IS THAT HE HAS ALREADY RECORDED THESE SALES IN HIS BOOKS OF ACCOUNTS AND FURNISHED THE BOOKS OF ACCOUNT IN SUPPORT OF THIS EXPLANATION. THE POINT H ERE IS WHETHER THE ASSESSEE HAS ACCOUNTED FOR THE FULL AND ACTUAL SALE S FIGURES OR NOT. 7.3 WHAT ASSESSEE HAS ACCOUNTED FOR IS SALES OF RS. 1.95,66,073/- BEING THE SALES PURPORTED TO HAVE BEEN MADE TO THE SAID ENTITY M/S. RAJU FABRICS. BUT AS PER FINDINGS OF EXCISE AUTHORI TIES THE SALES WERE ACTUALLY MADE TO SOME OTHER PARTIES AND THE INVOICE S WERE RAISED IN THE 8 NAME OF M/S. RAJU FABRICS. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAS ACCOUNTED FOR THE FULL AND TRUE SALES. 7.4 BY SELLING THE GOODS IN THE OPEN MARKET, THE AS SESSEE MUST HAVE EARNED MORE PROFIT BY RECOVERING MORE SALES THAN TH E INVOICES SO RAISED IN THE NAME OF M/S. RAJU FABRICS. THEREFORE, THIS EXPLANATION OF THE ASSESSEE CANNOT BE FULLY ACCEPTED. AS THE ASSES SEE HAS NOT TRULY RECORDED ITS SALES, ITS ACCOUNTS ARE REJECTED U/S. 145(3) OF THE IT ACT, 1961 AND PROFIT FROM THESE SALES ARE FURTHER ESTIMA TED. THE VERY FACT THAT THE ASSESSEE HAS ACTUALLY SOLD THE GOODS OTHER PARTIES AND RAISED INVOICE IN THE NAME OF M/S. RAJU FABRICS PROVE THE INTENTION OF THE ASSESSEE I.E. TO SUPPRESS THE CORRECT PROFIT. 7.5 TAKING INTO CONSIDERATION THE TOTALITY OF THE F ACTS, I ESTIMATE THAT THE ASSESSEE MUST HAVE EARNED ATLEAST 3% MORE PROFI TS THAN WHAT HE HAS SHOWN IN THE BOOKS OF ACCOUNT BY RAISING THE IN VOICES IN THE NAME OF M/S. RAJU FABRICS. I, THEREFORE, MAKE AN ADDITIO N OF RS.9,78,304/- BEING 5% OF SALES OF RS.1,95,66,073/- MADE TO THIS FICTITIOUS PARTY IN THE YEAR UNDER CONSIDERATION. 9 BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEF ORE THE LEARNED CIT(A) AND RAISED GROUND NOS.1 AND 2 REGARD ING RE- ASSESSMENT PROCEEDINGS BEING BAD IN LAW. THE LEARNE D CIT(A) UPHELD THE ORDER OF THE AO WITH THE FOLLOWING OBSER VATIONS:- 2.2. DURING THE APPELLATE PROCEEDINGS, THE APPELLA NT HAS REPEATED MOST OF THE SUBMISSION GIVEN EARLIER BEFORE THE A.O . THE APPELLANT ARGUED THAT, THE REOPENING IS TIME BARRED BECAUSE THE ORIGINAL ASSESSMENT PROCEEDINGS WERE COMPLETED U/S. 143(3) ON 10.10.2005 AND, THEREFORE, REOPENING SHOULD HAVE BE EN DONE WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THE INCOME HAS BEEN ESCAPED ASSESSMENT FOR FAILURE ON T HE PART OF THE ASSESSEE TO MAKE FULL DISCLOSURE. ACCORDING TO THE APPELLANT, IT HAD FULLY DISCLOSED THE INCOME AND SHOULD HAVE REOP ENED ONLY UPTO 31.03.2007 HENCE IT IS TIME BARRED BECAUSE REOPEN ING HAS BEEN DONE IN MARCH 2008. FURTHER, THE APPELLANT HAS ARGUED TH AT THE REASONS RECORDED HAVE, NOT BEEN FOUND TO BE CORRECT BECAUSE THE SALES HAVE BEEN INCLUDED IN THE BOOKS OF ACCOUNT AND, THEREFOR E, NO ADDITION 9 SHOULD HAVE, BEEN MADE AND THE REOPENING IS ALSO BA D IN LAW IN VIEW OF THE DECISION OF THE HON'BLE GUJARAT HIGH COURT I N THE CASE OF SAGAR ENTERPRISES (257-ITR-335), WHEREIN THE HON'BLE HIGH COURT HAS STATED THAT IF THE NOTICE U/S. 148 WAS ISSUED OR THE GROUN D O;; FACTUALLY INCORRECT BASIS THAT THE ASSESSEE HAS NOT FILED ITS RETURN THEN IT CANNOT BE SUSTAINED EVEN ON THE BASIS OF ALTERNATIVE REASO N SINCE IT COULD NOT BE SAID WITH CERTAINTY AS TO WHICH FACT WEIGHTAGE W ITH THE OFFICER. 2.3.1 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O, BOTH THE REASONS GI VEN BY THE APPELLANT ARE NOT ACCEPTABLE. IN THIS CASE, THERE W AS OUTSIDE INFORMATION FROM CENTRAL EXCISE AUTHORITIES THAT TH E ASSESSEE HAS MADE SALES OUTSIDE THE BOOKS BECAUSE THE PARTY TO W HICH THE SALES ARE MADE IS BOGUS / FICTITIOUS. ON SUCH FACTS THE REOPE NING CAN BE DONE UPTO SIX YEARS AND HENCE THE NOTICE U/S 148 IS NOT TIME BARRED, FURTHER, THE FACTS, OF THE CASE OF SAGAR ENTERPRISES (SUPRA) ARE DIFFERENT. IN THAT CASE NO RETURN WAS FILED FOR THE CONCERNED ASSESSME NT YEAR AND, THEREFORE, THE INCOME ESCAPED AND, THEREFORE, BASIC FACT WAS TOTALLY INCORRECT. IN THE PRESENT CASE, THE REOPENING IS CO RRECT BECAUSE THE CENTRAL EXCISE AUTHORITIES DID SAY THAT THE PARTY T O WHOM SALES ARE MADE IS FICTITIOUS PARTY. THE SALES HAVE BEEN MADE OUTSIDE THE BOOKS OF ACCOUNT. IN THE PRESENT CASE IT IS CLEAR THAT TH E PARTY TO WHOM SALES ARE SHOWN IS DEFINITELY FICTITIOUS. THE APPELLANT D OES NOT SHOW THAT THE PARTY EXISTED. M/S. RAJU FABRICS DOES NOT EXIST AND HENCE BOTH THE GROUNDS OF APPEAL ARE DISMISSED. 10 SIMILARLY, FOR AY 2003-04, THE AO PROCEEDED TO M AKE RE- ASSESSMENT FOR THE SAME REASONS AS IN AY 2002-03 AN D MADE AN ADDITION OF RS.6,01,502/-. THE APPEAL BEFORE THE CI T(A) WAS ALSO DISMISSED LIKE THE YEAR BEFORE. 11 NOW THE ASSESSEE HAS CHALLENGED VALIDITY OF RE-A SSESSMENT FOR BOTH THE ASSESSMENT YEARS VIDE COMMON GROUND NO S.1 AND 2 IN THE CROSS OBJECTIONS BEFORE US AND REITERATED TH E SUBMISSIONS MADE BEFORE THE LEARNED CIT(A). THE SAME ARE CONSOL IDATED AND REPRODUCED AS UNDER:- 10 I. VALIDITY OF RE-ASSESSMENT PROCEEDINGS : 1) FIRST GROUND OF THE CROSS OBJECTION (C.O.) IS AG AINST THE VALIDITY OF RE-ASSESSMENT PROCEEDINGS. IT IS OUR HUMBLE CONT ENTION THAT RE-ASSESSMENT PROCEEDINGS CARRIED OUT BY LEARNED AO AND UPHELD BY HON'BLE CIT (A) ARE WRONG AND BAD-IN-LAW ON ACCOUNT OF FOLLOWING REASONS:- THAT THE BELIEF OF LEARNED AO THAT THE INCOME OF RS.1,95,66,073/- AND 1,20,30,042/- FOR THE ASSESSME NT YEAR 2002-03 AND 2003-04 RESPECTIVELY ESCAPED THE ASSESS MENT (AS MENTIONED IN THE REASONS RECORDED) WAS FACTUALLY IN CORRECT AND HAS BEEN SO ACCEPTED BY ID. AO HIMSELF IN THE RE-AS SESSMENT ORDER ITSELF. THE VERY FACT THAT NO ADDITION HAS BE EN MADE IN THE RE-ASSESSMENT ORDER IN RESPECT OF THIS BELIEF PROVE S THE FALSITY OF THIS BELIEF. THAT THE RE-ASSESSMENT PROCEEDINGS WERE NOT BASED ON ANY VALID BELIEF ABOUT ESCAPEMENT OF ANY INCOME. THE REASONS RECORDED BY ID. AO ARE VAGUE AND DO NOT LEAD TO ANY GENUINE BELIEF ABOUT ESCAPEMENT OF ANY INCOME. THAT THE RE-ASSESSMENT PROCEEDINGS ARE BAD-IN-LAW AND WITHOUT JURISDICTION AS PER FIRST PROVISO BELOW S. 147 OF T HE ACT. 2) WE ENCLOSE HEREWITH COPY OF THE REASONS RECORDED BY LEARNED AO U/S 147/148 OF THE ACT AS PROVIDED TO US. AT THE END OF THESE REASONS ID. AO REACHED TO THE BELIEF THAT SUBSTANTI AL INCOME OF RS.1,95,66,073/- AND 1,20,30,042/- (BEING THE AMOUN T OF SALES MADE TO M/S. RAJU FABRICS FOR THE ASSESSMENT YEAR 2 002-03 AND 2003-04 RESPECTIVELY) HAS ESCAPED ASSESSMENT. T HE RE- ASSESSMENT PROCEEDINGS WERE INITIATED ON THE BELIEF THAT SAID SALES AMOUNT OF RS.1,95,66,073/- AND 1,20,30,042/- WAS OUTSIDE THE BOOKS FOR THE RELEVANT ASSESSMENT YEARS AND ESC APED THE ASSESSMENT. THIS BELIEF OF ID. AO WAS FACTUALLY INC ORRECT. THIS SALES AMOUNT WAS DULY ACCOUNTED FOR IN OUR BOOKS OF ACCOUNTS AND WAS INCLUDED IN THE SALES FIGURE OF OUR AUDITED P & L AC. THIS FACT HAS BEEN ACCEPTED BY ID. AO HIMSELF. IN T HE RE- ASSESSMENT ORDER IN PARA 7.3 ID. AO HIMSELF HAS ACC EPTED THE FACT THAT SAID SALES OF RS.1,95,66,073/- AND 1,20, 30,042/- WAS ACCOUNTED FOR. THUS, THE VERY BELIEF ON THE BASIS O F WHICH THE RE-ASSESSMENT PROCEEDINGS WERE BASED WAS FACTUALLY WRONG AND 11 INCORRECT AND CONSEQUENTLY WHOLE OF THE RE-ASSESSME NT PROCEEDINGS ARE WRONG AND BAD-IN-LAW AB-INITIO AS P ER THE LAW LAID DOWN IN FOLLOWING CASE LAWS:- -SAGAR ENTERPRISES VS. ACIT (2002) 257 ITR 335 (GUJ) (COPY ENCLOSED) -SHANKARLAL NAGJI & CO. & ORS. VS. ITO & ANR. (2009) 322 ITR 90 (GUJ) (COPY ENCLOSED) -CIT VS. RAINEE SINGH , (2011) 330 ITR 417 (DEL) (COPY ENCLOSED) WE PRAY THAT THIS GROUND OF OUR CROSS OBJECTION IS SQUARELY COVERED BY ABOVE REFERRED CASE LAWS. 3) THERE WERE NO MATERIAL WITH ID. AO FOR REACHING TO THE BELIEF THAT THE SAID SALES OF RS.1,95,66,073/- AND 1,20,30 ,042/- FOR THE ASSESSMENT YEAR 2002-03 AND 2003-04 RESPECTIVELY WA S UNACCOUNTED AND ESCAPED ASSESSMENT. LD. AO GROSSLY MISUNDERSTOOD AND MISINTERPRETED THE SHOW CAUSE NOT ICE (SCN) ISSUED BY THE EXCISE AUTHORITIES WHILE RECORDING TH IS BELIEF. THE SCN OF EXCISE AUTHORITIES WAS PURELY ON A TECHNICAL ISSUE AS TO WHETHER SAID SALES OF RS.1,95,66,073/- AND 1,20,30, 042/ FOR THE ASSESSMENT YEAR 2002-03 AND 2003-04 RESPECTIVELY W AS EOU TO EOU SALES OR EOU TO DTA SALES. THERE WAS NOTHING IN THIS SCN TO THE EFFECT THAT THESE SALES OR ANY PORTION T HEREOF WERE UNACCOUNTED. IN FACT THIS SCN WAS HAVING NO BEARING WITH OUR I.T. ASSESSMENT. THIS WAS PURELY A TECHNICAL CASE U NDER EXCISE LAW. BRIEF FACTS OF THE ISSUE IN THE SCN OF EXCISE AUTHORITIES ARE REPRODUCED BY ID. AO IN PARA '6' OF THE REASSES SMENT ORDER. THERE WAS NOTHING IN THIS SCN THAT THE SAID SALES T O M/S. RAJU FABRICS WERE UNACCOUNTED. RATHER, IT WAS CLEARLY ME NTIONED THAT SAID SALES WERE MADE TO RAJU FABRICS AGAINST D UE PROCEDURAL FORMS (FORMS:-CT-3) ISSUED TO THAT PARTY BY THE EXCISE AUTHORITIES THEMSELVES AND INVOICES WERE RAI SED ON THIS PARTY. AS PER EXCISE AUTHORITIES, THIS PARTY WAS NO T TRACEABLE (THOUGH WAS REGD. AS 100% EOU BY THEM ONLY AND THEY ONLY ISSUED FORMS NO. CT-3 TO THIS PARTY) AND THEY WANTE D TO TREAT THE SALES MADE TO THIS PARTY AS DTA SALES INSTEAD OF EO U TO EOU (EXEMPTED) SALES. HOWEVER, THE FACT THAT THESE SALE S WERE DULY ACCOUNTED FOR IN OUR ACCOUNTS WAS NEVER DISPUTED OR DOUBTED. IN THE REASONS, ID. AO HIMSELF ON ONE HAND NOTED THAT THESE SALES WERE MADE BY RAISING INVOICES IN THE NAME OF M/S RA JU 12 FABRICS AND ON OTHER HANDS HE REACHES TO THE BELIEF THAT THESE SALES WERE UNACCOUNTED AND ESCAPED THE ASSESSMENT. THIS WAS CLEARLY CONTRADICTORY RECORDING OF REASONS AND BELI EF. THERE WAS NO NEXUS BETWEEN REASONS AND BELIEF. IN THE RE-ASSE SSMENT ORDER ALSO ID. AO HAS ACCEPTED THAT THESE SALES WERE ACCO UNTED FOR. THUS, THE BELIEF ABOUT ESCAPEMENT OF INCOME WAS WRO NGLY DRAWN BY ID. AO FOR WHICH THERE WAS NO MATERIAL. 4) IN THE REASONS, ID. AO HAS ALSO RAISED SUSPICION AS TO WHETHER THE INVESTMENT IN THE STOCK REPRESENTING THESE SALE S IS REFLECTED IN BOOKS OF ACCOUNT OR NOT. FIRST OF ALL THIS SUSPI CION WAS APPARENTLY WRONG AND WITHOUT ANY BASIS. SECONDLY, S UCH SUSPICION CANNOT BE THE BASIS FOR INITIATING RE-ASS ESSMENT PROCEEDINGS. IT IS NOW WELL SETTLED LAW THAT RE-ASS ESSMENT PROCEEDINGS CANNOT BE INITIATED ON THE BASIS OF SUS PICION OR FOR CARRYING OUT INQUIRIES/INVESTIGATION. THESE VIEWS H AVE BEEN UPHELD BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF SHANKARLAL NAGJI & CO. & ORS. VS. ITO & ANR (SUPRA). IT HAS BEEN HELD BY HON'BLE HIGH COURT THA T A COMPLETED ASSESSMENT CANNOT BE REOPENED MERELY TO M AKE INQUIRIES. HENCE, THESE OBSERVATIONS AND SUSPICIONS OF ID. AO IN THE REASONS RECORDED BY HIM WERE NOT ONLY FACTUALLY INCORRECT AND BASELESS BUT WERE ALSO INVALID AND INSUFFICIENT IN LAW FOR INVOKING THE PROVISIONS OF S. 147/148 OF THE ACT. M OREOVER, THE ID. AO INITIATED THE RE-ASSESSMENT PROCEEDINGS SOLE LY ON THE BASIS OF SCN ISSUED BY EXCISE AUTHORITIES. THIS IS ALSO WRONG IN LAW. LD. AO DID NOT CARRY OUT ANY INDEPENDENT IN QUIRIES OR EXERCISE BEFORE RECORDING REASONS. HE SIMPLY NOTED DOWN SOME OF THE LINES OF SAID SCN AND RECORDED WRONG BELIEF BY MISINTERPRETING AND MISUNDERSTANDING THE SAME AND I SSUED THE NOTICE U/S 147/148 OF THE ACT. HIS REASONS AND BELI EF WERE CONTRADICTORY. THERE WAS NO INDEPENDENT APPLICATION OF MIND BY ID. AO. THE RE-ASSESSMENT PROCEEDINGS ARE BAD-IN-LA W ON THIS ACCOUNT ALSO AS PER LAW LAID DOWN IN THE CASE OF CT T VS. RAINEE SINGH (SUPRA). 5) THE RE-ASSESSMENT PROCEEDINGS ARC ALSO BAD-IN-LA W AND WITHOUT JURISDICTION IN VIEW OF FIRST PROVISO BELOW S. 147 OF THE ACT. AS MENTIONED BY ID. AO IN THE FIRST PARAGRAPH OF THE R E-ASSESSMENT ORDER, THE ORIGINAL ASSESSMENT IN THIS CASE WAS COM PLETED U/S. 143(3) OF THE ACT ON 10-10-2005. THERE WAS NO FAILU RE ON OUR PART EMBER TO FURNISH THE RETURN OF INCOME OR TO FU RNISH ALL THE 13 MATERIAL FACTS FULLY & TRULY. AUDITED ACCOUNTS WERE FURNISHED WITH ORIGINAL RETURN OF INCOME. ALL THE DETAILS AND PARTICULARS REQUIRED BY ID. AO DURING ORIGINAL ASSESSMENT PROCE EDINGS WERE FURNISHED TO HIM. NO INACCURACY HAS BEEN POINTED OU T BY ID. AO IN ANY OF THESE DETAILS. IN RESPECT OF SALES TO M/S . RAJU FABRICS ALSO COMPLETE DETAILS WERE FURNISHED. THIS PARTY WAS REGD. AS 100% EOU BY THE EXCISE AUTHORITIES THEMSEL VES AND WAS HOLDING CENTRAL EXCISE REGISTRATION. THEY ALSO ISSUED FORMS NO. CT-3 TO THIS PARTY. ASSESSEE COMPANY HAD 'SOLD GOODS TO THIS PARTY AGAINST THESE FORMS AND FILED N ECESSARY INFORMATION ABOUT THESE SALES TO THE EXCISE AUTHORI TIES. HOW THE EXCISE AUTHORITIES CAN, NOW, SAY THAT THIS PARTY WA S FICTITIOUS. THE GOODS WERE DELIVERED TO THIS PARTY AGAINST WELL ACKNOWLEDGED CHALLANS. PAYMENTS WERE RECEIVED FROM HIM BY A/C PAYEE ONLY CHEQUES. NOTHING WRONG WAS FOUND IN THESE FACTS. IN SUCH A SITUATION, MERELY BECAUSE THAT PAR TY WAS NOT TRACEABLE, IT CANNOT BE SAID THAT OUR SALES WERE TO A FICTITIOUS PARTY. OUR SALES TO THIS PARTY HAS BEEN DULY ACCOUN TED FOR BY US AND INCLUDED IN THE FIGURE OF SALES IN OUR AUDITED P & E A/C. HENCE, THERE WAS NO FAILURE ON OUR PART EITHER IN F URNISHING THE RETURN OF INCOME OR IN FURNISHING ALL THE MATERIAL FACTS FULLY AND TRULY. IN SUCH A CASE, NO ACTION U/S 147 / 148 OF T HE ACT COULD BE TAKEN AFTER FOUR YEARS FROM THE END OF ASSESSMENT Y EAR AS PER THE FIRST PROVISO BELOW S. 147 OF THE ACT. THE PERIOD O F FOUR YEARS EXPIRED ON 31-03-2007. BUT THE NOTICE U/S 148 WAS I SSUED ON 28-03-2008, WHICH IS CLEARLY BEYOND THE TIME LIMIT SPECIFIED UNDER THE FIRST PROVISO BELOW S. 147 OF THE ACT. TH US, THE RE- ASSESSMENT PROCEEDINGS ARE BAD IN LAW ON THIS ACCOU NT ALSO. IN VIEW OF ABOVE, THE APPELLANT PRAYS FOR QUASHING THE WHOLE OF THE RE-ASSESSMENT PROCEEDINGS AND CONSEQUENT RE-ASS ESSMENT ORDER PASSED BY ID. AO AS BAD IN LAW AND BEYOND THE PROVISIONS OF LAW. II. NOT DROPPING THE RE-ASSESSMENT PROCEEDINGS THE NEXT GROUND OF APPEAL IS AGAINST THE ACTION OF ID. AO IN NOT DROPPING THE REASSESSMENT PROCEEDINGS DESPITE KNOWI NG THAT THE BELIEF RECORDED BY HIM REGARDING ESCAPEMENT OF INCO ME WAS FACTUALLY INCORRECT AND IN FACT THERE WAS NO SUCH E SCAPEMENT OF ANY INCOME. HON'BLE CIT (A) HAS ERRED IN SUSTAINING THIS ACTION OF ID. AO. AFTER RECEIPT OF COPY OF REASONS RECORDE D, THE 14 ASSESSEE COMPANY FILED DETAILED SUBMISSION AND OBJE CTIONS VIDE LETTER DATED 18-12-2008. THIS LETTER HAS BEEN REPRO DUCED BY ID. AO IN PARA '6' OF THE RE-ASSESSMENT ORDER. BY PRODU CING THE BOOKS OF A/C AND RECORDS BEFORE ID. AO IT WAS PROVE D THAT THE IMPUGNED SALES OF RS.1,95.66,073/- AND 1,20,30,042/ - FOR THE ASSESSMENT YEAR 2002-03 AND 2003-04 RESPECTIVELY WA S DULY ACCOUNTED FOR. IN PARA 7.3 OF THE ORDER, ID. AO HIM SELF HAS ACCEPTED THIS FACT. THUS, THE BELIEF OF ID. AO THAT THE IMPUGNED SALES OF RS.1,95,66,073/- AND 1,20,30,042/- FOR TH E ASSESSMENT YEAR 2002-03 AND 2003-04 RESPECTIVELY WAS UNACCOUNT ED AND ESCAPED ASSESSMENT (AS MENTIONED IN THE REASONS REC ORDED) WAS CLEARLY WRONG. IN THE RE-ASSESSMENT ORDER ID. AO HI MSELF HAS ACCEPTED THAT THESE SALES WERE ACCOUNTED FOR. ONCE THIS FACT HAS BEEN ACCEPTED BY ID. AO, THE VERY REASON OR FOUNDAT ION OF RE- ASSESSMENT PROCEEDINGS CEASES AND THE PROCEEDINGS M UST HAVE BEEN DROPPED. HOWEVER, ID. AQ DID NOT DROP THE PROC EEDINGS DESPITE ACCEPTING THAT HIS BELIEF ABOUT ESCAPEMENT OF INCOME WAS INCORRECT. ONCE THE BELIEF ABOUT ESCAPEMENT OF INCOME WAS FOUND TO BE INCORRECT, THE WHOLE OF PROCEEDINGS BEC AME INVALID AND ID. AO MUST HAVE DROPPED THE PROCEEDINGS AT THA T STAGE ITSELF. BUT INSTEAD OF DROPPING THE SAME, HE PASSED THE RE- ASSESSMENT ORDER AND MADE OTHER ADDITION ON PRESUMP TIVE AND ESTIMATED BASIS. THIS IS NOT PERMITTED IN LAW. HON' BLE CIT (A) ALSO ERRED IN UPHOLDING THE VALIDITY OF RE-ASSESSME NT PROCEEDINGS DESPITE THE FACT THAT BELIEF ABOUT ESCA PEMENT OF INCOME WAS FOUND TO BE FACTUALLY INCORRECT. IT HAS BEEN CONSISTENTLY HELD BY HON'BLE COURTS THAT ONCE THE B ELIEF ABOUT THE ESCAPEMENT OF INCOME IS FOUND TO BE WRONG, THE RE- ASSESSMENT PROCEEDINGS HAVE TO BE DROPPED AND AO HA S NO JURISDICTION TO MAKE OTHER ADDITIONS. RELIANCE IS P LACED ON FOLLOWING RECENT JUDGEMENT OF HON'BLE RAJASTHAN HIG H COURT:- -CIT VS. DR. DEVENDRA GUPTA (2008) 220 CTR 629 (RAJ.) (COPY ENCLOSED) IT IS HUMBLE CONTENTION OF YOUR APPELLANT THAT ONCE THE BELIEF OF ID. AO ABOUT ESCAPEMENT OF INCOME WAS FOUND TO BE I NCORRECT, WHOLE OF THE RE-ASSESSMENT PROCEEDINGS COMES TO AN END AND MUST HAVE BEEN DROPPED. LEARNED AO ERRED IN NOT DRO PPING THE SAME. RE-ASSESSMENT ORDER PASSED BY ID. AO DESPITE THIS FACT IS CLEARLY BEYOND THE SCOPE OF PROVISIONS OF LAW IN TH IS REGARD. APPELLANT, THEREFORE, PRAYS FOR QUASHING THE RE-ASS ESSMENT PROCEEDINGS. 15 12 THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AO AND THE CIT(A). 13 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE IN TH E WRITTEN SUBMISSIONS. IT IS APPARENT THAT THE REVENUE HAD CO ME ACROSS WITH INFORMATION THAT THE ASSESSEE WAS TRADING BY D UBIOUS WAYS. IN SUCH CIRCUMSTANCE IT WAS THE ONUS ON THE PART OF THE ASSESSEE TO ESTABLISH THAT IT WAS NOT INDULGING IN SUCH ACTI VITY EVADING TAX. IT IS WELL SETTLED LAW THAT ON ANY SHAM TRANSACTION S SENSED BY THE REVENUE REOPENING IS PERMISSIBLE U/S. 147 AND 148 O F THE ACT. IN THE CASE BEFORE US THERE WAS INFORMATION RECEIVED F ROM THE OTHER ARM OF THE GOVERNMENT VIZ. CENTRAL EXCISE AUTHORITI ES THAT THE ASSESSEE HAD MADE SALES OUTSIDE THE BOOKS BECAUSE T HE PARTY TO WHOM THE ASSESSEE HAD TRANSACTED SALES WAS FOUND TO BE BOGUS. THE HON. APPEX COURT IN PHOOL CHAND BAJRANG LAL VS ITO (1993) 203 ITR 456(SC) HAS HELD THAT ONE OF THE PU RPOSE OF SECTION 147 IS TO ENSURE THAT A PARTY CANNOT GET AW AY BY WILLFULLY MAKING A FALSE OR UNTRUE STATEMENT AT THE TIME OF T HE ORIGINAL ASSESSMENT AND WHEN THAT FALSITY COMES TO NOTICE, T O TURN AROUND AND SAY YOU ACCEPTED MY LIE, NOW YOUR HANDS ARE TI ED AND YOU CAN DO NOTHING. IT WOULD BE TRAVESTY OF JUSTICE TO ALLOW THE ASSESSEE THAT LATITUDE. THE ASSESSEE HAS NOT PRODU CED ANY MATERIALS BEFORE US TO DISPROVE THE FINDINGS OF THE CENTRAL EXCISE AUTHORITY. THAT ISSUE HAS ALSO NOT REACHED TO ITS F INALITY AT THIS STAGE. THEREFORE THE REVENUE WAS WELL WITHIN IN ITS REALM TO REOPEN THE ASSESSMENT FOR BOTH THE ASSESSMENT YEARS . NEEDLESS TO 16 MENTION THAT SECTION 147 READ WITH SECTION 149 OF T HE ACT MAKES IT CLEAR THAT IN SUCH CASE THE TIME LIMIT FOR REOPE NING EXTENDS TO SIX YEARS. IT IS ORDERED ACCORDINGLY. 14 NOW COMING TO THE REVENUES APPEALS, GROUND NO.1 WHICH RELATES TO DELETION OF THE ADDITION OF RS.9,78,304/ - FOR AY 2002- 03 AND RS.6,01,502/- FOR AY 2003-04, THE LEARNED CI T(A) HAS DECIDED THE ISSUE IN THE FOLLOWING MANNER:- 2.3.2 WITH RESPECT TO THE THIRD GROUND, THE APPEL LANT HAS STATED THAT NO ADDITION SHOULD BE MADE BECAUSE THE ADDITIO N HAS BEEN MADE WITHOUT ANY BASIS OR VALID GROUND. THE A.O, HAS STA TED THAT BECAUSE OF M/S. RAJU FABRICS IS A FICTITIOUS FIRM, THE ASSESSE E HAS SOLD THE GOODS IN THE OPEN MARKET AND MIGHT HAVE EARNED EXTRA PROF IT WHICH WAS ESTIMATED BY THE A.O. AT 3%. THE APPELLANT HAS STAT ED THAT THE A.O. HAS BROUGHT ANYTHING ON RECORD THAT IT HAS EARNED E XTRA PROFIT BY SELLING TO SOME OTHER PARTIES INSTEAD OF M/S, RAJU FABRICS. ALL THE SALES HAVE BEEN FOUND TO BE RECORDED IN THE BOOKS OF ACCO UNT EVEN THOUGH IT IS IN THE NAME OF M/S RAJU FABRICS WHICH HAS NOT BE EN ADMITTED BY THE AO. THE AO ONLY DOUBTED THAT BY SELLING IT TO SOME OTHER PARTIES THE ASSESSEE MIGHT HAVE EARNED MORE PROFIT THAN THAT RE CORDED IN THE INVOICES. THE APPELLANT FURTHER STATED THAT IN PARA -7.5 OF THE ASSESSMENT ORDER THE A.O. HAD ESTIMATED SUCH EXTRA PROFIT AT 3% HOWEVER THE ADDITION MADE BY HIM AT 5% WHICH ALSO S HOWS THAT THE WHOLE THING IS WITHOUT ANY BASIS. I AGREE WITH THE APPELLANT THAT THE A.O. HAS NOT GIVEN ANY BASIS FOR MAKING SUCH ADDITI ON EITHER AT 5% OR AT 3%. THE A.O. HAS SPECULATED THAT BY SELLING THE GOODS IN OPEN MARKET THE ASSESSEE MUST HAVE EARNED MORE PROFIT BY RECOVER MORE SALES INVOICES REGISTER IN THE NAME OF M/S RAJU FAB RICS. THERE IS NO MERIT ON RECORD THAT THE SATES WERE MADE OUTSIDE TH E BOOKS AND SALES WERE MADE OUTSIDE PARTIES. THEREFORE, THE ADDITION MADE BY THE A.O. IS DELETED. 15 THE REVENUE IS IN APPEAL BEFORE US AGAINST THE A FORESAID FINDINGS OF THE CIT(A). THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE DECISION OF THE CIT(A ) DELETING 17 THE ADDITION MADE BY THE AO OF RS.9,78, RS.6,01,502 /- 304/- AN IS NOT ACCEPTABLE FOR THE FOLLOWING REASONS:- I) THE LD. CIT(A) HAS DELETED THE ADDITION OF RS.9 ,78,30 AND RS.6,01,502/- 4/- MADE BY THE AO ON THE GROUND TH AT THE AO HAS NOT BROUGHT ON RECORDS ANY MATERIAL EVIDENCE TO SHO W THAT THE ASSESSEE HAS EARNED EXTRA PROFIT BY SELLING IMPORTED YARN TO 'SOME OTHER PARTIES' INSTEAD OF SALES MADE TO RAJU FABRICS, A F ICTITIOUS CONCERN, BUT THE LD. CIT(A) HAS NOT APPRECIATED THAT HE HIMSELF HAS IN HIS APPELLATE ORDER IN PARA 2.3.1 IN THE CONCLUDING PART, HELD TH AT 'IT IS CLEAR THAT THE PARTY TO WHOM SALES ARE SHOWN I.E. RAJU FABRICS, IS DEFINITELY A FICTITIOUS CONCERN AND THE ASSESSEE DOES NOT SHOW T HAT RAJU FABRICS IS IN EXISTENCE'. THE FINDINGS OF THE LD. CIT(A) ITSEL F SUGGEST THAT THE IMPORTED PDTY AND PTY YARN SOLD BY THE ASSESSEE IN THE 'OPEN MARKET', BUT THE LD. CIT(A) HAS NOT APPRECIATED THA T THE MARGIN OF PROFIT ON SALE OF SUCH IMPORTED YEARN IN THE 'OPEN MARKET' IS DEFINITELY MORE THAN 'RE-EXPORTING THE SAME YARN AFTER GETTING IT PROCESSED THROUGH OUTSIDE PROCESSORS OR THAN CLAIMED TO HAVE BEEN SOLD TO RAJU FABRICS, A FICTITIOUS CONCERN'. THE LD. CIT(A) HAS NOT APPRECIATED THAT THE AO HAD THEREBY CORRECTLY BROUGHT TO TAX THE 5% EXTRA PROFIT ON SALE OF SUCH IMPORTED YARN CLAIMED TO HAVE BEEN SOLD TO RAJU FABRICS, A FICTITIOUS CONCERN. 16 THE ASSESSEE HAS SUPPORTED THE ORDER OF THE CIT( A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). IN THE WRITTEN SUBMISSIONS, THE ASSESSEE HAS SUBMITTED AS UNDER:- III. ADDITION OF RS.9,78,304/- , AND RS.6,01,502/- IS BEYOND THE SCOPE OF LAW WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL, THE A PPELLANT CONTENDS THAT THE ADDITION MADE BY ID. AO OF RS.9,78,304/- A ND RS.6,01,502/- ON ESTIMATED BASIS IS BEYOND THE SCOPE OF PROVISION S OF S. 147/148 OF THE ACT. THOUGH, THIS ADDITION HAS BEEN DELETED BY ID. CIT (A) ON MERITS (AGAINST WHICH REVENUE IS IN APPEAL), HE ERR ED IN NOT DELETING THE SAME ON THE GROUND OF LEGALITY ALSO. IT IS NOW TRITE LAW THAT IN RE- ASSESSMENT ORDER, ADDITION ON OTHER ISSUES CAN BE M ADE ONLY WHEN THE 18 ADDITION IS FIRST MADE FOR THE INCOME WHICH HAD ESC APED THE ASSESSMENT. IF NO ADDITION IS MADE IN RESPECT OF SO CALLED ESCAPED INCOME, THEN THE MATTER STOPS THERE ONLY AND NO OTH ER ADDITIONS COULD BE MADE. THIS IS THE LAW LAID DOWN IN FOLLOWING CAS E LAWS:- - CIT VS. JET AIRWAYS (I) LTD. (2011) 331 ITR 236 (BOM.) - CIT VS. SHRIRAMSINGH (2008) 306 ITR 343 (RAJ.) IN OUR CASE, THE AO RECORDED THE REASONS AND REACHE D TO THE BELIEF THAT THE SALES OF RS.1,95,66,073/- AND RS.1,20,30,042/- ESCAPED ASSESSMENT. HOWEVER, IN RE-ASSESSMENT ORDER ID. AO ACCEPTED THESE SALE TO BE ACCOUNTED SALES AND NO ADDITION WAS MADE FOR THE SAME. ONCE NO ADDITION WAS MADE FOR THE IMPUGNED ESCAPE I NCOME, THERE IS NO JURISDICTION TO MAKE ADDITIONS ON OTHER ISSUES. HOWEVER, ID. AO MADE FURTHER ADDITION OF RS.9,78,304/- AND RS.6,01 ,502/- BY PRESUMING FURTHER PROFITS @ 5%. THIS ADDITION WAS W RONG ON MERITS AND ID. CIT (A) RIGHTLY DELETED THE SAME. AT THE SA ME TIME THIS ADDITION IS ALSO WRONG AND BEYOND THE JURISDICTION AS PER THE LAW LAID DOWN IN ABOVE CASE LAWS. THOUGH, ID. CIT (A) DELETE D THIS ADDITION ON MERITS, HE OUGHT TO HAVE DELETED THE SAME FOR ABOVE LEGAL REASON ALSO I.E. BEYOND THE SCOPE OF S. 147/148 OF THE ACT. ONC E THERE IS NO ADDITION ON THE ESCAPED INCOME, THERE CANNOT BE ADD ITIONS ON OTHER ISSUES. THUS, THE ADDITION MADE BY ID. AO WAS WRONG ON THIS ACCOUNT ALSO I.E. BEYOND THE SCOPE OF S. 147/148 OF THE ACT . 17 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GON E THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO G ONE THROUGH VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE IN TH E WRITTEN SUBMISSIONS. THE AO HAS ONLY SPECULATED THAT BY SEL LING THE GOODS IN THE OPEN MARKET ROUTING THROUGH M/S. RAJU FABRICS THE ASSESSEE MUST HAVE EARNED MORE PROFIT. IT IS A MERE GUESS OF THE LD.AO. THE LD. AO HAD NOT MADE ANY FURTHER ENQUIRY AND COME OUT WITH ANY MATERIALS TO POINT OUT THE ALLEGED ALL EGATION TO BE TRUE. IT WELL ACCEPTED PRINCIPLE THAT ASSESSMENTS C ANNOT BE MADE 19 ON SURMISES AND CONJECTURES. THEREFORE WE HEREBY CO NFIRM THE ORDER OF LD.CIT(A). 18 GROUND NO.4 IN THE CROSS OBJECTIONS ARE COMMON F OR BOTH THE YEARS WHICH RELATES TO LEVY OF INTEREST U/S 234 A AND 234B OF THE ACT., WHICH IS MANDATORY AND CONSEQUENTIAL. THE REFORE THIS GROUND OF THE ASSESSEE IS DISMISSED. 19 IN THE RESULT, FOR BOTH THE ASSESSMENT YEARS THE REVENUES APPEALS AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 30-11-2011 SD/- SD/- (D K TYAGI) JUDICIAL MEMBER (A MOHAN ALANKAMONY) ACCOUNTANT MEMBER DATE : 30-11-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S GOYAL SYNTHETICS PVT. LTD., 701, TRIVIDH CHA MBERS, RING ROAD, SURAT 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT 3. CIT CONCERNED 4. CIT(A)-I, SURAT 5. DR, ITAT, AHMEDABAD BENCH-B, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD