DY.CIT., CENTRAL-2(1)(1), AGRA V. .M/S VACMET INDIA PVT. LTD., AGRA

ITA 332/AGR/2019

AI Insights

The case involves M/s. Vacmet India Pvt. Ltd., a manufacturer of high barrier polymer films, which faced reassessment for the Assessment Year 2013-14. The reassessment was initiated by the DCIT, Circle-2(3)(1), Jhansi, alleging that sales made by the assessee to M/s Perfect Polychem Pvt. Ltd. were bogus and merely accommodation entries. The Tribunal examined whether the Assessing Officer (AO) had validly assumed jurisdiction under section 147 of the Income-tax Act, 1961. The Tribunal found that the AO's actions were based on insufficient and unsubstantiated material, leading to the quashing of the reassessment proceedings.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 34734 (ITAT-AGRA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Other Referred Cases: CIT Vs. S. Goyenka Lime and Chemicals Ltd, PCIT Vs. NC Cables Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUKESH KUMAR JAIN
• Assessee Lawyers: KANCHUN KAUSHAL
• Keywords: Reassessment proceedings; Accommodation entries; Competent authority; Tangible material; Bogus
• Section: 147; 148; 143(3); 64; 133(6)

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL AGRA BENCH “DB”: AGRA BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI SUDHIR KUMAR, JUDICIAL MEMBER (Through virtual hearing) ITA No. 335/AGR/2019 (Assessment Year: 2013-14) M/s. Vacmet India Ltd, 4/117-2A, Church Road, Civil Lines, Agra Vs. DCIT, Circle-2(3)(1), Jhansi (Appellant) (Respondent) PAN: AAACV5120B ITA No. 332/AGR/2019 (Assessment Year: 2013-14) DCIT, Circle-2(3)(1), Jhansi Vs. M/s. Vacmet India Ltd, 4/117-2A, Church Road, Civil Lines, Agra (Appellant) (Respondent) PAN: AAACV5120B Assessee by : Shri Kanchun Kaushal, Adv Ms. Shruti Khimta, AR Revenue by: Shri Sukesh Kumar Jain, CIT DR Date of Hearing 11/12/2024 Date of pronouncement 19/12/2024 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.335/Del/2019 for AY 2013-14, arises out of the order of the Commissioner of Income Tax (Appeals)-2, Agra [hereinafter referred to as „ld. CIT(A)‟, in short] dated 13.08.2019 against the order of assessment passed u/s 144/147 of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 31.12.2019 by the Assessing Officer, DCIT, Circle-2(1)(1), Agra (hereinafter referred to as „ld. AO‟). ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 2 2. Though the assessee has raised various grounds in its appeal before us, the preliminary issue to be decided thereon is as to whether the Learned AO had validly assumed jurisdiction under section 147 of the Act in the facts and circumstances of the instant case. 3. We have heard the rival submissions and perused the materials available on record. The assessee is one of the leading manufacturers of high barrier polymer films exporting to 80 countries worldwide. The assessee caters to clients across industries as the polyester films / slash metallized paper are suitable for various applications such as packaging, adhesive tapes, labeling, and decorations among others. Additionally, the products of the assessee also finds use in other industries like textiles, electrical and medical equipment, security industry etc. The raw material for production (mainly polyester films and chips) is procured by the assessee from various indigenous reputed suppliers such as Reliance, IOCL, MCPI, HPCL and also imported from international vendors such as Marubeni Plex, Indorama, Polychem Korea, Oriental Petrochemical etc. All the raw materials procured are evidenced and supported by relevant documents viz. invoice, lorry receipt, road permits as prescribed from time to time by the Central Sales Tax / VAT / GST regulations. Similarly, the import purchases are supported by bill of import, bill of entry, shipping bill etc. All the materials are brought to the respective factories and taken to store after gate entry and store entry as managed by robust accounting system. The procured material stored in factory is then issued for production with an issue note. The daily production is thereafter entered in the stock register, namely RG-1 register prescribed by excise authorities. All the goods sold are duly entered in the RG-1 register before being dispatched. The stock register is reduced to the extent of goods sold and removed from the factory ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 3 premises. The goods that are to be dispatched are supported by sale invoice, lorry receipt and other CST / VAT / related documents, as the case may be. Excise invoice raised as per Rule 11 of Central Excise Rules 2002 among other things also indicates the time of removal of goods from the factory, the vehicle number used for transportation of the goods. Corresponding entries are made in the RG-1 register which indicates the quantity of goods as per the invoice and the vehicle number used for transportation. Thereafter, the respective buyers obtain C-form from their Jurisdictional Sales Tax Department who verifies the purchases made by the buyer and thereafter a C-form is issued. The goods manufactured by the assessee have to be compliant not only with the Income Tax Act but also the Excise Act and Sales Tax Act among others. A product once finished cannot leave the assessee‟s manufacturing unit / warehouse without the appropriate compliances and permissions / forms as mandated in the relevant Act. Given this modus operandi adopted by the assessee for maintenance of records, the Learned AR before us submitted that allegations of bogus sales which are largely unsubstantiated cannot be sustained and should be discarded in limine at the very outset. 4. The return of income for the Assessment Year 2013-14 was filed by the assessee company on 30-11-2013 declaring total income of Rs Nil. The assessment was completed under Section 143(3) of the Act on 24-04-2015 accepting the returned income. Prior to this, a summon dated 29-01- 2013 was issued to the assessee by the Investigation Wing, New Delhi under Section 131(1A) of the Act to which the assessee not only responded, but also explained the transactions entered into with M/s Perfect Polychem Private Limited together with supporting documents such as copy of invoices and respective consignment note substantiating the delivery of goods sold vide reply letter dated 6-2-2013 before the ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 4 Investigation Wing in response to the summons under Section 131(1A) of the Act. It is pertinent to note that scrutiny assessment proceedings for Assessment Year 2013-14 against the original return filed on 30-11-2013 was completed by the Learned AO under section 143(3) of the Act on 24- 04-2015, accepting the Nil returned income. This scrutiny assessment was framed after looking into account taking into account the replies filed by the assessee explaining the transactions with M/s Perfect Polychem Private Limited before the investigation wing in response to summons issued under section 131(1A) of the Act. Further, the same details were elaborated in detail before the Learned AO in the scrutiny assessment proceedings for Assessment Year 2013-14 by the assessee. Absolutely no adverse inference was drawn by the Learned AO in the said scrutiny assessment proceedings qua the transactions of the assessee with M/s Perfect Polychem Private Limited eventhough the said proceedings were framed after the response of the assessee before the investigation wing. It is pertinent to note that assessee had sold its goods to M/s Perfect Polychem Private Limited. Later a notice dated 2-11-2011 was issued by investigation wing, New Delhi calling for information under section 133(6) of the Act from the assessee with respect to transactions undertaken by it with M/s Perfect Polychem Pvt Ltd and M/s Star Technologies (India). In response to such notice, the assessee filed the requisite details and documents including the copy of ledger account of M/s. Perfect Polychem Private Limited as appearing in its books. Similar details were filed for M/s Star Technologies (India) transactions also for the relevant years. 5. Thereafter, a notice under section 148 of the Act stood issued to the assessee on 30-3-2018. The assessee on 27-4-2018 electronically filed its return and sought for reasons for reopening the assessment. The copy of ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 5 the reasons were furnished to the assessee on 12-11-2018. The Learned AO fully relied upon the investigation report and alleged in the reasons that sales made by the assessee to M/s Perfect Polychem Private Limited as bogus and they were merely accommodation entries. He alleged that no physical delivery of goods were made by the assessee to M/s Perfect Polychem Private Limited. Accordingly, the assessment was sought to be reopened vide issuance of notice under section 148 of the Act of the assessee herein. Necessary approval from the competent authority in terms of section 151 of the Act was also obtained by the Learned AO before assuming jurisdiction under section 147 of the Act. On obtaining the reasons, the assessee filed its objections for the reasons recorded which was disposed of by a separate order on 20-12-2018 by the Learned AO. The assessee also furnished a confirmation letter received from M/s Perfect Polychem Private Limited along with copy of ledger again before the Learned AO on 25-12-2018. 6. On perusal of the reasons recorded, we find that the Learned AO had relied on the statement of Mr. Vijay Goyal who is a director of M/s Perfect Polychem Private Limited which was recorded by the investigation wing on 28-2-2013 along with suspicious transaction report which primarily formed the basis of initiation of reassessment requisition for the first time by the Learned AO. The statement of Vijay Goyal is enclosed in pages 129-131 of the Main Paper Book. We have gone through the entire statement of Mr. Vijay Goyal. In fact, Mr. Vijay Goyal had only stated that his company was engaged in the business of exchange of bills only with five parties and assessee‟s name did not figure in the said five parties list. Further, no questions whatsoever were even posed by the investigation wing on Mr. Vijay Goyal with regard to transactions carried out by M/s Perfect Polychem Private Limited with the assessee. Hence, there was no occasion at all for ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 6 Mr. Vijay Goyal to even mention the name of the assessee , much less anything adverse qua the assessee, in the said statement. Hence, it could be safely concluded that statement of Vijay Goyal was never against the assessee and not at all connected with the assessee in any manner whatsoever. But the Learned AO in the reasons without any basis and without any material cogently available with him, drew conclusion that since Mr. Vijay Goyal had stated that his company M/s Perfect Polychem Private Limited was engaged in providing accommodation entries in respect of five parties which are listed in the reasons itself, in general, the said company should have indulged only in the business of exchange of bills and accordingly all the transactions of M/s Perfect Polychem Private Limited should be considered only as accommodation entries. This can at best be construed only as a surmise or conjecture and not the formation of belief. Infact this conclusion drawn by the Learned AO was without any legal basis and does not have any live link to form a belief that income of the assessee had escaped assessment warranting reopening. With this, M/s Perfect Polychem Private Limited was treated as a tainted party by the Learned AO and since assesee had sold goods to M/s Perfect Polychem Private Limited, the transactions carried out by the assessee in the form of sales made to Perfect Polychem Private Limited was also treated as accommodation entry obtained by the assessee. 7. From the above narration of facts, it could be seen that the Learned AO had absolutely no material, much less tangible material with him to come to a conclusion that the transactions of sales made by the assessee to M/s Perfect Polychem Private Limited could be categorized as accommodation entries. Further, from the entire statement of Mr Vijay Goyal, it is very very clear that Mr Vijay Goyal had said that his company was in the business of exchange of bills only with five parties. Admittedly, ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 7 the name of the assessee did not figure in the list of those five parties at all. Hence there is no necessity at all for the Learned AO to draw adverse inference on M/s Perfect Polychem Private Limited in generality that all transactions are bogus, when specifically Mr Vijay Goyal states in the statement that 5 parties only had been dealt with for exchange of bills. Moreover, no questions were even put by the investigation wing on Mr Vijay Goyal after he stated that 5 parties were involved in exchange of bills with M/s Perfect Polychem Private Limited, which could have atleast given rise to a suspicion to form a general adverse opinion on M/s Perfect Polychem Private Limited. While this is so, how the Learned AO could have formed a reasonable belief that the income of the assessee had escaped assessment by obtaining accommodation entries through the help of M/s Perfect Polychem Pvt Ltd is not understandable. On the contrary, the assessee had furnished all the possible evidences that could be filed to justify the genuinity of sales made to M/s Perfect Polychem Private Limited. None of those documents and evidences were even sought to be doubted by the Learned AO. Infact these documents were filed by the assessee thrice – once at the time of response to summons issued under section 131(1A) of the Act before the investigation wing in 2013; second at the time of scrutiny assessment proceedings under section 143(3) of the Act for the Assessment Year 2013-14 framed for the original return and third during the response to notice under section 133(6) of the Act in the year 2017. After all these evidences, the Learned AO proceeds to reopen the case of the assessee in March 2018. 8. We also find from the last page of Department‟s Paper Book filed before us which contains the letter dated 27-12-2018 addressed by the Learned AO to ADIT (Investigation), Unit 4(1), New Delhi asking the following details :- ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 8 a) Copy of the Suspicious Transaction Report (STR) mentioned in the investigation report which was forwarded to the Learned AO , which actually triggered the enquiries with the assessee. b) Copy of statement of Shri Vijay Goyal , Director of M/s Perfect Polychem Pvt Ltd. Infact due to the urgency in time barring completion of re-assessment proceedings, the Learned AO had even requested the ADIT (Inv.) Unit 4(1), New Delhi to kindly hand over the aforesaid documents in person by hand to the Inspector Shri Ajeet Mishra. This action itself very clearly goes to prove that the Learned AO at the time of recording reasons in March 2018 was not in possession of any information which could have led him to form a belief that income of the assessee had escaped assessment warranting reopening. 9. Yet another clinching evidence that completely goes against the revenue in the instant case is that M/s Perfect Polychem Private Limited was subjected to scrutiny assessment under section 143(3) of the Act dated 15-2-2016 for the very same Assessment Year 2013-14 , wherein the purchases made by it from the assessee had been accepted as genuine. When the sales made by the assessee to M/s Perfect Polychem Pvt Ltd is sought to be treated as accommodation entries and bogus, then correspondingly the purchases made by M/s Perfect Polychem Pvt Ltd from the assessee should also be obviously treated as bogus and subjected to disallowance. Nothing of that sort was even attempted in the scrutiny assessment of M/s Perfect Polychem Pvt Ltd. This scrutiny assessment order is enclosed in Page 184 of the Paper Book of the assessee. 10. Apart from this, from the proforma seeking approval under section 151 of the Act for reopening the assessment, we find that the Learned ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 9 Additional CIT, Range -2(1), Agra had merely stated that he is satisfied that this is fit case for reopening. More so, when the primary information in the form of STR and copy of statement of Shri Vijay Goyal itself was obtained by the Learned AO from the investigation wing only on 27-12-2018 which is evident from the fact narrated supra. Hence on what basis, the Learned Additional CIT could have been satisfied on the basis of reasons recorded by the Learned AO, when the primary information itself was not available even with the Learned AO at the time of recording reasons. This sort of approval granted under section 151 of the Act was held to be approval granted without application of mind and construed as mechanical by the Hon‟ble Madhya Pradesh High Court in the case of CIT Vs. S. Goyenka Lime and Chemicals Ltd reported in 56 taxmann.com 390 (MP HC). The Special Leave Petition (SLP) filed by the revenue against this decision was dismissed by the Hon'ble Supreme Court reported in 64 taxmann.com 313. Further, we find that the Hon‟ble Delhi High court in the case of PCIT Vs. NC Cables Ltd reported in 391 ITR 11 (Del) had also held the same, wherein, the approving authority had merely stated “approved” in the proforma while granting approval in terms of section 151 of the Act. This approval was held by the Hon‟ble Delhi and Madhya Pradesh High court to be a mechanical approval. The relevant observation of the Hon‟ble Delhi High Court in this regard are reproduced herein:- “11. Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed. ITA No. 335/AGR/2019 ITA No. 332/AGR/2019 M/s. Vacmet India Pvt. Ltd Page | 10 12. The substantial questions of law framed are answered in favour of the assessee and against the Revenue. The appeal is dismissed.” 10.1. Respectfully following the aforesaid decisions, we hold that the reopening has been made in the instant case by not taking approval under section 151 of the Act from the competent authority in the manner known to law. 11. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, this is a classic case for quashing the reassessment proceedings for more than one reason as narrated supra. Accordingly, the entire reassessment proceedings are hereby quashed. Since the reassessment is quashed, the other legal grounds raised by the assessee as well as the grounds raised by the revenue on merits need not be adjudicated and they are left open. 12. In the result, the appeal of the assessee is allowed and appeal of the revenue is dismissed. Order pronounced in the open court on 19/12/2024. -Sd/- -Sd/- (SUDHIR KUMAR) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19/12/2024 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "