INCOME TAX OFFICER 19(3) (2) , MUMBAI V. LEGAL HEIR OF LATE SHRI SATISH INDRA SHARMA, MUMBAI

MA 454/MUM/2023

AI Insights

The case involves the Income Tax Officer and the legal heir of Late Shri Satish Indra Sharma, concerning the assessment year 2009-10. The primary issue was the treatment of alleged bogus purchases amounting to Rs.2,08,34,218, which the Assessing Officer initially treated as bogus and added a 12.5% gross profit rate. The CIT(A) later enhanced this addition to 100% of the bogus purchases. The Tribunal initially quashed the assessment due to a procedural error regarding the notice under section 143(2), but upon the Revenue's Miscellaneous Application, it was found that the notice was indeed issued and served, leading to the recall of the initial order and a re-examination of the merits of the case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 26621 (ITAT-MUMBAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Other Referred Cases: PCIT vs. Mohammad Haji Adam & Co., Nikunj Eximp Enterprises (P) Ltd. v. Mohammed Adam Sahib
• Laws Referred To: Income Tax Act, 1961, Right to Information Act, 2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MAHESH PAMNANI
• Keywords: Bogus purchase; Reopening of assessment; Accommodation entries; Bogus
• Section: 147; 143(3); 142(1); 143(2); 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘SMC ’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER MA No.454/Mum/2023 (Arising out of ITA No.1839/Mum/2022) (Assessment Year: 2009-10) Income Tax Officer 19(3)(1), Mumbai 4th Floor, Room No.405 Piramal Chamber Bldg. Lalbaug, Mumbai-400 012 Vs. Legal Heir of Late Shri Satish Indra Sharma B-604, Prime Avenue S.V. Road, Vile Parle (W) Mumbai – 400 056 PAN/GIR No.AAACR5096C (Appellant) .. (Respondent) ITA No.1839/Mum/2022 (Assessment Year: 2009-10) Mrs. Nimisha Sharma, Legal Heir of Late Shri Satish Indra Sharma B-604, Prime Avenue S.V. Road, Vile Parle (W) Mumbai – 400 056 Vs. Income Tax Officer 19(3)(1), Mumbai 4th Floor, Room No.405 Piramal Chamber Bldg. Lalbaug, Mumbai-400 012 PAN/GIR No. AOHPS7105R (Appellant) .. (Respondent) Assessee by None Revenue by Shri Mahesh Pamnani Date of Hearing 13/12/2024 Date of Pronouncement 29/01/2025 MA No.454/Mum/2022 & ITA No.1839/Mum/2022 Legal Heir of Late Shri Satish Indra Sharma 2 आदेश / O R D E R PER AMIT SHUKLA (J.M): MA No.454/Mum/2022 The aforesaid Miscellaneous Application has been filed by the Revenue against order dated 30/11/2022 in ITA No.1839/Mum/2022. 2. In the aforesaid Miscellaneous Application, the department had stated as under:- 3. The Hon'ble ITAT while deciding the issue, considered the Order u/s 7(1) of the Right to Information Act, 2005 wherein the CPIO replied that \"no notice u/s 143(2) has been issued on 12.12.2014\". In this regard, it is submitted that the assessee sought the copy of the notice u/s 143(2) dated 12.12.2014 and since there was no notice u/s 143(2) dated 12.12.2014, the CPIO replied accordingly. Originally & actually, the notice u/s 143(2) was issued on 03.06.2014 and also served to the assessee. The same is attached herewith annexed as Exhibit 'B'. The RTI reply was misread & misrepresented by the assessee before the Hon'ble Bench as no notice issued u/s 143(2) in the case of the assessee. Hence, the decision of the Hon'ble ITAT is based on incorrect and incomplete facts of the case. Further, there was no discussion on the issues on merits of the issue Involved. Hence, the incorrect ground on the facts of which the decision of the Hon'ble ITAT was delivered, assumes significance & Importance in much as that the correct facts need to be placed before the Hon'ble Bench through this M.A. 4. The facts of the issue of bogus purchases are briefly enumerated as under: 4.1 The assessee is engaged in the business under the proprietary concern M/s. Continental Engineering Enterprises who has filed return of income for the year under consideration on 25.09.2009 declaring total income of Rs.5,93,200/- On the MA No.454/Mum/2022 & ITA No.1839/Mum/2022 Legal Heir of Late Shri Satish Indra Sharma 3 basis of information received from the Director General of Income Tax (DGIT), Investigation Wing, Mumbai that a scam has been unearthed by Sales Tax Department regarding issue of hawala bills/accommodation entries by several parties in Mumbai and assessee is one of such beneficiaries. Assessee alleged to have availed of benefits of accommodation bills from 30 parties of the total bill amount of Rs.2,08,34,218/. On the basis of this material Assessing Officer (AO) \"recorded reason to believe that the assessee has taken accommodation entries from 30 parties to the tune of Rs.2,08,34,218/- thus escaped assessment for A.Y. 2009-10 and thereby initiated the reopening of assessment under section 147/148 of the Income Tax Act, 1961 (for short 'the Act). Notices along with questionnaire under section 142(1) and 143(2) of the Act were issued and served on the assessee. In order to verify the genuineness of the purchases made by the assessee notices under section 133(6) of the Act were also issued but received back with the remarks by the postal authorities as not known/left. Declining the contentions raised by the assessee the AO proceeded to make an addition of Rs.26,04,277/- being 12.50% of the total bogus purchases of Rs.2,08,34,218/- and thereby AO passed order u/s 147 of the Act dated 25.03.2015 Exhibit 'C'. 4.2 The assessee being aggrieved by the addition, filed appeal before the CIT(A). The Ld.CIT(A) vide order dated 15.10.2019 in appeal No.CIT(A)-30/ITO- 19(3)(2)/11559/2015-16 has enhanced the addition to Rs. 2,08,34,218/- being 100% of the bogus purchases. The decision of the Ld.CIT(A) in order dated 15.10.2019 was not accepted and further appeal was flled before the Hon'ble ITAT by the assessee raising the following Ground as under \"A) Ld. Commissioner of Income Tax (A)-30 erred in not holding the assessment order as bad in law, non-est and void ab initio on the grounds that: i.Notice u/a 148 was issued without obtaining the sanction of the relevant authority, ii.No satisfaction of the approving authority was produced for issue of notice u/s 148 MA No.454/Mum/2022 & ITA No.1839/Mum/2022 Legal Heir of Late Shri Satish Indra Sharma 4 iii.No notice was issued u/s 143(2) iv. The assessment order u/s 143(2)/147 dt 25.3.2015 was passed without considering the assessee's objections to the said notice. v. The assessee's objections were perfunctorily dealt with only on 30.3.2015, i.e after passing the assessment order on 25.3.2015 vi. The Notice of Demand was signed on 19.3.2015, before passing the assessment order on 25.3.2015 B) Without Prejudice, Ld Commissioner of income Tax (A)-30 erred in i. Framing the appellate order on a deceased person, instead of on the legal heirs. ii. Enhancing to 100% the addition of 12.5% of bogus purchases made by the AO. iii. Although all details of purchases and sales were given to the AO iv. Without considering that there cannot be sales without purchases, and the purchases were never doubted. v.Without furnishing to the assessee the statements of the parties who allegedly issued accommodation bills to the assessee vi. Without giving the assessee the opportunity of cross examination of those parties at (ii) above vii. Ignoring that all payments were made by cheque, thereby establishing the genuineness of the recipient parties viii. Without ascertaining whether the cheque payments made by the assessee were returned in cash.\" 5. Hon'ble ITAT relying on the Right to the Information reply that no notice u/s 143(2) dated 12.12.2014 has not been MA No.454/Mum/2022 & ITA No.1839/Mum/2022 Legal Heir of Late Shri Satish Indra Sharma 5 issued in the case of the assessee, has held that assessment framed by the AO under section 143(3) read with section 147 of the Act is liable to be quashed. Accordingly, ITAT held that Since the re-assessment framed under section 143 read with section 147 of the Act on the basis of reopening does not withstand the judicial scrutiny hence quashed, the other ground raised by the assessee for challenging the addition made on account of bogus purchases need not be decided as they have become merely academic.” 3. Here in this case the Tribunal has quashed the assessment on the ground that notice u/s.143(2) was not issued therefore, being jurisdictional defect, the assessment framed by the ld. AO u/s.143(3) r.w.s.147 is liable to be quashed. At the time of hearing the Miscellaneous Application, the records were called for from the department and from there it was found that there was a notice u/s.143(2) dated 03/06/2014 which was issued to the assessee and was sent through a registered post on the same date. In response to such notice assessee has even responded vide letter dated 16/06/2014 wherein assessee had stated that he has received a notice dated 12/06/2014 and 13/06/2014 and sought a date from the ld. AO. This fact was not brought on record by the department at the time of hearing before the Tribunal. The Tribunal noted that in the assessment order, ld. AO has stated that notice u/s. 143(2) was issued on 12/12/2014 wherein no such notice was issued. Since it has been brought on record that the notice u/s.143(2) was issued and served upon the assessee which was duly acknowledged by the assessee at that time therefore, we find merits in the contention raised by the Revenue in the Miscellaneous Application and accordingly, Miscellaneous MA No.454/Mum/2022 & ITA No.1839/Mum/2022 Legal Heir of Late Shri Satish Indra Sharma 6 Application filed by the Revenue is allowed. Order is thus recalled. 4. Since the Tribunal has not decided the issue on merits, accordingly, both the parties had argued the issue on merits. The only issue on merits is that, based on certain information it was found that assessee has taken accommodation bill for purchase of Rs.2,08,34,218/- and accordingly, ld. AO had applied gross profit rate of 12.5% of the alleged bogus purchases of Rs.2,08,34,218/-. In the first appeal, ld. CIT(A) has enhanced the income by treating the entire alleged bogus purchases as income of the assessee and the entire purchases were disallowed and accordingly, income was enhanced from Rs.26,04,277/- to Rs.2,08,34,218/-. From the perusal of the records it is seen that before the ld. AO assessee had filed all the details and submitted that these purchases were made through banking channels and the source of which had been duly disclosed in the books and there were corresponding sales recorded in the books from such alleged purchases. The ld. AO has not doubted sales or GP rate as disclosed in the trading account. Once the source of purchases have been duly disclosed in the books of accounts, then the entire purchases cannot be added as income of the assessee which ld. CIT(A) has done. It is now well settled by the judgments of the Hon’ble High Court in the case of PCIT vs. Mohammad Haji Adam & Co., reported in 103 taxmann.com 459 and Nikunj Eximp Enterprises (P) Ltd., reported in 35 taxmann.com 384 Mohammed Adam Sahib v. Commissioner (1965) 56 ITR 360(Mad.) including various other judgments of MA No.454/Mum/2022 & ITA No.1839/Mum/2022 Legal Heir of Late Shri Satish Indra Sharma 7 the Hon’ble Bombay High Court that in the case of such alleged bogus purchases entire purchases cannot be added and only GP rate should be applied. Accordingly, we hold that application of GP rate on bogus purchases should be applied. In so far as quantum of GP rate is concerned, as observed by the Hon’ble High Court in the case of Mohammad Haji Adam & Co., reported in 103 taxmann.com 459, 12.5% GP rate is to be applied and already GP disclosed by the assessee on these purchases should be reduced. Accordingly, ld. AO is directed to reduce the GP rate as disclosed in the books of accounts from 12.5% and balance disallowance should be sustained. 5. In the result, Miscellaneous Application filed by the Revenue is allowed and appeal filed by the assessee is partly allowed. Order pronounced on 29th January, 2025. Sd/- (AMIT SHUKLA) JUDICIAL MEMBER Mumbai; Dated 29/01/2025 KARUNA, sr.ps Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. MA No.454/Mum/2022 & ITA No.1839/Mum/2022 Legal Heir of Late Shri Satish Indra Sharma 8 BY ORDER, (Asstt. Registrar) ITAT, Mumbai 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "