Vimalchand Jain, Rajasthan V. ITO. Ward-3(3)(5), Surat

ITA 1460/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2126 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R MEENA
• Keywords: Reopening of assessment; Bogus purchase; Question of law; Accommodation entries; Reason to believe; Reassessment proceedings; Set aside
• Section: 143(3); 147; 148; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH: SURAT BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER & SHRI O.P. MEENA, ACCOUNTANT MEMBER ITA NO. 1460/AHD./2017 ASSESSMENT YEAR: SHRI VIMALCHAND M JAIN PROP. M/S GEM ART C/O 901, RAJHANS TOWER, MINI BAZAAR, VARACHHA ROAD, SURAT. PAN NO. ACUPJ0819L VS ITO WARD 3(3)(5) MAJURA GATE, SURAT. APPELLANT RESPONDENT ASSESSEE BY SHRI HIMANSHU GANDHI, CA REVENUE BY SHRI S.R. MEENA, SR. DR ORDER PER SHRI BHAVNESH SAINI, J.M. THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-3, SURAT DATED 22.03.2017 FOR A Y 2007-08, CHALLENGING THE INITIATION OF REASSESSMENT PROCEEDI NGS U/S 147 OF THE ACT AND ADDITION OF RS. 1,56,82,850/- ON ACCOUN T OF BOGUS PURCHASES FROM M/S AVI EXPORTS. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE INDIVIDUAL HAD FILED ORIGINAL RETURN OF INCOME FOR ASSESSMENT YEAR UNDER APPEAL DATE OF HEARING 24.07.2019 DATE OF PRONOUNCEMENT 27.08.2019 2 ITA NO . 1460/AHD./2017 ON 21 ST SEPTEMBER, 2007 DECLARING TOTAL INCOME AT RS. 1,42 ,307/-. ON THE BASIS OF INFORMATION RECEIVED FROM DGIT(INV. ), MUMBAI, THE CASE WAS REOPENED BY ISSUING NOTICE U/S 148 DATED 2 9.03.2014, AFTER GETTING PRIOR APPROVAL FROM THE ADDL. CIT, RA NGE-9, SURAT. THE AO ISSUED STATUTORY NOTICES, THE ASSESSEE INFOR MED THE AO THAT RETURN OF INCOME FILED ORIGINALLY MAY BE TREAT ED AS RETURN HAVING BEEN FILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THE AO CONSIDERING REPORT OF INVESTIGATION WING AND OTHER MATERIAL FOUND THE ASSESSEE BEING PROPRIETORSHIP OF M/S GEM ART, S URAT HAS TAKEN ACCOMMODATION ENTRY FROM AVI EXPORTS IN A SUM OF RS. 12,48,93,566/-. THE ASSESSEE PLEADED BEFORE THE AO THAT HE HAS NOT MADE ANY PURCHASES FROM M/S AVI EXPORTS. THE A SSESSEE HAS MADE TRANSACTION WITH M/S AVI EXPORTS (RAJENDRA JAI N GROUP) ON COMMISSION BASIS ONLY AND COMMISSION INCOME HAS BEE N OFFERED FOR TAXATION. THE AO, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THAT ASSESSEE MUST HAVE SUPPR ESSED HIS PROFIT BY 25% EITHER THROUGH BOGUS PURCHASES/INVOIC ES OF PURCHASE PRICE OR THROUGH SALE AT HIGHER RATE. THE REFORE, ADDITION OF RS. 3,12,23,392/- WAS MADE BEING 25% OF RS. 12.4 8 CRORES AND PASSED THE REASSESSMENT ORDER U/S 143(3) R.W.S. 147 OF THE ACT DATED 28.03.2015. 3. THE ASSESSEE CHALLENGED THE REOPENING OF THE ASS ESSMENT AS WELL AS ADDITION ON MERIT BEFORE LD. CIT(A). HOWEV ER, LD. CIT(A) CONFIRMED THE ORDER OF THE AO AS REGARDS REOPENING OF THE ASSESSMENT. THE LD. CIT(A), HOWEVER, ESTIMATED THE ADDITION BY REDUCING THE INCOME OF THE PROFIT AT 12.5% ON THESE IMPUGNED 3 ITA NO . 1460/AHD./2017 PURCHASES AND RESTRICTED THE ADDITION TO RS. 1,56,8 2,850/-. APPEAL OF ASSESSEE WAS PARTLY ALLOWED. 4. LD. COUNSEL FOR ASSESSEE REITERATED THE SUBMISSI ONS MADE BEFORE AUTHORITIES BELOW. HE HAS SUBMITTED THAT AS SESSEE IS PROPRIETOR OF M/S GEM ART. THE ASSESSEE ACTED AS C OMMISSION AGENT OF M/S AVI EXPORTS. PB 25 IS THE REASON FOR REOPENING OF THE ASSESSMENT WHICH READS AS UNDER: SHRI VIMALCHAND MANIKCHAND JAIN, [M/S GEM ART] 7/3221, KACHA SHERI, SAIYADPURA, SURAT. PAN : ACUPJ0819L STATUS : INDIVIDUAL O/O : ITO, WARD 9(4), SURAT A.Y. : 2007 - 08 REASONS FOR THE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT: SEARCH ACTION WAS CARRIED OUT BY THE INVESTIGATION WING, MUMBAI ON VARIOUS GROUPS WHICH ARE INVOLVED IN PROV IDING ACCOMMODATION ENTRIES BY WAY OF ISSUING NON GENUINE BILLS. ON EXAMINATION OF THE ABOVE INFORMATION I H AVE REASON TO BELIEVE THAT THE ABOVE NAMED ASSESSEE IS A BENEFICIARY OF NON GENUINE TRANSACTIONS OF RS. 12,48,93,566/- DURING FY 2006-07 FROM THE FOLLOWING PARTIES: S.NO. NAME & PAN OF THE CONCERN WITH WHOM TRANSACTION MADE AMOUNT (RS.) 1. GEM ART 12,48,93,566/- IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THA T THE ASSESSEE HAS EARNED INCOME EXCEEDING RS. 1,00,000/- ON THE ABOVE NON GENUINE TRANSACTION, WHICH IS NOT SHO WN IN THE RETURN OF INCOME FILED FOR AY 2007-08. THUS, T HE ABOVE INCOME EXCEEDING RS. 1,00,000/- HAS ESCAPED ASSESSM ENT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE 4 ITA NO . 1460/AHD./2017 FULLY AND TRULY, ALL MATERIAL FACTS NECESSARY FOR A SSESSMENT FOR AY 2007-08. HENCE, NOTICE U/S 148 OF THE I.T. ACT IS BEING ISSUED TO VERIFY THE GENUINENESS OF THE ABOVE TRANSACTIONS MADE BY THE ASSESSEE DURING THE AY 200 7- 08. HENCE, NOTICE U/S 148 OF THE ACT IS BEING ISSU ED TO VERIFY THE GENUINENESS OF THE ABOVE TRANSACTIONS MA DE BY THE ASSESSEE DURING AY 2007-08. SD/- (RAMKHILARI MEENA) INCOME-TAX OFFICER, WARD 9(4), SURAT. 4.1 HE HAS SUBMITTED THAT AO HAS WRONGLY MENTIONED THE PROPRIETARY CONCERN OF THE ASSESSEE M/S GEM ART I N THE REASON WHICH IS NOT THE CONCERN WITH WHOM TRANSACTIONS MAD E. THE AO, THEREFORE, RECORDED WRONG REASONS. FURTHER NOTICE U/S 148 OF THE ACT HAVE BEEN ISSUED TO VERIFY THE GENUINENESS OF T HE TRANSACTION OF THE PURCHASES. THEREFORE, INITIATION OF THE REA SSESSMENT PROCEEDINGS IS CLEARLY ILLEGAL AND BAD IN LAW. HE HAS RELIED UPON JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF PR. CIT VS. MANZIL DINESH KUMAR SHAH, TAX APPEAL NO. 451/20 18 AND OTHERS DATED 7 TH MAY, 2018 IN WHICH THE AO RECORDED REASONS FOR REOPENING OF THE ASSESSMENT IN ORDER TO MAKE DEEP V ERIFICATIONS. THE TRIBUNAL HELD THE NOTICE FOR REASSESSMENT INVAL ID AND BAD IN LAW. THE REVENUE PREFERRED THE APPEAL BEFORE THE H ONBLE HIGH COURT, HOWEVER, DEPARTMENTAL APPEAL HAS BEEN DISMIS SED. THE FINDINGS OF THE HONBLE HIGH COURT IN PARA 9 TO 12 OF THE ORDER ARE REPRODUCED AS UNDER: 9. IF ON THE BASIS OF INFORMATION MADE AVAILABLE TO HIM AND UPON APPLYING HIS MIND TO SUCH INFORMATION, THE ASSESSING OFFICER HAD FORMED A BELIEF THAT INCOME 5 ITA NO . 1460/AHD./2017 CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, THE COURT WOULD HAVE READILY ALLOW HIM TO REASSESS THE INCOME . IN THE PRESENT CASE HOWEVER, HE RECORDED THAT THE INFO RMATION REQUIRED DEEP VERIFICATION. IN PLAIN TERMS THEREFO RE, THE NOTICE WAS BEING ISSUED FOR SUCH VERIFICATION. HIS LATER RECITATION OF THE MANDATORY WORDS THAT HE BELIEVED THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, WO ULD NOT CURE THIS FUNDAMENTAL DEFECT. 10. LD. COUNSEL FOR THE REVENUE, HOWEVER, URGED US TO READ THE REASONS AS A WHOLE AND COME TO THE CONCLUS ION THAT THE ASSESSING OFFICER HAD INDEPENDENTLY FORMED A BELIEF ON THE BASIS OF INFORMATION AVAILABLE ON REC ORD THAT INCOME IN CASE OF THE ASSESSEE HAD ESCAPED ASSESSME NT. ACCEPTING SUCH A REQUEST WOULD IN PLAIN TERMS REQUI RE US TO IGNORE AN IMPORTANT SENTENCE FROM THE REASONS RE CORDED VIZ. IT NEEDS DEEP VERIFICATION. 11. BEFORE CLOSING, WE CAN ONLY LAMENT AT THE POSSI BLE REVENUE LOSS. THE LAW AND THE PRINCIPLES NOTED ABO VE ARE FAR TOO WELL SETTLED TO HAVE ESCAPED THE NOTICE OF THE ASSESSING OFFICER DESPITE WHICH IF THE REASONS RECO RDED FAIL THE TEST OF VALIDITY ON ACCOUNT OF A SENTENCE CONTAINED, IT WOULD BE FOR THE REVENUE TO EXAMINE REASONS BEHI ND IT. 12. BOTH THESE TAX APPEALS ARE DISMISSED. 4.2 HE HAS REFERRED TO PB 26 TO 28 IN WHICH THE ADD L. CIT, RANGE-9, SURAT GRANTED SANCTION FOR REOPENING OF TH E ASSESSMENT IN WHICH ALSO AO HAS WRONGLY MENTIONED PROPRIETARY CONCERN OF ASSESSEE M/S GEM ART, THE CONCERN WITH WHOM TRANSAC TION OF BOGUS PURCHASES HAS BEEN CONDUCTED. HE HAS SUBMITT ED THAT IN COLUMN NO. 12 THE ADDL. CIT HAS MENTIONED YES, SAT ISFIED WHILE GIVING SANCTION/APPROVAL FOR ISSUE OF NOTICE U/S 14 8 OF THE ACT. HE HAS SUBMITTED THAT IN THE SAME CIRCUMSTANCES, THE H ONBLE MP HIGH COURT IN THE CASE OF CIT VS. S. GOENKA LINE & CHEMICALS LTD. 56 TAXMANN.COM 390 DID NOT APPROVE THE SANCTION/APP ROVAL U/S 6 ITA NO . 1460/AHD./2017 148 IN ACCORDANCE WITH LAW AND DEPARTMENTAL APPEAL HAS BEEN DISMISSED. THE FINDINGS OF THE HONBLE HIGH COURT IN PARA 7 TO 11 ARE REPRODUCED AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND W E FIND THAT WHILE ACCORDING SANCTION, THE JOINT COMMISSION ER, INCOME TAX HAS ONLY RECORDED SO YES, I AM SATISFIE D. IN THE CASE OF ARJUN SINGH (SUPRA), THE SAME QUESTION HAS BEEN CONSIDERED BY A COORDINATE BENCH OF THIS COURT AND THE FOLLOWING PRINCIPLES ARE LAID DOWN : - THE COMMISSIONER ACTED, OF COURSE, MECHANICALLY IN ORDER TO DISCHARGE HIS STATUTORY OBLIGATION PROPERLY IN THE MATTER OF RECORDING SANCTION AS HE MERELY WROTE ON THE FORMAT YES, I AM SATISFIED WHICH INDICATES AS IF HE WAS TO SIGN ONLY ON THE DOTTED LINE. EVEN OTHERWISE ALSO, THE EXERCISE IS SHOWN TO HAVE BEEN PERFORMED IN LESS THAN 24 HOURS OF TIME WHICH ALSO GOES TO INDICATE THAT THE COMMISSIONER DID NOT APPLY HIS MIND AT ALL WHILE GRANTING SANCTION. THE SATISFACTION HAS TO BE WITH OBJECTIVITY ON OBJECTIVE MATERIAL. 8. IF THE CASE IN HAND IS ANALYZED ON THE BASIS OF THE AFORESAID PRINCIPLE, THE MECHANICAL WAY OF RECORDIN G SATISFACTION BY THE JOINT COMMISSIONER, WHICH ACCOR DS SANCTION FOR ISSUING NOTICE U/S 148, IS CLEARLY UNSUSTAINABLE AND WE FIND THAT ON SUCH CONSIDERATIO N BOTH THE APPELLATE AUTHORITIES HAVE INTERFERED INTO THE MATTER. IN DOING SO, NO ERROR HAS BEEN COMMITTED WARRANTING RECONSIDERATION. 9. AS FAR AS EXPLANATION TO SECTION 151, BROUGHT IN TO FORCE BY FINANCE ACT, 2008 IS CONCERNED, THE SAME O NLY PERTAINS TO ISSUANCE OF NOTICE AND NOT WITH REGARD TO THE MANNER OF RECORDING SATISFACTION. THAT BEING SO, T HE SAID AMENDED PROVISION DOES NOT HELP THE REVENUE. 10. IN VIEW O THE CONCURRENT FINDINGS RECORDED BY T HE LD. APPELLATE AUTHORITIES AND THE LAW LAID DOWN IN THE CASE OF ARJUN SINGH (SUPRA), WE SEE NO QUESTION OF LAW INVO LVED IN THE MATTER, WARRANTING RECONSIDERATION. 7 ITA NO . 1460/AHD./2017 11. THE APPEALS ARE, THEREFORE, DISMISSED. 5. LD. COUNSEL FOR ASSESSEE, THEREFORE, SUBMITTED T HAT REOPENING OF THE ASSESSMENT IS ILLEGAL AND BAD IN LAW. LD. C OUNSEL FOR ASSESSEE ON MERITS SUBMITTED THAT ASSESSEE DID NOT MAKE ANY PURCHASES FROM M/S AVI EXPORTS. THE ASSESSEE ACTED AS COMMISSION AGENT ONLY AND COMMISSION INCOME HAS BEE N DECLARED IN THE RETURN OF INCOME. HE HAS REFERRED TO AUDITE D BALANCE SHEET OF THE ASSESSEE U/S 44AB IN WHICH THE NATURE OF BUS INESS OF ASSESSEE HAS BEEN EXPLAINED AS COMMISSION AGENT. P B 73 TO 79 ARE DETAILS OF SALE AND PURCHASES MADE ON COMMISSIO N BASIS FROM AVI EXPORTS ON COMMISSION BASIS BY ASSESSEE. PB 95 IS THE ASSESSMENT ORDER U/S 143(3) IN THE CASE OF SAME ASS ESSEE FOR AY 2006-07 DATED 21.10.2008 IN WHICH THE AO ACCEPTED T HAT ASSESSEE DERIVED INCOME FROM COMMISSION AGENT OF DIAMONDS. HE HAS, THEREFORE, SUBMITTED THAT REOPENING OF ASSESSMENT I S ILLEGAL AND BAD IN LAW AND ADDITION IS WHOLLY UNJUSTIFIED. 6. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT INFORMATION WA S RECEIVED FROM INVESTIGATION WING, MUMBAI THAT ASSESSEE RECEI VED ACCOMMODATION ENTRIES. THE AO, THEREFORE, CORRECTL Y INITIATED THE REASSESSMENT PROCEEDINGS IN THE MATTER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERU SED THE MATERIAL AVAILABLE ON RECORD. IT IS WELL SETTLED L AW THAT VALIDITY OF REASSESSMENT PROCEEDINGS HAVE TO BE DETERMINED WITH REFERENCE TO THE REASONS RECORDED FOR REOPENING OF THE ASSESSMEN T. THE 8 ITA NO . 1460/AHD./2017 REASONS FOR REOPENING OF THE ASSESSMENT ARE REPRODU CED ABOVE IN WHICH THE AO NOTED THAT SEARCH ACTION WAS CARRIED O UT BY INVESTIGATION WING, MUMBAI ON VARIOUS GROUPS WHICH ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES BY WAY OF ISSUIN G NON- GENUINENESS BILLS. THE AO ON EXAMINATION OF THIS I NFORMATION HAVE REASONED TO BELIEVE THAT THE ASSESSEE IS BENEF ICIARY OF NON- GENUINE TRANSACTION OF RS. 12.48 CRORES FROM M/S GE M ART. IT IS A WRONG RECORDING OF THE REASONS BECAUSE ASSESSEE IS PROPRIETOR OF M/S GEM ART WHICH FACT IS ALSO MENTIONED IN THE ORD ERS OF THE AUTHORITIES BELOW AS WELL AS REASONS. THUS, THE AS SESSEE HIMSELF CANNOT TAKE AN ACCOMMODATION ENTRY FROM HIS OWN PRO PRIETORSHIP CONCERN. THE AO, THEREFORE, CLEARLY RECORDED WRONG FACTS IN THE REASONS FOR REOPENING OF THE ASSESSMENT AND DID NOT APPLY HIS INDEPENDENT MIND TO THE INFORMATION RECEIVED FROM I NVESTIGATION WING, MUMBAI. THE AO IN THE SAME REASONS HAS ALSO MENTIONED THAT NOTICE U/S 148 OF THE ACT IS BEING ISSUED TO V ERIFY THE GENUINENESS OF THE TRANSACTION OF PURCHASES MADE BY THE ASSESSEE. LD. COUNSEL FOR ASSESSEE RELIED UPON JUD GMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF MANZIL DI NESH KUMAR SHAH (SUPRA) IN WHICH THE AO IN THE REASONS RECORDE D THAT HE REOPENED THE ASSESSMENT BECAUSE IT NEEDS DEEP VERIF ICATION. THE TRIBUNAL HAD HELD THAT NOTICE TO BE INVALID. THE H ONBLE HIGH COURT CONFIRMED THE VIEW OF THE TRIBUNAL. THE FIND INGS OF THE HONBLE HIGH COURT ARE REPRODUCED ABOVE WHICH CLEAR LY SUPPORT THE FACT THAT REOPENING OF THE ASSESSMENT IN THE MA TTER IS WHOLLY ILLEGAL AND INVALID. THE ISSUE IS, THEREFORE, COVE RED BY ABOVE 9 ITA NO . 1460/AHD./2017 JUDGMENT OF HONBLE HIGH COURT. FURTHER, WHILE GRA NTING SANCTION FOR REOPENING OF THE ASSESSMENT, LD. ADDL. CIT RANG E-9, SURAT HAS MERELY MENTIONED YES, SATISFIED. IN THE SAME FOR M FOR RECORDING THE REASONS AND APPROVAL THE AO HAS WRONGLY MENTION ED THAT ASSESSEE HAS MADE TRANSACTION WITH M/S GEM ART INST EAD OF M/S AVI EXPORTS. SUCH AN APPROVAL U/S 148 WAS NOT CONS IDERED FAVOURABLY BY HONBLE MP HIGH COURT IN THE CASE OF CIT VS. S. GOENKA LINE & CHEMICALS LTD. (SUPRA). IN VIEW OF T HE ABOVE, IT IS CLEAR THAT INITIATION OF REASSESSMENT PROCEEDINGS A S WELL AS APPROVAL/SANCTION OF ADDL. CIT U/S 147/148 OF THE A CT ARE INVALID, ILLEGAL AND AGAINST THE PROVISIONS OF LAW. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT REOPENING OF THE ASSESSMENT IS INVALID AND BAD IN LAW AND LIABLE TO BE QUASHED. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND QUASH THE REOPE NING OF THE ASSESSMENT INTO THE MATTER. ALL ADDITIONS STANDS D ELETED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (O.P. MEENA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27/08/2019 *KAVITA ARORA 10 ITA NO . 1460/AHD./2017 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW SURAT