Bhargab Engineering Works, Howrah V. A.C.I.T.,Circle-46, Kolkata

ITA 1714/KOL/2019

AI Insights

The case involves Bhargab Engineering Works, a partnership firm engaged in manufacturing tea blending machines, which appealed against the order of the Commissioner of Income Tax (Appeals) - 14, Kolkata. The appeal was directed against the reassessment order for the Assessment Year 2012-13, which included additions for alleged bogus purchases and unexplained expenditure. The Tribunal dismissed the legal grounds challenging the reassessment proceedings, citing specific information and documentary evidence from the Directorate of Income Tax (Investigation Wing) about the involvement of the assessee in bogus purchases. However, it partly allowed the appeal concerning the quantum of additions made, applying a net profit rate to the bogus purchases instead of the full amount.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132571 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 27-11-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 21-07-2019
• Other Referred Cases: Shantivijay Jewels Ltd. vs. DCIT, Rg 8(3), PCIT Vs. Tejua Rohitkumar Kapadia
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Bogus purchase; Sham transactions; Reassessment proceedings; Borrowed satisfaction
• Section: 147; 131; 148; 69C; 133(6); 250

Judgement Text

| आयकर अपीलीय अिधकरण ᭠यायपीठ, कोलकाता | IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI SANJAY GARG, HON’BLE JUDICIAL MEMBER & DR. MANISH BORAD, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 1714/Kol/2019 Assessment Year: 2012-13 Bhargab Engineering Works P-292, Benaras Road Belgachia, P.O.: Netajigarh Howrah - 711108 [PAN : AAIFB2118G] Vs A.C.I.T., Circle - 46, Kolkata अपीलाथᱮ/ (Appellant) ᮧ᭜ यथᱮ/ (Respondent) Assessee by : Shri Miraj D. Shah, A.R. Revenue by : Smt. Ranu Biswas, Addl. CIT, D/R सुनवाई कᳱ तारीख/Date of Hearing : 28/11/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 16/02/2023 आदेश/O R D E R PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The present appeal is directed at the instance of the assessee against the order of the learned Commissioner of Income Tax (Appeals) - 14, Kolkata, (hereinafter the “ld. CIT(A)”) dt. 07/05/2019, passed u/s 250 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2012-13. 2. The assessee has raised the following grounds of appeal:- “1. FOR THAT the impugned order of reassessment is bad in law. 2. FOR THAT the reassessment proceedings are bad in law inasmuch as the A.O. had wrongly assumed jurisdiction to assess the case. 3. FOR THAT in the facts and circumstances of the case, the Ld. CIT(A) was not justified in law in sustaining addition to the tune of 17.38% of alleged disputed purchase by applying average Gross Profit Ratio in the appellant's case and in any event, the addition sustained by the Ld. CIT(A), is liable to be deleted in this forum. 4. FOR THAT in the facts and circumstances of the case, the Ld. CIT(A) was not justified in law in sustaining addition to the tune of 1% of alleged disputed purchase as commission in the appellant's case and in any event, the addition sustained by the Ld. CIT(A), is liable to be deleted in this forum. 5. FOR THAT when the Appellate Authorities below have taken note of the fact that no sale could be effected by the assesse without purchase and whereas in your I.T.A. No. 1714/Kol/2019 Assessment Year: 2012-13 Bhargab Engineering Works 2 appellant's case the sales are supported by entries in corresponding Purchase Register, the addition in this score is not sustainable in law. 6. FOR THAT the appellant had raised point regarding opportunity of cross examination of the alleged supplier before the CIT(A) but no such opportunity was given to the appellant. 7. FOR THAT the appellant's case is squarely covered by the decision of Shantivijay Jewels Ltd. vs. DCIT, Rg 8(3) in I.T.A./1045/Mum/2016 dated 13.04.2018. 8. FOR THAT when the alleged disputed purchases have been accepted by the VAT Authorities in their respective Assessment Order / Audit Report, the Income Tax Authority cannot merely be relying upon statement recorded u/s 131 by one person whereas the suppliers are all corporate entities (who are different entities from the person whose statement was recorded) disallowed the bonafide purchases. 9. FOR THAT the case was unlawfully reopened on borrowed satisfaction without making any independent enquiry about the facts of the case and therefore, the reopening in this case is invalid and liable to be struck down in appeal. 10. FOR THAT the copy of sanction given, if any, by the Higher Authority before reopening of the case suffers from serious infirmities which rendered the entire reopening proceedings is void-ab-initio, in the eyes of law. 11. FOR THAT the Ld. A.O. was informed that the payments for the alleged purchase of goods were made through Banking Channel. Inspite of the Ld. Assessing Officer made addition neglecting all such information / documents, books of accounts. 12. FOR THAT even the least that the Ld. Assessing Officer ought to have done was to enquire into the matter by issuing notice under Section 133(6) to the parties but no effort was made in that regard. In the absence of any such findings that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis third party report. 13. FOR THAT the Ld. A.O. has ignored the genuineness of the banking transactions where the assessee paid to the different parties mostly by the a/c payee cheques in respect of towards purchases considerations. There is no such demonstrative evidence brought on record that could justify the additions made by the Ld. A.O. and afterwards cheques had come back to the assessee in cash. 14. FOR THAT the assessee had declared sales out of that purchase were also accepted by the Assessing Officer. Case Reference: Hon'ble Supreme court upheld HC order on deletion of addition for Bogus Purchase. Case Name: PCIT Vs. Tejua Rohitkumar Kapadia (Supreme High I.T.A. No. 1714/Kol/2019 Assessment Year: 2012-13 Bhargab Engineering Works 3 Court). Appeal Number: Special Leave Petition (Civil) Diary No. 126702018. Date of Judgement /Order:04-05-2018. Your Appellant craves leave to add, amend, supplement, any of the ground or grounds at the time of hearing of the case.” 3. Brief facts of the case are that the assessee is a partnership firm engaged in the business of manufacturing of tea blending machines. E- return for the Assessment Year 2012-13 was filed on 30/09/2012, declaring total income of Rs.35,15,200/-. Case of the assessee was processed u/s 143(1) of the Act and thereafter notice u/s 148 of the Act was issued on 26/03/2018 after obtaining statutory approval. Reasons recorded were supplied to the assessee which contained the information about bogus purchases from paper concerns operated by Shri Sanjiw Kumar Singh, namely, M/s. Singh Mercantile Pvt. Ltd., at Rs.15,600/- and M/s. Jayshree Sales Corporation at Rs.17,73,589/-. Objection raised by the assessee against notice issued u/s 148 of the Act were duly considered. Original return filed was requested to be considered as return filed in compliance to notice u/s 148 of the Act. Statutory notice required under the Act were duly served upon the assessee. After considering the submissions of the assessee, the ld. Assessing Officer did not make any additions for the purchases made from M/s. Singh Mercantile Pvt. Ltd., but made addition of 100% of the correct amount of purchases made from M/s. Jayshree Sales Corporation amounting to Rs.14,61,459/- (as stated by the assessee during the assessment proceedings) and also made addition for unexplained expenditure at Rs.44,084/- towards commission paid for procuring such purchases and assessed income at Rs.50,28,740/-. 3.1. Aggrieved, the assessee preferred appeal before the ld. CIT(A) but failed to succeed on any of the grounds. 4. Now the assessee is in appeal before this Tribunal. I.T.A. No. 1714/Kol/2019 Assessment Year: 2012-13 Bhargab Engineering Works 4 5. The ld. Counsel for the assessee firstly challenged the reopening being beyond four years stating that the purchases were duly reflected in the regular books of accounts and the reasons seems to be recorded on mere surmises, incorrect presumptions and wrong assumptions of facts. Further he stated that condition precedent for taking action u/s 147 of the Act in the case of assessee firm are wholly non-existent and cannot be considered to be valid in the eyes of law. Reliance placed on plethora of judgments in support of its contentions challenging the re-assessment proceedings. As far as the quantum addition is concerned, it was stated that the ld. Assessing Officer ought to have made the addition only to the extent of net profit rate or in the worst scenario to the gross profit rate. Reference was made to the decision of this Tribunal in the case of M/s. Diach Chemicals & Pigments Pvt. Ltd. vs. ACIT, Circle-10(2), Kolkata in ITA No. 99/Kol/2021 order dt. 30/02/2022, stating that in this case, addition was only confirmed applying net profit rate @2% in the alleged bogus purchase. 6. On the other hand, the ld. D/R vehemently argued supporting the orders of the lower authorities. 7. We have heard rival contentions and the record placed before us. 7.1. As far as the legal ground raised by the assessee challenging the re- assessment proceedings is concerned, we fail to find any merit in this ground, since the ld. Assessing Officer had specific information from the Directorate of Income Tax (Investigation Wing), about the search proceedings carried out in the case of Shri Sanjiw Kumar Singh, where the Department found that he was involved in providing accommodation entries in the form of bogus purchases to various parties and the name of the assessee was found as one of the beneficiaries of such sham transactions in the report. Since the ld. Assessing Officer had specific information with documentary evidence, he had rightly issued notice u/s 148 of the Act and carried out the reassessment proceedings after properly recording reasons I.T.A. No. 1714/Kol/2019 Assessment Year: 2012-13 Bhargab Engineering Works 5 and also considering the objections raised by the assessee. Thus, all the legal ground raised by the assessee challenging the reassessment proceedings are dismissed. 8. As far as the merits of the case is concerned which only relates to addition for bogus purchase at Rs.14,61,459/- and estimated commission expenditure, paid for arranging such bogus purchases at Rs.44,084/- we find that the source of information was the search conducted in the case of Shri Sanjiw Kumar Singh. Before us, the ld. Counsel for the assessee has referred to the decision of this Tribunal in the case of M/s. Diach Chemicals & Pigments Pvt. Ltd. vs ACIT, Circle-10(2), Kolkata (supra). In this case, revisionary proceedings were challenged by the assessee and in the case on hand also, the issue related to accommodation entry in the form of bogus billing through the entry provider, namely, Shri Sanjiw Kumar Singh was in question. This Tribunal after considering the facts of the case finally directed the Assessing Officer to assess at net profit @2% of the alleged bogus purchases. Since the nexus of the addition in challenge before us in the instant appeal is the same as that before this Tribunal in the case of M/s. Diach Chemicals & Pigments Pvt. Ltd. (supra), the statement of the entry operator, namely, Shri Sanjiw Kumar Singh is on record and purchases have been held to be bogus but the additions have been confirmed only to the extent of net profit rate of 2%, we, therefore, respectfully following the decision of this Tribunal in the case of M/s. Diach Chemicals & Pigments Pvt. Ltd. (supra), confirm the addition at Rs.29,229/-, which is @ 2% of the alleged bogus purchase of Rs.14,61,459/-. So far as the addition for commission expenditure u/s 69C of the Act is concerned, there is no evidence with the ld. Assessing Officer about the said expenditure and it is only an estimate. Therefore, the same is deleted. We, however, would like to make it clear that our this decision of estimating the income element applying net profit rate of @ 2% is concerned, the same is only confined to I.T.A. No. 1714/Kol/2019 Assessment Year: 2012-13 Bhargab Engineering Works 6 the case in hand before us and should not be taken as a precedence for other cases since it depends on the facts of each case. 10. In the result, appeal of the assessee is partly allowed. Order pronounced in the Court on 16 th February, 2023 at Kolkata. Sd/- Sd/- (SANJAY GARG) (DR. MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated 16/02/2023 *SC SrPs आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent 3. संबंिधत आयकर आयुᲦ / Concerned Pr. CIT 4. आयकर आयुᲦ)अपील (/ The CIT(A)- 5. िवभागीय ᮧितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाडᭅ फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata