M/S. TITAN COMPANY LTD., KRISHNAGIRI V. DCIT, LTU-2, , CHENNAI

ITA 2756/CHNY/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3060 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 24-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: TANMAYEE RAJKUMAR LD
• Keywords: Reopening of assessment; Bogus purchase; Opportunity of cross examination; Third party statement; Accommodation entries; Reassessment proceedings
• Section: 148; 132; 143(3)

Judgement Text

आयकर अपीलीय अिधकरण ‘ए’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI माननीय -ी वी. द ु गा3 राव, ाियक सद5 एवं माननीय -ी मनोज कु मार अ9वाल ,लेखा सद5 के सम;। BEFORE HON’BLE SHRI V. DURGA RAO, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.2756/Chny/2019 (िनधा3रण वष3 / Assessment Year: 2008-09) M/s Titan Company Limited No.3, SIPCOT Industrial Complex, Hosur, Krishnagiri-635 126. बनाम/ V s. DCIT LTU-2, Chennai.. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAAC T -5 1 3 1 - A (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Ms. Tanmayee Rajkumar (Advocate) – Ld. AR थ की ओरसे/Respondent by : Shri ARV Sreenivasan Addl.CIT) – Ld. Sr. DR सुनवाई की तारीख/ Date of Hearing : 21-04-2022 घोषणा की तारीख / Date of Pronouncement : 05-05-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2008-09 arises out of the order of learned Commissioner of Income Tax (Appeals)-9, Chennai [CIT(A)] dated 12.07.2019 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s. 147 of the Act on 30.12.2016. The sole subject matter of appeal is addition on account of alleged bogus purchases. The grounds raised by the assessee read as under: ITA No.2756/Chny/2019 - 2 - The grounds mentioned hereinafter are without prejudice to one another. 1. Validity of the re-opening of assessment under section 147 of the Act 1.1. The AO erred in re-opening the assessment under section 147 of the Act on the ground that the income has escaped assessment, and the learned CIT(A) erred in upholding the Same. 1.2. The learned CIT(A) and AO have erred in not appreciating that all materials facts were already available before the AO during the course of assessment proceedings and no new tangible material was brought on record in the case of the Appellant for re-opening the assessment. 1.3. The AO erred in not clearly estal3lishing that the Appellant has failed to fully and truly disclose the material facts required for the assessment which is a mandatory condition for reopening of assessment under section 147 of the Act beyond 4 years from the end of the relevant assessment year. The learned CIT(A) failed to appreciate the same. 1.4. The learned CIT(A) has erred in upholding the action of the AO in invoking the provisions of section 148 of the Act. 1.5. The AO has erred in relying on the third party sworn statements for initiating the re- assessment proceedings and the learned CIT(A) erred in upholding the same. 1.6. The learned CIT(A) has erred in not considering the jurisprudence relied upon by the Appellant wherein it was held that re-assessment done by merely relying on the third party oath / sworn statements is invalid. 2. Disallowance of purchases from M/s sun Diam by treating it as an accommodation entry amounting to Rs.46,26,890/- 2.1. The AO erred in disallowing the purchases made in the normal course of business of Rs.46,26,890/-from M/s Sun Diam, and the learned CIT(A) erred in upholding the same. 2.2. The learned CIT(A) and AO erred in relying on the statement made by the third parties and treating the purchases as bogus/not genuine transactions. 2.3. The learned CIT(A) and AO erred in not appreciating the fact that the whole transaction was for the procurement of cut and polished diamonds for the purpose of its jewellery business, which fact was evidenced through various documents submitted during the course of proceedings. 2.4. The learned CIT(A) and AO have also erred in not appreciating the evidences submitted by the Appellant in support of the genuineness of the transaction. 2.5. The learned AO / CIT(A) erred in not appreciating the fact that the purchases made were genuine and the product was actually delivered to the factory of the company. 2.6. The learned CIT(A) erred in not providing an opportunity to the Appellant for submitting the additional details / documents to support the genuineness of the transaction. 2.7. The AO erred in making the disallowance on the basis that the Appellant had not proven utilization of the materials, when the Appellant had satisfactorily shown the genuineness of the transaction. The learned CIT(A) erred in upholding the same. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds, which may be raised at the time of hearing, it is prayed that necessary, relief may be provided. As evident, the assessee challenges the validity of reassessment proceedings besides challenging the quantum additions on merits. 2. The Registry noted a delay of 1 day in the appeal which stands condoned considering the period of delay. ITA No.2756/Chny/2019 - 3 - 3. The Ld. AR, drawing attention to the reasons recorded, assailed the validity of reassessment proceedings. It was submitted that there was no live link established by Ld. AO to form reasonable belief of escapement of income. The Ld. AR also submitted that there was no allegation of failure on the part of the assessee since the original return was already scrutinized u/s 143(3) and the case was reopened beyond 4 years. To support the arguments, reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. On merits, it was submitted that the purchase were duly substantiated by purchase order, invoices, entries in the books of accounts, bank statements as well as the affidavit of agent who received goods on behalf of the assessee. The Ld. Sr. DR, on the other hand, submitted that the assessee could not establish utilization of purchased material and the copies of delivery challans were not furnished. It transpires that the assessee has purchased precious stones from a suspicious entity M/s Sun Diam under two invoices. Having heard rival submissions and after due consideration of material on record, our adjudication would be as given in succeeding paragraphs. Assessment Proceedings 4.1 The assessee being resident corporate assessee is stated to be engaged in manufacturing and trading of watches, clocks, jewellery, eyewear, precision engineering, accessories and licensed products etc. The return of income for the year was scrutinized u/s. 143(3) of the Act on 27.12.2011. However, the case was re-opened and notice u/s. 148 was issued on 31.03.2015 which is beyond 4 years from the end of relevant assessment year. The case was re-opened pursuant to search ITA No.2756/Chny/2019 - 4 - action u/s 132 by investigation wing in the case of Shri Rajendra Sohanlal Jain group and various group entities run by them. One of the entities i.e. M/s Sun Diam was stated to be a firm having partners Shri Rajendra Jain and Manish S. Jain. During the course of search, statements were recorded which revealed the modus operandi in providing accommodation entry of unsecured loans and bogus purchase. Accordingly, it was concluded by Ld. AO as under: The assessee M/s Titan industries is having transaction with the above group / related parties in the relevant financial years having purchases etc. As per the information available on record assessee has made certain purchase from M/s Sun Diam of about value of Rs.46,26,890 for F.Y. 2007-08 applicable to A.Y. 2008-09. M/s Sun Diam is one of the firm having partners Rajendra Jain and Manish Jain. Rajendra Jain is the main group covered by search wherein it has revealed the provision of accommodation entries through purchase/sales to the extent of 46,26,890. Accordingly the search has revealed the information as pertains to the assessee to the extent of transactions as made with the group through M/s Sun Diam represented by the search management stands as unexplainable transaction in view of the oath statements recorded from the transacting parties. Hence income has escaped to the extent and same is in excess of Rs.1 Lakh and provisions u/s 147 of the IT act are applicable and I am satisfied that it is a fit case for issue of notice u/s 148 of the act. 4.2 The assessee submitted that it purchased precious stones from the said entity and filed a copy of ledger extract, copy of bank statement evidencing payment through banking channels, sample copy of invoice etc. However, the assessee could not prove utilization of material and could not provide copy of delivery challans. The Ld. AO opined that the sworn statements recorded during search operations would establish that the concerns owned by the group were engaged solely in providing accommodation entries. It was established that M/s. Sun Diam was not trading any material but only providing accommodation bills. Therefore, the purchases were disallowed as bogus purchase. Therefore, the details filed by the assessee were found to be lacking and the assessee ITA No.2756/Chny/2019 - 5 - could not adequately establish the authenticity of the transactions. Therefore, these purchases were disallowed and added back to assessee’s income as bogus purchases. Appellate proceedings 5.1 Before Ld. CIT(A), the assessee contested the validity of re- assessment proceedings as well as quantum additions on merits. The Ld. CIT(A), relying upon the decision of the Hon’ble Supreme Court in the case of Raymond Woollen Mills Limited Vs ITO (236 ITR 34) upheld the validity of assessment proceedings by observing that at the stage of reopening, only prima facie material has to be there before Ld. AO. The sufficiency or correctness of the material is not to be considered at this stage. 5.2 On merits, the Ld. CIT(A) confirmed the addition since the assessee could not produce the details of utilization of materials and copies of delivery challans. The assessee had also filed copy of affidavit given by agent Shri Sharad Jobanputra regarding the delivery of products to the assessee which was held to be self-serving document. Accordingly, the additions were confirmed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 6. First we take up the legal grounds as urged by Ld. AR. We find that though the original return of income was scrutinized u/s 143(3), the case was reopened beyond 4 years upon receipt of certain subsequent information from investigation wing. The information originated pursuant to search action on the tainted group and the search findings revealed that the group merely indulged in providing accommodation loans or purchase bills without carrying out any actual business activity. M/s Sun ITA No.2756/Chny/2019 - 6 - Diam was one of the concerns being run by the said group. The Ld. AO recorded that the assessee had purchase transactions with the said entity during the year which were to be considered as unexplained transaction in view of the oath statements recorded from the transacting parties. Accordingly an opinion was formed that there was escapement of income in the hands of the assessee. We are of the considered opinion that the information as received by Ld. AO consequent to search action would lead to formation of reasonable belief that the income had escaped in the hands of the assessee. This would be so because the assessee had carried out certain purchase transactions with M/s Sun Diam and that entity was said to be mere accommodation-entry providing entity of that group. At the stage of formation of belief, only prima-facie opinion is required. The sufficiency or correctness of the material is not to be considered at this stage as held by Hon’ble Supreme Court in the case of Raymond Woollen Mills Limited Vs ITO (supra). The factual matrix would reveal that Ld. AO had, prima-facie, this material to reach a reasonable belief that income had escaped assessment. We do not concur with the argument of Ld. AR that there is no live link between the information received by Ld. AO and consequent belief formed by Ld. AO on the basis of that information. Another argument of Ld. AR is that the assessee had produced books of account and other information during the course of regular assessment proceedings and there was no allegation by Ld. AO that income escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. However, Explanation-1 to Sec.147 makes it very clear that production before the AO of account books or other evidence from which material evidence ITA No.2756/Chny/2019 - 7 - could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of foregoing proviso. The same squarely applies to the fact of the present case since the information received by Ld. AO was a subsequent event which was not available at the time of regular assessment proceedings. At the time of original assessment proceedings, no such information was available with Ld. AO and there was no question of formation of any belief on the issue. Therefore, this plea is also to be rejected. The decision of Hon’ble Supreme Court in ITO Vs Lakhmani Mewal Das (103 ITR 437) has been referred by Ld. AR to submit that the reasons for formation of belief for reopening of assessment must have rational connection with or relevant bearing on formation of belief and rational connection postulates that there must be direct nexus or live link between material coming to AO’s notice and formation of his belief that there has been escapement of assessee's income from assessment in particular year because of his failure to disclose fully and truly all material facts. The duty on the assessee is to make true and full disclosure of primary facts at the time of original assessment and it is for AO to draw correct inference from primary facts. If AO draws inference, which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. However, the facts in the present case are different since it is not a case of change of opinion but reassessment proceedings have been triggered on the basis of subsequent tangible material coming to the possession of Ld. AO. Upon perusal of reasons recorded, we find that Ld. AO would have reasonably come to conclusion of escapement of income. ITA No.2756/Chny/2019 - 8 - The decision of Hon’ble Madras High Court in P.S.Veerappa Vs CIT (6 Taxman 166) as cited by Ld. AR is a case where it was a clear finding that the information as received by AO would not connect the assessee with the information so received. However, in the present case, M/s Sun Diam has been found to be one of the group entities which was not carrying any genuine business and merely provided accommodation entries. The assessee was found to be having purchase transactions with the said entity. Therefore, this case law is distinguishable. Similar distinction can be drawn in the other case laws being relied upon by Ld. AR. Finally, we reach a conclusion that the ratio of decision of Hon’ble Supreme Court in the case of Raymond Woollen Mills Limited Vs ITO (supra) was applicable here. In view of the foregoing, we would confirm the impugned order upholding the validity of reassessment proceedings. 7. Coming to the merits of the case, it could be seen that the assessee has issued purchase orders on 19.06.2007 in the name of M/s Sun Diam for supply of Diamonds. The same has been invoiced on the assessee on 26.06.2007 and the payment of the same has been made by the assessee through banking channels during the month of August, 2007. The consignments are stated to have been received by the assessee through its clearing & forwarding agent M/s Fairdeal Traders. During the course of assessment proceedings, the assessee also filed affidavit given by partner of M/s Fairdeal Traders confirming that the goods were received by them and delivered to the assessee. The purchases were taken in the inventory and accounted for in the books of accounts for which the assessee filed copies of extracts from ERP system. The assessee also filed ledger extracts of M/s Sun Diam, copies ITA No.2756/Chny/2019 - 9 - of purchase orders, copies of invoices, bank statements evidencing payment through banking channels etc. Upon perusal of all these documents, it could be well said that the assessee had discharged the onus of establishing the genuineness of the purchase transactions. As against this, the sole basis to make additions by Ld. AO is the findings of investigation wing which are based on third party statements. It could be gathered that no independent investigation, whatsoever, has been carried out by Ld. AO to verify the genuineness of the purchase transactions. No notice or summons etc. is shown to have been issued to the supplier to confirm the transaction. It is trite law that no addition could be made on mere presumptions, conjectures or surmises. Accordingly, the action of Ld. AO in making the addition, in aforesaid manner, could not be upheld in the eyes of law. Therefore, in the light of the aforesaid observations, the impugned addition is not sustainable as per settled legal position. By deleting the same, we allow the grounds on merits. Conclusion 8. The appeal stand partly allowed in terms of our above order. Order pronounced on 05 th May, 2022 Sd/- (V. DURGA RAO) ाियक सद5 /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद5 / ACCOUNTANT MEMBER चे+ई / Chennai; िदनांक / Dated : 05-05-2022 JPV JPVJPV JPV आदेश की Wितिलिप अ 9ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु (अपील)/CIT(A) 4. आयकर आयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड फाईल/GF