ECIL Rapiscan Limited., Hyderabad V. ACIT, Circle 2(2), Hyderabad

ITA 345/HYD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6647 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 09-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-03-2014
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Keywords: Reopening of assessment; Bogus purchase; Search and seizure; Additional evidence; Tangible material; Difference of opinion; Accommodation entries; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 6; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO S . 3 44 & 345 /H YD /201 4 ASSESSMENT YEAR S : 20 0 6 - 0 7 & 2008 - 09 ECIL RAPISCAN LIMITED , HYDERABAD [PAN: A A ACE6011G ] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2 ( 2 ), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI C.S. AGARWAL, SR. ADVOCATE, SHRI ARVIND KUMAR AGARWAL, AR FOR REVENUE : SHRI B . KURMI NAID U , D R DATE OF HEARING : 09 - 0 2 - 201 6 DATE OF PRONOUNCEMENT : 07 - 0 4 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M. : TH E S E TWO APPEAL S ARE BY ASSESSEE AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX ( APPEALS ) - I II , HYDERABAD FOR AYS. 2006 - 07 & 2008 - 09 BOTH DATED 1 0 - 12 - 201 3 AND SIMILARLY DRAFTED ON THE ISSUES , WHICH ARE CONTESTED BY ASSESSEE IN THESE APPEALS. THE ASSESSMENT IN AY. 2006 - 07 IS A REASSESSMENT CONSEQUENT TO REOPENING U/S. 147 OF THE INCOME TAX ACT [ACT] . THEREFORE, APART FROM MERITS, ASSESSEE I S CHALLENGING THE REOPENING OF ASSESSMENT I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 2 - : IN AY. 2006 - 07. I N AY. 2008 - 09, THE ISSUE IS ONLY ON MERITS. IN BOTH THE ASSESSMENT YEARS, AO DISALLOWED THE COST OF PURCHASE OF SOFTWARE SYSTEMS FROM VARIOUS COMPANIES AS BOGUS. HENCE, CORRESPONDING GROUNDS WERE RAISED ON THE ISSUE. 2. WE HAVE HEARD THE LD. COUNSEL AND LD. DR IN DETAIL AND ALSO PERUSED THE DETAILED PAPER BOOKS PLACED ON RECORD ALONG WITH THE SYNOPSIS AND VARIOUS CASE LAW. 3. BRIEFLY STATED, ASSESSEE IS A COMPANY DEALING IN MANUFACTURE OF X - RAY BAGGAGE AND OTHER ELECTRONIC SECURITY MACHINES. ASSESSEE IS A JOINT - VENTURE BETWEEN OSI SYSTEMS INC., USA AND ELECTRONICS CORPORATION OF INDIA LIMITED (ECIL), WHICH IS A LEADING COMPANY SECURITY SYSTEMS AND ECIL, GOVT. OF INDIA UNDERTAKING. ECIL HOLDS 49% OF SHAREHOLDING IN ASSESSEE - COMPANY. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MARKETING, SALES, SUPPLY, INSTALLATION, AND MAINTAINING/SERVICING SECURITY SYSTEMS MAINLY X - RAY BAGGAGE INSPECTION SYSTEMS (USED AS SCANNERS), WHICH ARE MAINLY SUPPLIED TO THE GOVERNMENT ORGANIZATIONS LIKE RBI, AIRPORTS, PARLIAMENT, CUSTOMS, RAILWAYS/METRO ETC., AND VARIOUS OTHER SECURITY CONSCIOUS ORGANIZATIONS AGAINST TENDERS CALLED/FLOATED BY THEM. THE ASSESSEE COMPANY IN ORDER TO MAKE SUPPLIES OF X - RAY BAGGAGE SYSTE M INTEGRATED WITH COMPUTER SYSTEMS I.E., HARDWARE LOADED WITH SOFTWARE TO THE VARIOUS CUSTOMERS AS AFORESAID, FIRSTLY PLACE ORDER ON M/S. ECIL FOR SUPPLY OF THE COMPLETE X - RAY BAGGAGE SYSTEM. IT WAS SUBMITTED THAT X - RAY BAGGAGE SYSTEM IS ALSO FITTED WITH COMPUTER AND SUCH COMPUTER AFTER CUSTOMIZING AND EQUIPPING WITH NECESSARY SOFTWARE AND APPLICATIONS AS PER THE REQUIREMENT OF THE CUSTOMER IS SOLD TO M/S. ECIL. THAT M/S. ECIL AFTER INTEGRATING I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 3 - : THE COMPUTER SYSTEM WITH THE X - RAY BAGGAGE MACHINE SUPPLIES T HE COMPLETE SYSTEM TO THE ASSESSEE AND SUCH X - RAY BAGGAGE SYSTEM IS ULTIMATELY SUPPLIED TO THE CUSTOMER. 3.1. ASSESSEE FILED RETURNS IN RESPECTIVE ASSESSMENT YEARS DECLARING TOTAL INCOME OF RS. 6,97,83,160/ - FOR AY. 2006 - 07 AND RS. 7,43,32,900/ - FOR AY . 2008 - 09. THE ASSESSMENT IN AY. 2006 - 07 WAS ORIGINALLY COMPLETED U/S. 143(3) ON 30 - 06 - 2008. SUBSEQUENTLY, ON THE BASIS OF CERTAIN INFORMATION RECEIVED FROM CENTRAL CIRCLE OF INCOME TAX DEPARTMENT, NEW DELHI, AO HAS REOPENED THE ASSESSMENT U/S. 147 AND I SSUED A NOTICE U/S. 148 ON 08 - 06 - 2009. ASSESSEE COMPLIED WITH THE NOTICE AND IN THE RE - ASSESSMENT PROCEEDING S, AO HAS DISALLOWED CERTAIN PURCHASES AS BOGUS , WHICH THE LD. CIT(A) CONFIRMED IN HIS ORDER. LIKE WISE IN SCRUTINY IN AY 2008 - 09, S IMILAR DISALLOWANCE WAS MADE OF SOFTWARE PURCHASES. ASSESSEE IS CHALLENGING THE DISALLOWANCES OF ITS SOFTWARE PURCHASES IN BO TH THE YEARS AND IN ADDITION, IT IS CHALLENGING THE REOPENING OF ASSESSMENT IN AY. 2006 - 07. SINCE DISALLOWANCE OF SOFTWARE PURCHASE S AS BOGUS BEING COMMON ISSUE IN BOTH THE YEARS, WE INTEND TO DEAL WITH THE ISSUE ON MERITS FIRST AND THEN ADJUDICATE THE MAT T ERS OF REOPENING OF ASSESSMENT IN AY. 2006 - 07. 4. IN THE RE - ASSESSMENT FOR AY. 2006 - 07, THE AO HAS ASKED ASSESSEE TO FURNISH THE DETAILS OF SOFTWARE PURCHASES WHICH ASSESSEE FURNISH ED AS UNDER: I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 4 - : I. A.S. TECHNOLOGY PVT. LTD., SECUNDERABAD 6,51,100 II. CENTENARY SOFTWARE PVT. LTD., NEW DELHI 22,00,000 III. FUTURE TECH INFORMATION SYSTEMS LTD., SECUNDERABAD 13,00,000 IV. HITECH C OMPUTECH PVT. LTD., NEW DELHI 57,20,000 V. SCIENCE AIDS.COM PVT. LTD., NEW DELHI 33,75,000 T OTAL 1,32,46,100 4.1. A SSESSEE WAS CALLED UPON TO FURNISH THE VARIOUS INVOICES AND ALSO NECESSARY EVIDENCES LI KE SALE INVOICES. A SSESSEE SUBMITTED THAT SOFTWARE PURCHASED FROM M/S. A.S. TECHNOLOGY PVT. LTD., AND FUTURE TECH INFORMATION SYSTEMS LTD., WERE UTILIZED FOR INTERNAL PURPOSES TOWARDS MANAGEMENT AND TRAINING. THESE WERE ACCEPTED BY THE AO. ASSESSEE FURT HER EXPLAINED THAT THE SOFTWARE PURCHASE D FROM THE OTHER THREE PARTIES WAS SOLD TO CUSTOMERS EITHER SEPARATELY OR ALONG WITH THE X - RAY BAGGAGE MACHINES. AO , EVEN THOUGH REOPENED THE ASSESSMENT ON THE BASIS OF THE SO CALLED STATEMENT FROM ONE MR. S.K. GUP T A, WHO IT SEEMS HAVE STATED THAT HE HAS HAD FLOATED AROUND 28 PAPER COMPANIES, OUT OF WHICH THE TWO ABOVE COMPANIES, HITEC H COMPUTE CH PVT. LTD., AND CENTENARY SOFTWARE PVT. LTD., WERE ALSO SUCH COMPANIES, AO NEITHER FURNISHED THE STATEMENT OF SHRI S.K. GUP TA TO ASSESSEE NOR RELIED ON THE CONTENTS OF THE COMMUNICATION RECEIVED FROM THE DEPARTMENT AL OFFICERS FROM NEW DELHI. AO ONLY INSISTED ON PRODUCING NECESSARY EVIDENCE WITH RESPECT TO THE SALE BILL S. ASSESSEE WAS SUBMITTING THAT THESE PURCHASES WERE MADE GENUINELY , PAYMENT WERE MADE THROUGH BANKING, TDS WAS ALSO MADE AS PER PROVISIONS OF INCOME TAX ACT AND THESE SOFTWARE PURCHASES WERE PART OF X - RAY B AGGAGE SCANNING MACHINES SOLD TO CUSTOMERS , CONSEQUENTLY, THERE WILL BE NO SEPARATE SALE BILL FOR THE PURC HASES. IT ALSO SUBMITTED THAT I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 5 - : ASSESSEE IS NOT INVOLVED IN SELLING OF SOFTWARE BUT IN MARKETING AND MAINTENANCE OF THE X - RAY B AGGAGE SYSTEMS AND OTHER RELATED SECURITY SYSTEMS. AO DID NOT AGREE AND DISALLOWED THE THREE PUR C H A SES OF FICTITIOUS PURCHASES ST ATING AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY WHICH ARE IN THE NATURE OF MERE VERBAL ASSERTIONS WITHOUT ANY CORROBORATIVE EVIDENCE. IN FACT, IT IS ADMITTED THAT NO ONE TO ONE CORRELATION CAN BE ESTABLISHED. IN THE ABSENCE OF ANY EVIDENCE IN THE FORM OF SALE BILLS, IT IS DIFFICULT TO ACCEPT THE EXPLANATION GIVEN BY THE ASSESSEE COMPANY AS ABOVE. 7. THEREFORE, BASING ON THE NON - PRODUCTION OF REQUIRED INFORMATION AND RELYING ON THE REPLY FURNISHED BY THE ASSES SEE TO SHOW CAUSE NOTICE AS DISCUSSED ABOVE, IT IS HELD THAT THE ALLEGED PURCHASES WORTH RS. 1,12,95,000/ - MADE BY THE ASSESSEE COMPANY FROM THE THREE COMPANIES AFOREMENTIONED ARE FICTITIOUS IN NATURE AND ARE ACCORDINGLY BROUGHT TO TAX AS BOGUS PURCHASES. 5. I N AY. 2008 - 09, AO IN THE SCRUTINY ASSESSMENT, CALLED UPON ASSESSEE TO FURNISH THE DETAILS OF SOFTWARE PURCHASES WHICH ARE AS UNDER: SR. NO. NAME OF PARTY AMOUNT (RS) 1. X SERVE INDIA PVT. LTD., 4,00,000/ - 2. RAPISCAN SYSTEMS PVT. LTD., 52,20,000/ - 3. HARTON CASE COMMUNICATION LTD., 36,50,400/ - TOTAL 92,70,400/ - WHILE ACCEPTING THE PURCHASE OF SOFTWARE FROM X S ERVE INDIA PVT. LTD., THE AO DISALLOWED THE PURCHASES FROM THE OTHER TWO COMPANIES BY STATING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY WHICH ARE IN THE NATURE OF MERE VERBAL ASSERTIONS WITHOUT ANY CORROBORATIVE EVIDENCE. IN FACT, IT IS ADMITTED THAT NO ONE TO ONE CO - RELATION CAN BE ESTABLISHED. IN THE ABSENCE OF ANY EVIDENCE IN THE FORM OF SA LE BILLS, IT IS DIFFICULT TO ACCEPT THE EXPLANATION GIVEN BY THE ASSESSEE COMPANY AS ABOVE. IN THIS CONTEXT, IT IS PERTINENT TO MENTION THAT THE I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 6 - : ASSESSMENT FOR THE AY. 2006 - 07 IN THE ASSESSEES OWN CASE WAS RE - OPENED U/S. 148 OF THE I.T. ACT ON ACCOUNT OF INFORMATION RECEIVED AND SUBSEQUENTLY COMPLETED BY BRINGING TO TAX CERTAIN PURCHASES WHICH ARE PROVED TO BE FICTITIOUS. THIS MAY INDICATE THE HABITUAL NATURE OF INVOLVEMENT BY THE ASSESSEE COMPANY IN SUCH FICTITIOUS TRANSACTIONS. THEREFORE, BASIN G ON TH E NON - PRODUCTION OF REQUIRED INFORMATION AND RELYING ON THE REPLY FURNISHED BY THE ASSESSEE TO THE SHOW CAUSE NOTICE AS DISCUSSED ABOVE, IT IS HELD THAT THE ALLEGED PURCHASES WORTH RS. 88,70,400/ - MADE BY THE ASSESSEE COMPANY FROM THE AFOREMENTIONED TWO CO MPANIES ARE FICTITIOUS IN NATURE AND ARE ACCORDINGLY BROUGHT TO TAX AS BOGUS PURCHASES. 6. ASSESSEE CONTESTED THE ISSUE BEFORE LD. CIT(A) AND FILED ADDITIONAL INFORMATION IN THE FORM OF AFFIDAVIT FROM COMPANIES, NECESSARY INVOICES, LEDGER ACCOUNTS, TDS CERTIFICATES ETC., WHICH WERE ALREADY PLACED BEFORE THE AO AND ALSO LETTER FROM ECIL CERTIFYING THAT THE SOFTWARE PURCHASED SUPPLIED BY ASSESSEE WERE INTEGRATE D INTO THE X - RAY BA GGAGE SYSTEMS. THESE ADDITIONAL EVIDENCES WERE REMANDED TO THE AO FOR NECESSA RY EXAMINATION AND AFTER THE REPORT WAS RECEIVED FROM AO, LD. CIT(A) DID NOT AGREE WITH ASSESSEE CONTENTIONS . 6.1 . IN AY. 2006 - 07, THE LD. CIT(A) CONFIRMED THE ADDITION BY STATING AS UNDER: 5.7 FROM THE ABOVE AVERMENTS, IT IS CLEAR THAT NOT A SINGLE PIECE OF EVIDENCE OR SUBSTANTIAL INFORMATION HAS BEEN SUPPLIED BY THE APPELLANT. NOT EVEN THE NAME OF THE SOFTWARE HAS BEEN SUPPLIED. SUCH HIGHLY TECHNICAL SOFTWARE DEVELOPMENT IS INVARIABLY SOLD THROUGH A TENDER PROCESS AND DETAILED DESIGN PARAMETERS ARE PROVIDED TO THE SOFTWARE DEVELOPER. THE APPELLANT HAS NOT PROVIDED ANY INFORMATION AND HAS NOT BEEN ABLE TO GIVE EVEN A SINGLE CONTRACT WITH THE SUPPLIERS WHICH WOULD INDICATE THAT THE SOFTWARE HAD INDEED BEEN DEVELOPED. WHAT WAS THE NATURE OF THE SOFTWARE ? WHAT EXPERTISE DID THE COMPANIES IN QUESTION HAVE FOR DEVELOPING THAT SOFTWARE? HOW WAS IT INTEGRATED INTO WHICH SYSTEMS MADE BY THE APPELLANT ETCETERA; ALL THESE QUESTIONS REMAIN UNANSWERED. NOT A SINGLE AGREEMENT HAS BEEN PROVIDED TO SHOW THAT THE APPE LLANT RECEIVED ALL RIGHTS OVER THE SOFTWARE AND ALSO RECEIVED TECHNICAL DETAILS ON INTEGRATING THAT SOFTWARE WITH ITS OWN MACHINES AND ITS OWN I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 7 - : SOFTWARE. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS CLEARLY SHOWN THAT EVEN THE BASIC INFORMATION LIKE SALE BILLS CORRESPONDING TO THE SOFTWARE PURCHASED WERE NOT PROVIDED. RELEVANT PORTIONS OF THE REMAND REPORT ARE REPRODUCED BELOW: - I HAVE GONE THROUGH THE PAPER BOOK FORWARDED TO THIS OFFICE. THE PAPER BOOK SUBMITTED BY THE ASSESSEE BEFORE CIT(A) - III, HYDE RABAD CONTAINS 22 ITEMS SERIALLY NUMBERED AS 1 TO 22. OUT OF THIS SI.NO. 1 TO 3 WERE FILED BEFORE CIT(A) - III, HYDERABAD AND FROM SRL.NO.4 TO 22 WERE FILED BEFORE THE AO DURING THE COURSE OF SCRUTINY PROCEEDINGS ITSELF. THEY ARE NOT NEW SUBMISSIONS MADE BY THE ASSESSEE. AFTER EXAMINING THE INFORMATION FILED BEFORE THE CIT(A) IT IS NOTICED THAT THE ASSESSEE HAS NOT FILED ANY NEW EVIDENCE. THE ASSESSEE HAS NOT FURNISHED THE EVIDENCE OF SALE BILLS CORRESPONDING TO SOFTWARE PURPORTEDLY PURCHASED FROM THE ABOVE T HESE PARTIES. SO, IT IS CLEAR THAT THE ASSESSEE HAS NO EVIDENCE IN POSSESSION TOWARDS SALE OF SOFTWARE PURCHASE ALLEGEDLY PURCHASED FROM THE ABOVE THESE PARTIES.' 5.8 GIVEN ALL THE ABOVE FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THE PURCHASE OF SOFTWARE FROM THE AFOREMENTIONED FIVE PARTIES IS ABSOLUTELY UNSUBSTANTIATED AND EVEN THE BASIC DETAILS HAV E NOT B EEN PRODUCED BY THE APPELLANT. MOREOVER, WITH REGARD TO THE TWO PARTIES IN DELHI, IT HAS CLEARLY BEEN ESTABLISHED THAT THESE WERE ONLY PAPER COMPANIES AND THE PERSON IN QUESTION SRI SK GUPTA HAD ONLY BEEN PROVIDING ACCOMMODATION ENTRIES. ACCORDINGLY, I HAVE NO HESITATION IN CONFIRMING THE ADDITION IS MADE BY THE ASSESSING OFFICER IN THIS REGARD. 6.2 . SIMILARLY FOR AY. 2008 - 09 , EXCEPT FOR THE DIFFEREN CE IN THE REMAND REPORT, LD. CIT(A) DISMISSED ASSESSEES CONTENTIONS BY STATING SIMILARLY AS UNDER: 5.7 F ROM THE ABOVE AVERMENTS, IT IS CLEAR THAT NOT A SINGLE PIECE OF EVIDENCE OR SUBSTANTIAL INFORMATION HAS BEEN SUPPLIED BY THE APPELLANT. NOT EVEN THE NAME OF THE SOFTWARE HAS BEEN SUPPLIED. SUCH HIGHLY TECHNICAL SOFTWARE DEVELOPMENT IS INVARIABLY SOLD THROUGH A TENDER PROCESS AND DETAILED DESIGN PARAMETERS ARE PROVIDED TO THE SOFTWARE DEVELOPER. THE APPELLANT HAS NOT PROVIDED AN Y INFORMATION AND HAS NOT BEEN ABLE TO GIVE EVEN A SINGLE CONTRACT WITH THE SU P PLIERS WHICH WOULD INDICATE THAT THE SOFTWARE HAD INDEED BEEN DEVELOPED. WHAT WAS THE NATURE OF THE SOFTWARE? WHAT EXPERTISE DID THE COMPANIES IN QUESTION H AVE TO DEVELOP THAT SOFTWARE? HOW WAS IT INTE GRATED INTO WHICH SYSTEMS MADE BY THE APPELLANT ET CETERA; ALL THESE QUESTIONS REMAIN UNANSWERED. NOT A SINGLE AGREEMENT HAS BEEN PROVIDED TO SHOW THAT THE APPELLANT RECEIVED ALL RIGHTS OVER THE SOFTWARE AND ALSO RECEIVED TECHNICAL DETAILS ON INTEGRATING T HAT SOFTWARE WITH ITS OWN MACHINES AND ITS OWN SOFTWARE. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS CLEARLY SHOWN THAT EVEN THE BASIC INFORMATION LIKE SALE BILLS CORRESPONDING TO THE SOFTWARE PURCHASED I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 8 - : WERE NOT PROVIDED. RELEVANT PORTIONS OF THE REMAN D REPORT ARE REPRODUCED BELOW: - DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO FURNISH THE NATURE OF SOFTWARE STATED TO HAVE BEEN PURCHASED ALONG WITH DETAILS OF SALES TO WHOM THE SOFTWARE ALLEGEDLY PURCHASED FROM (1) RAPISCAN S YSTEMS PVT. LTD RS.52.20 LAKHS AND (2) M / S HARTON CASE COMMUNICATIONS LTD, RS.36.50 LAKHS THE ASSESSEE EVEN THOUGH FURNISHED THE COPIES OF PURCHASE SUB - LEDGER AND COPIES OF THE INVOICES AND STATED THAT THESE SOFTWARE LOADED ON THE COMPUTERS SOLD AND FUR THER STATED THAT TDS WAS DEDUCTED AND DEPOSITED. BUT FAILED TO FURNISH THE EVIDENCE IN THE FORM OF SALE BILLS. FURTHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE EXPLANATION FOR NOT DEDUCTING THE TDS ON (1) ECIL RS.5 ,42,71,341 (2) RAPISCAN, USA RS.9,93,760 AS THE ASSESSEE FAILED TO OFFER ANY EXPLANATION, THE SAME WERE ADDED TO TOTAL INCOME. I HAVE GONE THROUGH THE PAPER BOOK AND ADDITIONAL EVIDENCE PERTAINING TO M / S HARTON CASE COMMUNICATION LTD FORWARDED TO THIS OFFI CE. THE PAPER BOOK SUBMITTED BY THE ASSESSEE BEFORE CIT(A - )III, HYDERABAD CONTAINS 17 ITEMS SERIALLY NUMBERED AS 1 TO 17. OUT OF THIS S 1. NO. 1 TO 3 WERE FILED BEFORE CIT(A) - III, HYDERABAD AND FROM SRL.NO.4 TO 17 WERE FILED BEFORE THE AO DURING THE COURSE OF SCRUTINY PROCEEDINGS ITSELF. THEY ARE NOT NEW SUBMISSIONS MADE BY THE ASSESSEE. THE ADDITIONAL EVIDENCE DATED 04.10.2012, SUBMITTED TO THE CIT{A) WITH REGARD TO THE M / S HARTON CASE COMMUNICATION LTD, CONTAINS COPIES OF CONFIRMATION OF ACCOUNTS, COPY OF ACKNOWLEDGMENT OF INCOME TAX COPY OF BALANCE SHEET, COPIES OF BANK STATEMENTS OF NOBLE COOPERATIVE BANK AND AXIS BANK, COPY OF AFFIDAVIT OF SRI GOPAL KISHAN MISHRA, DIRECTOR AND COPY OF ROC MASTER DATA. THE ADDITIONAL EVIDENCE FURNISHED ALSO NO BEARING ON THE ADDITION BECAUSE THE ASSESSING OFFICER MADE ADDITION AS ASSESSEE FAILED TO FURNISH THE SALE BILLS CORRESPONDING TO THE PURCHASES. THE ASSESSEE EXPRESSED HIS INABILITY TO FILE THEM DURING THE ASSESSMENT PROCEEDINGS ALSO. HOWEVER, IT IS PERTINENT TO MEN TION HERE THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE IN SIMILAR CASE PRODUCED PURCHASE INVOICE BEARING ADDRESS IN RESPECT OF M / S X SERVICE INDIA PVT. LTD, AND ALSO PRODUCED CORRESPONDING SALE INVOICE RAISED IN THE NAME OF M / S ECIL HYDERABAD. IT I S CLEAR FROM THE ABOVE THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS OF SALES TO WHOM THE SOFTWARE ALLEGEDLY PURCHASED FROM THE ABOVE TWO PARTIES.' 5.8 GIVEN ALL THE ABOVE FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THE PURCHASE OF SOFTWARE FROM THE AFOR EMENTIONED FIVE PARTIES IS ABSOLUTELY UNSUBSTANTIATED AND EVEN THE BASIC DETAILS HAVE NOT BEEN PRODUCED BY I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 9 - : THE APPELLANT. ACCORDINGLY, I HAVE NO HESITATION IN CONFIRMING THE ADDITION IS MADE BY THE ASSESSING OFFICER IN THIS REGARD . 7 . LD. COUNSEL REFER RING TO VARIOUS DOCUMENTS PLACED IN THE PAPER BOOK AND VARIOUS SUBMISSIONS MADE TO THE AO /CIT(A), SUBMITTED THAT: IN RESPECT OF THE MERITS OF THE DISALLOWANCE OF THE EXPENDITURE INCURRED ON THE PURCHASE OF SOFTWARE, IT IS MOST RESPECTFULLY SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MARKETING SUPPLY, INSTALLATION AND MAINTAINING/SERVICING SECURITY SYSTEMS MAINLY X - RAY BAGGAGE INSPECTION SYSTEMS WHICH ARE USED AS SCANNERS. THE AFORESAID EQUIPMENTS, IMBEDDED / INBUILT WITH THE SOFTWARE, ARE SOLD TO VARIOUS CUSTOMERS, MOST OF WHOM ARE GOVERNMENT AGENCIES. IT IS SUBMITTED THAT THE CUSTOMERS, IN VARIOUS TENDERS FLOATED BY THEM, STIPULATE THE VARIOUS REQUIREMENTS/TECHNICAL SPECIFICATIONS FOR PURCHASE OF X - RAY BAGGAGE INSPECTION SYSTEMS/SECURI TY SCANNERS AND THE ASSESSEE COMPANY HAS TO COMPLY WITH THESE SPECIFICATIONS IN ORDER TO QUALIFY TECHNICALLY IN THEIR TENDER. ACCORDINGLY THE ASSESSEE COMPANY EITHER DEVELOPS OR OUT SOURCES THESE TECHNICAL REQUIREMENTS I.E. SOFTWARES TO BE ABLE TO COMPLY W ITH THE TECHNICAL SPECIFICATIONS AND THE REQUIREMENTS OF THE CUSTOMERS. THE TIP AND EPX SOFTWARE HAVE ACCORDINGLY BEEN USED AND LOADED IN THE SYSTEM/MACHINES SOLD BY THE COMPANY TO ITS CUSTOMERS TO ENSURE THAT IT MEETS THE REQUIREMENT OF THE TENDER/CUSTOME R. IT IS SUBMITTED THAT APPELLANT IS INCURRING EXPENDITURE ON THE PURCHASE/DEVELOPMENT OF SOFTWARE IN ALL THE PRECEDING ASSESSMENT YEARS AND TREATMENT GIVEN BY THE LEARNED REVENUE IN RESPECT THEREOF ARE AS UNDER: SR. NO. ASSESSMENT YEAR AMOUNT ASSESSMEN T U/S. TREATMENT BY REVENUE I. 2003 - 04 40,35,000 143(3) NO DISALLOWANCE TOWARDS THE PURCHASE OF SOFTWARE II. 2004 - 05 97,00,433 143(3) NO DISALLOWANCE TOWARDS THE PURCHASE OF SOFTWARE III. 2005 - 06 72,05,750 143(3) NO DISALLOWANCE TOWARDS THE PURCHASE OF SOFTWARE IV. 2006 - 07 1,32,46,100 147/143(3) PURCHASE OF SOFTWARE FROM 3 COMPANIES TO THE EXTENT OF RS. 1,12,95,000/ - WAS DISALLOWED AND UPHELD BY THE LEARNED CIT(A) AND APPEAL IS PENDING BEFORE THE HON'BLE TRIBUNAL V. 2007 - 08 1,25,23,901 143(3) NO DISAL LOWANCE TOWARDS THE PURCHASE OF SOFTWARE I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 10 - : VI. 2008 - 09 92,70,400 143(3) PURCHASE OF SOFTWARE FROM 2 COMPANIES TO THE EXTENT OF RS. 88 , 70 , 4 00/ - WAS DISALLOWED AND UPHELD BY THE LEARNED CIT(A) AND APPEAL IS PENDING BEFORE THE HON'BLE TRIBUNAL VII. 2009 - 10 72 ,55,244 143(3) NO DISALLOWANCE TOWARDS THE PURCHASE OF SOFTWARE IT WOULD BE SEEN THAT APART FROM AY 2006 - 07 AND 2008 - 09, EXPENDITURE INCURRED ON THE PURCHASE/DEVELOPMENT OF SOFTWARE HAS BEEN MADE IN ANY OF THE PRECEDING ASSESSMENT YEAR EVEN WHEN THE ASSE SSMENT HAS BEEN FRAMED UNDER SECTION 143(3) OF THE ACT WHICH CLEARLY ESTABLISHES THAT APPELLANT IS INCURRING EXPENDITURE ON THE PURCHASE/DEVELOPMENT OF SOFTWARE WHICH HAS EITHER DIRECTLY BEEN SOLD TO THE CUSTOMERS OR HAS BEEN INTEGRATED WITH THE EQUIPMENTS SOLD BY IT . 7 .1. IT WAS FURTHER SUBMITTED THAT AO MERELY ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING THAT TOO IN RESPECT OF TWO COMPANIES I.E., CENTENARY SOFTWARE PVT. LTD., AND HITECH COMPUTECH PVT. LTD., HELD ALL THE PURCHASES MADE I N THE RESPECTIVE TWO ASSESSMENT YEARS AS BOGUS. IT WAS SUBMITTED THAT AO COMPLETELY IGNORED THE MATERIAL/EVIDENCES PLACED BY ASSESSEE IN SUPPORT OF THE PU RCHASES OF SOFTWARE, I . E. , THE COPIES OF LEDGER ACCOUNTS, DETAILS OF PURCHASES , INVOICES, EVIDENCE OF BANK PAYMENTS, TDS CERTIFICATES AND CONFIRMATION OF ACCOUNTS FROM OTHER PARTIES INCLUDING AFFIDAVITS WHEREVER REQUIRED AND CERTIFICATE FROM ECIL THAT THE SOFTWARE IS INTEGRATED IN THE X - RAY B AGGAGE SYSTEMS. IT WAS SUBMITTED THAT THERE IS NO IOTA OF EVIDE NCE FROM THE REVENUE TO DISPROVE ANY OF THE CONTENTIONS OF ASS ESSEE. THE ENTIRE DISALLOWANCE WAS PURELY ON THE BASIS OF SURMISES / PRESUMPTIONS . 8 . LD. DR HOWEVER, SUBMITTED THAT ASSESSEE FAILED IN JUSTIFYING THE PURCHASE OF SOFTWARE AND THEREFORE, THE A UTHORITIES HAVE COME TO A CONCLUSION THAT THE SAME ARE BOGUS IN NATURE. I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 11 - : 9 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE EVIDENCE ON RECORD. AS FAR AS AY. 2006 - 07 IS CONCERNED, THERE IS SAME INTERNAL COMMUNICATION FROM THE INVESTIGATION WING S ENT BY CENTRAL CIRCLE, NEW DELHI TO THE AO THAT IN THE SEARCH AND SEIZURE OPERATION CONDUCTED IN THE PREMISES OF SHRI S.K. GUPTA, NEW DELHI, THE DEPARTMENT HAS UN - EARTHED BOGUS ACCOMMODATION BILL/SERVICES BEING RENDERED BY VARIOUS COMPANIES OF SHRI S.K. GU PTA , WHICH WAS ADMITTED BY HIM. EXCEPT THE COMM UNICATION AND THE REFERENCE OF TWO COMPANIES IN AY. 2006 - 07, THERE IS NO OTHER EVIDENCE WHICH CAN BE CONSIDERED AS AUTHENTIC . NOT EVEN THE STATEMENT OF SHRI S.K. GUPTA WAS FORWARDED TO THE AO, SO THE AO IN TURN , DID NOT PROVIDE COPY OF THE SO CALLED STATEMENT OF SRI GUPTA TO ASSESSEE. NOT ONLY THAT , EVEN THOUGH ASSESSMENT WAS REOPENED ON THAT BASIS , NOWHERE IN THE ASSESSMENT ORDER THE AO RELIED ON THE COMMUNICATION FROM OTHER UNITS OF DEPARTMENT FROM NEW DE LHI. THEREFORE, WE ARE SURPRISED THAT LD. CIT(A) RELIES ON THE SO CALLED STATEMENT OF SHRI S.K. GUPTA , COMES TO A CONCLUSION THAT THE BOGUS PURCHASES ARE PROVED. T HERE IS NO SUCH EVIDENCE ON RECORD JUSTIFYING THE CONCLUSION THAT THE PURCHASES ARE BOGUS. IN CASE REVENUE RELIES ON THE STATEMENT OF SHRI S.K. GUPTA, THEN, IT IS THE DUTY OF THE REVENUE TO FURNISH THE COPY OF SUCH STATEMENT TO ASSESSEE AND TO OBTAIN ITS COMMENTS AND ALSO OFFER CROSS - EXAMINATION , IF NECESSARY. SINCE REVENUE DID NOT RELY ON THE STATEMENT OF SHRI S.K. GUPTA IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT IS NOT PROPER ON THE PART OF THE LD. CIT(A) TO CONFIRM THE ACTION OF THE AO , RELYING ON THE SO CALLED S TATEMENT WHICH WAS NOT EVEN FURNISHED TO ASSESSEE. 10 . AS CAN BE SEEN FROM THE TENOR OF THE ORDER PASSED BY THE AO, HIS ONLY DIRECTION TO ASSESSEE IS TO FURNISH TH E NECESSARY I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 12 - : SALE BILLS OF THE SOFTWARE PURCHASED . TO THE EXTENT ASSESSEE IS U TILIZING THE SOFTWARE IN ITS BUSINESS FOR MANAGEMENT AND TRAINING PURPOSES OR AS SOLD IN A Y. 2008 - 09, THE AO HAS ACCEPTED T HEM AS GENUINE. A SSESSEE HAS SUBMITTED THAT THE BALANCE OF PURCHASED SOFTWARE WAS NOT FOR RE - SALE BUT FOR INTEGRA TING INTO X - RAY B AGGAGE SYSTEMS , WHICH WERE SUPPLIED AS PER THE TENDERS/CONTRACTS/ORDER S TO VARIOUS CUSTOMERS AND WAS ACCORDINGLY UNABLE TO FURNISH ANY SALE BILLS SEPARATELY. THE AO THEREAFTER COMES TO A CONCLUSION THAT PURCHASES ARE BOGUS. 10.1 . AS SEE N FROM THE ORDER IN AY. 2008 - 09, THE TWO COMPANIES ON WHICH THE PURCHASES WERE TREATED TO BE BOGUS ARE NOWH ERE CONNECTED TO THE SO CALLED MR S K GUPTA, CONSIDERED IN AY. 2006 - 07. LEAST THE AO COULD HAVE DONE IS TO ENQUIRE FROM THE OTHER TWO COMPANIES WHICH ARE INDEPENDENT . R A PI S CAN SYSTEMS PVT. LTD., FROM WHOM ASSESSEE PURCHASED SOFTWARE TO AN EXTENT OF RS. 52,20,000/ - IS A COMPANY IN SECUNDERABAD AND IS AS SESSED IN THE JURISDICTION OF HYDERABAD. AS FAR AS HARTON CASE COMMUNICATIONS LTD., NEW DELHI FROM WHOM ASSESSEE PURCHASED RS. 36,50,400/ - , THE SAID COMPANY FILED AN AFFIDAVIT FROM MR. GOPAL KRISHNA M ISHR A , DIRECTOR CONFIRMING THE TRANSACTIONS. IN ADDITION TO THIS, ECIL ALSO , A GOVERNMENT UNDERTAKING CERTIFIED THAT THE SOFTWARE SUPPLIED BY ASSESSEE ARE INTEGRAT ED TO THE BAGGAGE SYSTEMS . T HUS, THERE IS ENOUGH EVIDENCE WITH ASSESSEE TO PROVE THAT THE IMPUGN ED PURCHASES ARE GENUINE. NOT ONLY IN THIS YEAR, BUT AS STATED BY ASSESSEE IN OTHER ASSESSMENT YEARS ALSO, ASSESSEE IS PURCHASING SOFTWARE WHICH WAS ALSO ACCEPTED BY REVENUE , MOSTLY IN SCRUTINY ASSESSMENTS. I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 13 - : 11. AS FAR AS AY. 2006 - 07 IS CONCERNED, THERE IS NO EVIDENCE WITH REVENUE WHICH WAS BROUGHT ON RECORD TO PROVE THAT THE SAID TWO COMPANIES, HITECH COMPUTECH PVT. LTD., AND CENTENARY SOFTWARE PVT. LTD., CONNECTED WITH SHRI S.K. GUPTA HAVE NOT SUPPLIED ANY SOFTWARE AS CONTENDED. WE WERE ALSO SURPRISED THA T WITHOUT ANY INFORMATION OR BASIS, THE AO ALSO THOUGHT IT FIT TO DISALLOW PURCHASES FROM S CIENCE AIDS.COM PVT. LTD., TO AN EXTENT OF RS. 33,75,000/ - , EVEN THOUGH THERE I S NO INFORMATION AT ALL FROM THE INVESTIGATION WING, NEW DELHI. AO TREATED THE EN TIRE P URCHASES AS BOGUS ONLY ON THE REAS ON THA T ASSESSEE FAILED TO FURNISH SALE BILLS. IT IS THE SUBMISSION OF ASSESSEE THAT THESE SOFTWARE PURCHASES WERE IN TEGRATED INTO BAGGAGE S YSTEMS SUPPLIED AND FURNISHED A CERTIFICATE FROM ECIL TO THAT EXTENT. IN R EMAND PROCEEDINGS, AO DID NOT BOTHER TO ENQUIRE ABOUT THE UTILIZATION/INTEGRATION BY ECIL, ANOTHER GOVERNMENT ORGANIZATION AND TO ASCERTAIN WHETHER THE STATEMENT S MADE BY ASSESSEE AND THE CERTIFICATE ISSUED BY ECIL ARE CORRECT OR NOT? IN THESE CIRCUMSTAN CES, WE ARE NOT CONVINCED WITH THE STAND OF REVENUE THAT THE PURCHASES MADE BY ASSESSEE ARE TO BE TREATED AS BOGUS. SINCE ASSESSEE HAS FURNISH ED EVIDENCE AVAILABLE WITH IT IN SUPPORT OF THE PURCHASES AND IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY, I T IS TO BE CONSIDERED THAT ASSESSEE HAS GENUINELY PURCHASED THE SOFTWARE IN THE C OURSE OF ITS BUSINESS AND UTILIS ED THEM FOR IN TEGRA TING THEM INTO THE BAGGAGE S YSTEMS SOLD BY IT . 11.1. IN VIEW OF THIS, WE HAVE NO HESITATION IN DELET ING DISALLOWANCE STA TING TO BE BOGUS PURCHASES . AO IS DI RECTED TO ALLOW THE CLAIM MADE AT RS. 1,12,95,000/ - IN AY. 2006 - 07 AND RS. 88,70,400/ - IN AY. 2008 - 09. THE CORRESPONDING GROUNDS IN BOTH THE ASSESSMENT YEARS ARE ACCORDINGLY ALLOWED I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 14 - : 12. THE OTHER ISSUE WHICH IS CONTE NDED IN AY. 2006 - 07 IS WITH REFERENCE TO REOPENING OF ASSESSMENT. THIS ASPECT WAS BRIEFLY REFERRED ABOVE . AO AFTER COMPLE TING THE ASSESSMENT U/S. 143(3) ALLOWING THE SOFTWARE PURCHASES , HAD RECEIVED CERTAIN COMMUNICATION FROM INVESTIGATION WING, NEW DELH I. THE REASONS RECORDED FOR REOPENING OF ASSESSMENT ARE AS UNDER: AS PER INFORMATION RECEIVED FROM THE CENTRAL CIRCLE OF INCOME TAX DEPARTMENT, NEW DELHI, THE INVESTIGATION WING OF THE I.T. DEPARTMENT, NEW DELHI DURING THE COURSE OF SEARCH & SEIZURE OP ERATION U/S. 132 OF THE I.T. ACT HELD ON 12.12.2006 IN THE CASE OF SHRI. S.K. GUPTA OF CASES, NOTICED THAT TWO OF THE PAPER COMPANIES FLOATED BY SHRI S.K. GUPTA VIZ (I) HITECH COMPUTECH PVT. LTD., 16B/8, BOLNI CHAMBER, D.B. GUPTA ROAD, NEW DELHI AND (II) C ENTENARY SOFTWARE PVT. LTD., 16B/8, BOLNI CHAMBER, D.B. GUPTA ROAD, NEW DELHI HAVE ISSUED INVOICES (WHICH WERE ADMITTEDLY BOGUS) TOWARDS ALLEGED SALE OF SOFTWARE WORTH RS. 57,20,000/ - AND RS. 22,00,000/ - RESPECTIVELY IN FAVOUR OF M/S. ECIL RAPISCAN LIMITED , HYDERABAD AS ACCOMMODATION ENTRIES DURING THE FY. 2005 - 06 RELEVANT TO AY. 2006 - 07. THUS, THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT /S ECIL RAPISCAN LIMITED, HYDERABAD MADE FICTITIOUS PURCHASES OF COMPUTER SOFTWARE TO THE EXTENT OF RS. 79.20 LAKH S FOR THE AY. 2006 - 07 WHICH HAS ESCAPED ASSESSMENT. 12.1. THEREAFTER, AO IS SUED NOTICES U/S. 148 AND INITIATED THE RE - ASSESSMENT PROCEEDINGS. A SSESSEE ASKED THE REASONS FOR REOPENING THE ASSESSMENT IMMEDIATELY, BUT AS ASSESSEE HAS NOT FILED RET URN IN R ESPONSE TO NOTICE U/S 148, AO ASKED ASSESSEE TO FURNISH THE RETURN. THEREAFTER, ASSESSEE VIDE LE TTER DT. 31 - 07 - 2009 REQUESTED THE AO TO TREAT THE RETURN ORIGINALLY FILED AS RETURN IN RESPONSE TO NOTICE U/S. 148 AND FURTHER REQUESTED FOR FURNISHING THE CO PIES OF THE REASONS RECORDED. HOWEVER, THE AO COMMUNICATED THE REASONS ON 13 - 10 - 2010 AFTER A LONG GAP. IT WAS THE CONTENTION THAT: I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 15 - : I. AO DID NOT RECORD THE REASONS WHEN THE ASSESSMENT WAS OPENED DUE TO DEL AY IN COMMUNICATING THE REASONS; II. THERE IS NO TANG IBLE MATERIAL FOR REOPENING THE ASSESSMENT; III. THE SO CALLED STATEMENT OF SHRI S.K. GUPTA WAS NOT PROVIDED TO ASSESSEE NOR WAS CONFRONTED FOR CROSS - EXAMINATION. 13. LD. COUNSEL RELIED ON VARIOUS PROPOSITIONS AND ON VARIOUS CASE LAW AS UNDER : A. WHERE AN O RDER CAUSES PREJUDICE IS NOT MADE AVAILABLE WHEN REQUESTED WOULD LEAD TO A PRESUMPTION THAT NO SUCH ORDER WAS MADE WHEN IT WAS SUPPOSED TO HAVE BEEN MADE 1. CIT VS. TARACHAND KHUSHIRAM [303 ITR 298] HIGH COURT (MP); B. INFORMATION PROVIDED BY THE INVESTIGAT ION WING IS NOT THE TANGIBLE MATERIAL 2. SARTHAK SECURITIES CO. PVT. LTD., VS. INCOME TAX OFFICER [329 ITR 110] (DEL); 3. CIT VS. SFIL STOCK BROKING LTD., [325 ITR 285]; 4. SIGNATURE HOTELS P. LTD., VS. INCOME TAX OFFICER [338 ITR 51]; 5. ASST. COMMISSIONER OF INCOM E TAX VS. CLESTRA LIFE SCIENCES (P) LTD., [54 TAXMANN.COM 140 (MUMBAI - TRIB); 6. COMMISSIONER OF INCOME TAX VS. SHRI AMARJEET SINGH (HUF) (IT APPEAL NO. 264 OF 2005 DT. 22 - 08 - 2014); 7. ACIT VS. SHRI DEVESH KUMAR PROP DINESH STEELS (ITA NO. 2068/DEL/2010 DT. 31 - 10 - 2014); I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 16 - : 8. MINI LEISURE CITY PVT. LTD., VS. INCOME TAX OFFICER (ITA NO. 6163/DEL/2012 DT. 28 - 11 - 2014); 9. CIT VS. INSECTICIDES (INDIA) LTD., [357 ITR 330] (DELHI); C. A NOTICE UNDER SECTION 148 WITHOUT THE COMMUNICATION OF THE REASONS IS MEANINGLESS 10. HARYANA AC RYLIC MANUFACTURING CO. VS. CIT [308 ITR 38]; D. THE REASONS ALONE WHICH ARE TO BE LOOKED INTO TO JUSTIFY THE REOPENING OF PROCEEDINGS U/S. 147 OF THE ACT 11. MOHINDER SINGH GILL & ANR VS. THE CHIEF ELECTION COMMISSIONER, NEW DELHI AND ORS REPORTED IN 1978( 1) SCC 405; E. R EASON TO SUSPECT CANNOT BE SAID TO BE REASON TO BELIEVE 12. INDIAN OIL CORPORATION [159 ITR 956] (SC); F. THERE MUST BE LIVE LINK OR CLOSE NEXUS, BETWEEN THE MATERIAL AND THE BELIEF FORMED 13. ITO VS. LAKSHMI MEWAL DAS [103 ITR 437] (SC); 14. D WARAKA DASS AND BROTHERS [131 ITR 571] (DEL); 15. CIT VS. BATRA BHATTA & CO., [174 TAXMAN 444 (DEL)]; G. POWER VESTED TO INITIATE PROCEEDINGS CANNOT BE EXERCISED IN A CASUAL AND IN A ROUTINE MANNER 16. UNITED ELECTRICAL LTD., [258 ITR 317] (DEL); H. THERE WAS NO MATERIAL ON RECORD WITH THE A.O. WHEN HE INITIATED THE PROCEEDINGS U/S. 147 OF THE ACT 17. CIT VS. SUPREME POLYPROPOLENE PVT LTD., (ITA NO. 266/2011 DT. 30 - 10 - 2012) ALONGWITH REVIEW PETITION (REV. PETITION NO. 215/2013 IN ITA NO. 266/2011); I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 17 - : I. REASONS TO BELIEVE MAY BE GOOD AND VALID FOR REOPENING OF AN ASSESSMENT, HOWEVER, WHERE AFTER THE PROCEEDINGS ARE REOPENED AND THE AO SEEKS TO MAKE ADDITION, BURDEN IS UPON HIM TO BRING SOME MATERIAL TO FORM HIS BELIEVE THAT THERE IS ESCAPEMENT OF INCOME 18. CIT VS. PR ADEEP KUMAR GUPTA [303 ITR 95]; 19. CIT VS. FUNNY TIME FINVEST LTD., (ITA NO. 645/2012 DT. 13 - 01 - 2015); J. IF AO WAS NOT INCLINED TO BELIEVE THE MATERIAL PLACED BY ASSESSEE HE COULD HAVE USED COERCIVE POWERS AVAILABLE TO HIM 20. CIT VS. GENESIS COMMET (P) LTD., [163 TAXMAN 482](DEL); K. ONUS WAS ON THE LEARNED AO TO BRING SOME MATERIAL BEFORE DISALLOWING THE PURCHASES 21. CIT VS. WELLWORTH CONSTRUCTION UDYOG LTD., ITA NO. 443/2014 DT. 25 - 02 - 2015 HC (DELHI); 22. CIT VS. ANSHIKA CONSULTANTS PVT. LTD., (ITA NO. 467/2014 DT. 16 - 04 - 2015 HC (DELHI); 23. CIT VS. GANGESHWARI METAL P. LTD., [361 ITR 10] (DEL); L. PURCHASE S MADE BY THE ASSESSEE AND DISALLOWED BY THE LEARNED AO AND UPHELD BY THE LEARNED CIT(A) IS WHOLLY UNSUSTAINABLE 24. ITO VS. PERMANAND [25 SOT 11] (JODH) (URO); 25. DC IT VS. SHRI RAJEEV G. KALATHIL (ITA NO. 6727/MUM/2012 DT. 20 - 08 - 2014); 26. JAGDAMBA TRADING CO. VS. ITO [16 SOT 66] (JODHPUR); 27. CIT VS. NANGALIA FABRICS (P) LTD., [220 TAXMAN 17] (GUJARAT) (MAG); 28. CIT VS. NIKUNJ EXIM ENTERPRISES PVT. LTD., [372 ITR 619] (BOMBAY) ; I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 18 - : 29. ACIT VS. TRISTAR JEWELLERY EXPORTS P. LTD., (ITA NO. 7593/MUM/2011 DT. 31 - 07 - 2015); M. ADDITION HAS BEEN MADE IN WHOLLY CASUAL MANNER AND WITHOUT DISCHARGING THE BURDEN 30. CIT VS. KAMDHENU STEEL & ALLOYS LTD., [361 ITR 220]; N. CROSS EXAMINATION 31. KISHNI CHAND CHELLA RAM VS. CIT [125 ITR 7 1 3] (SC); 32. CIT VS. SM AGGARWAL [293 ITR 43] (DEL); O. SUSPICION HOWSOEVER STRONG CANNOT TAKE THE PLACE OF PROOF 33. DHAKESWARI COTTON MILLS LTD., VS. CIT [26 ITR 775] (SC); 34. OMAR SALAY MOHAMMAD SAIT VS. CIT [37 ITR 151] (SC) ; 13.1. LD. COUNSEL ALSO FURNISHED ADDITIONAL CASE LAW SUPPORTING THE CONTENTIONS AS UNDER: 1. MADHYA PRADESH VS. INCOME TAX OFFICER [0 57 ITR 0637 ] ( SC ); 2. INCOME TAX OFFICER VS. MADNANI ENGINEERING WORKS LTD., [118 ITR 0001] (SC); 3. COMMISSIONER OF INCOME TAX , DELHI VS. KELVINATOR OF INDIA LTD., [2 SCC 723]; 4. COMMISSIONER OF INCOME TAX - V VS. ORIENT CRAFT LTD., [354 ITR 536]; 5. COMMISSIONER OF INCOME TAX - X V I VS. ATUL KUMAR SWAMI [362 ITR 693]; 6. M/S. ANDAMAN TIMBER INDUSTRIES VS. COMMISSIONER OF CENTRAL EXCISE, KO LKATA IN CIVIL APPEAL NO. 4228/2006 DT. 02 - 09 - 2015; I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 19 - : 7. STATE OF ANDHRA PRADESH VS. M. RAMAKISHTAIAH & CO (CIVIL APPEAL NO. 491/1977) ; AND STATE OF ANDHRA PRADESH VS. KHETMAL PAREKH (CIVIL APPEAL NO. 1014/1977); 14. LD. DR IN REPLY HOWEVER, SUBMITTED THAT AN INTERNAL COMMUNICATION HAS BEEN RECEIVED FROM THE INVESTIGATION WING ABOUT THE ACCOMMODATION ENTRIES BEING PROVIDED BY THE COMPANIES FLOATED BY SHRI S.K. GUPTA AND ACCORDINGLY, THERE IS REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSES SMENT. HE RELIED ON THE PRINCIPLES LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF R AYMOND W OOLLEN MILLS LTD., VS. ITO & ORS [236 ITR 34] (SC) FOR THE PROPOSITION THAT SUFFICIENCY OF MATERIAL NEED NOT BE CONSIDERED WHEN THERE IS PRIMA - FACIE SOME MATERIAL ON THE BASIS OF WHICH REVENUE COULD REOPEN THE CASE. LD. DR ALSO RELIED ON THE JUDGME N T OF THE HON'BLE SUPREME COURT IN THE CASE OF PHOOL C HAND BAJ RANG LAL VS. I TO [203 ITR 456] TO SUBMIT THAT AFTER COMPLETION OF THE ASSESSMENT, IF SOME COMMUNICATION REC EIVED FROM ANOTHER OFFICER, WHICH IS SPECIFIC , RELEVANT AND RELIABLE, AO CAN REOPEN THE ASSESSMENT AFTER RECORDING THE REASONS FOR FORMATION OF HIS BELIEF. HE SUPPORTED THE ORDERS OF THE AO AND LD. CIT(A). 15. WE HAVE CONSIDERED THE CONTENTIONS AND PERU SED THE CASE LAW RELIED UPON. IN OUR VIEW, SOME OF THE CONTENTIONS ARE ACADEMIC IN NATURE AS THE LD.AO DID NOT RELY ON THE SO CALLED STATEMENT OF SHRI S.K. GUPTA OR INFORMATION RECEIVED FROM INVESTIGATION WING, NEW DELHI WHILE COMPLETING THE ASSESSMENT. EXCEPT FOR REOPENING THE ASSESSMENT ON THAT BASIS, THERE IS NO SUCH ACTION TAKEN BY AO TO CONFRONT ASSESSEE ABOUT THE SO CALLED INFORMATION R ECEIVED. IN FACT, AO DID NOT EVEN HAVE THE COPY OF THE STATEMENT NOR PROVIDED IT TO ASSESSEE WHICH INDICATES THAT THE AO I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 20 - : DID NOT THOUGHT IT FIT TO RELY ON SUCH COMMUNICATION WHILE DISALLOWING THE SOFTWARE PURCHASES OF ASSESSEE. 15.1. THEREFORE, WE ARE OF THE OPINION THAT SINCE THE AO DID NOT RELY ON THE COMMUNICATION WHILE COMPLE TING THE ASSESSMENT, THE B ASIS FOR ARRIVING AT THE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT ITSELF IS WITHOUT ANY BASIS. ON THAT REASON ALONE, THE PROCEEDINGS INITIATED U/S. 147 CANNOT BE JUSTIFIED. AS ALREADY STATED EARLIER, ASSESSEE HAS FURNISHED NECESSARY INFORMATION AT T HE TIME OF ORIGINAL ASSESSMENT , WHICH WAS COMPLETED ACCEPTING THE SOFTWARE PURCHASES. SINCE THE ASSESS MENT WAS REOPENED, EVEN THOUGH WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR, THERE SHOULD BE SOME TANGIBLE MATERIAL SO AS TO FORM THE REASONABLE BELIEF. THE COMMUNICATION RECEIVED FROM THE INVESTIGATION WING, CENTRAL CIRCLE, NEW DELHI CAN BE CONSID ERED TANGIBLE MATERIAL , PROVIDED THE SAME WAS RELIED UPON IN THE COURSE OF ASSESSMENT PROCEEDINGS. IN THE CASE OF PHOOL CHAND BAJRANG LAL VS. ITO [203 ITR 456] (SUPRA), THE FACTS INDICATE THAT THE AO AT AZAMGARH HAS RECEIVED CONFIDENTIAL COMMUNICATION FROM ITO, COMPANIES DIST T. III P/7, CHOWRINGHEE SQUARE, CALCUTTA THAT CERTAIN TRANSA CTIONS WITH M/S. JAIN FINANCE DISTRIBUTORS (INDIA) PRIVATE LTD , WERE ADMITTED TO BE BOGUS AND THE COMPANY LENT ITS NAME TO ENABLE DIFFERENT PARTIES TO BRING INTO THEIR BOOKS, BLACK MONEY UNDER THE GUISE OF THE LOAN FROM THE SAID COMPANY. AFTER RECEIPT OF THAT INFORMATION, THE ITO AT AZAMGARH, NOT ONLY CONFRONTED ASSESSEE W ITH THE COMMUNICATION BUT ALSO SUMM ON ING THE DIRECTORS OF THE SAID COMPANY, EXAMINED THEM , OFFERED FOR CROSS - EX A MINATION AND THEN COMPLETED THE ASSESSMENT. IN THOSE FACTS OF THE CASE, WHEN THERE IS A CHALLENGE FOR REOPENING OF THE ASSESSMENT HON'BLE COUR T HAS HELD AS UNDER: I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 21 - : FROM A COMBINED REVIEW OF THE JUDGMENTS OF THIS COURT, IT FOLLOWS THAT AN INCOME - TAX OFFICER ACQUIRES JURISDICTION TO REOPEN AN ASSESSMENT UNDER SECTION 147(A) READ WITH SECTION 148 OF THE INCOME - TAX ACT, 1961, ONLY IF ON THE BASIS O F SPECIFIC, RELIABLE AND R ELEVANT INFORMATION COMING TO HIS POSSESSION SUBSEQUENTLY, HE HAS REASONS, WHICH HE MUST RECORD, TO BELIEVE THAT, BY REASON OF OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO MAKE A TRUE AND FULL DISCLOSURE OF ALL MATERIAL FACT S NECESSARY FOR HIS ASSESSMENT DURING THE CONCLUDED ASSESSMENT PROCEEDINGS, ANY PART OF HIS INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME - TAX HAS ESCAPED ASSESSMENT. HE MAY START REASSESSMENT PROCEEDINGS EITHER BECAUSE SOME FRESH FACTS HAD COME TO LIGHT WH ICH WERE NOT PREVIOUSLY DISCLOSED OR SOME INFORMATION WITH REGARD TO THE FACTS PREVIOUSLY DISCLOSED COMES INTO HIS POSSESSION WHICH TENDS TO EXPOSE THE UNTRUTHFULNESS OF THOSE FACTS. IN SUCH, SITUATIONS, IT IS NOT A CASE OF MERE CHANGE OF OPINION OR THE DR AWING OF A DIFFERENT INFERENCE FROM THE SAME FACTS AS WERE EARLIER AVAILABLE BUT ACTING ON FRESH INFORMATION. SINCE THE BELIEF IS THAT OF THE INCOME - TAX OFFICER, THE SUFFICIENCY OR REASONS FOR FORMING THE BELIEF IS NOT FOR THE COURT TO JUDGE BUT IT IS OPEN TO AN ASSESSEE TO ESTABLISH THAT THERE IN FACT EXISTED NO BELIEF OR THAT THE BELIEF WAS NOT AT ALL A BONA FIDE ONE OR WAS BASED ON VAGUE, IRRELEVANT AND NONSPECIFIC INFORMATION. TO THAT LIMITED EXTENT, THE COURT MAY LOOK INTO THE CONCLUSION ARRIVED AT BY THE INCOME - TAX OFFICER AND EXAMINE WHETHER THERE WAS ANY MATERIAL AVAILABLE ON THE RECORD FROM WHICH THE REQUISITE BELIEF COULD BE FORMED BY THE INCOME TAX OFFICER AND FURTHER WHETHER THAT MATERIAL HAD ANY RATIONAL CONNECTION OR A LIVE LINK FOR THE FORMATI ON OF THE REQUISITE BELIEF. IT WOULD BE IMMATERIAL WHETHER THE INCOME - TAX OFFICER, AT THE TIME OF MAKING THE ORIGINAL ASSESSMENT, COULD OR COULD NOT HAVE FOUND BY FURTHER ENQUIRY OR INVESTIGATION, WHETHER THE TRANSACTION WAS GENUINE OR NOT IF, ON THE BASIS OF SUBSEQUENT INFORMATION, THE INCOME - TAX OFFICER ARRIVES AT A CONCLUSION, AFTER SATISFYING THE TWIN CONDITIONS PRESCRIBED IN SECTION 147 (A) OF THE ACT, THAT THE ASSESSEE HAD NOT MADE A FULL AND TRUE DISCLOSURE OF THE MATERIAL FACTS AT THE TIME OF ORIGIN AL ASSESSMENT AND, THEREFORE, INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. THE HIGH COURTS WHICH HAVE INTERPRETED BURLAP DEALERS CASE [1971] 79 IT R 609 (SC) AS LAYING DOWN THE LAW TO THE CONTRARY FELL INTO AN ERROR AND DID NOT APPRECIATE THE IMPORT OF THAT JUDGMENT CORRECTLY . 15.2 . NO SUCH FACTS EXISTED IN THE PRESENT CASE AS AO NEITHER GOT ANY CONCRETE EVIDENCE / RELIABLE EVIDENCE FROM THE INVESTIGATION WING, NEW DELHI NOR PURSUED THE LINE OF INVESTIGATION/CONFRONTED ASSESSEE WITH THE SO CALLED S TATEMENT. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THERE IS NO TANGIBLE MATERIAL TO COME TO A BELIEF THAT THE INCOME HAS ESCAPED ASSESSMENT IN AY. 2006 - 07. WE ACCORDINGLY, HAVE NO HESITATION IN HOLDING THAT THE REOPENING OF THE I.T.A. NO S . 344 & 345 / HYD / 20 14 : - 22 - : ASSESSMENT IS BAD IN LAW . S INCE THE ISSUE IS CONSIDE RED ON THE FACT THAT AO HAS NOT RELIED ON THAT INFORMATION EXCEPT FOR REOPENING , THE OTHER CONTENTIONS RAISED BY ASSESSEE / LD. COUNSEL IN THE ARGUMENTS , EVEN THOUGH HAS SOME MERIT , HAVE BECOME ACADEMIC IN NATURE AND ACCORDI NGL Y, THEY ARE NOT ADJUDICATED SEPARATELY. SUFFICE TO SAY, WE HOLD THAT REOPENING ITSELF IS BAD IN LAW. ACCORDINGLY, THE GROUNDS ON THIS ARE CONSIDERED ALLOWED TO THAT EXTENT. 16. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE ALLOWED. ORDER PRONOUNCED I N THE OPEN COURT ON 07 TH APRIL, 2016 SD/ - SD/ - (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 07 TH APRIL , 2016 TNMM COPY TO : 1. ECIL RAPISCAN LTD., 8 - 1 - 305 & 306, 3 RD FLOOR, ANAND SILICON CHIP, SHAIKPET NALA, TOLICHOWKI, HYDERABAD. 2 . ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2 ( 2 ) , HYDERABAD. 3 . CIT(APPEALS) - I II , HYDERABAD. 4. CIT - II , HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6 . GUARD FILE.