The ACIT, 5(1), Indore V. M/s Ferro Metal Sales, Indore

ITA 385/IND/2012

• Counselvise Citation: 38522714 RSA 2012
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: MANISH VAIDYA
• Keywords: Reopening of assessment; Rejection of books of accounts; Unexplained investment; Recovery proceedings; Depreciation; Search and seizure; Peak credit; Question of law; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 40A(3); 143(3); 147; 145; 148; 132

Judgement Text

1 IN THE INCOME TAX APPELATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JM AND SHRI R.C. SHARMA , AM ITA NOS. 383 TO 385/IND/2012 A.YS.2004-05 TO 2006-07 ACIT 5(1) INDORE ::: APPELLANT VS M/S FERRO METAL SALES INDORE PAN AAAFF-3351M ::: RESPONDENT ITA NO.398/IND/2012 A.Y. 2004-05 M/S FERRO METAL SALES INDORE ::: APPELLANT VS ACIT 5(1) INDORE ::: RESPONDENT DEPARTMENT BY SHRI R.A. VERMA RESPONDENT BY SHRI AJAY TULSIYAN AND SHRI MANISH VAIDYA DATE OF HEARING 8.11.2012 DATE OF PRONOUNCEMENT 2 0 .12.2012 2 O R D E R PER R.C. SHARMA, AM THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A) FOR THE ASSESSMENT YEARS 2004 -05 TO 2006- 07. IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE H AS ALSO PREFERRED APPEAL WHEREIN THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF THE LEARNED CIT(A) IN UPHOLDING THE ASSES SING OFFICERS ACTION IN REJECTING BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND CONFIRMING THE ADDITION OF RS. 3,72,272/-. THE ASS ESSEE IS ALSO AGGRIEVED WITH THE UPHOLDING OF ASSESSMENT U/S 147 OF THE ACT AS VALID. 2. COMMON GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN TH E APPEALS FILED IN THE CASE OF AFORESAID ASSESSEES. FOR THE SAKE OF CONVENIENCE, ALL THE APPEALS WERE HEARD TOGETHER AN D NOW DECIDED BY THIS CONSOLIDATED ORDER. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUS ED. FACTS IN BRIEF ARE THAT THE ASSESSEE DERIVES INCOME FROM BUSINESS OF TRADING OF IRON AND STEEL GOODS. THERE WAS A SE ARCH IN THE BUSINESS PREMISES OF BHARAT KOTHARI GROUP. DURING S EARCH HIS STATEMENT WAS RECORDED, WHEREIN HE CONFESSED THAT H E HAS ISSUED BILLS FOR SALE OF IRON GOODS WITHOUT MAKING ANY DEL IVERY OF THE 3 GOODS AND FOR THIS PURPOSE, HE RECEIVED COMMISSION AT RS. 40/- PER TON. IN THE LIST OF CONCERNS TO WHOM BHARAT KOT HARI HAS MADE THE SALES ALSO CONTAINED NAME OF THE ASSESSEE. ON T HE BASIS OF THIS, ASSESSMENT OF THE PRESENT ASSESSEES WERE REOP ENED BY ISSUING NOTICE U/S 148 BY OBSERVING THAT BOGUS PURC HASES HAVE BEEN SHOWN IN THE BOOKS OF ACCOUNT. IN THE COURSE O F ASSESSMENT FRAMED U/S 143(3)/147, THE ASSESSING OFFICER REJECT ED THE BOOKS OF ACCOUNT U/S 145 AND APPLIED NET PROFIT RATE OF 6 % ON SALES. BY OBSERVING THAT THE ASSESSEE COULD NEITHER GIVE ANY EVIDENCE NOR DETAILS OF TRANSPORTATION OF GOODS FROM SELLERS BU SINESS PREMISES TO HIS BUSINESS PREMISES, HE CONCLUDED THAT THE ASS ESSEE HAS NOT PURCHASED THE GOODS SOLD FROM THE PARTIES DECLARED IN THE BOOKS OF ACCOUNT. AS PER THE ASSESSING OFFICER, THE ASSES SEE HAS DEBITED THE VALUE OF PURCHASES IN HIS TRADING ACCOUNT AT HI S SWEET WILL AND IT WAS FOR THE ASSESSEE TO PROVE THE EXISTENCE OF THE FACT AS RECORDED IN THE BOOKS. BY OBSERVING THAT PAYMENTS O F PURCHASES FROM ALTERNATIVE SOURCE WERE MADE IN CASH ONLY, DIS ALLOWANCE U/S 40A(3) WAS ALSO MADE. ADDITION WAS ALSO MADE ON ACC OUNT OF INVESTMENT IN PURCHASES FROM UNDISCLOSED SOURCES. AS THE FACTS OF ALL THE ASSESSEES ARE SAME, WE ARE DEALING HEREW ITH THE LEASE CASE OF M/S. SHREE STEELS, INDORE, WHEREIN, THE LD. CIT(A) DELETED 4 THE DISALLOWANCE MADE U/S 40A(3) AFTER HAVING THE F OLLOWING OBSERVATIONS :- 4.3 THIRD GROUND OF APPEAL IS DIRECTED AGAINST DISALLOWANCE 20% OF PURCHASE PRICE AS PER AFORESAID BOGUS BILLS U/S 40A(3) AT RS.48.30,637/-. THE AO HAS DISCUSSED THIS ISSUE IN PARA 5.2 OF THE ORDER. THE AO, IN FURTHERANCE TO HIS FINDINGS IN THE MATTER OF REJECTION OF BOOK RESULT U/S 145(3) AND DISALLOWANCE OF 6% OF PURCHASE PRICE AS AFORESAID, HAS FURTHER MADE DISALLOWANCE U/ S 40A(3) OF THE ACT WITH THE FINDING THAT ALTERNATE PURCHASES WERE MADE FROM OTHER PARTIES AS THE ASSESSEE HAD NOT MADE ANY PURCHASES FROM BHARAT KOTHARI GROUP OF CONCERNS. HOWEVER, IT IS FOUND THAT THE SALES HAS BEEN MADE. THEREFORE, IT IS PATENT CONCLUSION THAT TO MAKE SALE THE ASSESSEE HAS MADE ALTERNATIVE PURCHASES FROM OTHER PARTIES. THE ASSESSEE REMAINED UNABLE TO PROVE THAT THE PAYMENT WERE MADE OTHERWISE MANNER OTHER THAN CASH. 4.3.1 HE HELD EXTRACTING THE PROVISIONS OF SECTION 5 40A(3) THAT THE APPELLANT HAS NOT BEEN ABLE TO BRING ANY EVIDENCE OR DETAILS TO ESTABLISH THAT PAYMENT OTHERWISE THAN CASH WAS MADE FOR SUCH ALTERNATE PURCHASES AND PLACING THE RELIANCE ON THE DECISION OF HON'BLE GUJRAT HIGH COURT IN THE CASE O F CIT VS. HYNOP FOOD AND OIL INDUSTRIES PVT, LTD. REPORTED AT 290 ITR 702 [GUJ.], HE HAS MADE SUCH DISALLOWANCE. HE HAS ALSO REFERRED TO DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO REPORTED IN 191 ITR 662 (SC) AND HAS EXTRACTED OBSERVATIONS OF HON'BLE SUPREME COURT IN THE MATTER OF CONSTITUTIONAL VALIDITY OF THE SAME. 4.3.2 THE APPELLANT IN HIS WRITTEN SUBMISSION AS WELL IN COURSE OF DISCUSSION HAS EMPHASIZED THAT NO EVIDENCE IN THE COURSE OF SEARCH FROM SUPPLIERS WAS IN FACT FOUND FROM WHICH IT CAN BE ESTABLISHED THAT THE APPELLANT HAD MADE THE PAYMENT TO PARTIES IN CASH AND THERE AFTER REFERRING TO PROVISIONS OF SECTION 40A(3) IT IS STRONGLY CONTENDED THAT UNLESS THE CUMULATIVE 6 CONDITIONS THAT THE EXPENDITURE IS INCURRED AND THE PAYMENT OF THE SAME HAS BEEN MADE IN CASH EXCEEDING RS. 20,000/- ARE SATISFIED, NO DISALLOWANCE CAN BE MADE. IT WAS FURTHER EMPHASIZED THAT AS PER RECORD AND COPY OF LEDGER A/ C FILED ALL PAYMENTS TO SUPPLIERS WERE MADE BY CHEQUE. FURTHER RELIANCE HAVE BEEN PLACED ON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF G.G. DIAMOND INTERNATIONAL VS. CIT (2006) 104 TTJ 809 (MUMBAI). 4.3.3 IT IS FURTHER CONTENDED THAT AO HAS MADE THE PRESUMPTION THAT PURCHASES FROM ALTERNATE SOURCES WERE MADE AND HAS MADE FURTHER PRESUMPTION THAT SUCH PAYMENT WAS MADE IN CASH AND SINCE THIS WAS AO'S INFERENCE AND PRESUMPTION THE ONUS RESTED ON THE AO TO ESTABLISH SAID FACT. FURTHER, WITHOUT PREJUDICE TO CONTENTIONS ADVANCED IN RESPECT OF REJECTION OF BOOK RESULT AND DISALLOWANCE OF 6% OF PURCHASE PRICE, IT WAS ALSO CONTENDED THAT IF THE BOOKS OF ACCOUNT WERE REJECTED AND SUCH PURCHASES WERE ALREADY SUBJECTED TO DISALLOWANCE ON ESTIMATE 7 THERE WAS NO BASIS LEFT FOR INVOKING PROVISIONS OF SECTION 40A(3). THUS IT WAS SUMMED UP THAT WHICHEVER WAY THE ISSUE WAS LOOKED AT THERE WAS NO CASE FOR DISALLOWANCE U/S 40A(3) MAKING ONE AFTER ANOTHER PRESUMPTION. IN OTHER. CONNECTED CASES RELIANCE HAS ALSO BEEN PLACED IN SUPPORT OF SUCH GROUNDS ON THE DECISION OF HON'BLE M.P. HIGH COURT IN THE CASE OF CIT VS. PURUSHOTTAMLAL TAMRAKAR REPORTED IN. 270-ITR 314( MP). 4.3.4 THE APPELLANT'S CONTENTIONS AND THE AO'S FINDING AND THE JUDICIAL DECISIONS RELIED BY BOTH SIDES ARE VERY CAREFULLY TAKEN INTO CONSIDERATION. IT WILL BE APPROPRIATE TO TAKE NOTE OF THE FOLLOWING JUDICIAL DECISIONS AND RELEVANT FINDINGS CONTAINED THEREIN: (1) CIT VS. BANWARI. LAL BANSHIDAR 229 ITR 229 (ALL.): HELD, AFFIRMING THE DECISION OF THE TRIBUNAL, THAT NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISION S OF SECTION 40A(3) READ WITH RULE 6DD(J) OF THE INCOME-TAX RULES, 1962, AS NO DEDUCTION WAS 8 ALLOWED TO AND CLAIMED BY THE ASSESSEE . WHEN THE GROSS PROFIT RATE WAS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES' MADE BY THE ASSESSEE.' (2) CIT VS. PURSHOTTAMLAL TAMRAKAR, 270 ITR 314 (MP) HELD, THAT. THE TRIBUNAL HAS RIGHTLY HELD THAT SECTION 40A(3) WAS NOT APPLICABLE WHEN THE NET PROF IT RATE WAS APPLIED BY THE AO. (3) ITO V. KENARAM SAHA AND SUBHASH SAHA , 301 ITR (AT) 171 (KOLKATA) (SB): HELD , THAT WHEN A NET PROFIT RATE IS APPLIED, THERE REMAINS NO SCOPE FOR FURTHER DISALLOWANCE OF ANY EXPENDITURE. 4.3.3 IT IS FURTHER CONTENDED THAT AO HAS MADE THE PRESUMPTION THAT PURCHASES FROM ALTERNATE SOURCES WERE MADE AND HAS MADE FURTHER PRESUMPTION THAT SUCH PAYMENT WAS MADE IN CASH AND SINCE THIS WAS AO'S INFERENCE AND PRESUMPTION THE ONUS RESTED ON THE AO TO ESTABLISH SAID FACT. FURTHER, WITHOUT 9 PREJUDICE TO CONTENTIONS ADVANCED IN RESPECT OF REJECTION OF BOOK RESULT AND DISALLOWANCE OF 6% OF PURCHASE PRICE, IT WAS ALSO CONTENDED THAT IF THE BOOKS OF ACCOUNT WERE REJECTED AND SUCH PURCHASES WERE ALREADY SUBJECTED TO DISALLOWANCE ON ESTIMATE THERE WAS NO BASIS LEFT FOR INVOKING PROVISIONS OF SECTION 40A(3). THUS IT WAS SUMMED UP THAT WHICHEVER WAY THE ISSUE WAS LOOKED AT THERE WAS NO CASE FOR DISALLOWANCE U/S 40A(3) MAKING ONE AFTER ANOTHER PRESUMPTION. IN OTHER. CONNECTED CASES RELIANCE HAS ALSO BEEN PLACED IN SUPPORT OF SUCH GROUNDS ON THE DECISION OF HON'BLE M.P. HIGH COURT IN THE CASE OF CIT VS. PURUSHOTTAMLAL TAMRAKAR REPORTED IN 270-ITR 314( MP). 4.3.4 THE APPELLANT'S CONTENTIONS AND THE AO'S FINDING AND THE JUDICIAL DECISIONS RELIED BY BOTH SIDES ARE VERY CAREFULLY TAKEN INTO CONSIDERATION. 4.3.5 FURTHER STILL, THERE IS SUFFICIENT MERIT IN APPELLANT'S CONTENTION, THAT AS FAR AS THE CONTENTION, THAT AS FAR AS THE CLAIM OF PURCHASE ON RECORD IS CONCERNED, THE SAME HAS BEEN PAID 10 THROUGH BANKING CHANNEL ONLY AND IT IS NOT THE AO'S CASE THAT PAYMENT FOR PURCHASES CLAIMED TO BE MADE FROM BOGUS BILL PROVIDERS WAS PAID IN CASH. THE AO ON THE FACTS OF THE CASE HAS DRAWN A LOGICAL INFERENCE THAT ALTERNATE PURCHASES MUST BE MADE SINCE SALES OF MATCHING QUANTITY AS PER SUCH BOGUS BILLS HAVE BEEN MADE AND IN ABSENCE OF ANY DETAILS AND EVIDENCE FOR SUCH ALTERNATE PURCHASES THE AO HAS INVOKED THE PROVISIONS OF SECTION 40A(3) . 4.3.6 THE SAID ACTION OF THE AO CANNOT BE SAID TO BE JUSTIFIED IN LAW AS IT WILL AMOUNT TO EXTENDING THE PROVISIONS OF SECTION 40A(3) IN RESPECT OF SUCH DEEMED PURCHASES WHICH ARE NEITHER RECORDED IN BOOKS OF ACCOUNT NOR ANY CLAIM OF DEDUCTION HAS BEEN MADE IN RESPECT THEREOF. SUCH AN ACTION OF EXTENSION OF THE PROVISION OF SECTION 40A(3) IS NOT APPARENTLY AUTHORIZED BY LAW AND DISALLOWANCE CAN BE CONSIDERED BY AO ONLY IN RESPECT OF EXPENDITURE FOR WHICH DEDUCTION HAS BEEN ACTUALLY CLAIMED BY APPELLANT. IN THESE FACTS THE DECISION 11 OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF HYNOP FOOD & OIL INDUSTRIES (SUPRA) IS NOT APPLICABLE AS IN THAT CASE EVIDENCES OF CASH PAYMENT IN RESPECT OF UNRECORDED SALES TRANSACTIONS WAS FOUND IN COURSE OF SEARCH AND SEIZURE OPERATION WHEREAS FACTS OF THE CASE AS NOTICED ABOVE ARE TOTALLY DIFFERENT AND DISTINGUISHABLE. IT MAY ALSO BE REFERRED THAT EVEN ON THE SIMILAR FACTS PREVAILING, AS NOTICED IN THE CASE OF HYNOP FOOD & OIL INDUSTRIES (SUPRA) THE HON'BLE A.P. HIGH. COURT IN ITS EARLIER DECISION IN THE CASE OF VENKATA SUBBO RAO , 173 ITR 340 (AP) HAS TAKEN A CONTRARY VIEW. THUS IN VIEW OF ABOVE DISCUSSION DISALLOWANCE MADE BY AO U/S 40A (3) AT RS. 4830637/- IS HEREBY DELETED. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED T HE REOPENING OF ASSESSMENT U/S 147 AFTER HAVING THE FO LLOWING OBSERVATIONS :- IN THE CASE OF RAJESH JHAVERI (SUPRA) , HON'BLE SUPREME COURT CATEGORICALLY DEALT WITH RE-OPENING O F ASSESSMENT WITH REGARD TO MODE UNDER WHICH 12 ASSESSMENT HAS BEEN DONE, EITHER BY WAY OF THE INTIMATION U/S 143(1) OR BY WAY OF SCRUTINY ASSESSMENT ORDER U/S 143(3). IT WAS OBSERVED THAT THERE IS A CONTEXTUAL DIFFERENCE BETWEEN THE TWO EXPRESSIONS IN THE CONTEXT THE EXPRESSIONS ARE USE D. THE WORD ASSESSMENT IS USED AS MEANING .SOMETHING 'THE COMPUTATION OF INCOME', SOMETIMES 'DETERMINATION OF AMOUNT OF TAX PAYABLE' AND SOMETIMES THE WHOLE PROCEDURE LAID DOWN IN THE ACT FOR IMPOSING LIABILITY UPON THE TAX PAYERS. IT WAS FURTHER OBSERVED THAT IN THE SCHEME OF THINGS, THE INTIMATION U/S 143(1)(A) CANNOT BE TREATED TO BE AN ORDER OF ASSESSMENT. THIS DISTINCTION IS ALSO WELL BROUGHT OUT BY THE STATUTORY PROVISIONS AS THEY STO OD AT DIFFERENT POINTS OF TIME, PRIOR TO 1 ST APRIL, 1989, U/S 143(1)(A) ,THE AO HAD TO PASS AN ASSESSMENT ORDER IF HE DECIDED TO ACCEPT THE RETURN, BUT UNDER THE AMENDED PROVISIONS, THE REQUIREMENT OF PASSING OF AN ASSESSMENT ORDER HAS TO BE DISPENSED WITH AND INSTEAD OF IT AN INTIMATION IS REQUIRED TO BE SENT. IT WAS FURTHER ELABORATED THAT UNDER THE FIRST PROVISO TO 13 THE NEWLY SUBSTITUTED SECTION 143(1) W.E.F. 1 ST JUNE, 1999, EXCEPT AS PROVIDED IN THE PROVISION ITSELF, ACKNOWLEDGEMENT OF THE RETURN SHALL BE DEEMED TO BE INTIMATION U/S 143(1) , WHERE NO SUM IS PAYABLE BY THE ASSESSEE OR WHERE NO REFUND IS DUE TO HIM. IT W AS CATEGORICALLY OBSERVED THAT ACKNOWLEDGEMENT IS NOT DONE BY THE ASSESSING OFFICER, BUT BY THE MINISTERI AL STAFF. UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSESSMENT HAS BEEN MADE BY THE MINISTERIAL STAFF. THE INTIMATION U/S 143(1)(A) IS DEEMED TO BE A NOTICE OF DEMAND U'/ S 156. FOR THE APPARENT PURPOSE OF MAKING MACHINERY PROVISION RELATING TO RECOVERY OF TAX APPLICABLE. BY SUCH APPLICATION ONLY RECOVERY INDICATED TO BE PAYABLE I N THE INTIMATION BECOMES PERMISSIBLE AND NOTHING MORE CAN BE INFERRED FROM THE DEEMING PROVISION. THUS, THERE IS NO ASSESSMENT U/S 143(1)(A) OF THE ACT. 17. IT IS CRYSTAL CLEAR FROM THE ABOVE DECISION OF THE HON'BLE SUPREME COURT WHICH IS HAVING BINDING EFFECT ON US UNDER CONSTITUTION OF INDIA THAT THE 14 PROCESSING OF RETURN U/S 143(1) DOES NOT AMOUNT TO ASSESSMENT ORDER. THEREFORE, NEITHER ANY OPINION IS FORMED NOR THERE IS A QUESTION OF CHANGE OF OPINION . SINCE INTIMATION U/S 143(1) IS NOT AN ASSESSMENT, THERE IS NO QUESTION OF ANY NEW MATERIAL TO EMPOWER THE AO TO REOPEN THE ASSESSMENT U/S 147, WHEN THERE IS A REASON TO BELIEVE THAT THERE IS ESCAPEME NT OF INCOME. IN THE INSTANT CASE BEFORE US, THE RETUR N WAS PROCESSED U/S 143(1) AND NO ASSESSMENT WAS FRAMED BY ISSUE OF NOTICE U/S 143(2). UNDER THESE FACTS AND CIRCUMSTANCES, THE PROPOSITION OF LAW LAI D DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI IS CLEARLY APPLICABLE. IT IS PERTINE NT TO MENTION HERE THAT SECTION 147 AUTHORIZES THE AO TO ASSESS OR REASSESS INCOME CHARGEABLE TO TAX, WHEN, HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. IN THE INSTANT CASE, THE OBSERVATION OF THE AO TO THE EFFECT THAT BY CLAIMING THE RETURNED INCOME UNDER WRONG HEAD, THE ASSESSEE HAS CLAIMED EXCESS DEPRECIATION, WHICH IS NOT PERMISSIBLE IN CASE OF INCOME IS 15 ASSESSABLE UNDER THE HEAD ' INCOME FROM HOUSE PROPERTY'. THIS IS SUFFICIENT REASON TO BELIEVE THA T INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT, WHICH IS SUFFICIENT TO EMPOWER THE AO TO REOPEN THE ASSESSMENT BY ISSUE OF NOTICE U/S 148. HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI HAS FURTHER OBSERVED THAT UNDER THE EARLIER PROVISIONS OF SECTION 147(A), TWO CONDITIONS WERE REQUIRED TO BE SATISFIED, FIRSTLY, THE AO MUST HAVE REASON TO BELIEVE THAT INCOME, PROFITS OR GAINS CHARGEABLE TO TAX HAV E ESCAPED ASSESSMENT AND, SECONDLY, HE MUST ALSO HAVE A REASON TO BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. BOTH THESE CONDITIONS WERE REQUIRED TO BE SATISFIED BEFORE THE AO COULD HAVE JUSTIFICATION TO ISSUE NOTICE U/S 148 RE AD WITH SECTION 147(A), BUT UNDER THE SUBSTITUTED SECTION 147, EXISTENCE OF ONLY FIRST CONDITION SUFFICES, MEANING THEREBY IF THE AO HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, IT 16 CONFERS THE VALID JURISDICTION TO REOPEN THE ASSESSMENT. IT IS PERTINENT TO MENTION HERE THAT BOTH THE CONDITIONS MUST BE FULFILLED THE CASE WITHIN THE AMBIT OF PROVISO TO SECTION 147. THUS, I F MORE THAN FOUR YEARS HAVE BEEN PASSED AFTER COMPLETION OF ASSESSMENT U/S 143(3), NO REOPENING CAN BE MADE UNLESS THERE IS A FAILURE ON THE PART O F THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERI AL FACTS IN THE RETURN OF INCOME . IT WAS CONCLUDED BY THE HON'BLE SUPREME COURT THAT SO LONG AS INGREDIENTS OF SECTION 147 ARE FULFILLED, THE AO IS FREE TO INITIATE PROCEEDINGS U/S 147 AND FAILURE TO TAKE STEPS U/S 143(3) WILL NOT RENDER THE AO POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS EVEN WHEN INTIMATION U/S 143(1) HAD BEEN ISSUED. 4.1.8. THEREFORE, THE CONTENTION OF THE APPELLANT T HAT THE AO HAD NO DEFINITE MATERIAL OR INFORMATION BEFORE INVOKING PROVISIONS OF SECTION 147 IS NOT TENABLE. IT IS AN ADMITTED FACT THAT THE ORIGINAL RETURN OF THE APPELLANT WAS PROCESSED U] S 143(1)(A) ONLY AT MINISTERIAL STAFF LEVEL AND NO FINDING HAD 17 BEEN OR EVEN CAN BE RECORDED, BY THE AO DURING SUCH PROCESSING, ABOUT THE GENUINENESS OF PURCHASE CONSTITUTING THE REASONS FOR ISSUE OF NOTICE U/S 148. THE AO WAS THEREFORE, FULLY JUSTIFI ED IN INVOKING PROVISIONS OF SECTION 147, AS HAS BEEN HELD BY THE APEX COURT IN ACIT V RAJESH JHAVERI STOCK BROKERS P LTD. 291 ITR 500 (2007). THERE IS THUS ABSOLUTELY NO MERIT IN THE APPELLANT'S CONTENTION CHALLENGING THE REOPENING OF ASSESSMENT U/S 147 AND ISSUE OF NOTICE U/S 148 AND THE SAME ARE FOUND TO BE VALIDLY INITIATED AND IN ACCORDANCE WITH LAW. THUS IN VIEW OF AFORESAID CLEAR POSITION OF LAW AND DISCUSSION MADE ABOVE APPELLANT CANNOT DRAW ANY SUPPORT FROM ANY OF THE VARIOUS CASES DECISION CITED IN CASES OF OTHER APPELLANT'S ALSO. GROUND NO. 1 IS THUS REJECTED. 5. REJECTION OF BOOKS OF ACCOUNT BY THE ASSESSING OFFI CER U/S 145(3)WAS ALSO UPHELD BY THE LD.CIT(A) BY OBSER VING AS UNDER :- 4.2.1 FIRST, THE ISSUE OF REJECTION OF BOOK 18 RESULTS IS TAKEN UP FOR CONSIDERATION. THE AO HAS BROUGHT NECESSARY AND RELEVANT DETAILS AND FINDINGS ON RECORD WHEREFROM IT IS CLEARLY ESTABLISHED THAT SUBSTANTIAL PART OF APPELLANT'S PURCHASES AGGREGATING RS.241.53 LAKHS WERE SUPPORTED BY BOGUS BILLS SUPPLIED BY BILL PROVIDERS ON COMMISSION BASIS. SUCH BILL PROVIDERS HAVE CATEGORICALLY ADMITTED IN THE STATEMENTS RECORDED AND FURTHER CONFIRMED THROUGH AFFIDAVIT FILED THAT THEY HAVE ENGAGED THEMSELVES IN PROVIDING BOGUS BILLS ACCOMMODATING ENTRIES FOR WHICH THEY WERE ENTITLED TO FIXED COMMISSION ONLY. THUS IN THESE FACTS WHEN SUBSTANTIAL PART OF APPELLANT'S PURCHASES ARE NEITHER SUPPORTED BY GENUINE PURCHASE BILLS NOR THE APPELLANT COULD LEAD ANY EVIDENCE OR DETAILS OF TRANSPORTATION OF SUCH GOODS FROM SELLER/SUPPLIER TO THE APPELLANT'S BUSINESS PREMISES, BOTH IN ASSESSMENT AS WELL AS IN APPELLATE PROCEEDINGS (DESPITE SPECIFIC 19 OPPORTUNITY GIVEN) AND FURTHER FAILED TO PRODUCE ANY DETAILS AND EVIDENCE OF PAYMENT OF SUCH AFORESAID TRANSPORTATION CHARGES, THE BOOKS OF ACCOUNT MAINTAINED CANNOT IN ANY WAY SAID TO BE TRUST WORTHY AND RELIABLE. THE AO HAS ALSO DISCUSSED THE ISSUE OF LEGAL BURDEN, WHICH RESTED ON THE APPELLANT TO SUBSTANTIATE SUCH PURCHASES IN THE FACE OF INFORMATION IN THE POSSESSION OF AO, ABOUT SUCH PURCHASE BILLS BEING BOGUS. THUS, THE ASSESSING OFFICERS ACTION IN REJECTING THE BOOK RESULTS U/S 145(3) IS FOUND FULLY JUSTIFIED AND IN ORDER AND ACCORDINGLY APPROVED. 6. THE LD. CIT(A) ALSO UPHELD THE ESTIMATION OF PROFIT AT 6% OF PURCHASE PRICE AFTER HAVING THE FOLLOWING OBSERV ATIONS IN THE CASE OF SHREE STEELS:- 4.2.2 NOW COMING TO THE SECOND PART OF GROUND NO.2, THE AO HAS FAIRLY ARRIVED AT THE CONCLUSION ON THE BASIS OF QUANTITATIVE TALLY PRODUCED THAT 20 THE APPELLANT HAD SOLD GOODS TO OTHER PARTIES AND THUS REALIZED SALE CONSIDERATION THROUGH CORRESPONDING SALES . THE CORRESPONDING SALES AGAINST THE QUANTITY MENTIONING IN SUCH BOGUS BILLS WERE EQUAL. THE AO HAS THEREAFTER DRAWN A VALID AND LOGICAL INFERENCE THAT THE ACTUAL PURCHASES FROM UNIDENTIFIED SOURCES WERE MADE AGAINST WHICH NO PROPER BILLS WERE OBTAINED AND THEREBY SUCH UNKNOWN AND UNIDENTIFIED SELLERS HAVE BEEN ABLE TO SHARE/EVADE 4%, THE RATE OF COMMERCIAL TAX LEVIABLE. THUS THE AO AFTER DUE DELIBERATION OF FACTS AND CONSIDERING THE APPELLANT'S FAILURE TO ESTABLISH THE PURCHASE PRICE FULLY FROM DEPENDABLE AND RELIABLE BILL HAD DISALLOWED AN AMOUNT OF 6% FROM THE PURCHASE PRICE OF SUCH BILLS. 4.2.3 THE CONTENTIONS ADVANCED BY THE APPELLANT ON THIS SCORE HAVE ABSOLUTELY NO MERIT. THE APPELLANT HAS NOT BEEN ABLE TO LEAD ANY DEFINITE EVIDENCES EXCEPT THE PHOTO COPY OF BILLS AND THE ENTRIES IN RESPECT OF PURCHASES IN BOOKS OF 21 ACCOUNTS THAT SUCH BOOKS WERE ACTUALLY RECEIVED BY INDICATING EVIDENCE OF TRANSPORTATION OF FREIGHT PAYMENT. SIMILAR POSITION PREVAILS IN RESPECT OF SUBSEQUENT SALES AGAINST SUCH GOODS PURCHASES AS NO DEFINITE EVIDENCES OF TRANSPORTATION TO THE SUBSEQUENT BUYER'S PREMISES ARE AVAILABLE OR RELIANCE IS PLACED ON SUBSEQUENT SALES BILLS WHERE SUCH GOODS ARE CLAIMED TO BE SOLD IN PIECEMEAL BASTES. THUS, THERE IS NO DEFINITE AND VERIFIABLE EVIDENCES TO SUPPORT THE PURCHASES AS WELL AS SUBSEQUENT SALES THEREOF. THUS IN THESE FACTS AND CIRCUMSTANCES, SALE PRICE STATED IN SUCH PURCHASE BILLS CANNOT BE ACCEPTED TO BE GENUINE AND RELIABLE PURCHASE PRICE. IT IS AGAIN SETTLED POSITI ON OF LAW THAT THE ONUS RESTS ON THE APPELLANT TO ESTABLISH ANY CLAIM OF EXPENDITURE TO THE SATISFACTION OF ASSESSING OFFICER. HENCE, ON OVER ALL CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, CONSIDERING THE NATURE OF COMMODITY PURCHASED BEING IRON STEEL INVOLVING HIGH ROTATION AND THIN PROFIT MARGIN, THE DISALLOWANCE OF 6 % OF 22 THE PURCHASE VALUE AS MADE BY AO FOR INFLATION IN PURCHASE PRICE IS CONSIDERED TO BE JUSTIFIED AND ACCORDINGLY THE DISALLOWANCE IS CONFIRMED. IT MAY BE OBSERVED, THAT INCIDENTALLY HIGHER DISALLOWANCE @ 12.5% OF PURSUANCE PRICE WAS CONFIRMED BY ITAT AHMADABAD BENCH, IN THE CASE OF SACHET STEEL TRADERS POP: ZENITH SCHOOL VADODARA VS. ITO, WARD-5(1) VADODARA (ITA NO. 2801 AND 2937/AHD/2008 FOR AY: 2004-05) DECIDED ON 20.05.11 AS RELIED BY APPELLANT. 4.2.4 RELIANCE IS PLACED ON -THE DECISION OF HON'BL E ITAT, AHMEDABAD BENCH, AHMEDABAD IN THE CASE OF VIJAY PROTEINS LTD. V. JCIT 55 TTJ 76 (AHD.) WHERE SUCH DISALLOWANCE OF PURCHASE PRICE UPTO 25% WAS CONFIRMED. REFERENCE IS ALSO MADE TO THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SANJAY OIL CAKE INDUSTRIES 197 CTR 520 [GUJ.] WHERE SIMILAR FINDINGS IN. THE CASE OF ANOTH ER APPELLANT WERE APPROVED BY HON'BLE GUJARAT HIGH COURT. THE AO, AS ALREADY NOTED ABOVE, IN A FAIR AND REASONABLE MANNER HAS NOT RESORTED TO 23 DISALLOWANCE OF ENTIRE, PURCHASE PRICE IN RESPECT O F WHICH THE APPELLANT WAS ABLE TO PRODUCE ONLY INGENUINE AND BOGUS BILLS SUPPLIED BY BILL PROVIDERS AND HAS RESTRICTED SUCH DISALLOWANCE TO MERE 6% OF THE PURCHASE PRICE THAT TOO CONSIDERING THE 4% COMMERCIAL TAX COMPONENTS. IN CERTAIN REPORTED DECISIONS, THE COURTS HAVE EVEN CONFIRMED THE DISALLOWANCE OF TOTAL PURCHASE PRICE WHICH COULD NOT BE ESTABLISHED WITH RELIABLE AND VERIFIAB LE PURCHASE BILLS AND EVIDENCES OF TRANSPORTATION AND TRANSPORT PAYMENTS ETC. REFERENCE MAY BE MADE TO THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. LAMEDICA 250 ITR 575 (DEL.) WHEREIN IT WAS FOUND BY AO THAT THE SELLER WAS NON EXISTENT, WHEREAS IN THIS CASE THE SELLER HAVE CATEGORICALLY ADMITTED THAT NO ACTUAL GOODS WERE SUPPLIED BY THEM AGAINST THE SAID BILLS. FURTHER REFERENCE CAN BE MADE TO THE DECISION OF M.P. HIGH COURT IN THE CASE OF SYSTEM INDIA CASTINGS VS. CIT 198 ITR 181 (MP) WHEREIN THE HON'B1E M.P. HIGH COURT HAS AFFIRMED HON'BLE ITAT'S FINDINGS THAT IF 24 THE TRANSACTION OF PURCHASE WAS FOUND TO BE SHAM THE ASSESSING OFFICER WOULD BE JUSTIFIED IN DISALLOWING NOT ONLY THE PURCHASE PRICE BUT ALSO RELATED TRANSACTION CHARGES 'AND IT WAS HELD THAT S UCH WAS A FINDING OF FACT AND NO QUESTION OF LAW AROSE AGAINST SUCH. ACCORDINGLY AO'S ACTION MAKING DISALLOWANCE OF 6% OF PURCHASE PRICE AT RS.14,49,190/- BEING JUSTIFIED AND REASONABLE IS HEREBY CONFIRMED. IN THE RESULT GROUND NO.2 IS REJECTED. 7. THE LD. CIT(A) ALLOWED SET OFF OF 6% OF PROFIT AGAI NST THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F UNEXPLAINED INVESTMENT IN PURCHASES, AFTER HAVING T HE FOLLOWING OBSERVATIONS :- 4.4. THE FOURTH AND LAST GROUND IS DIRECTED AGAINST ADDITION MADE BY AO FOR UNEXPLAINED PEAK INVESTMENT IN UNRECORDED PURCHASES AT RS. 13,46,949/-. THE AO, IN VIEW OF THE FINDINGS ARRIVED AS EARLIER IN THE MATTER OF THE APPELLANT HAVING MADE ALTERNATE 25 PURCHASES, TOOK UP THE ISSUE OF INVESTMENT IN SUCH ALTERNATE PURCHASES WHICH WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. THE AO AFTER INCORPORATING THE CONTENTIONS OF THE APPELLANT HAS MADE ADDITION FOR PEAK INVESTMENT, WITH FINDINGS READING AS UNDER: THE ASSESSEE HAS SUBMITTED THAT IF IT IS PRESUMED THAT INITIAL INVESTMENT IS MADE IN CASH FOR PURCHASE OF GOODS IT IS SUBMITTED THAT THERE MAY BE NUMBER OF PRESUMPTIONS SUCH AS PAYMENTS HAVE BEEN MADE AS AND WHEN APPROPRIATED BY BHARAT KOTHARI GROUP. THUS, IN ABSENCE OF ANY EVIDENCE PRESUMPTION OF INITIAL INVESTMENT SHOULD NOT BE APPLIED. THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE. THE ASSESSEE HAS NOT EVEN CARED TO GIVE COMPLETE NAME AND ADDRESS OF PARTIES 26 FROM WHOM THE ALTERNATIVE PURCHASES WERE MADE AND HOW THE PAYMENTS FOR PURCHASES WERE MADE. THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THE CASH WAS FIRST RECEIVED FROM KOTHARI GROUP OF CONCERNS, AGAINST CHEQUES PAYMENT FOR BOGUS BILL ISSUED, AND THE SAME WAS UTILIZED FOR MAKING PAYMENTS FOR CORRESPONDING UNRECORDED PURCHASES BUT THE ASSESSEE HAS NOT 'CATEGORICALLY ADMITTED THAT PURCHASES FROM KOTHARI GROUP OF CONCERNS WERE BOGUS. FURTHER DETAILS AND EVIDENCE HAS NOT BEEN PROVIDED TO EXPLAIN THE SOURCE OF INVESTMENT IN ALTERNATIVE PURCHASES. HENCE THE CONTENTION OF THE ASSESSEE IS REJECTED HAVING NO MERIT. FOR CASH PURCHASES THE ASSESSEE CERTAINLY MADE SOME INVESTMENT. THE CASE LAWS RELIED BY THE ASSESSEE ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE FACTS OF 27 THE CASE ARE DIFFERENT FROM THE RELIED CASES. HOWEVER, IN VIEW OF THE NATURE OF THE BUSINESS OF THE ASSESSEE IT WOULD BE UNJUSTIFIABLE TO MAKE ADDITION OF THE ENTIRE PURCHASES AS THERE MAY BE POSSIBILITY OF AVAILABILITY OF CASE WHICH HAS BEEN RECEIVED AGAINST SALE AS SUCH THE PEAK CREDIT IS ALLOWED TO THE ASSESSEE. THE ASSESSEE HAS SUBMITTED A STATEMENT ACCORDING TO WHICH THE PEAK INVESTMENT IS WORKED OUT AT RS. 13,46,949/~. AS SUCH THE AMOUNT OF RS. 13,46,949/- IS TREATED AS INVESTED IN PURCHASES FROM UNDISCLOSED SOURCES AND ADDED TO THE INCOME OF THE ASSESSEE. 4.4.1 THE APPELLANT IN COURSE OF APPEAL PROCEEDINGS BESIDES S UBMISSIONS MADE BEFORE AO ASSERTED THAT THE PURCHASES FROM BOGUS BILL PROVIDERS AS REFERRED IN ASSESSMENT 28 ORDER WERE GENUINE AND WERE DULY SUPPORTED BY DOCUMENTARY EVIDENCES AND HENCE THERE WAS NO QUESTION OF UNRECORDED PURCHASES AND THUS THERE WAS NO QUESTION OF ANY ADDITION FOR PEAK CREDIT. IT IS FURTHER CONTENDED THAT WHEN LEARNED AO WAS HIMSELF PRESUMING, THOUGH WITHOUT ANY EVIDENCES THAT THE AMOUNT OF CHEQUE PAYMENT CAME BACK TO THE APPELLANT IN CASH THEN HE SHOULD HAVE ACCEPTED THE APPELLANT'S PLEA THAT THE SAME CASH WOULD BE UTILIZED FOR MAKING PURCHASES FROM ALTERNATE SOURCES BUT THE AO HAS NOT ACCEPTED SUCH PLEA CASTING ONUS ON TO ESTABLISH THAT SUCH-CASH WAS FIRST RECEIVED FROM KOTHARI GROUP OF CONCERNS AND THEN WAS UTILIZED FOR MAKING PAYMENT FOR ALTERNATE PURCHASES. IT WAS ALSO EMPHASIZED THAT THE APPELLANT HAS DISCHARGED HIS 29 ONUS 'OF ESTABLISHING THE PURCHASES MADE BY DOCUMENTARY EVIDENCES AND IF THE AO DID NOT BELIEVE SUCH CONTENTION THE ONUS SHIFTED TO AO TO ESTABLISH THE FINDINGS AS ARRIVED BY HIM. IT 'WAS ALSO ASSERTED THAT ONCE THERE WAS NO QUESTION OF PROVIDING NAMES AND ADDRESSES OF THE PARTIES FROM WHOM ALTERNATE PURCHASES WERE MADE WHEN THE APPELLANT HAS NEVER ACCEPTED SUCH INFERENCE AND PROPOSITIONS MADE BY AO. FURTHER WITHOUT PREJUDICE TO THE CONTENTIONS ADVANCED IN RESPECT OF OTHER GROUNDS IT WAS CONTENDED THAT IN ABSENCE OF ANY DEFINITE EVIDENCE IN THE POSSESSION OF AO ABOUT THE DATE OF PAYMENT FOR ALTERNATE PURCHASES THE APPELLANT'S CONTENTION ABOUT AVAILABILITY OF CASH RECEIVED BACK FROM BOGUS BILL PROVIDERS AND FURTHER PROFIT ESTIMATION 30 MADE WOULD ALSO FROM SOURCE OF INVESTMENT IN SUCH UNRECORDED PURCHASES ' AND GOING BY AO'S OWN LOGIC CREDIT FOR SUCH FUNDS AVAILABLE, BEING EXCESS INFLATED PRICE OF PURCHASES SHOULD BE 'CONSIDERED AGAINST PEAK INVESTMENT DETERMINED. 4.4.2 THE CONTENTIONS ADVANCED BY APPELLANT AND AO'S FINDINGS ARE FURTHER EXAMINED IN VIEW OF FINDINGS ARRIVED ON OTHER GROUNDS OF APPEAL ABOVE, WHEREBY DISALLOWANCE OF PURCHASE PRICE TO THE EXTENT OF 6% OF PURCHASE PRICE AMOUNTING TO RS.14,49,190/- HAS BEEN CONFIRMED. IT IS AGAIN CLEARLY ADMITTED POSITION ON RECORD THAT NO EVIDENCES OR DETAILS OF ALTERNATE PURCHASES AND FURTHER DETAILS OF DATE(S) OF PAYMENT ARE AVAILABLE ON RECORD. HENCE, IT HAS TO BE NECESSARILY ACCEPTED THAT THERE IS 31 SUFFICIENT MERIT IN THE ' ALTERNATE CONTENTIONS OF THE APPELLANT THAT THE PROFIT ESTIMATION/ EXCESS PRICE DISALLOWED OUT OF PURCHASES EFFECTED FROM BOGUS BILL PROVIDERS SHOULD BE CONSIDERED IN ARRIVING AT THE ADDITION OF PEAK CREDIT FOR AN UNEXPLAINED INVESTMENT. 4.4.3 IT MAY BE FURTHER OBSERVED THAT THERE IS CERTAIN MERIT IN THE OTHER CONTENTIONS OF THE APPELLANT ALSO THAT FUNDS RECEIVED : BACK FROM BHARAT KOTHARI GROUP OF CONCERNS WERE AVAILABLE FOR MAKING PAYMENT FOR SUCH ALTERNATE PURCHASES, WHICH HAS IN A WAY BROADLY ACCEPTED BY ASSESSING OFFICER ALSO, AS HE HAS MADE ADDITION FOR PEAK CREDIT ONLY AND THE ENTIRE ADDITION MADE FOR UNRECORDED PURCHASES HAS NOT BEEN MADE BUT IN ALL CASES, EVEN THE PAYMENT BY WAY OF 32 CHEQUE WAS NOT IMMEDIATELY MADE AND AMOUNT REMAINED OUTSTANDING FOR SOME TIME AND HENCE IN SUCH SITUATION, THE POSITION OF SOURCES FOR PAYMENT TO ALTERNATE PURCHASES WOULD HAVE TO BE NATURALLY TREATED AS UNEXPLAINED UNTIL AND UNLESS NECESSARY DETAILS AND EVIDENCES FOR SUCH SOURCES ARE ADDUCED BY THE APPELLANT. HENCE AO'S FINDING IN REJECTING THE APPELLANT'S ALTERNATE CONTENTION ABOUT CASH RECEIVED FROM KOTHARI GROUP OF CONCERN TO EXPLAIN EACH AND EVERY PAYMENT FOR ALTERNATE PURCHASE IS FOUND TO JUSTIFIED AND PROPER AND SUCH ISSUE WILL HAVE TO BE EVALUATED ON FACTS OF EACH CASE. THUS THE AO IS DIRECTED TO CONSIDER THE, AMOUNT DISALLOWED BY WAY OF 6% OF PURCHASE PRICE TO BE AVAILABLE FOR ARRIVING AT UNEXPLAINED INVESTMENT IN UNRECORDED PURCHASES AND SINCE IN THE 33 CASE OF APPELLANT SUCH AMOUNT EXCEEDS THE ADDITION MADE FOR PEAK UNEXPLAINED INVESTMENT AT RS. 13,46,949/-, THE ADDITION FOR UNEXPLAINED INVESTMENT IS HEREBY DIRECTED TO BE DELETED. 8. AGAINST THE ABOVE ORDER OF THE LD. CIT(A), THE REVE NUE IS IN APPEAL BEFORE US AND THE ASSESSEE HAS ALSO FILED CROSS APPEAL IN THE ASSESSMENT YEAR 2004-05. GROUNDS TAKEN BY T HE REVENUE ARE COMMON IN ALL THE APPEALS WHICH READ AS UNDER : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE FACT S AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN UN-RECORDED BUSINESS TRANSACTIONS (PURCHASES). 2.1 WHILE HOLDING SO, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE SALES ARE PRECEDED BY PURCHASES AND BEING UNACCOUNTED THE PEAK INVESTMENT IS 34 TAXABLE WHICH WAS WORKED OUT BY THE ASSESSING OFFICER ON THE BASIS OF STATEMENT SUBMITTED BY THE ASSESSEE. 2.2 WHILE HOLDING SO, THE LD. CIT(A) ALSO FAILED TO APPRECIATE THAT THE FACT OF PURCHASES MADE IN CASH FROM THIRD PARTIES WAS NOT DENIED BY THE ASSESSEE AND THE ADDITION ON ACCOUNT OF 6% OF THE PURCHASE PRICE BEING ON ITS PECULIAR FACTS WAS NOT ELIGIBLE FOR SET OFF AGAINST UNACCOUNTED INVESTMENT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) ERRED IN DENYING THE DISALLOWA NCE U/S 40A(3) WITHOUT APPRECIATING THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SAI METAL WORKS, IN I.T.NO.125 OF 2004 OF DATED 1.3.2011. 9. AGAINST THE ABOVE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US FOR THE ASSESSMENT YEARS 2004-05 T O 2006-07 AND THE ASSESSEE HAS ALSO FILED CROSS APPEAL FOR TH E ASSESSMENT YEAR 2004-05 CHALLENGING THE UPHOLDING OF REOPENING AND REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE AC T. 35 10. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSE SSEE PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN THE CASE OF SHR EE STEELS; ITA NOS. 141 TO 144/IND/2012 DATED 26 TH JULY, 2012 AND CONTENDED THAT ALL THE ISSUES RAISED IN THE APPEALS ARE COVER ED BY THE ORDER OF THE TRIBUNAL. THE LEARNED SENIOR DR FAIRLY CONC EDED THAT ALL THE ISSUES ARE COVERED BY THE ABOVE ORDER OF THE TR IBUNAL, A COPY OF WHICH WAS ALSO SUPPLIED TO HIM. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FIND THAT ALL THE ISSUES RAISED IN THE APPEALS ARE SQUARELY COVER ED BY THE ORDER OF THE TRIBUNAL DATED 26 TH JULY, 2012 WHEREIN THE ADDITION MADE BY THE AO BY MAINTAINING DISALLOWANCE OF 6% OF PURC HASE VALUE WAS UPHELD ALONG WITH HIS ACTION OF REJECTION OF BO OKS OF ACCOUNTS. HOWEVER, THE TRIBUNAL HAS CONFIRMED THE DELETION OF DISALLOWANCE MADE U/S 40A(3) OF THE ACT. HOWEVER, THE TRIBUNAL GAVE A PARTICULAR DIRECTION WITH REGARD TO WORKING OF PEAK UNEXPLAINED INVESTMENT TO BE SET OFF AGAINST THE AD DITION MADE FOR UNEXPLAINED PURCHASES. THE PRECISE OBSERVATIONS AND FINDINGS OF THE TRIBUNAL ARE AS UNDER :- 36 10. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. WE HAD ALSO GONE THROUGH THE FINDINGS RECO RDED BY THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS. F ROM THE RECORD, WE FOUND THAT ALL THE ASSESSEES IN THE INST ANT APPEALS ARE TRADING IN IRON AND STEEL. THERE WAS A SEARCH AT BHARAT KOTHARI GROUP. DURING THE COURSE OF SEARCH PROCEEDINGS U/S 132 OF THE ACT, 1961, IN THE BHARAT KOTHARI GROUP CASES, IT HAS BEEN ADMITTED BY THE PROPRIETOR S OF M/S. NIKITA STEELS, M/S. BHARAT ENTERPRISES, M/S. MAA ENTERPRISES, M/S. HARSH ENTERPRISES, M/S. SALUJA ENTERPRISES, M/S. SONAM STEELS AND M/S. PRATIK ENTE RPRISES ( CALLED BILL PROVIDERS HEREAFTER), IN STATEMENTS R ECORDED UNDER OATH AND FURTHER CONFIRMED BY DULY SWORN AFFI DAVITS THAT THEY HAVE INDULGED IN THE ACTIVITY OF ISSUING BOGUS BILLS WITHOUT MAKING ACTUAL SALES OF IRON AND STEEL. THEY ALSO STATED THAT THEY HAD RECEIVED CHEQUES FOR THE AMOUN T OF BILLS AND RETURNED THE ENTIRE AMOUNT TO THE PARTIES BY MA KING CASH WITHDRAWAL FROM THE BANKS DEDUCTING NOMINAL COMMISSION RANGING FROM RS. 10 TO RS. 40 PER TON IR ON. DURING THE POST SEARCH ENQUIRIES IT IS FOUND THAT T HE ASSESSEE HAS DECLARED PURCHASE OF IRON AND STEEL FR OM THE ABOVE PARTIES AS UNDER :- S. NO . NAME OF THE PARTY TOTAL AMOUNT 1. M/S. NIKITA STEELS, PROPRIETOR SHRI MAYUR KOTHARI, INDORE RS. 19,04,749/- IN VIEW OF AFFIDAVITS AND STATEMENT OF THE BILL PR OVIDERS, THE PURCHASES CLAIMED BY THE ASSESSEE WERE HELD BY ASSESSING OFFICER TO BE NON GENUINE. THEREFORE, AFT ER RECORDING REASONS AND OBTAINING NECESSARY APPROVAL A NOTICE U/S 148 WAS ISSUED ON 26.03.2010 TO THE ASSESSEE. 11. THE REOPENING WAS JUSTIFIED BY THE LD.CIT(A) A ND THE ASSESSEE HAS TAKEN A GROUND THAT REOPENING WAS NOT VALID. WE FOUND THAT ISSUE IS SQUARELY COVERED BY THE DECI SION OF 37 HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI , WHEREIN HON'BLE SUPREME COURT HAS CATEGORICALLY DEA LT WITH REOPENING OF ASSESSMENT WITH REGARD TO MODE UNDER W HICH ASSESSMENT HAS BEEN DONE EITHER BY WAY OF INTIMATIO N U/S 143(1) OR BY WAY OF SCRUTINY ASSESSMENT U/S 143(3). IT WAS OBSERVED THAT THE PROCEEDINGS U/S 143(1) DOES NOT A MOUNT TO ASSESSMENT ORDER, WHEREIN NEITHER ANY OPINION IS FORMED NOR THERE IS QUESTION OF OPINION. SINCE INTIMATION U/S 143(1) IS NOT AN ASSESSMENT, THERE IS NO QUESTION OF ANY N EW MATERIAL TO EMPOWER THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT U/S 147, WHEN THERE IS A REASON TO BELIE VE THAT THERE IS ESCAPEMENT OF INCOME. IN THE INSTANT CASE BEFORE US, RETURNS OF ASSES WERE PROCESSED U/S 143(1) AND NO ASSESSMENTS WERE MADE U/S 143(3). UNDER THESE FACTS AND CIRCUMSTANCES, THE PROPOSITION OF LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI IS CLEARLY APPLICABLE. ON THE BASIS OF MATERIAL COLLEC TED DURING COURSE OF SEARCH AT BHARAT KOTHARI GROUP, IT IS CLE AR THAT THERE IS ESCAPEMENT OF INCOME IN THE HANDS OF PRESE NT ASSESSEE IN SO FAR AS PURCHASES WERE MADE BY THESE ASSESSEES FROM BHARAT KOTHARI GROUP. IN VIEW OF THE ABOVE, WE CONFIRM THE ACTION OF CIT(A) FOR UPHOLDING THE V ALIDITY OF REASSESSMENT PROCEEDINGS. SO FAR AS REJECTION OF BO OKS OF ACCOUNT BY THE ASSESSING OFFICER IS CONCERNED, WE F OUND THAT PURCHASES MADE FROM BHARAT KOTHARI GROUP CASE S WAS FOUND TO BE FALSE, THE REJECTION OF BOOKS OF ACCOUN T BY THE ASSESSING OFFICER WAS PERFECTLY JUSTIFIED. BOTH ASS ESSING OFFICER AND CIT(A) HAVE DISCUSSED THE BURDEN CASTED ON THE ASSESSEE. UNDER THESE FACTS AND CIRCUMSTANCES AND A FTER GIVING DETAILED FINDING REACHED TO THE CONCLUSION T HAT REJECTION OF BOOKS OF ACCOUNT WAS JUSTIFIED. WE UPH OLD THE ACTION OF THE LOWER AUTHORITIES AND DISMISS GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THIS REGARD. 12. IN RESPECT OF THE PURCHASES MADE FROM KOTHA RI GROUP, THE ASSESSING OFFICER FOUND THAT THERE IS NO BASIS FOR PURCHASE PRICE SHOWN ON THE ACCOMMODATION BILLS SO PROCURED BY THE ASSESSEE, THEREFORE, AFTER CONSIDER ING ENTIRE FACTS AND CIRCUMSTANCES MADE A DISALLOWANCE OF 6 % OF THE PURCHASE PRICE IN RESPECT OF ACCOMMODATION BILLS PR OCURED FROM KOTHARI GROUP. DETAILED FINDING HAS BEEN RECOR DED BY THE ASSESSING OFFICER AND CIT(A) WITH REGARD TO 38 REASONABILITY OF 6 % OF DISALLOWANCE MADE BY THE AS SESSING OFFICER AND FOR WHICH ADDITION WAS MADE. THE FINDIN GS RECORDED BY LOWER AUTHORITIES COULD NOT BE CONTROVE RTED BY THE LD. AUTHORIZED REPRESENTATIVE, WE, THEREFORE, U PHOLD THE DISALLOWANCE OF 6 % ON THE PURCHASE PRICE, WHICH UL TIMATELY INCREASES THE ASSESSEES INCOME TO THAT EXTENT. 13. NOW COMING TO THE SET OFF ALLOWED BY THE LD.C IT(A) IN RESPECT OF 6 % OF DISALLOWANCE/ADDITION OF PROFIT, OUT OF PEAK CREDIT ADDED BY THE ASSESSING OFFICER, WE FOUND THA T PEAK CREDIT HAS BEEN ADDED BY THE ASSESSING OFFICER WITH RESPECT TO THE PURCHASES MADE FROM ALTERNATIVE SOURCES. 14. SO FAR AS DISALLOWANCE U/S 40A(3) IS CONCERNED, THE ASSESSING OFFICER HAS DISALLOWED 20 % OF THE PURCHA SE PRICE ALLEGED TO BE PAID IN CASH IN RESPECT OF ALTERNATIV E PURCHASES MADE BY THE ASSESSING OFFICER. IN THIS REGARD, WE F OUND THAT THE ASSESSING OFFICER HAS ALSO REJECTED BOOKS OF AC COUNT OF THE ASSESSEE AND HAVE ESTIMATED 6% EXTRA PROFIT IN RESPECT OF PURCHASES MADE FROM KOTHARI GROUP. THE LD. CIT(A ) FOUND THAT ALL THE PURCHASES MADE FROM KOTHARI GROUP WAS PAID BY CHEQUE AND WHEN ENTIRE BOOKS OF ACCOUNTS WERE RE JECTED AND PROFIT WAS ESTIMATED AT 6 % OF SUCH PURCHASES M ADE FROM KOTHARI GROUP, THERE WAS NO REASON OR MAKING F URTHER DISALLOWANCE U/S 40A(3) IN RESPECT OF ALTERNATIVE P URCHASES ALLEGED TO BE MADE. THE LD. CIT(A) HAS ALSO DISCUSS ED VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING ONE IN R ESPECT OF CASE DECIDED BY THE HON'BLE M. P. HIGH COURT IN THE CASE OF PURSHOTTAMLAL TAMRAKAR, 270 ITR 314, WHEREIN IT WAS HELD THAT SECTION 40A(3) WAS NOT APPLICABLE WHEN THE NET PROFIT RATE WAS APPLIED BY THE ASSESSING OFFICER. THE LD. CIT(A) HAS ALSO CONSIDERED THE DECISION OF I.T.A.T., SPECI AL BENCH IN THE CASE OF KENARAM SAHA AND SUBHASH SAHA, 301 ITR (AT) 171, WHEREIN IT WAS HELD THAT WHEN A NET PROFIT RAT E IS APPLIED, THERE REMAINS NO SCOPE FOR FURTHER DISALLO WANCE OF ANY EXPENDITURE. THE LD. CIT(A) ALSO HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN LAW IN EXTENDING THE P ROVISIONS OF SECTION 40A(3) IN RESPECT OF DEEMED PURCHASES, WHIC H ARE NEITHER RECORDED IN THE BOOKS OF ACCOUNTS AND FOR W HICH ANY CLAIM OR DEDUCTION HAS BEEN MADE. 39 15. ON CONSIDERING TOTALITY OF FACTS AND CIRCUMSTA NCES OF THE CASE, WE FOUND THAT THE ASSESSING OFFICER HAS ALREA DY DISREGARDED THE PURCHASES MADE FROM KOTHARI GROUP A ND HAVE ESTIMATED EXTRA PROFIT OF 6 % IN RESPECT OF SU CH PURCHASES, AT THE SAME TIME, HE HAS ALSO DISALLOWED 20% OF THE PURCHASE PRICE PAID IN RESPECT OF SUCH QUANTITY OF GOODS PURCHASED BY THE ASSESSEE. IT IS NOT IN DISPUTE THA T ESTIMATION OF PROFIT BY THE ASSESSING OFFICER AND DISALLOWANCE OF 20% BY THE ASSESSING OFFICER WAS IN RESPECT OF THE SAME QUANTITY OF PURCHASE SHOWN BY THE ASSES SEE. IN VIEW OF DETAILED FINDING AND JUSTIFICATION GIVEN BY THE LD.CIT(A), WE UPHOLD HIS ACTION FOR DELETING DISALL OWANCE MADE U/S 40A(3), WHEREIN HE HAS UPHELD THE ACTION O F ASSESSING OFFICER FOR ESTIMATING 6 % PROFIT ON SUCH PURCHASES. 16. WITH REGARD TO THE ADDITION MADE ON ACCOUNT OF PEAK INVESTMENT IN PURCHASES, WE FOUND THAT THE ASSESSEE HAS MADE CASH PURCHASES FOR WHICH HE HAS MADE INVESTMEN T FROM HIS UNDISCLOSED SOURCES. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT GIVEN COMPLETE N AMES AND ADDRESSES OF THE PARTIES FORM WHOM THE ALTERNAT IVE PURCHASES WERE MADE AND THE PAYMENTS FOR PURCHASES WERE MADE. THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT CASH WAS FIRST RECEIVED FROM KOTHARI GROUP AGAINST THE CHEQUES SO ISSUED TO THEM FOR BOGUS BILLS ISSUED BY THEM AND THE SAME WAS UTILIZED FOR MAKING PAYMENT FOR CORRESPONDING UNRECORDED PURCHASES. BY OBSERVING TH AT DETAILS AND EVIDENCE HAVE NOT BEEN PROVIDED BY THE ASSESSEE TO EXPLAIN THE SOURCE OF INVESTMENT IN ALT ERNATIVE PURCHASES, THE ASSESSING OFFICER MADE ADDITION IN R ESPECT OF THE PEAK AMOUNT PURCHASES IN ONE DAY AND TREATED TH E SAME AS UNEXPLAINED. BY GIVING DETAILED FINDINGS, T HE CIT(A) HAS UPHELD THE ACTION OF ASSESSING OFFICER. THE FIN DING GIVEN B Y BOTH THE LOWER AUTHORITIES HAVE NOT BEEN CONTRO VERTED BY LD. AUTHORIZED REPRESENTATIVE BY BRINING ANY POSITI VE MATERIAL ON RECORD. ACCORDINGLY, WE UPHOLD THE ADDI TION FOR UNEXPLAINED PEAK INVESTMENT . 17. WITH REGARD TO ADDITION ON ACCOUNT OF DISALL OWANCE OF 6 % ON PURCHASES MADE FROM KOTHARI GROUP WHICH WAS ALLOWED AS SET OFF BY CIT(A) AGAINST THE ADDITION O F PEAK 40 INVESTMENT MADE IN RESPECT OF ALTERNATIVE PURCHASES MADE BY THE ASSESSEE, WE FOUND THAT THE ASSESSING OFFICE R HAS DISALLOWED 6% OF TOTAL PURCHASES MADE DURING THE EN TIRE YEAR FROM KOTHARI GROUP, WHEREAS ADDITION HAS BEEN MADE WITH RESPECT TO PEAK UNEXPLAINED INVESTMENT WORKED OUT AS ON A PARTICULAR DATE IN RESPECT OF ALTERNATIVE PUR CHASES MADE BY THE ASSESSEE, AND NOT IN RESPECT OF ENTIRE ALTERNATE PURCHASES MADE BY ASSESSEE. HERE THE QUESTION ARISE S AS TO WHETHER ENTIRE ADDITION OF 6 % OUT OF TOTAL PURCHAS ES MADE FROM KOTHARI GROUP WAS AVAILABLE TO THE ASSESSEE AT THE POINT OF TIME THE ASSESSING OFFICER HAS TAKEN THE P EAK UNEXPLAINED INVESTMENT. AFTER VERIFYING DIFFERENT PURCHASES MADE BY THE ASSESSEE, THE ASSESSING OFFICER HAS WOR KED OUT PEAK UNEXPLAINED INVESTMENT AS ON A PARTICULAR POINT OF TIME. IT IS NOT THE CASE OF THE ASSESSEE THAT ENTIR E ALTERNATIVE PURCHASES MADE BY ASSESSEE HAS BEEN ADDED BY THE ASSESSING OFFICER. ADDITION HAS BEEN MADE ONLY UP T O DATE OF WORKING OUT PEAK INVESTMENT. UNDER THESE FACTS A ND CIRCUMSTANCES, WE ARE INCLINED TO AGREE WITH THE CO NTENTION OF LD. SR. DR, SHRI R. A. VERMA THAT THE ORDER OF C IT(A) IS NOT CORRECT TO THE EXTENT OF ALLOWING SETTING OFF ENTIR E 6% OF PROFIT WHICH WAS ADDED IN RESPECT OF ENTIRE PURCHASES MADE FROM KOTHARI GROUP AGAINST PEAK UNEXPLAINED INVESTMENT W ORKED OUT ON A PARTICULAR DATE. WE, THEREFORE, MODIFY THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RECO MPUTE THE ADDITION/DISALLOWANCE MADE ON ACCOUNT OF PURCHASES MADE FROM KOTHARI GROUP UP TILL THE DATE OF WORKING OUT UNEXPLAINED INVESTMENT ON SUCH PURCHASES. TO THE EX TENT OF 6 % OF DISALLOWANCE MADE ON THE PURCHASE UP TILL DA TE OF WORKING OUT PEAK UNEXPLAINED INVESTMENT, IS TO BE SET OFF AGAINST THE ADDITION MADE FOR UNEXPLAINED PEAK INVE STMENT. TO THIS LIMITED EXTENT, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO RE-WORK OUT THE PROFIT ON SUCH PURCHASES UP TILL DATE OF UNEXPLAINED INVESTMENT, A ND TO ALLOW THE SET OFF OF SAME AGAINST THE ADDITION MADE BY ASSESSING OFFICER FOR SUCH UNEXPLAINED INVESTMENT 12. AS THE FACTS AND CIRCUMSTANCES OF THE INSTAN T CASE AND THE CASE OF SHREE STEELS AS DECIDED BY THE TRIBUNAL VI DE ORDER DATED 26 TH JULY, 2012 (SUPRA) ARE PARI MATERIA, WE PARTLY CON FIRM THE 41 ACTION OF THE LEARNED CIT(A) IN TERMS INDICATED IN THE ORDER OF THE TRIBUNAL DATED 26 TH JULY, 2012. 13. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE ALLOWED IN PART WHEREAS THE APPEAL FILED BY THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN OPEN COURT ON 20.12.2012. SD SD (JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED - 20.12.2012 COPY TO : APPELLANT, RESPONDENT, CIT, CIT(A), DR, GUARD FILE DN/-1919