JOHNS PACK, MUMBAI V. ITO 31(2)(1), MUMBAI

ITA 497/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0296 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 23-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JANANRDHANAN
• Keywords: Bogus purchase; Unexplained expenditure; Opportunity of being heard; Tangible material; Difference of opinion; Accommodation entries; Reason to believe; Change of opinion; Reassessment proceedings; Borrowed satisfaction; Set aside; Capital Gains
• Section: 143(3); 143(1); 191; 64; 48; 13; 131; 148

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ./ I.T.A. NO S . 497, 499 & 500 /MUM/2017 ( / ASSESSMENT YEAR S : 200 7 - 0 8 TO 2009 - 10 ) M/S. JOHNS PACK 9/6, UDYOG NAGAR INDS ESTATE, S. V. ROAD, GOREGAON (E), MUMBAI - 400 062 / VS. ITO, WARD - 31(2)( 1 ), MUMBAI ./ ./ PAN/GIR NO. AAAFJ 4670 P ( / APPEL LANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI BHUPENDRA SHAH / RESPONDENT BY : SHRI V. JANANRDHANAN / DATE OF HEARING : 29.06.2017 / DATE OF PRONOUNCEMENT : 17 .08.2017 / O R D E R PER SHAMIM YAHYA , A. M.: TH ESE ARE APPEALS BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 42 , MUMBAI (CIT(A) FOR SHORT) DATED 19.09.2016 FOR THE CONCERNED ASSESSMENT YEARS. 2. THE FIRST COMMON ISSUE RAISED REA DS AS UNDER: 1. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN PASSING THE ORDER U/S. 143 R.W.S. 147 2 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO AND THEREFORE RENDERING THE WHOLE ASSESSMENT BAD IN LAW, THAT TOO AFTER A GAP OF FOUR YEARS AND ALSO ON THE BASIS OF BORROWED SATISFACTION. 3. THE SECOND COMMON ISSUE RAISED IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF 25% OF THE ALLEGED BOGUS PURCHASES. 4. SINCE THE FACTS ARE IDENTICAL, THESE APPEALS HAVE BEEN ADJUDICATED W ITH REFERENCE TO FACTS AND FIGURES FROM A.Y. 200 7 - 0 8 . THE RETURN OF INCOME FOR THIS YEA R WAS FILED BY THE ASSESSEE ON 3 0.0 8 .200 7 DECLARING A TOTAL INCOME OF RS. 27,73,034 / - . THE SAME WAS MERELY PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY THE A.O. RECEIVE D INFORMATION FROM THE SALES TAX DEPARTMENT AND ALSO FROM THE OFFICE OF THE DGIT(INV), MUMBAI THAT THE ASSESSEE IS A BENEFICIARY OF ACCOMMODATION BILL OF PURCHASES FROM CERTAIN BOGUS HAWALA DEALERS. THE INFORMATION WAS THAT THE CONCERNED DEALERS HAD NOT SO LD ANY ACTUAL GOODS BUT HAD GIVEN ACCOMMODATION ENTRIES OF SALES MADE TO THE ASSESSEE. THE A.O. NOTED THAT THE ASSESSEE HAS TAKEN ACCOMMODATION ENTRIES FROM M/S. ARUN PAPER & IRON TRADERS, A HAWALA DEALER. ACCORDINGLY THE A.O. INITIATED ACTION SECTION 147 OF THE ACT. 5. THE A.O.S OBSERVATION REGARDING THE ENQUIRY MADE IN THIS REGARD IS AS UNDER: 4.4 MEANWHILE, SHRI ARUN KUMAR AGARWAL, PROPRIETOR OF M/S. ARUN PAPER AND TRADERS ATTENDED THE OFFICE IN RESPONSE TO SUMMONS U/S. 131 OF THE INCOME TAX ACT, 1 961 DATED 22.01.2015 AND HIS STATEMENT IS RECORDED, THE GIST OF WHICH IS STATED BELOW: - IN HIS STATEMENT U/S. 131 OF THE INCOME TAX ACT, 1961 TAKEN ON 22.01.2015, PROP. OF M/S. ARUN PAPER AND IRON TRADERS, SHRI ARUN KUMAR AGARWAL WAS CONFRONTED WITH HIS REPLY GIVEN TO QUESTION NO. 10 ASKED DURING THE STATEMENT GIVEN BY HIM TO THE INVESTIGATION WING OF THE DEPARTMENT ON 06.12.2012 THAT 'WHERE THE BOOKS OF ACCOUNTS OF M/S. BIGWIN PAPER 3 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO DISTRIBUTORS PVT. LTD. AND M/S. ARUN PAPER & IRON TRADERS ARE KEPT/MAINT AINED AND IN WHAT FORM?', HE REPLIED THAT ALL THE BOOKS OF ACCOUNT WERE SHUFFLED AND SCATTERED BY SOME MISCREANTS WITH THE INTENTION OF BURGLARY AND LATER ON DAMAGED ON ACCOUNT OF RAIN. HOWEVER, TO THE UTTER SURPRISE, DURING THE ASSESSMENT PROCEEDINGS IN RESPECT OF THE ASSESSEE FOR AYR. 2007 - 08 U/S: 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 SHRI ARUN KUMAR AGARWAL, PRODUCED VARIOUS DETAILS BEFORE ME ALONG WITH COPY OF SALE BILLS AND DELIVERY CHALLANS WITH REGARD TO THE TRANSACTIONS MADE WITH THE ASSES SEE DURING THE YEAR, A.Y. 2007 - 08. FURTHER, IN HIS STATEMENT U/S. 131 GIVEN ON OATH, HE AGAIN ADMITTED THAT THE BOOKS OF ACCOUNTS WERE DAMAGED DUE TO RAIN. ON FURTHER ASKING ABOUT THE SOURCE OF BOOKS OF ACCOUNTS AND DOCUMENTARY EVIDENCES PRODUCED BY HIM EV EN AFTER THE BOOKS WERE DAMAGED, HE MAINTAINED THAT HE HAD KEPT HIS AUDITED BOOKS IN A SOFT COPY WITH HIS ACCOUNTANT SHRI BHARAT MODY. BUT DURING HIS STATEMENT GIVEN TO THE INVESTIGATION WING OF THE DEPARTMENT HE COULD NOT PRODUCE ANY PROOF REGARDING SHRI BHARAT MODY EVEN AFTER AMPLE TIME GIVEN TO HIM. IT IS THEREFORE CLEAR FROM HIS STATEMENT GIVEN TO ME ON 22.1.2015 THAT EVEN IF HE HAD KEPT HIS BOOKS OF ACCOUNT IN SOFT COPY REGARDING WHICH MR. ARUN KUMAR AGARWAL SPECIFIED IN THE STATEMENT DATED 22.01.2015 REGARDING THE NATURE OF BOOKS KEPT IN SOFT COPY THAT THEY HAD THE AUDITED BOOKS (THEY HAD THE BACK - UP OF THE TRIO SOFTWARE IN WHICH HAS ALL OUR TRANSACTION ENTRIES)'. HOWEVER, EVEN IF HIS STATEMENT IS TAKEN TO BE TRUE THEN THE BIG QUESTION ARISES THAT FRO M WHERE HE HAS ARRANGED THE BILLS REGARDING SALE MADE TO THE ASSESSEE DURING THE YEAR AND ALSO DELIVERY CHALLANS WERE PRODUCED WHICH CERTAINLY CANNOT BE KEPT IN THE SOFT FORMAT AND HENCE THEIR GENUINENESS REMAINED NON - VERIFIABLE. 4.5 ON FURTHER INVESTIG ATION OF THE DOCUMENTARY EVIDENCES PROVIDED BY THE HAWALA PARTY M/S. ARUN PAPER AND IRON TRADERS AND THE BY THE ASSESSEE, IT IS FOUND THAT THERE ARE SERIOUS DISCREPANCIES IN THE ALL BILLS AND DELIVERY CHALLANS PROVIDED BOTH THE PARTIES, THE DISCREPANCIES A RE IS SUMMARIZED AS UNDER: - 1. THE ENTRIES MADE ON THE BILLS AND DELIVERY CHALLANS DIFFER IN THEIR FORM AND PRESENTATION AND IT SHOWS THAT THE BILLS AND RESPECTIVE DELIVERY CHALLANS ARE PREPARED BY TWO DIFFERENT PERSONS AT TWO DIFFERENT TIMES. 2. THERE IS NO SEAL OR RUBBER STAMP AND NO SIGNATURE OF THE RECEIVER AND SENDER ON SOME OF THE DELIVERY CHALLANS PRODUCED AND ALSO THE SIGNATURE OF THE RECEIVER IN SIMILAR CHALLANS ARE DIFFERENT. 3. THE NECESSARY DETAILS OF TRANSPORTATION SUCH AS VEHICLE NO. /LR NO. ETC. ARE NOT MENTIONED ON THE DELIVERY CHALLANS. 4 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO 5.1 IT MAY BE NOTICED THAT THE ASSESSEE HAS NOT PRODUCED COMPLETE DETAILS WITH RESPECT TO THE TRANSPORTATION OF GOODS, PROPER DELIVERY CHALLANS, FREIGHT CHARGES ETC. REGARDING TRANSPORTATION OF GOODS TO THE ITS BUSINESS PREMISES. AS SUCH, THE PURCHASES EFFECTED BY THE ASSESSEE ARE NOT PROVED TO B E THE GENUINE PURCHASES DURING THE YEAR I.E. A. YR. 2007 - 08 . 6. T HEREFORE, AFTER MAKING INDEPENDENT ENQUIRIES ON THE FINDINGS OF THE SALES TAX DEPARTMENT AN D DETAILS SUBMITTED BY THE ASSESSEE, I HAVE COME TO CONCLUSION THAT THE ASSESSEE HAD NOT PURCHASED GOODS FROM ABOVE STATED HAWALA PARTY AND ONLY ACCOMMODATION ENTRIES WERE TAKEN IN ORDER TO INFLATE THE EXPENSES AND BRING DOWN THE PROFITABILITY THEREBY AVOI DING THE PAYMENT OF TAXES. IT IS CONCLUDED THAT THE ASSESSEE HAS ARRANGED BILLS FROM ABOVE DEALERS/SELLERS TO SUPPRESS ITS TRUE PROFIT AND THE PURCHASES SHOWN BY THE ASSESSEE FROM THE ABOVE DEALERS/SELLERS IS NOT A GENUINE ONE. THUS THE EXPENDITURE ON SUCH PURCHASES IS THEREFORE TREATED AS UNEXPLAINED EXPENDITURE. 6 . AGAINST THE ABOVE ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). ON THE ISSUE OF REOPENING, THE LD. CIT(A) AFFIRMED THE CORRECTNESS OF REOPENING BY OBSERVING AS UNDER: THE ORI GINAL RETURN OF THE ASSESSEE HAD ONLY BEEN PROCESSED U/S. 143(1) OF THE ACT. IT IS REQUIRED TO BE NOTED THAT EVEN THE DEFINITION OF 'ASSESSMENT' U/S. 2(8) OF THE ACT DOES NOT INCLUDE 'PROCESSING'. THE LAW IS THUS VERY CLEAR THAT U/S. 143(1) ONLY A PROCESSI NG IS DONE AND IT IS NOT AN ASSESSMENT. IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME - TAX V RAJESH JHAVERI STOCK BROKERS (P.) LTD 291 ITR 500 (SC) THE SUPREME COURT NOTED THAT SUBSTANTIAL CHANGES HAVE BEEN MADE TO SECTION 143(1) WITH EFFECT FROM JUNE 1 , 1999. THE SUPREME COURT NOTED THAT IN THE CASE BEFORE IT AND UNDER THE FIRST PROVISO TO SECTION 143(L)(A) THE ONLY ADJUSTMENTS POSSIBLE TO BE ADJUSTED WERE, (I) ONLY APPARENT ARITHMETICAL ERRORS IN THE RETURN, ACCOUNTS OR DOCUMENTS ACCOMPANYING THE RETURN, (II) LOSS CARRIED FORWARD, DEDUCTION ALLOWANCE OR RELIEF, WHICH WAS PRIMA FACIE ADMISSIBLE ON THE BASIS OF INFORMATION AVAILABLE IN THE RETURN BUT NOT CLAIMED IN THE RETURN AND SIMILARLY (III) THOSE CLAIMS WHICH WERE ON THE BASIS OF THE INFORMATION AVAILA BLE IN THE RETURN, PRIMA FACIE INADMISSIBLE, WERE TO BE RECTIFIED/ALLOWED/DISALLOWED. WHAT WAS PERMISSIBLE WAS CORRECTION OF ERRORS APPARENT ON THE BASIS OF THE DOCUMENTS ACCOMPANYING THE RETURN. THE ASSESSING OFFICER HAD NO AUTHORITY TO MAKE ADJUSTMENTS O R ADJUDICATE UPON ANY DEB ATABLE ISSUES. IN OTHER WORDS, U/S. 143(1)(A) THE ASSESSING OFFICER HAD NO POWER TO GO BEHIND THE RETURN, ACCOUNTS OR DOCUMENTS, EITHER IN ALLOWING OR IN 5 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO DISALLOWING DEDUCTIONS, ALLOWANCE OR RELIEF. THE SUPREME COURT FURTHER NOTED THAT INTIMATION UNDER SECTION 143(1)(A) IS GIVEN WITHOUT PREJUDICE TO THE PROVISIONS OF SECTION 143(2). IN THE WORDS OF THE SUPREME COURT 'THUS, THE LEGISLATIVE INTENT IS VERY CLEAR FROM THE USE OF THE WORD 'INTIMATION' AS SUBSTITUTED FOR 'ASSESSMENT' THA T TWO DIFFERENT CONCEPTS EMERGED'. WHILE MAKING AN ASSESSMENT, THE ASSESSING OFFICER IS FREE TO MAKE ANY ADDITION AFTER GRANT OF OPPORTUNITY TO THE ASSESSEE. BY MAKING ADJUSTMENTS UNDER THE FIRST PROVISO TO SECTION 143(1)(A), NO ADDITION WHICH IS IMPERMISS IBLE BY THE INFORMATION GIVEN IN THE RETURN COULD BE MADE BY THE ASSESSING OFFICER. THE REASON IS THAT UNDER SECTION 143(1)(A) NO OPPORTUNITY IS GRANTED TO THE ASSESSEE AND THE ASSESSING OFFICER PROCEEDS ON HIS OPINION ON THE BASIS OF THE RETURN FILED BY T HE ASSESSEE. THE VERY FACT THAT NO OPPORTUNITY OF BEING HEARD IS GIVEN UNDER SECTION 143(1)(A) INDICATES THAT THE ASSESSING OFFICER HAS TO PROCEED WITH ACCEPTING THE RETURN AND MAKING THE PERMISSIBLE ADJUSTMENTS ONLY. THE SUPREME COURT HELD THAT THAT SO LO NG AS THE INGREDIENTS OF SECTION 147 ARE FULFILLED, THE ASSESSING OFFICER IS FREE TO INITIATE PROCEEDING UNDER SECTION 147 AND FAILURE TO TAKE STEPS UNDER SECTION 143(3) WILL NOT RENDER THE ASSESSING OFFICER POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS E VEN WHEN INTIMATION UNDER SECTION 143(1) HAD BEEN ISSUED. RECENTLY THE SUPREME COURT IN THE CASE OF DEPUTY COMMISSIONER OF INCOME - TAX V. ZUARI ESTATE DEVELOPMENT & INVESTMENT CO, LTD [2015] 373 ITR 661 (SC)(MAG.) HAS AGAIN HELD THAT SINCE NO ASSESSMENT UN DER SECTION 143(1)(A) IS MADE, THE QUESTION OF CHANGE OF OPINION DOES NOT ARISE AND REASSESSMENT CAN BE MADE BY THE AO. 8.3 . IT IS ALSO RELEVANT TO NOTE THAT AT THE TIME OF ISSUING A NOTICE U/S 148 OF THE ACT THE AO IS ONLY REQUIRED TO POSSESS A PRIMA FA CIE VIEW. THIS CAN BE INFERRED FROM THE FOLLOWING DECISIONS: . (A) RAYMOOD WOOLLEN MILLS LTD. V. ITO [1999] 236 ITR 34 (SC) IN THIS CASE IT WAS HELD THAT INSUFFICIENCY OF REASONS COULD NOT BE A GROUND FOR QUASHING OF THE NOTICE UNDER SECTION 148 AT ITS THRESHOLD. (B) SHREE BAJRANG COMMERCIAL CO. ( P.) LTD. [2004] 269 ITR 338 (CAL .) . (C) CIT V. NOVA PROMOTERS & FINLEASE (P) LTD [2012) 342 ITR 169 (DELHI). IN THIS CASE THE QUESTION AS WHETHER AT STAGE OF ISSUING NOTICE UNDER SECTION 148 MERITS OF MATTE R ARE NOT RELEVANT AND ASSESSING OFFICER AT THAT STAGE IS REQUIRED TO FORM ONLY A PRIMA FACIE BELIEF OR OPINION THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT? THE ANSWER WAS GIVEN IN THE AFFIRMATIVE. 6 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO IT IS SEEN THAT IN THIS CONNECTION THE FOLLOWIN G OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF INCOME - TAX OFFICER. CUTTACK AND OTHERS VS. BIJU PATNAIK (1991) 188 IT R . 247 ARE VERY RELEVANT: - 'IT IS UNDOUBTEDLY TRUE THAT THE NOTICE DOES NOT PRIMA FACIE DISCLOSE THE SATISFACTION OF THE TWO CONDITION S PRECEDENT ENJOINED UNDER SECTION 147(A), BUT IN THE COUNTER AFFIDAVIT FILED BY THE INCOME TAX OFFICER IN THE HIGH COURT, HE STATED ALL THE MATERIAL FACTS. THE RESPONDENT HAD INSPECTED THE RECORD AND THE RECORD ALSO BEARS OUT THE EXISTENCE OF THE MATERIAL FACTS. THE PROCEEDINGS DRAWN UP WHICH ARE ABSTRACTED EARLIER ALSO SHOW THAT THE INCOME TAX OFFICER HAD APPLIED HIS MIND TO THE FACT ON RECORD AND WAS PRIMA FACIE SATISFIED THAT THE REOPENING OF THE ASSESSMENT FOR THE ASSESSMENT YEAR 1957 - 58 WAS NEEDED DUE TO THOSE STATED FACTS. THUS, THOUGH EX FACIE THE NOTICE DOES NOT DISCLOSE THE SATISFACTION OF THE REQUIREMENT OF SECTION 147(A),FROM THE RECORD AND THE AVERMENTS IN THE COUNTER AFFIDAVIT, IT IS CLEAR THAT THE INCOME TAX OFFICER HAD APPLIED HIS MIND TO THE FACTS AND, AFTER PRIMA FACIE SATISFYING HIMSELF OF THE EXISTENCE OF THOSE TWO CONDITIONS PRECEDENT, REACHED THE CONCLUSION FOR REOPENING THE ASSESSMENT. IT IS SETTLED LAW THAT, IN AN ADMINISTRATIVE ACTION, THOUGH THE ORDER DOES NOT EX FACIE DISCLOSE THE S ATISFACTION BY THE OFFICER OF THE NECESSARY FACTS O F THE RECORD DISCLOSES THE SAME, THE NOTICE OR THE ORDER DOES NOT PER SE BECOME ILLEGAL;' IT IS A FACT THAT THE ORIGINAL RETURN OF THE ASSESSEE HAD NOT BEEN SUBJECTED TO SCRUTINY U/S. 143(3) OF THE ACT. CONSEQUENTLY AT THE TIME OF REASSESSMENT THERE IS NO REQUIREMENT OF PASSING THE TEST LAID DOWN IN THE FIRST PROVISO BELOW SECTION 147(1) OF THE ACT. AS A RESULT THE CLAIM OF THE ASSESSEE THAT HE REASSESSMENT NOTICE IS BARRED IS NOT CORRECT. 8.4 THUS IT IS CONCLUDED THAT THERE IS NO CHANGE OF OPINION BY THE AO AND THE AO HAS REOPENED THE PROCEEDINGS AFTER HAVING REASONS TO BELIEVE THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. THE ASSESSING OFFICER HAD INFORMATION THAT THE SUSPECT HAWALA DEALER H AD GIVEN STATEMENTS TO THE SALES TAX DEPARTMENT THAT THEY ARE ONLY PROVIDING ACCOMMODATION ENTRIES OF BILLS OF PURCHASE AND ARE NOT GENUINELY DEALING WITH ANY ITEM OF TRADE. THE SUBSEQUENT ENQUIRIES BY THE OFFICE OF THE DGIT(INV) ALSO INFORMED THE AO THAT THE SUPPLIERS HAVE NO RECORD TO PRODUCE. THE SET OFF CLAIMED FOR VAT DECLARED PAID ON THE BILLS OF PURCHASE FROM THE BOGUS HAWALA DEALER IS ITSELF EVIDENCE THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT IN VIEW OF THE ABOVE IT IS HELD THE AO HAD VA LID INFORMATION IN HIS POSSESSION LEADING TO HIS HAVING A REASON TO BELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. 7 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO 8.5 LASTLY THE ARGUMENT OF THE ASSESSEE THAT THE INFORMATION FROM DGIT(INV) IS NOT A BASIS FOR RE - ASSESSMENT NEEDS TO BE ADDR ESSED. THE ASSESSEE HAS RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF VARSHABEN SANATBHAI PATE ' VS. INCOME - TAX OFFICER [2015] 64 TAXMANN.CO M 1 79 (GUJARAT) FOR THE PROPOSITION THAT IN THE ABSENCE OF ANY DETAILS THE AO COULD NOT INITIATE AS SESSMENT PROCEEDINGS MERELY ON THE BASIS OF INFORMATION SUPPLIED BY DGIT(INV). THIS CLAIM OF THE ASSESSEE IS BASELESS. IN THE CASE OF VARSHABEN SANATBHAI PATEL (SUPRA) THE HIGH COURT HAD NOTED THAT THE REASONS RECORDED BY THE AO DOES NOT MENTION THAT THE I NFORMATION HAS COME TO HIS POSSESSION FROM THE OFFICE OF THE DGIT(INV.). IN FACT THE REASONS RECORDED IN VARSHABEN CASE HAVE BEEN QUOTED IN EXTENSO BY THE HIGH COURT FOR ALL THE YEARS INVOLVED AND THEY ALL READ LIKE THIS: (1) ON VERIFICATION OF DETAILS AVAILABLE ON RECORDS. IT IS NOTICED THAT ASSESSEE HAS MADE BOGUS PURCHASE OF RS.30.65,639/ - , DURING THE FINANCIAL YEAR 2008 - 09 I.E. A.Y. 2009 - 10. BY CLAIMING BOGUS PURCHASES IN THE TRADING AND P&L ALE AS AN EXPENSES. THE ASSESSEE HAS SHOWN LESS PROFIT TO T HE EXTENT OF THE AMOUN T OF BOGUS PURCHASES. (2) IN VIEW OF THE ABOVE FACTS OF THE CASE. I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC TION 147 OF THE I. T. ACT, 1961 TO THE EXTENT OF RS.30.65. 639/ - FOR THE A.Y. 2009 - 10.' THE HIGH COURT NOTED THAT A PERUSAL OF THE REASONS RECORDED REVEALS THAT THE ASSESSING OFFICER ON VERIFICATION OF THE DETAILS AVAILABLE ON RECORD HAS NOTICED THAT THERE WERE BOGUS PURCHASES. HOWEVER FROM THE REASONS THERE IS NOTHING WHATSOEVER TO SHOW AS TO WHICH IS THE RECORD WHICH SHOWS THAT THERE WERE BOGUS PURCHASES TO THE EXTENT STATED THEREIN. NO DETAILS HAVE BEEN MENTIONED BY THE ASSESSING OFFICER AS TO WHAT IS THE BASIS ON WHICH HE SAYS THAT THE PURCHASES ARE BOGUS. I N THIS CASE THE AO SUBSEQUENTLY INFORMED THE ASSESSEE AT THE TIME OF DISPOSING OF THE OBJECTIONS TO THE ISSUE OF NOTICE U/S. 148 THAT A REPORT HAD BEEN RECEIVED IN THIS CASE FORM THE DGIT(INV) INFORMING THE AO OF THE BOGUS PURCHASES. THE HIGH COURT CITED V ARIOUS JUDGMENTS TO STRESS THE POINT THAT THE AO GETS THE NECESSARY JURISDICTION ONLY THROUGH THE REASONS RECORDED AND THEY CANNOT BE SUPPLEMENTED ALTER ON BY FILING AN AFFIDAVIT ETC. THE HIGH COURT HELD THAT FILING AN AFFIDAVIT AND STATING THE SAME BEFORE THE COURT FOR THE FIRST TIME WOULD AMOUNT TO BRINGING ON RECORD MATERIAL WHICH DID NOT FORM THE BASIS OF FORMATION OF SUCH BELIEF. THE HIGH COURT HELD THAT THE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO D ISCLOSE FULLY AND TRULY ALL MATERIAL FACTS HAS TO BE RECORDED IN THE REASONS, THOUGH THE SAME MAY BE ELABORATED BY FILING AN AFFIDAVIT. BUT, IN THE ABSENCE OF FORMATION OF ANY SUCH BELIEF BEING RECORDED IN THE REASONS, IT IS 8 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO NOT OPEN FOR THE ASSESSING OFFI CER TO EXPRESS FORMATION OF SUCH BELIEF FOR THE FIRST TIME BY WAY OF AFFIDAVIT - IN - REPLY FILED IN THE COURT. THE HIGH COURT OBSERVED AS UNDER: '13. ON A PLAIN READING OF THE REASONS RECORDED, WHAT EMERGES IS THAT THE ASSESSING OFFICER, ON VERIFICATION OF (HE DETAILS AVAILABLE ON RECORD, HAS NOTICED THAT (HERE WERE BOGUS PURCHASES. HOWEVER, THERE IS NO ASSERTION AS REGARDS ON THE BASIS OF WHICH MATERIAL ON RECORD HE HAS COME TO SUCH CONCLUSION. A PERUSAL OF THE ORDER REJECTING THE OBJECTIONS RAISED BY THE P ETITIONER, SHOWS THAT THE REOPENING IS BASED, NOT UPON THE MATERIAL ON RECORD, BUT ON THE BASIS OF MATERIAL RECEIVED FROM AN EXTERNAL SOURCE VIZ., THE DGIT (INV.), MUMBAI, PURSUANT TO INQUIRIES MADE BY HIM (THE DGI1). THEREFORE, THE MATERIAL ON THE BASIS O F WHICH THE ASSESSING OFFICER SEEKS TO ASSUME JURISDICTION UNDER SECTION 147 OF THE ACT, IS THE INFORMATION RECEIVED FROM AN EXTERNAL SOURCE VIZ., FROM THE DGIT AND NOT THE MATERIAL ON RECORD (LV REFLECTED IN THE REASONS RECORDED UNDER THE CIRCUMSTANCES, O N THE BASIS OF THE MATERIAL ON RECORD, THE ASSESSING OFFICER COULD NOT HAVE FORMED THE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, INASMUCH AS, THE FORMATION OF BELIEF OF THE ASSESSING OFFICER IS NOT BASED UPON THE DETAILS AVAILABLE ON REC ORD, BUT ON THE MATERIAL MADE AVAILABLE BY THE DGIT (INV.), MUMBAI WHICH IS AN EXTERNAL SOURCE. UNDER THE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE REQUIREMENTS OF SECTION I47 OF THE ACT ARE SATISFIED, INASMUCH AS, THE BELIEF OF THE ASSESSING OFFICER IS NO T BASED UPON THE MATERIAL ON RECORD, BUT ON SOME OTHER MATERIAL FROM AN EXTERNAL SOURCE WHICH DOES NOT FIND REFERENCE IN THE REASONS. AS IS CLEAR ON A PLAIN READING OF THE REASONS RECORDED, EXCEPT FOR THE ASSERTION THAT THERE WERE BOGUS PURCHASES, THE ASSE SSING OFFICER HAS NOT REFER - RED TO ANY MATERIAL ON THE BASIS OF WHICH HE PROCEEDED TO INVOKE THE PROVISIONS OF SECTION 147 OF THE ACT. THE ASSERTION MADE BY THE ASSESSING OFFICER IS A BARE ONE, WITHOUT ANY REFERENCE TO THE MATERIAL ON THE BASIS OF WHICH HE MADE SUCH ASSERTION. ' FOR THE ABOVE REASONS THE HIGH COURT IN VARSHABEN SANATBHAI PATEL CASE HAD QUASHED THE NOTICES U/S. 148 OF THE CASE. IT IS APPARENT THAT THE ASSESSEE CANNOT DRAW THE CONCLUSION AS IT HAD FROM THIS CASE LAW AND THE CONCLUSION ARGUED APPEARS TO BE A CASE OF WRONG HEAD NOTE GIVEN BY THE PUBLISHER. THIS CASE LAW IS NOT APPLICABLE TO THE CASE AT HAND SINCE THE FACTS ARE TOTALLY DIFFERENT. FURTHER THE COURT HAD NOT CONSIDERED THE DECISION OF THE SUPREME COURT IN THE CASE OF B IJU PATNAIK ( SUPRA ) WHEREIN IT WAS HELD THAT: 'THUS, THOUGH EX FACIE THE NOTICE DOES NOT DISCLOSE THE SATISFACTION OF THE REQUIREMENT OF SECTION 147(A), FROM THE RECORD AND THE AVERMENTS IN THE 9 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO COUNTER AFFIDAVIT, IT IS CLEAR THAT THE INCOME TAX OFFICER HAD APPLIED HI S MIND TO THE FACTS AND, AFTER PRIMA FACIE SATISFYING HIMSELF OF THE EXISTENCE OF THOSE TWO CONDITIONS PRECEDENT, REACHED THE CONCLUSION FOR REOPENING THE ASSESSMENT. IT IS SETTLED LAW THAT, IN AN ADMINISTRATIVE AC TION, THOUGH THE ORDER DOES NOT EX FACIE D ISCLOSE THE SATISFACTION BY THE OFFICER OF THE NECESSARY FACTS IF THE RECORD DISCLOSES THE SAME, THE NOTICE OR THE ORDER DOES NOT PER SE BECOME ILLEGAL.' 8.6 HOWEVER IN THE PRESENT CASE AT HAND THE SITUATION IS IN ANY CASE MUCH DIFFERENT. THE REASONS RE CORDED BY THE A O IN THIS CASE BEFORE ISSUE OF THE NOTICE U1S ] 48 ARE VERY SPECIFIC AND THE SOURCE OF THE INFORMATION IS CLEARLY SPELT OUT AS UNDER: 'REASONS FOR RE - OPENING' ' DGIT(INVE STIGATION), MUMBAI HAS COMPILED INFORMATION ON THE BASIS OF TH E INPUTS FROM THE SALES TAX DEPARTMENT ABOUT THE ASSESSEE WHO HAVE BEEN EITHER INVOLVED IN HAWALA RACKET OF ISSUING BOGUS PURCHASE BILLS OR THE BENEFICIARIES WHO HAVE TAKEN ACCOMMODATION ENTRIES WITH AN INTENTION TO INFLATE PURCHASE AND THUS REDUCE TAXABLE PROFITS. M/ S . JAYPEE INDUSTRIES, IS ONE SUCH BENEFICIARIES OF WHO HAS OBTAINED BOGUS BILLS AND ACCOMMODATION ENTRIES FROM THE ENTRIES HELD AS NON GENUINE BY THE SALES TAX DEPARTMENT OF MAHARASHTRA STATE. THESE ARE NON GENUINE PURCHASE ENTRIES . DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS AND / OR ACCOMMODATION ENTRIES TO THE TUNE OF RS.4,80,637/ - WITH A MALA - FIDE INTENTIONS TO SUPPRESS THE ACTUAL AND CORRECT PROFIT EARNED BY THE ASSESSEE. DETAILS OF HAWALA DEALERS AND AM OUNT INVOLVED ARE AS UNDER: SR. HAWALA NAME HAWALA PAN F.Y. AMOUNT 1 ARUN PAPER & IRON TRADERS ADKPA5263C 2006 - 07 4,80,637 TOTAL 4,80,637/ - THEREFORE, I HAVE REASON TO BELIEVE THAT INCOME TO THE EXTENT OF RS.4,80,637/ - HAS ESCAPED ASSESSMENT FOR A.Y. 2007 - 08 WITHIN THE MEANING OF SECTION 147 OF THE ACT IN THIS CASE. IN ORDER TO TAX THE SAID INCOME, NOTICE U/S 148 IS BEING ISSUED TO REOPEN THE ASSESSMENT U/S 147. ISSUE NOTICE U/S 148 OF THE ACT.' 8.7 THE ABOVE REASONS RECORDED ARE DIFFERENT AND SPECIFIC. THE SOURCE OF THE INFORMATION HAS ALSO BEEN GIVEN IN DETAIL BY THE A O . THEREFORE THE VARSABEN SANATBHAI PATEL CASE (SUPRA) IS NOT APPLICABLE ON FACTS. FURTHER THE GUJARAT 10 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO HIGH COURT ITSELF HAS HELD IN THE CASE OF PEASS INDUSTRIAL ENGINEERS P VT LTD VS. DCIT IN SLA NO. 3249 OF2016 DATED 0.5/08/2016. IN THIS CASE THE FACTS WERE SIMILAR TO THE CASE OF THE PRESENT ASSESSEE. IN THE PEASS CASE THE REASONS RECORDED BY THE AO WERE: ' 1 . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTI LE MACHINERY AND SPARE PARTS. THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 30/09/2009 DECLARING TOTAL INCOME AT RS.83,21,390/ - . THEREAFTER, THE ASSESSEE HAS FILED REVISED E - RETURN OF INCOME ON 26/0212010 DECLARING TOTAL INCOME OFRS.59,09,837/ - . THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S. 143(3) DATED 24/10/2011 ASSESSING INCOME AT RS.65,60,070 / - . 2. IN THIS CASE, INFORMATION HAS BEEN RECEIVED BY DGIT (INVESTIGATION), AHMEDABAD VIDE NO.D GIT (INV.)/AHD /V ATLBOGUS PURCHASE / 2014 - 15 D ATED 26.03.2015. IT IS STATED IN LETTER THAT TWO SURVEYS WERE CARRIED OUT BY TH E PR. DIT (LNV.), KOLKATA ON VIK RANT KAYAN AND ARVIND KAYAN RESPECTIVELY. THE KAYANS ARE KNOWN ENTRY OPERATORS OF KOLKATA AND HAVE BEEN GIVING ENTRIES OF BOGUS SHARE CAPITAL, BO GUS BILLS OF EXPENSES AND BOGUS LONG TERMS CAPITAL GAINS TO VARIOUS BENEFICIARIES THROUGHOUT THE COUNTRY. THE ABOVE MENTIONED ASSESSEE IS ALSO A BENEFICIARY OF RS.39.94 LACS (ACCOMMODATING CO. AGNES BRUNO LTD.) PERTAINING TO A.Y. 2009 - 10. 3. CONSIDERING T HE FACTS STATED ABOVE, I HAVE REASON TO BELIEVE THAT THE INCOME OF THE ASSESSEE TO THE TUNE OF RS.39.94 LACS FOR THE ACCOUNTING PERIOD RELEVANT TO AY.2009 - 10, HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT, 1961.' THE HIGH COURT AFTER CONSIDERING THE VARIOUS CASE LAWS ON THE SUBJECT HAS UPHELD THE ISSUANCE OF NOTICE U / S 148 OF THE ACT WITH THE FOLLOWING DECISION: WE ARE OF THE OPINION THAT WHEN THE AUTHORITY IS ARMED WITH THE TANGIBLE MATERIAL IN THE FORM OF SPECIFIC INFORMATI ON RECEIVED BY THE INVESTIGATION WING, AHMEDABAD IS THROUGHLY JUSTIFIED IN ISSUING A NOTICE FOR REASSESSMENT. IT IS REVEALED FROM THE SAID ADDITIONAL MATERIAL AVAILABLE ON HAND A REASONABLE BELIEF IS FORMED BY THE ASSESSING AUTHORITY THAT INCOME OF THE PET ITIONER HAS ESCAPED ASSESSMENT AND THEREFORE, ONCE THE REASONABLE BELIEF IS FORMULATED BY THE AUTHORITY ON THE BASIS OF COGENT TANGIBLE MATERIAL, THE AUTHORITY IS NOT EXPECTED TO CONCLUDE AT THIS STAGE THE ISSUE FINALLY OR TO ASCERTAIN THE FACT BY EVIDENCE OR CONCLUSION, WE ARE OF THE OPINION THAT FUNCTION OF THE ASSESSING AUTHORITY AT THIS STAGE IS TO ADMINISTER THE STATUTE AND WHAT IS REQUIRED AT THIS STAGE IS A REASON TO BELIEVE AND NOT ESTABLISH FACT OF 11 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO ESCAPEMENT OF INCOME AND THEREFORE, LOOKING TO THE SCOPE OF SECTION 147 AS ALSO SECTIONS 148 TO 152 OF THE ACT, EVEN IF SCRUTINY ASSESSMENT HAS BEEN UNDERTAKEN, IF SUBSTANTIAL NEW MATERIAL IS FOUND IN THE FORM OF INFORMATION ON THE BASIS OF WHICH THE ASSESSING AUTHORITY CAN FORM A BELIEF THAT THE INCOME O F THE PETITIONER HAS ESCAPED ASSESSMENT, IT IS ALWAYS OPEN FOR THE ASSESSING AUTHORITY TO REOPEN ASSESSMENT. FROM THE REASONS WHICH ARE RECORDED, IT CLEARLY EMERGES THAT THE PETITIONER IS THE BENEFICIARY OF THOSE ENTRIES BY KAYAN BROTHERS, WHO ARE WELL KNO WN ENTRY OPERATORS ACROSS THE COUNTRY AND THIS FACT HAS BEEN UNEARTHED ON ACCOUNT OF THE INFORMATION RECEIVED BY DGIT INVESTIGATION BRANCH AND THEREFORE, IT CANNOT BE SAID IN ANY WAY THAT EVEN IF FOUR YEARS HAVE BEEN PASSED, IT IS NOT OPEN FOR THE AUTHORIT Y TO REOPEN THE ASSESSMENT. IN THE PRESENT CASE, THERE WAS INDEPENDENT APPLICATION OF MIND ON BEHALF OF THE ASSESSING AUTHORITY IN ARRIVING AT THE CONCLUSION THAT INCOME HAD ESCAPED ASSESSMENT AND THEREFORE, THE CONTENTIONS RAISED BY THE PETITIONER ARE DEV OID OF MERITS. DEALING WITH THE CONTENTIONS OF THE PETITIONER THAT THE INFORMATION RECEIVED FROM DGIT, INVESTIGATION BRANCH, AHMEDABAD; CAN NEVER BE SAID 'TO BE ADDITIONAL INFORMATION. WE ARE OF THE OPINION THAT THE INFORMATION WHICH HAS BEEN RECEIVED IS O N 26.3.2015 FROM THE DGIT, INVESTIGATION BRANCH, AHMEDABAD, WHEREBY IT HAS BEEN REVEALED THAT PRESENT PETITIONER IS ALSO THE BENEFICIARIES OF THOSE KAYAN BROTHERS, WHO ARE IN THE ACTIVITY OF ENTRY OPERATION THROUGHOUT THE COUNTRY AND THEREFORE, IT CANNOT B E SAID THAT THIS IS NOT JUSTIFIABLE MATERIAL TO FORM A REASON TO BELIEF BY THE AUTHORITY AND THEREFORE, THIS BEING A CASE, THE AUTHORITY IS JUSTIFIED IN ISSUING NOTICE UNDER SECTION 148 OF THE ACT TO REOPEN THE ASSESSMENT AND THEREFORE, THE CHALLENGE CONT AINED IN THE PETITION BEING DEVOID OF MERITS, SAME DESERVES TO BE DISMISSED. IN VIEW OF THE ABOVE JUDGMENT IN PEASS CASE (SUPRA) AND ALSO IN VIEW OF THE FACTS AND THE VARIOUS CASE LAWS INCLUDING THE SUPREME COURT DECISION IN BIJU PATTNAIL CASE (SUPRA) DI SCUSSED ABOVE THE ASSESSEE'S CHALLENGE TO THE RE - OPENING OF THE ASSESSMENT IS REJECTED. IT IS ALSO HELD THAT THE REASONS RECORDED U/S 148 ARE ONLY TENTATIVE AND NOT FINAL. IT IS ALSO HELD THAT THE AO HAD TANGIBLE INFORMATION FROM AN OUTSIDE SOURCE AND THE ISSUANCE OF NOTICE U/S 148 ON THAT BASIS CANNOT BE FA ULTED. 7 . ON MERITS OF THE CASE, THE LD. CIT(A) HELD THAT SINCE THE SALES ARE NOT DOUBTED BY THE A.O., THE ASSESSEE MUST HAVE MADE HIS PURCHASES FROM SOME OTHER SOURCES IN 12 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO THE GREY MARKET. THEREFORE, K EEPING IN MIND THE HONBLE GUJARAT HIGH COURTS DECISION, THE LD. CIT(A) DIRECTED THAT DISALLOWANCE BE RESTRICTED TO 25% OF THE BOGUS PURCHASES. 8 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 9 . I HAVE HEARD THE LEARNED COUNSEL AN D PERUSED THE RECORDS. AS REGARDS THE REOPENING OF THE ASSESSEE, ON A CAREFUL CONSIDERATION, I NOTE THAT IN THIS CASE INFORMATION WAS RECEIVED BY THE ASSESSING OFFICER FROM DGIT INVESTIGATION (MUMBAI) THERE ARE SOME PARTIES WHO ARE ENGAGED IN THE HAWALA TR ANSACTIONS AND ARE ALSO INVOLVED IN ISSUING BOGUS PURCHASE BILLS FOR SALE OF MATERIAL WITHOUT DELIVERY OF GOODS, WHICH INFORMATION WAS BASED ON INFORMATION RECEIVED BY REVENUE FROM MAHARASHTRA SALES TAX AUTHORITY. INFORMATION WAS RECEIVED THAT THE ASSESSEE WAS BENEFICIARY OF HAWALA ACCOMMODATION ENTRIES FROM ENTRY PROVIDERS BY WAY OF BOGUS PURCHASE. THE ACCOMMODATION ENTRY PROVIDER HAS DEPOSED AND ADMITTED BEFORE THE MAHARASHTRA SALES TAX AUTHORITY VIDE STATEMENT/ AFFIDAVIT THAT THEY WERE ENGAGED IN PROVIDI NG BOGUS ACCOMMODATION ENTRIES WHEREIN BOGUS SALE BILLS WERE ISSUED WITHOUT DELIVERY OF GOODS, IN CONSIDERATION FOR COMMISSION. THESE, ACCOMMODATION ENTRY PROVIDERS, ON RECEIPT OF CHEQUES FROM PARTIES AGAINST BOGUS BILLS FOR SALE OF MATERIAL, LATER ON WITH DREW CASH FROM THEIR BANK ACCOUNTS WHICH WAS RETURNED TO BENEFICIARIES OF BOGUS BILLS AFTER DEDUCTION OF THEIR AGREED COMMISSION. THE ASSESSEE WAS STATED TO BE ONE OF THE BENEFICIARIES OF THESE BOGUS ENTRIES OF SALE OF MATERIAL FROM HAWALA ENTRY 13 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO OPERATORS IN FAVOUR OF THE ASSESSEE WHEREIN THE ASSESSEE MADE ALLEGED BOGUS PURCHASES THROUGH THESE BOGUS BILLS ISSUED BY HAWALA ENTRY PROVIDERS IN FAVOUR OF THE ASSESSEE. THESE DEALERS WERE SURVEYED BY THE SALES TAX INVESTIGATION DEPARTMENT WHEREBY THE DIRECTORS OF THESE DEALERS HAVE ADMITTED IN A DEPOSITION VIDE STATEMENTS/AFFIDAVIT MADE BEFORE THE SALES TAX DEPARTMENT THAT THEY WERE INVOLVED IN. ISSUING BOGUS PURCHASE BILLS WITHOUT DELIVERY OF ANY MATERIAL. THERE IS A LIST OF SUCH PARTIES WHEREIN THE ASSESSEE IS STATED TO BE BENEFICIARY OF BOGUS PURCHASE BILLS. 1 0 . FROM THE ABOVE, I FIND THAT TANGIBLE AND COGENT INCRIMINATING MATERIAL WERE RECEIVED BY THE AO WHICH CLEARLY SHOWED THAT THE ASSESSEE WAS BENEFICIARY OF BOGUS PURCHASE ENTRIES FROM BOGUS ENTRY PROVID ERS WHICH FORMED THE REASON TO BELIEVE BY THE AO THAT INCOME HAS ESCAPED ASSESSMENT. THE INFORMATION SO RECEIVED BY THE AO HAS LIVE LINK WITH REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. ON THESE INCRIMINATING TANGIBLE MATERIAL INFORMATION, ASSESS MENT WAS REOPENED. AT THIS STAGE THERE HAS TO BE PRIMA FACIE BELIEF BASED ON SOME TANGIBLE AND MATERIAL INFORMATION ABOUT ESCAPEMENT OF INCOME AND THE SAME IS NOT REQUIRED TO BE PROVED TO THE H ILT. IN THIS REGARD, I REFER TO THE DECISION OF THE HON'BLE APE X COURT IN THE CASE OF CIT(A) VS. RAJESH JHAVERI STOCK BROKERS P. TD, 291 ITR 500: - 'SECTION 147 AUTHORISES AND PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO LAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD MEAN CAUSE OR JUSTIFICATION. IF THE AO HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE (HAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. 14 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO THE EXPRESSION CANNOT BE READ TO MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGA/ STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREM E COURT IN CENTRAL PROVINCES MANAGNESE ORE CO, ITD. V. ITO(1991) 191 ITR 662, FOR INITIATION OF ACTION UNDER SECTION 147(A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFILLMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO BELIEVE', BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHE THER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE AO IS WI THIN THE REALM OF SUBJECTIVE SATISFACTION ITO V. SELECTED DALURBAND COAL CO, (P.) LTD. (1996) 217 ITR 597 (SUPREME COURT): RAYMOND WOOLLEN MILLS LTD. V. ITO (1999) 236 ITR 34 (SUPREME COURT). 1 1 . THE ABOVE DISCUSSION AND PRECEDENT FROM APEX COURT FU LLY JUSTIFY THE VALIDITY OF REOPENING IN THIS CASE. FURTHER I FIND THAT THE LD. CIT(A) HAS CAREFULLY EXAMINED THE ISSUE AND HAS PROPERLY APPRECIATED THE ISSUE. THE CASE LAWS REFERRED BY HIM ARE ALSO RELEVANT. HENCE, I DO NOT FIND ANY INFIRMITY IN THE SAME . ACCORDINGLY, I UPHOLD THE ORDER OF THE LD. CIT(A) ON THE ISSUE OF REOPENING. SINCE, THE ISSUE HAS BEEN DECIDED ON THE BASIS OF THE HON'BLE APEX COURT DECISION, THE OTHER CA E LAWS REFERRED BY ASSESSEE ARE NOT SUPPORTING THE ASSESSEE'S CASE. 1 2 . AS REGA RDS, MERITS OF THE ADDITION UPON CONSIDERATION OF THE FACTS OF THE CASE, I FIND THAT OVERWHELMING EVIDENCE HAVE BEEN REFERRED BY THE AUTHORITIES BELOW THAT THE IMPUGNED PURCHASES ARE BOGUS. THAT DOCUMENT S SUBMITTED REGARDING ACTUAL MOVEMENT OF THE GOODS HA VE BEEN FOUND TO BE DUBIOUS. IN THESE CIRCUMSTANCES LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO HONBLE GUJARA T HIGH COURT DECISION IN 15 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO THE CASE OF TAX APPEAL NO. 240 OF 2003 IN THE CASE OF N. K. INDUSTRIES VS. DY. CIT, ORDER DATED 20.06.2016, WHERE IN HUNDRED PERCENT OF THE BOGUS PURCHASES WAS HELD TO BE ADDED IN THE HANDS OF THE ASSESSEE AND TRIBUNALS RESTRICTION OF THE ADDITION TO 25% OF THE BOGUS PURCHASES WAS SET ASIDE. THE SPECIAL LEAVE PETITION AGAINST THIS ORDER ALONGWITH OTHERS HAS BEEN DISMI SSED BY THE HONOURABLE APEX COURT VIDE ORDER DT. 16.1.2017. 1 3 . HOWEVER, I FIND THAT THIS IS NOT AN APPEAL BY THE REVENUE. IN SUCH CIRCUMSTANCES IT WILL NOT BE APPROPRIATE TO TAKE AWAY THE RELIEF ALREADY GRANTED BY THE LEARNED CIT(A). FURTHER , I FIND TH AT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES. HOWEVER THE FACTS OF THE PRESENT CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE S AVINGS ON ACCOUNT OF NON - PAYMENT OF TAX AND OTHERS AT THE EXPENSE S OF THE EXCHEQUER. IN SUCH SITUATION IN MY CONSIDERED OPINION ON THE FACTS AND CIRCUMSTANCES OF THE CASE A 12.5% DISALLOWANCE OUT OF THE BOGUS PURCHASES WOULD MEET THE END OF JUSTICE, F OLLOWING THE HONBLE GUJARAT HIGH COURTS DECISION IN THE CASE OF SIMI T P. SETH T HIS HAS BEEN FOLLOWED AT ITAT, MUMBAI BENCH IN A NUMBER OF CASES. ACCORDINGLY, I DIRECT THAT THE DISALLOWANCE IN THIS CASE SHOULD BE RESTRICTED TO 12.5% OF THE BOGUS PURCHASES. 16 ITA NOS. 497, 499 & 500/M / 17 (A.YS.0 7 - 0 8 TO 09 - 10) M/S. JOHNS PACK VS. ITO 1 4 . IN THE RESULT, THE SE APPEALS FILED BY THE ASSESSEE ARE PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17/08/2017 SD/ - (S HAMIM YAHYA ) / A CCOUNTANT MEMBER MUMBAI ; DATED : 17/08/2017 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITA T, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI