RATNAGIRI STAINLESS P. LTD, MUMBAI V. ITO 5(3)(1), MUMBAI

ITA 6011/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0415 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 22-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS JOTHILAKSHMI NAYAK
• Keywords: Bogus purchase; Opportunity of being heard; Additional evidence; Tangible material; Accommodation entries; Reason to believe; Set aside
• Section: 143(3); 133(6); 143(1); 201; 13; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6011/MUM/2018 ASSESSMENT YEAR: 2010 - 11 & ITA NO. 6025/MUM/2018 ASSESSMENT YEAR: 2011 - 12 M/S RATNAGIRI STAINLESS PVT. LTD., OFFICE NO. 8, 4 TH FLOOR, 245/247, ALANKAR CINEMA BUILDING S V P ROAD, MUMBAI - 400004 VS. ITO 5(3)(1), MUMBAI. PAN NO. AADCR2993P APPELLANT RESPONDENT ASSESSEE BY : MR. VIMAL PUNMIYA, AR REVENUE BY : MRS. JOTHILAKSHMI NAYAK, DR DATE OF H EARING : 26/11/2019 DATE OF PRONOUNCEMENT: 16/12/2019 ORDER PER N.K. PRADHAN, A.M. THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 10, MUMBAI [IN SHORT CIT(A) ] AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF THROUGH A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 2 ITA NO. 6011/MUM/2018 ASSESSMENT YEAR: 2010 - 11 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1. ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) ERRED IN A. ARRIVING AT THE CONCLUSION THAT PURCHASES MADE OF RS . 3256432 8 / - FROM PARTIES MENTIONED IN ASSESSMENT ORDER ARE NOT GENUINE AND NOT MADE FROM THEM BUT FROM OTHER SOURCES B. ARRIVING AT THE CONCLUSION THAT ESTIMATED PROFIT EMBEDDED IN ALLEGED ACCOMMODATION ENTRI ES AT 12.50% IS JUST AND REASONABLE. C. CONFIRMING ADDITION OF RS.4070 541/ - MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT A. PROCEEDING INITIATED U/S 147 /148 OF THE ACT IS ON THE BASIS OF REASON TO SUSPECT AND NOT ON REASON TO BELIEVE. B. THERE IS NO NEW TANGIBLE MATERIAL IN POSSESSION OF THE ASSESSING OFFICER WHICH CONFE R JURISDICTION AND JUSTIFY ISSUANCE OF NOTICE U/S 148 OF THE ACT . C. ORDER MADE U/S 143(3) R . W . S 147 OF THE ACT IS BAD IN L AW AND WITHOUT JURISDICTION AND LIABLE TO BE AN N ULLED IN AS MUCH AS THE ASSESSING OFFICER FAILED TO PROVIDE TRUE COPY OF REASON SO RECOR DED BEFORE ISSUING NOTICE U/S 14 8 OF THE ACT TO THE APPELLANT PRI OR TO COMPLETION OF ASSESSMENT UNDER SECTION 143(3) R . W . S 147 OF THE ACT . D. THE INITIATION OF PROCEEDING U/S 147 OF THE ACT AND ISSUANCE OF NOTICE U/S 143 IS BAD IN LAW, WITHOUT JURISDICTION AND CONTRARY TO THE PROVISIONS OF THE ACT AND LIABLE TO BE CANCELLED / ANNULLED 3. ON THE FACTS AND M THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING ORDER MADE U/S 143(3) R . W . S 147 OF THE ACT BY THE ASSESSING OFFICER WHICH IS IL LEGAL, BAD - IN - LAW, ULTRA VIRES AND WITHOUT ALLOWING REASONABLE OPPORTUNITY OF THE HEARING, WITHOUT APPRECIATING THE FA CT S, SUBMISSION AND EVIDENCES IN THEIR M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 3 PROPER PERSPECTIVE, WITHOUT PROVIDING COPIES OF MATERIAL USED AGAINST THE APPELLANT AND WITHOUT PRO VIDING CROSS EXAMINATION OF PARTIES IS LIABLE TO BE ANNULLED . 4. THE LEARNED ASSESSING OFFICER ERRED IN CHARGING INTEREST UNDER SECTION 234A, 234B, 234C AND 234D OF THE ACT . 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2010 - 11 ON 28.09.2010 DECLARING INCOME OF RS.6,66,940/ - . THE ASSESSEE TRADES IN FERROUS AND NON - FERROUS METALS. THE SAID RETURN WAS PROCESSE D U/S 143(1) OF THE ACT. THEREAFTER, ON RECEIPT OF INFORMATION FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA THAT THE ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS AMOUNTING TO RS.3,25,64,328/ - FROM 22 PARTIES, THE AO RE - OPENED THE ASSESSMENT BY IS SUING NOTICE U/S 148 DATED 05.02.2015. IN RESPONSE TO IT, THE ASSESSEE FILED A REPLY DATED 14.08.2015 STATING THAT THE ORIGINAL RETURN FILED ON 28.09.2010 BE TREATED AS RETURN FILED U/S 148 OF THE ACT. THE AO SUPPLIED TO THE ASSESSEE THE REASONS FOR RE - OPE NING THE ASSESSMENT VIDE OFFICE LETTER DATED 19.08.2015. DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS, THE AO, IN ORDER TO VERIFY THE GENUINENESS OF PURCHASES ISSUED NOTICE U/S 133(6) BY REGISTERED POST TO THE CONCERNED 22 PARTIES IN THE ADDRESS GIVEN B Y THE ASSESSEE. HOWEVER, ALL THOSE NOTICES WERE RETURNED UN - SERVED BY THE POSTAL AUTHORITIES WITH THE REMARK UN - SERVED. AS THOSE NOTICES WERE RETURNED UN - SERVED, THE AO ASKED THE ASSESSEE TO PRODUCE THOSE PARTIES FOR EXAMINATION SO THAT THE GENUINENESS O F THE PURCHASES COULD BE VERIFIED. IN RESPONSE TO IT, THE AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE APPEARED BEFORE THE AO ON 10.12.2015 BUT COULD NOT PRODUCE A SINGLE PARTY TO PROVE THE GENUINENESS OF THE PURCHASES. M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 4 HOWEVER, THE ASSESSEE FILED BEFO RE THE AO (I) STATEMENT OF PURCHASES AND CORRESPONDING SALES SHOWING NAME OF THE SUPPLIERS AND CUSTOMERS (II) DATE OF PURCHASE AND SALES, (III) QUANTITY PURCHASED AND SOLD TO SHOW ONE TO ONE CO - RELATION BETWEEN THE PURCHASES AND SALES, (IV) COPY OF LEDGER ACCOUNT OF SUCH SUPPLIERS AND (V) SAMPLE COPY OF PURCHASE INVOICE, CHALLANS, SALE INVOICE AND LORRY RECEIPT IN SOME CASES. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE AO, THE ASSESSEE EXPLAINED THAT IT HAS PURCHASED THE GOODS FROM THE REGISTERED V AT CERTIFICATE HOLDERS, WHICH IS ISSUED BY THE SALES TAX DEPARTMENT AFTER THOROUGH VERIFICATION OF ALL THE DOCUMENTS ; THE SUSPECTED DEALERS MAY HAVE GIVEN SUCH STATEMENT JUST TO SAVE THEMSELVES FROM PAYING SALES T AX WHICH THEY HAD GENUINELY COLLECTED FROM THE ASSESSEE AND OTHER PURCHASING DEALERS. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT AS PER THE INVESTIGATION REPORT OF THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, THE ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS AMOUNTING TO RS.3,25,64,328/ - ; THE NOTICES ISSUED U/S 133(6) WERE RETURNED UN - SERVED BY THE POSTAL AUTHORITIES ; THE ASSESSEE FAILED TO PRODUCE THE CONCERNED SUPPLIERS BEFORE THE AO FOR EXAMINATION, THOUGH REQUESTED FOR. CONSIDERING T HE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO BY FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT P. SHETH (2013) 38 TAXMANN.COM 385 ESTIMATED THE PROFIT @ 12.5% OF THE DISPUTED PURCHASES OF RS.3,25,64,328/ - WHICH COMES TO RS.40,70,541/ - . 4. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). REGARDING THE APPEAL FILED BY THE ASSESSEE ON PROVIDING THE REASONS RECORDED FOR RE - OPENING THE ASSESSMENT, THE LD. CIT(A) HELD THAT : M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 5 I HAVE PERUSED THE GIST OF REASONS PROVIDED TO THE APPELLANT VIDE LETTER DATED 19/08/2015 AND I FIND THAT THOUGH THE AO IN HIS LETTER DATED 19/08/2015 HAS DESCRIBED THE REASONS RECORDED AS GIST OF THE REASONS, THE REASONS SO PROVIDED TO THE APPELLATE ARE COM PLETE REASONS. AND CONTRARY TO THE CLAIM OF THE APPELLANT THAT THE REASONS INCOMPLETE AND DOES NOT GIVE COMPLETE INSIGHT TO DECIDE THE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148, THE REASONS PROVIDED ARE COMPLETE IN ITSELF PROVIDE COMPLETE INSIGHT ON J URISDICTION TO ISSUE NOTICE U/S 148 OF THE ACT. THE LEGAL REQUIREMENT IS TO PROVIDE THE REASONS RECORDED WHICH THE AO HAS FULFILLED. IT HAS NOT CAUSED ANY PREJUDICE TO THE APPELLANT. MERELY BECAUSE THE AO HAS NOT PROVIDED A TRUE COPY OF THE REASONS RECORDE D, IT CANNOT BE HELD THAT ASSESSMENT IS BAD IN LAW. HENCE THIS GROUND OF APPEAL IS DISMISSED. 4.1 ANOTHER CONTENTION BY THE ASSESSEE BEFORE THE LD. CIT(A) WAS THAT THE AO HAS MERELY RELIED ON THE INFORMATION RECEIVED FROM OTHER DEPARTMENTS AND MADE THE AD DITIONS TO ITS INCOME ON ACCOUNT OF BOGUS PURCHASES WITHOUT PROVIDING THE ASSESSEE THE COPIES OF MATERIALS RELIED UPON AND ANY OPPORTUNITY TO CROSS EXAMINE THE PARTIES. THE LD. CIT(A), HAVING EXAMINED THE FACT THAT THE ASSESSEE FAILED TO PRODUCE THE SAID P ARTIES FOR VERIFICATION HELD THAT ITS PLEA THAT THE AO SHOULD HAVE ALLOWED THE ASSESSEE TO CROSS - EXAMINE THE PARTIES IS NOT ONLY MISLEADING BUT A CONCERTED EFFORT TO PROTRACT THE LITIGATION. THEREFORE, HE HELD THAT THERE IS NO VIOLATION OF PRINCIPLES OF NA TURAL JUSTICE AND THE PLEA OF THE ASSESSEE THAT THE WITNESSES SHOULD BE OFFERED FOR CROSS - EXAMINATION CANNOT BE CONSIDERED BONA FIDE. 4.2 THEREAFTER, THE LD. CIT(A) OBSERVED THAT THE PROFIT EMBEDDED IN SUCH PURCHASES BE BROUGHT TO TAX. RELYING ON THE DECIS ION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT P. SHETH (2013) 356 ITR 451 (GUJ) AND ALSO FOLLOWING SIMILAR DECISION OF THE ITAT MUMBAI DATED 04.07.2017 IN THE CASE OF ITO V. M/S RBS COPPER PRODUCTS PVT. LTD . (ITA NO. 1057) AND ORDER M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 6 DAT ED 04.04.2017 OF THE TRIBUNAL IN ASSESSEES OWN CASE (ITA NO. 4463/M/2016), THE LD. CIT(A) AGREED WITH THE ORDER OF THE AO IN ESTIMATING PROFIT @ 12.5% OF THE DISPUTED PURCHASES OF RS.3,25,64,328/ - WHICH COMES TO RS.40,70,541/ - . 5. BEFORE US, THE LD. COUN SEL FOR THE ASSESSEE FILES A PAPER BOOK (P/B) CONTAINING INTER ALIA AUDIT REPORT WITH ANNEXURES AND SCHEDULES ; AUDITED ACCOUNTS WITH ANNEXURES AND SCHEDULES ; COPY OF GIST OF REASONS RECORDED BEFORE ISSUING NOTICE U/S 148 ; COPY OF ASSESSEES LETTER DATED 16.11.2015 ; COPIES OF LEDGER ACCOUNT, SAMPLE PURCHASE BILL, DELIVERY CHALLAN, TRANSPORT RECEIPT ALONG WITH CORRESPONDING SALES BILLS OF THE 22 PARTIES; COPIES OF BANK STATEMENTS. IT IS CERTIFIED BY THE LD. COUNSEL THAT THE ABOVE DOCUMENTS WERE FILED BEFO RE THE AO AND CIT(A). THE LD. COUNSEL FURTHER SUBMITS THAT A PETITION WAS FILED BEFORE THE CIT(A) TO ADMIT ADDITIONAL EVIDENCE VIDE LETTER DATED 13.03.2018 AND ALSO TO ADMIT ADDITIONAL GROUNDS OF APPEAL. 5.1 THE LD. COUNSEL SUBMITS THAT IN THE RETURN FIL ED U/S 139(1), THE ASSESSEE HAD DISCLOSED ENTIRE INCOME AND EXPENSE FOR THE RELEVANT FINANCIAL YEAR ; IT IS NOT THAT THERE IS ANY ALLEGATION IN THE REASONS RECORDED THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE PRIMARY MATERIAL FAC TS AND THUS THE EXCEPTIONAL POWER WHICH IS CONFERRED UPON THE AO TO REOPEN AN ASSESSMENT HAS NOT BEEN LAWFULLY EXERCISED BY HIM IN THE PRESENT CASE. IT IS STATED BY HIM THAT THE AO SHOULD REQUIRE TANGIBLE MATERIAL S TO REOPEN THE ASSESSMENT , EVEN IF THE ASSESSMENT HAS BEEN MADE U/S 143(1) WITHOUT SCRUTINY. IT IS FURTHER ARGUED THAT THE IMPUGNED ORDER PASSED BY THE AO IS LIABLE TO BE ANNULLED AS HE FAILED TO PROVIDE TRUE COPY OF REASONS SO RECORDED M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 7 BEFORE ISSUING NOTICE U/S 148 TO THE ASSESSEE PRIOR TO COMPLETION OF ASSESSMENT U/S 143(3) R.W.S. 147 OF THE ACT. 5.2 THE LD. COUNSEL ALSO SUBMITS THAT THE ASSESSEE HAD PURCHASED GOODS FROM THE 22 PARTIES AND PAYMENTS THEREOF WERE MADE VIDE ACCOUNT PAYEE CHEQUES. FURTHER, IT IS ARGUED BY HIM THAT TH E AO HAS RELIED ON THIRD PARTY INFORMATION WITHOUT CROSS EXAMINATION, WHICH IS BAD IN LAW. 5.3 FURTHER RELYING ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT DATED 11.02.2019 IN THE CASE OF PR. CIT V. M/S MOHOMMAD HAJI ADAM & CO. (ITA NO. 1004 OF 2016) , THE LD. COUNSEL SUBMITS THAT FACTS BEING IDENTICAL, THE SAME MAY BE FOLLOWED AND ADDITION BE RESTRICTED TO DIFFERENCE BETWEEN GROSS PROFIT OF GENUINE PURCHASES AND NON - GENUINE PURCHASES. FILING A WORK OUT, THE LD. COUNSEL SUBMITS THAT IN THE PRESENT CASE THE GROSS PROFIT ON GENUINE PURCHASES IS 6.31% WHEREAS THE SAME ON ALLEGED NON - GENUINE PURCHASES IS 2.80%. THUS AS PER HIM THE GROSS PROFIT ON GENUINE PURCHASES LESS GROSS PROFIT ON ALLEGED NON - GENUINE PURCHASES I.E. (6.31% MINUS 2.80%) BE RESTRICTED TO 3. 51% AND RELIEF BE GIVEN TO THE EXTENT OF 8.99%. ELABORATING FURTHER, IT IS STATED BY HIM THAT IN SIMILAR CASE IN THE CASE OF KISHORE P. MEHTA V. ITO (ITA NO. 4609/MUM/2018) FOR AY 2009 - 10, THE TRIBUNAL HAS FOLLOWED THE ABOVE DECISION IN M/S MOHOMMAD HAJI A DAM & CO . 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITS THAT THE NOTICES ISSUED BY THE AO U/S 133(6) TO THE 22 PARTIES WERE RETURNED BACK BY THE POSTAL AUTHORITIES WITH THE REMARKS UN - SERVED. AS THE NOTICES COULD NOT BE SERVED O N THE ABOVE PARTIES IN THE ADDRESS GIVEN BY THE ASSESSEE, THE AO REQUESTED THAT THE PARTIES BE PRODUCED BEFORE HIM FOR EXAMINATION SO THAT THE GENUINENESS OF THE TRANSACTION COULD BE ESTABLISHED. HOWEVER, THE M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 8 ASSESSEE FAILED TO PRODUCE THOSE PARTIES BEFORE THE AO. IT IS FURTHER STATED THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO HAS RIGHTLY RELIED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN SIMIT P. SHETH (SUPRA) AND ESTIMATED THE PROFIT @ 12.5% ON THE DISPUTED PURCHASES OF RS.3 ,25,64,328/ - WHICH COMES TO RS.40,70,541/ - . FURTHER IT IS EXPLAINED THAT THE ORDER PASSED BY THE LD. CIT(A) CONFIRMING THE ABOVE ESTIMATION BY THE AO BE UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASON S FOR OUR DECISIONS ARE GIVEN BELOW. IN RESPECT OF THE 2 ND AND 3 RD GROUND OF APPEAL, WE COME ACROSS THE FACT THAT THE RETURN OF INCOME FILED BY THE ASSESSEE ON 28.09.2010 DECLARING INCOME OF RS.6,66,940/ - WAS PROCESSE D U/S 143(1) ON 16.04.2011. ON RECEIPT OF INFORMATION FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA THAT THE ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS FROM 22 PARTIES AMOUNTING TO RS.3,25,64,328/ - , THE AO RE - OPENED THE ASSESSMENT BY ISSUING NOT ICE U/S 148 DATED 05.02.2015. IN RESPONSE TO THE REQUEST OF THE ASSESSEE TO PROVIDE THE REASON FOR RE - OPENING THE ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR, THE AO VIDE REPLY DATED 19.08.2015 INFORMED THE ASSESSEE THE FOLLOWING : 2. NOTICE U/S 148 DATED 02.0 5 .2015 WAS SERVED ON YOU ON 02.18.2015. GIST OF THE REASON RECORDED FOR REOPENING THE ASSESSMENT FOR AY 2010 - 11 IN YOUR CASE IS AS UNDER : THE DGIT (INV) HAS FORWARDED INFORMATION WHICH WAS RECEIVED BY DGIT FROM THE SALES TAX AUTHORITIES RELATED TO SUSPECTED HAWALA PARTIES WHO WERE INVESTIGATED BY M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 9 THE SALES TAX AUTHORITIES. ON PERUSAL OF THE INFORMATION, IT IS SEEN THAT M/S RATNAGIRI STAINLESS PV T. LTD. PAN : AADCR2993P WHICH IS ASSESSED BY THE UNDERSIGNED IS ONE OF THE BENEFICIARY COMPANY WHO HA S OBTAINED BOGUS PURCHASE BILLS AMOUNTING TO RS.3,25,64,328/ - FROM THE SAID HAWALA PARTIES DURING THE PREVIOUS YEAR RELEVANT TO AY 2010 - 11 .. .. IN VIEW OF THE ABOVE, AS THE ASSESSEE COMPANY HAS OBTAINED BOGUS PURCHASE BILLS OF RS.3,25,64,328/ - DURING THE PR EVIOUS YEAR RELEVANT TO AY 201 0 - 11 WHICH TANTAMOUNT TO INFLATION OF PURCHASE S THEREBY RESULTING INTO REDUCTION OF PROFIT AND THUS ESCAPEMENT OF INCOME TO THAT EXTENT. THEREFORE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMEN T FOR THE AY 2010 - 11 IN TERMS OF SEC. 147 OF THE INCOME TAX, 1961. 3. IN VIEW OF THE ABOVE REASONS, NOTICE U/S 148 DATED 02.05.2015 WAS ISSUED. 7.1 A PERUSAL OF THE ABOVE GIST OF REASONS RECORDED FOR REOPENING THE ASSESSMENT BY THE AO CLEARLY INDICATES THA T THERE IS NO MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT ORDER U/S 143(3) R.W.S. 147 IS BAD IN LAW AND WITHOUT JURISDICTION AS THE AO HAS FAILED TO PROVIDE TRUE COPY OF REASONS SO RECORDED BEFORE ISSUING NOTICE U/S 148 TO THE ASSESSEE PRIOR TO COMPLETIO N OF ASSESSMENT. 7.2 THE HONBLE SUPREME COURT IN THE CASE OF ACIT V. RAJESH JHAVERI STOCK BROKERS P. LTD. (2007) 291 ITR 500 (SC) ANALYZED THE DISTINCTION BETWEEN THE ACCEPTANCE OF A RETURN U/S 143(1) AND AN ASSESSMENT WHICH IS FRAMED U/S 143(3) OF THE ACT. IN THE FORMER CASE, THE AO WOULD HAVE MUCH WIDER LATITUDE TO REOPEN THE ASSESSMENT. IN THE CASE OF AVIR AT STAR HOMES VENTURE P. LTD. V. ITO (2019) 411 ITR 321 (BOM), THE HONBLE BOMBAY HIGH COURT REFERRING TO THE ABOVE DECISION HAS HELD : THAT THE RETURN HAD BEEN ACCEPTED WITHOUT SCRUTINY. THE INCOME - TAX INVESTIGATION HAD SUBSEQUENTLY PROVIDED INFORMATION ABOUT CERTAIN COMPANIES HAVING BANK M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 10 ACCOUNTS WITH A BANK IN KOLKATA AND WHO WERE INVOLVED IN GIVING ACCOMMODATION ENTRIES OF VARIOUS NATURE TO SEVERAL BENEFICIARIES INCLUDING THE ASSESSEE. THE INFORMATION SUPPLIED BY THE INVESTIGATION WING TO THE ASSESSIN G OFFICER FORMED A PRIMA FACIE BASIS TO ENABLE THE ASSESSING OFFICER TO FORM A BELIEF OF INCOME CHARGEABLE TO TAX HAVING ESCAPED ASSESSMENT. THE ASSESSING OFFICER PERUSED THE INFORMATION SUPPLIED BY THE INVESTIGATION WING AND HAVING FORMED THE BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT, COULD NOT BE STATED TO HAVE ACTED MECHANICALLY. FURTHER, THE MERE FACT THAT THE ASSESSEE HAD ASKED FOR CERTAIN INFORMATION FROM THE ASSESSING OFFICER, WHICH AT THIS STAGE WAS NOT SUPPLIED, WOULD NOT INVALIDA TE THE REASONS RECORDED BY THE ASSESSING OFFICER IN ISSUING THE NOTICE. THE NOTICE WAS VALID. THUS IN THE INSTANT CASE, THE AO HAS RIGHTLY ISSUED NOTICE U/S 148 FOR REOPENING THE RETURN OF INCOME PROCESSED U/S 143(1) OF THE ACT. 7.3 IN VIEW OF THE FACT S DELINEATED AT PARA 7, 7.1 AND 7.2 HEREINABOVE, THERE IS NO MERIT IN THE 2 ND AND 3 RD GROUND OF APPEAL AND THUS DISMISSED. 7.4 WE NOW TURN TO THE 1 ST GROUND OF APPEAL. IN THE INSTANT CASE, THE NOTICES ISSUED BY THE AO U/S 133(6) TO THE 22 PARTIES WERE RETU RNED BY THE POSTAL AUTHORITIES WITH THE REMARKS UN - SERVED. AS THOSE NOTICES COULD NOT BE SERVED IN THE ADDRESS GIVEN BY THE ASSESSEE THE AO REQUESTED THAT THE PARTIES BE PRODUCED BEFORE HIM SO THAT THE TRANSACTIONS COULD BE VERIFIED. HOWEVER, THE ASSESSE E FAILED TO PRODUCE THE PARTIES BEFORE THE AO. AS MENTIONED EARLIER, THE ASSESSEE FILED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS COPIES OF LEDGER ACCOUNT, SAMPLE PURCHASE BILL, DELIVERY CHALLAN, TRANSPORT RECEIPT ALONG WITH CORRESPONDING SALES BI LLS OF THE CONCERNED 22 PARTIES, COPY OF BANK STATEMENT. THE AO COULD HAVE MADE M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 11 INQUIRIES AND VERIFIED THE GENUINENESS OF THE TRANSACTIONS, STARTING WITH THE ABOVE DOCUMENTS. HE HAS NOT DONE SUCH INQUIRIES. IN VIEW OF THE ABOVE FACTS, WE ARE OF T HE CONSIDERED VIEW THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S MOHOMMAD HAJI ADAM & CO. (SUPRA) HAS RELEVANCE TO THE PRESENT CASE. IN THAT CASE, DURING THE COURSE OF SURVEY OPERATIONS IN THE CASE OF ENTITIES FROM WHOM THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES, THE DEPARTMENT COLLECTED INFORMATION SUGGESTING THAT SUCH PURCHASES WERE NOT GENUINE. THE AO NOTICED THAT THE ASSESSEE HAD SHOWN PURCHASES OF FABRICS WORTH RS.29.41 LAKHS FROM THREE GROUP CONCERNS, NAMELY M/S MANOJ MILLS, M/S ASTHA SILK INDUSTRIES AND M/S SHRI RAM SALES AND SYNTHETICS. ON THE BASIS OF STATEMENT RECORDED DURING SUC H SURVEY OPERATIONS, THE AO CONCLUDED THAT THE SELLING PARTIES WERE ENGAGED ONLY IN SUPPLYING THE BOGUS BILLS, THAT THE GOODS IN QUESTION WERE NEVER SUPPLIED TO THE ASSESSEE, AND THEREFORE, THE PURCHASES WERE BOGUS. HE, THEREFORE, ADDED THE ENTIRE SUM IN T HE HANDS OF THE ASSESSEE AS ITS ADDITIONAL INCOME. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO ACCEPTED THE FACTUM OF PURCHASES BEING BOGUS. HOWEVER, HE COMPARED THE PURCHASES AND SALES STATEMENTS OF THE ASSESSEE AND OBSERVED THAT THE DEPARTMENT HAD ACCEPTED THE SALE, AND THEREFORE, THERE WAS NO REASON TO REJECT THE PURCHASES, BECAUSE WITHOUT PURCHASES THERE CANNOT BE SALES. HE, THEREFORE, HELD THAT UNDER THESE CIRCUMSTANCES THE AO WAS NOT CORRECT IN ADDING THE ENTIRE AMOUNT OF PURCHASE S AS THE ASSESSEES INCOME. HE, THEREFORE, DELETED THE ADDITION REFRESHING IT TO 10% OF THE PURCHASE AMOUNT. HE ALSO DIRECTED THE AO TO MAKE ADDITION TO THE EXTENT OF DIFFERENCE BETWEEN THE GROSS PROFIT RATE AS PER THE BOOKS OF ACCOUNTS ON UNDISPUTED PURCH ASES AND GROSS M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 12 PROFIT ON SALES RELATING TO THE PURCHASES MADE FROM THE SAID THREE PARTIES. THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. THE REVENUE ALSO CARRIED THE ISSUE BEFORE THE TRIBUNAL. THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE PARTLY A ND DISMISSED THAT OF THE REVENUE. THE TRIBUNAL NOTED THAT THE CIT(A) HAD NOT GIVEN ANY REASONS FOR RETAINING 10% OF THE PURCHASES BY WAY OF AD - HOC ADDITIONS. THE TRIBUNAL, THEREFORE, DELETED SUCH ADDITIONS, BUT RETAINED THE PORTION OF THE ORDER OF THE CIT( A) TO THAT EXTENT HE PERMITTED THE AO TO TAX THE ASSESSEE ON THE BASIS OF DIFFERENCE IN THE GP RATES. IN FURTHER APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT, THE REVENUE REFERRED TO THE DECISION OF THE DIVISION BENCH OF THE HONBLE GUJARAT HIGH COURT IN TH E CASE OF N.K. INDUSTRIES LTD. V. DCIT IN TAX APPEAL NO. 240 OF 2003 AND CONNECTED APPEALS DECIDED ON 20.06.2016 AND ALSO POINTED OUT THAT THE SLP AGAINST SUCH DECISION WAS DISMISSED BY THE HONBLE SUPREME COURT. THE HONBLE BOMBAY HIGH COURT HELD : 8. I N THE PRESENT CASE, AS NOTED ABOVE, THE ASSESSEE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE INDULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE'S ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SU CH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT THE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DISCREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE AND THE SALES DECLARED. THAT BEING THE POSI TION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE O N PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 13 (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER - SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,70,78,125/ - AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURING FINANCIAL YE AR 1997 - 98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDUCE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROFIT COMES TO 5.66 %. THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,125/ - WHICH COMES TO RS.20,98,621.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98 ,621.88 AS GROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE. WE FIND THAT THE FACTS IN THE INSTANT CASE ARE SIMILAR TO THE ABOVE DECISION. FOLLOWING THE SAME, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO RESTRICT THE ADDITIONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON DISPUTED PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. NEEDLESS TO SAY, THE AO WOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE ORDER. THUS THE 1 ST GROUN D OF APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7.5 THE CHARGING OF INTEREST IS CONSEQUENTIAL. FACTS BEING IDENTICAL, OUR DECISION FOR THE AY 2010 - 11 APPLIES MUTATIS MUTANDIS TO AY 2011 - 12. M/S RATNAGIRI STAINLESS PVT. ITA NOS. 6011 & 6025/MUM/2018 14 8. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED. ORD ER PRONOUNCED IN THE OPEN COURT ON 16/12/2019. S D/ - S D/ - ( SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 16/12/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, ( DY . / /ASSISTANT REGISTRAR ) ITAT, MUMBAI