RONAK METAL INDUSTRIES, MUMBAI V. ITO 18(3)(2), MUMBAI

ITA 722/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0174 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 05-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V JANARDHANAN
• Keywords: Reopening of assessment; Bogus purchase; Unexplained expenditure; Depreciation; Charitable institution; Opportunity of being heard; Tangible material; Accommodation entries; Onus to prove; Revised return; Reason to believe
• Section: 40A(3); 147; 148

Judgement Text

, SMC , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.722/MUM/2017 : ASST.YEAR 2010-2011 M/S.RONAK METAL INDUSTRIES 137/139, 3 RD FLOOR, KIKA STREET GULAL WADI MUMBAI 400 002. PAN : AAAFR1206M. / VS. THE INCOME TAX OFFICER WARD 18(3)(2) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : --- NONE --- /RESPONDENT BY : SHRI V.JANARDHANAN / DATE OF HEARING : 05.07.2017 / DATE OF PRONOUNCEMENT : 04.09.2017 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 10.11.2016 AND PERTAINS TO ASSESSMENT YEAR 2010-2011. 2. THE GROUNDS OF APPEAL READ AS UNDER:- THE GROUNDS OF APPEAL HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER; 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED AO HAS ERRED IN PASSING RE-ASSESSMENT ORDER U/S.147 OF THE I T ACT. REASONS ASSIGNED BY HIM FOR DOING THE SAME ARE WRONG AND INSUFFICIENT. APPELLANT CONTENDS THAT THE ISSUANCE OF NOTICE U/S.148 OF THE I T ACT FOR REOPENING OF THE ASSESSMENT WAS ITSELF ILLEGAL AND UNJUSTIFIED AND CONSEQUENTLY THE REASSESSMENT ORDER SO PASSED LIABLE TO BE QUASHED. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED AO HAS ERRED IN MAKING ADDITION OF RS.22,70,666/- BEING 12.5% OF PURCHASE FROM VARIOUS ALLEGED PARTY ESTIMATED GP BY THE LD. A.O. REASONS ASSIGNED BY HIM FOR DOING THE SAME ARE WRONG AND INSUFFICIENT. ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 2 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN THE LAW THE LEARNED AO HAS ERRED IN REJECTING BOOKS OF ACCOUNT OF THE APPELLANT THAT TO WITHOUT PROVIDING OPPORTUNITY OF BEING HEARD AND WITHOUT ISSUING SHOW CAUSE. REASON ASSIGNED BY HIM FOR DOING THE SAME WAS WRONG AND INSUFFICIENT. 4) THE ORDER PASSED BY THE LEARNED A.O. IS DEVOID OF ANY MERIT, ARBITRARY, UNCALLED FOR AND BAD IN LAW, THE APPELLANT BE GIVEN SUCH RELIEF OR RELIEFS AS PRAYED FOR. 5) APPELLANT CRAVES LEAVE TO ADD, ALTER AND/OR MODIFY THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING OF THE APPEAL. 3. BRIEF FACTS OF THE CASE ARE AS UNDER:- 3.1 THE APPELLANT FIRM WHICH IS IN THE BUSINESS OF TRADING IN FERROUS AND NON FERROUS METALS FILED THE ORIGINAL RETURN OF INCOME FOR A.Y. 2010-11 ON 7.8.2010 DECLARING TOTAL INCOME OF RS.4,25,660/- AND FILED A REVISED RETURN OF INCOME ON 16.09.2010 DECLARING A TOTAL INCOME OF RS.4,75,660/-. THE AO RECEIVED INFORMATION FROM THE DGIT(INV.), MUMBAI WHO IN TURN RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT ABOUT SOME ACCOMMODATION ENTRY PROVIDER FOR PURCHASES. THE INFORMATION IN POSSESSION OF THE AO WAS THAT THE APPELLANT HAS MADE PURCHASES TO THE TUNE OF RS.1,81,65,330/- FROM THE ALLEGED HAWALA DEALERS / ENTRY PROVIDERS AS UNDER:- SR. NO. NAME OF THE ENTRY PROVIDER F.Y. AMOUNT OF BILL TAKEN BY THE ASSESSEE. 1. NISHA ENTERPRISES 2009 - 10 23,25,924 2. DHANERA METAL CORPORATION 2009 - 10 7,90,733 3. MANISH INDUSTRIAL CORPORATION 2009 - 10 8,52,134 4. VIDHI METAL INDUSTRIES 2009 - 10 37,88,064 5. VARDHAMAN TRADING CO. 2009 - 10 50,92,201 6. SHRE GANESH TRADING CO. 2009 - 10 53,16,274 TOTAL 1,81,65,330 ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 3 4. THE ASSESSING OFFICER ISSUED NOTICE TO THE SAID SUPPLIERS. BUT THE SAME REMAINED UNRESPONDED. THE ASSESSEE HAD NOT PRODUCED ANY CONFIRMATION NOR PRODUCED THE PARTIES. THE ASSESSING OFFICER PROCEEDED TO MAKE AN ADDITION OF 12.5% OF THE BOGUS PURCHASES AS UNDER:- 3.1. HAVING SEEN THE FACTS OF THE CASE, IT IS CONFIRMED THAT PURCHASES ARE NON-VERIFIABLE. THE ASSESSEE NEITHER FURNISHED THE CONFIRMATION LETTERS FROM THE ALLEGED SUPPLIERS OF MATERIAL, NOR PRODUCED THEM FOR EXAMINATION. THUS, THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE PURCHASES. UNDER THE CIRCUMSTANCES, THE PURCHASES SHOWN, BY THE ASSESSEE CANNOT BE TAKEN AS GENUINE. ACCORDINGLY, THE BOOKS AND BOOK RESULT CANNOT BE RELIED UPON. THEREFORE THE BOOKS OF THE ASSESSEE AND THE BOOK RESULT THEREOF IS REJECTED UNDER SECTION 145(3) OF THE IT ACT. 3.2. HAVING REJECTED THE BOOKS OF ACCOUNT, THE NEXT COROLLARY IS TO ARRIVE AT THE TRUE AND CORRECT INCOME OF THE ASSESSEE. WHILE DOING SO, THE FOLLOWING ISSUES ARE CONSIDERED. > THE ASSESSEE HAS BENEFITTED BY BUYING IN CASH AND GAVE A COLOR OF GENUINE PURCHASES AS DEMONSTRATED SUPRA. > GOT MANEUVERABILITY TO MANIPULATE HIS BOOKS AND SHOW INCOME, THE WAY HE WANTED TO SHOW TO THE DEPARTMENT. > THE GOODS WERE PURCHASED IN CASH AND REGULARIZED BY BRINGING SALES INTO HIS BOOKS > SUCH PURCHASES IN THIS LINE OF BUSINESS ARE NOT UNCOMMON GIVEN THE FACTS OF THE CASE. THE PURCHASES ARE THEREFORE NOT BEING TREATED AS BOGUS RATHER THE EXPENDITURE INCURRED ON SUCH PURCHASES IS TREATED AS UNDISCLOSED PURCHASES/ UNEXPLAINED EXPENDITURE. > THE PAYMENTS ARE MADE AT THEIR CONVENIENCE TO THE NAME LENDERS AND TRIED TO PROVE THE UNPROVABLE OF ACCOMMODATION ENTRIES. ALL THE PAYMENTS MADE MUST HAVE RETURNED TO THE ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 4 ASSESSEE IN EITHER IN CASH OR IN DIFFERENT FORM. BY DOING SO, THE HAS BLOCKED DEPARTMENT FROM FURTHER PROBING INTO THE ISSUE AND THEREFORE THIS ISSUE IS NON-VERIFIABLE ON ACCOUNT OF ASSESSEE'S CLANDESTINE ACTIVITIES AND THEREFORE IT HAS TO BE ACCEPTED AGAINST THE ASSESSEE AND IN FAVOR OF THE DEPARTMENT. HAD THE ASSESSEE PRODUCED THE ALLEGED SUPPLIERS FOR EXAMINATION, THE ISSUES WOULD HAVE BEEN EASILY PROBED INTO AND THE REAL GAME PLAN OF THE ASSESSEE WOULD HAVE EXPOSED TO THE ADVANTAGE OF THE DEPARTMENT. THUS, THERE IS NO ONUS ON THE DEPARTMENT TO WHATSOEVER TO PROVE BEYOND THIS WHAT HAS BEEN DONE IN THIS CASE. IN OTHER WORDS, BY NOT FILING THE CONFIRMATIONS AND PRODUCING SOME OF THE ALLEGED SUPPLIERS FOR EXAMINATION ON OATH, THE ASSESSEE FAILED TO DISCHARGE THE PRIMARY ONUS TO PROVE THE GENUINENESS OF THE ALLEGED PURCHASES AND THEREFORE DEPARTMENT IS AT LIBERTY TO TAKE A POSITION IN THE INTEREST OF THE REVENUE MADE THE SECTION 40A(3) REDUNDANT IN HIS CASE. 3.3. THE ISSUES CONSIDERED FOR DISALLOWANCE IS THE CORE EXPENDITURE INCURRED ON THE BOGUS PURCHASES AND SOME ELEMENT OF BENEFIT ASSESSEE GOT ON THE EXCISE AND SALES TAX COMPONENT ON THE PURCHASES. IN--VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND CONSIDERING THE ASSESSEE'S TOTAL PURCHASES MADE DURING THE YEAR, I HEREBY ESTIMATE THE GP ADDITION ON ACCOUNT OF PURCHASES MADE FROM THE ABOVE PARTIES @ 12.5% , WHICH WORKS OUT AT RS. 22,70,666/-(12.5% IF RS.1.81,65,330/-). THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LEARNED CIT(A) CHALLENGING BOTH THE VALIDITY OF REOPENING AS WELL AS MERITS OF THE ADDITION. 6. THE LEARNED CIT(A) CONFIRMED THE VALIDITY OF REOPENING BY OBSERVING AS UNDER:- ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 5 4.1 THE APPELLANT FIRM WHICH IS IN THE BUSINESS OF TRADING IN FERROUS AND NON FERROUS METALS FILED THE ORIGINAL RETURN OF INCOME FOR A.Y. 2010-11 ON 7.8.2010 DECLARING TOTAL INCOME OF RS.4,25,660/- AND FILED A REVISED RETURN OF INCOME ON 16.09.2010 DECLARING A TOTAL INCOME OF RS.4,75,660/-. THE AO RECEIVED INFORMATION FROM THE DGIT(INV.), MUMBAI WHO IN TURN RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT ABOUT SOME ACCOMMODATION ENTRY PROVIDER FOR PURCHASES. THE INFORMATION IN POSSESSION OF THE AO WAS THAT THE APPELLANT HAS MADE PURCHASES TO THE TUNE OF RS.1,81,65,330/- FROM THE ALLEGED HAWALA DEALERS / ENTRY PROVIDERS AS UNDER:- SR. NO. NAME OF THE ENTRY PROVIDER F.Y. AMOUNT OF BILL TAKEN BY THE ASSESSEE. 1. NISHA ENTERPRISES 2009 - 10 23,25,924 2. DHANERA METAL CORPORATION 2009 - 10 7,90,733 3. MANISH INDUSTRIAL CORPORATION 2009 - 10 8,52,134 4. VIDHI METAL INDUSTRIES 2009 - 10 37,88,064 5. VARDHAMAN TRADING CO. 2009 - 10 50,92,201 6. SHRE GANESH TRADING CO. 2009 - 10 53,16,274 TOTAL 1,81,65,330 4.1.1. ON THE BASIS OF THIS INFORMATION, THE AO HAD ISSUED NOTICE U/S.148 ON 14.10.2014. THE ASSESSEE VIDE ITS LETTER DATED 4.1.2016 STATED THAT THE RETURN FILED ON 16.09.2010 MAY BE CONSIDERED AS FILED IN RESPONSE TO NOTICE U/S.148. THE ASSESSEE CONTESTED THE REOPENING OF THE ASSESSMENT STATING THAT IT IS ILLEGAL AND UNJUSTIFIED AND THE ASSESSMENT ORDER SHOULD BE QUASHED. 4.2. SECTION 147 OF THE I.T. ACT FOR THIS PURPOSE IS REPRODUCED HEREUNDER :- 'IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECT/ON 148 TO 153, ASSESS OR REASSESS, SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 6 COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTED THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED ( HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR.' 4.2.1. THE SECTION MERELY SAYS THAT THE AO HAS TO HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. REASON TO BELIEVE BE ON THE BASIS OF ANY INFORMATION WHICH COMES TO HIS POSSESSION OR THIS INFORMATION IS MORE THAN ENOUGH FOR ANY REASONABLE PERSON TO REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. FURTHER, THE INFORMATION IS NOT ANONYMOUS INFORMATION BUT AUTHENTICATED INFORMATION RECEIVED FROM A GOVERNMENT DEPARTMENT. THE AO OR ANY REASONABLE PERSON IN HIS PLACE WOULD NOT IGNORE OR OVER LOOK THIS KIND OF INFORMATION. IF THE AO IS NOT SATISFIED WITH THE REASON, HE WOULD NOT HAVE ISSUED NOTICE U/S.148. THE VERY FACT THAT REASONS ARE RECORDED AND NOTICE U/S.148 IS ISSUED GOES TO SHOW THAT THE AO HAS APPLIED HIS MIND AND SATISFIED HIMSELF ABOUT THE REOPENING OF THE CASE. THE REASONS RECORDED ARE NOT VAGUE AND SCANTY BUT PRECISE AND CONCRETE. IN THIS CASE, THE INFORMATION HAS COME FROM THE INVESTIGATION WING OF THE SAME DEPARTMENT WITH SUPPORTING STATEMENTS AND MODUS OPERAND!. THERE IS NO REASON OR OCCASION TO DISBELIEVE THIS INFORMATION. BESIDES, WHAT THE ACT ENVISAGES IS THAT THE AO SHOULD ONLY HAVE A REASON TO BELIEVE TO REOPEN A CASE. HE NEED NOT ESTABLISH BEYOND DOUBT THAT THERE IS ESCAPEMENT BEFORE ISSUING THE NOTICE. THIS CAN BE DONE AT THE TIME OF ASSESSMENT BUT NOT AT THE TIME OF ISSUE OF NOTICE. RELIANCE IS PLACED ON THE FOLLOWING JUDGEMENTS : 1) ROHILKHAND EDUCATIONAL CHARITABLE TRUST VS. CCIT AND OTHERS 365 ITR 233(AII.) WHEREIN THE HON'BLE HIGH COURT HELD AO SHOULD HAVE RELEVANT AND CREDIBLE MATERIAL WITH HIM TO FORM REQUISITE REASON TO BELIEVE THAT INCOME OF ASSESSEE HAS ESCAPED ASSESSMENT. MATERIAL AVAILABLE ON RECORD HAS RATIONAL CONNECTION AND RELEVANT BEARING ON SUCH FORMATION OF BELIEF FOR ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 7 ISSUING VALID NOTICES FOR RE-ASSESSMENT.- SUFFICIENCY OR CORRECTNESS OF MATERIAL WAS NOT TO BE CONSIDERED AT THIS STAGE. 2) SUN PHARMACEUTICALS INDUSTRIES LTD. VS. DCIT 353 ITR 474 (GUJ.) WHERE THE HON'BTE HIGH COURT HELD FORMATION BY BELIEF BY AO IS ESSENTIALLY WITHIN HIS SUBJECTIVE SATISFACTION - AT THE STAGE OF ISSUE OF NOTICE, ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH REASONABLE PERSON COULD HAVE FORMED REQUISITE BELIEF. 3) NX INDUSTRIES LTD. VS. ITO 362 ITR 542 (GUJ.) WHERE THE HON'BLE HC HELD IF A PARTICULAR ISSUE IS BROUGHT TO THE NOTICE OF THE AO BY AUDIT PARTY AND AO OF HIS /HER APPLICATION OF MIND FINDS THIS GROUND AS VALID, REOPENING OF ASSESSMENT CANNOT BE QUASHED MERELY BECAUSE SUCH GROUND WAS BROUGHT TO THE NOTICE OF AO AUDIT PARTY. 4.2.2. IN THIS CASE, THE AO HAS AMPLE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND HAS RIGHTLY ISSUED THE NOTICE U/S.148 TO THE APPELLANT AFTER 'RECORDING REASONS FOR REOPENING. THE AO WAS WELL WITHIN JURISDICTION AND ACTED IN ACCORDANCE WITH THE PROVISIONS OF THE I.T. ACT. THE ACT OF THE AO BEING VALID AND LEGAL, IS UPHELD. 7. ON THE ISSUE OF MERITS OF THE ADDITION, CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER:- 5.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE APPELLANT TO PROVE THE GENUINENESS OF THE PURCHASES. HE HAD ALSO ISSUED NOTICES U/S.133(6) TO THE PARTIES BUT THEY WERE RETURNED BACK BY THE POSTAL AUTHORITY WITH THE REMARKS 'NOT KNOWN'. AS THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE SAID PURCHASES WITH VERIFIABLE AND CONTEMPORANEOUS EVIDENCES, THE AO INFERRED THAT THE APPELLANT HAS NOT PURCHASED THE GOODS FROM THE ALLEGED SUPPLIERS BUT MUST HAVE GOT THEM FROM OTHER PARTIES IN THE GREY MARKET AT COMPARATIVELY LESSER PRICES. THEREFORE, HE MADE THE GP ADDITION OF 12.5% OF THE ALLEGED BOGUS PURCHASES WHICH WORKED OUT TO RS.22,70,666/-. ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 8 5.2. THE APPELLANT CHOSE NOT TO REPRESENT THE CASE INSPITE OF GIVING THREE OPPORTUNITIES AND THEREFORE NO SUBMISSIONS ARE FILED. 5.3. THE HON'BLE ITAT, AHMEDABAD `C' BENCH IN THE CASE OF VIJAY PROTEINS LTD. VS. ACIT 58 ITD 0428 HELD THAT IN SIMILAR CIRCUMSTANCES, 25% OF THE PURCHASE PRICE ACCOUNTED THROUGH FICTITIOUS INVOICES HAS TO BE DISALLOWED. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY OIL CAKES V/S CIT 316 ITR 0274 DEALT WITH SIMILAR CASE WHERE SOME OF THE ALLEGED SUPPLIERS WHO HAD ISSUED BILLS TO THE ASSESSEE WERE NOT GENUINE AS THEY WERE NOT TRACEABLE. THE GOODS MUST HAVE BEEN RECEIVED FROM OTHER PARTIES. THE LIKELIHOOD OF THE PURCHASE PRICE OF THESE ALLEGED PURCHASES BEING INFLATED COULD NOT BE RULED OUT AND THEREFORE THE HON'BLE HIGH COURT HAS UPHELD THE DECISION OF CIT(A) AND THE ITAT DISALLOWING 25% OF THE PAYMENTS MADE TO SUCH PARTIES. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. SIMIT P. SHETH 356 ITR 0451 HELD THAT ONCE THE SALE IS ACCEPTED BY THE AO, THE VERY BASIS OF PURCHASES COULD NOT BE QUESTIONED. NOT THE ENTIRE PURCHASE PRICE COULD BE DISALLOWED BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE INCOME OF THE ASSESSEE. THE ESTIMATION VARIES WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK COULD BE ADOPTED. THEREFORE, THE ACTION OF THE AO IN MAKING THE ADDITION OF 12.5% ON THE ALLEGED JUS PURCHASES IS UPHELD. 8. AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE THE ITAT. 9. I HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. IT IS NOTED THAT THIS APPEAL HAS EARLIER ALSO BEEN ADJOURNED ON THE REQUEST OF THE ASSESSEE. FURTHER IT IS NOTED THAT THE ISSUE RELATING TO BOGUS PURCHASES HAS ALREADY BEEN DECIDED BY THE MUMBAI ITAT BENCHES IN A NUMBER OF CASES. ACCORDINGLY, THE APPEAL IS ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 9 BEING DECIDED UPON HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSING THE RECORDS. 10. 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 TRANSACTIONS 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 PROVIDING 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 WITHDREW 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 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 ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 10 DELIVERY OF ANY MATERIAL. THERE IS A LIST OF SUCH PARTIES WHEREIN THE ASSESSEE IS STATED TO BE BENEFICIARY OF BOGUS PURCHASE BILLS. 11. 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 PROVIDERS 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, ASSESSMENT 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 GUILT. IN THIS REGARD, I REFER TO THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT(A) VS. RAJESH JHAVERI STOCK BROKERS P. LTD, 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. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANAGNESE ORE CO, LTD. 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 ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 11 ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER 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 WITHIN 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). 12. THE ABOVE DISCUSSION AND PRECEDENT FROM APEX COURT FULLY 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. 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 HONBLE APEX COURT DECISION, THE OTHER CASE LAWS REFERRED BY ASSESSEE ARE NOT SUPPORTING THE ASSESSEES CASE. 13. AS REGARDS THE MERITS OF THE CASE, UPON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE, I FIND THAT CREDIBLE AND COGENT INFORMATION WAS RECEIVED IN THIS CASE BY THE ASSESSING OFFICER THAT CERTAIN ACCOMMODATION ENTRY PROVIDER / BOGUS SUPPLIERS WERE BEING USED BY CERTAIN PARTIES TO OBTAIN BOGUS BILLS. ASSESSEE WAS FOUND TO HAVE TAKEN ACCOMMODATION ENTRY / BOGUS PURCHASE BILLS DURING THE CONCERNED ASSESSMENT YEAR FROM DIFFERENT PARTIES. BASED UPON THIS INFORMATION ASSESSMENT WAS REOPENED. THE CREDIBILITY OF INFORMATION RELATING TO REOPENING REMAINS UNASSAILED. FURTHERMORE, IT IS NOTED THAT IN SUCH FACTUAL SCENARIO ASSESSING OFFICER HAS MADE THE NECESSARY ENQUIRY. THE ISSUE OF NOTICE TO ALL THE PARTIES HAVE RETURNED UNSERVED. ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY CONFIRMATION FROM ANY OF THE PARTY. ASSESSEE HAS ALSO NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. IN THIS FACTUAL SCENARIO IT IS AMPLY ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 12 CLEAR THAT ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS. MERE PREPARATION OF DOCUMENTS FOR PURCHASES CANNOT CONTROVERT OVERWHELMING EVIDENCE THAT THE PROVIDER OF THESE BILLS ARE BOGUS AND NON-EXISTENT. AS HELD BY HONBLE APEX COURT IN THE CASE OF DURGA PRASAD MORE (82 ITR 540) AND SUMATI DAYAL (214 ITR 801), REVENUE AUTHORITIES ARE NOT SUPPOSED TO PUT ON BLINKERS. IN THE PRESENT CASE, THE ASSESSEE WANTS TO DISREGARD THE UNASSAILABLE FACT THAT THESE SUPPLIERS ARE BOGUS AND GO BY THE DOCUMENTS SHOWN. THIS PROPOSITION IS TOTALLY UNSUSTAINABLE IN LIGHT OF THE ABOVE APEX COURT DECISIONS. 14. THUS, I FIND THAT OVERWHELMING EVIDENCE HAVE BEEN REFERRED BY THE AUTHORITIES BELOW THAT THE IMPUGNED PURCHASES ARE BOGUS. THERE IS NO EVIDENCE OF THE ACTUAL MOVEMENT OF THE GOODS UNDER DISPUTE. IN THESE CIRCUMSTANCES, LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF TAX APPEAL NO.240 OF 2003 IN THE CASE OF N.K.INDUSTRIES V. DCIT, ORDER DATED 20.06.2006, WHEREIN 100% 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. IT WAS EXPOUNDED THAT WHEN PURCHASE BILLS ARE FOUND TO BE BOGUS 100% DISALLOWANCE IS REQUIRED. THE SPECIAL LEAVE PETITION AGAINST THIS ORDER ALONG WITH OTHERS HAS BEEN DISMISSED BY THE HONBLE APEX COURT VIDE ORDER DATED 16.01.2017. 15. 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). ACCORDINGLY I UPHOLD THE ORDER OF THE LEARNED CIT(A) WHEREIN HE HAS SUSTAINED 12.5% AS DISALLOWANCE OUT OF THE BOGUS PURCHASE. ITA NO.722/MUM/2017. M/S.RONAK METAL INDUSTRIES. 13 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED ON THIS 04 TH DAY OF SEPTEMBER, 2017. SD/- ( SHAMIM YAHYA ) ACCOUNTANT MEMBER MUMBAI; DATED : 04 TH SEPTEMBER, 2017. DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE.