Income Tax Officer vs Sheel Chand Jain

“1.

That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 6220390 made us 69C rws 115BBE, ignoring that the assessee was found to be a beneficiary of accommodation entries provided by RCI Industries & Technologies Ltd, a proven bogus billing entity identified through investigation and CBIC inputs.

2.

That the Ld. CIT(A) erred in law and on facts in ignoring credible third party information and investigation inputs, which clearly established that RCI Industries and Technologies Ltd. 2 was issuing bogus purchase bills, and thereby wrongly accepted the assessees explanation merely on the basis of Banking channel payments, Audit report and stock register entries, which cannot override substantive evidence of accommodation entries.

3.

That the Ld. CIT(A) failed to appreciate that purchases from RCI Industries and Technologies Ltd. were made only during two months of the entire year, with no past OR future business dealings, clearly indicating a pre-arranged accommodation entry arrangement, which was rightly relied upon by the Assessing Officer.

4.

That the Ld. CIT(A) has erred in law in not properly appreciating and applying the ratio laid down by the Honble Supreme Court in N.K. Proteins Ltd. 84 taxman.com 195 (SC), 4 wherein it has been held that When purchases are found to be bogus the entire amount is liable to be treated as unexplained expenditure u/s 69C. The Assessing Officer had rightly applied this binding precedent.

5.

That the Ld. CIT(A) erred in deleting the addition of Rs. 124408 being commission paid for obtaining accommodation entries, ignoring that (A) Payment of commission is inherent and inseparable from accommodation entry transactions. (B) Direct evidence is rarely available. (C) Estimation by AO was reasonable, logical and based on human probabilities.

6.

That the Ld. CIT(A) erred in law by disregarding material gathered by statutory authorities (CBIC and Income Tax Investigation) against RCI Industries and Technologies Ltd., without any rebuttal from the assessee disproving such findings.

7.

That the order of the Ld. CIT(A) is erroneous, preserve and 7 prejudicial to the interest of revenue, and therefore liable to be set aside.

8.

That the appellant craves leave to add, amend or modify any ground at the time of hearing.”

“1.

That on the facts and in the circumstances of the case and in law, the reopening made u/s 148 of the Act and consequential orders passed u/s 147 read with section 144B of the Act by Learned Assessing Officer is invalid and nullity as the jurisdiction assumed by the Learned Assessing Officer was in violation of mandatory jurisdictional conditions stipulated under the Act.

2.

That on the facts and in the circumstances of the case, the assumption of jurisdiction is vitiated being obtained without supplying of copy of reasons of reopening, copy of respective statutory approvals and copy of incriminating material against the assessee.

3.

That on the facts and circumstances of the case, the assumption of jurisdiction is vitiated because even in response to RTI filed by the assessee, the ld AO failed to supply copy of the respective approvals dated 11.03.2022 and 22.03.2022 claimed to have been granted by Id PCIT, Delhi-20, prior to issue of notice u/s 148A(b) of the Act dated 11.03.2022 and notice u/s 148 of the Act dated 26.03.2022, respectively.

4.

On the facts and circumstances of the case, assumption of jurisdiction is vitiated because the notice u/s 148A(b) of the Act has been issued without conducting any enquiry u/s 148A(a) of the Act and without supplying proper prior approval of the specified authority as required u/s 148A(a) of the Act and without demonstrating the existence of proper DIN on the approval.

5.

On the facts and circumstances of the case, assumption of jurisdiction is vitiated being assumed without supplying proper prior approval of the specified authority as required u/s 151 of the Act and without demonstrating the existence of proper DIN on the approval.

6.

On the facts and circumstances of the case, the assumption of jurisdiction is vitiated because the jurisdiction is assumed without following the mandate of the CBDT Instruction F-No 299/10/2022-Dir (Inv.III)/647 dated 28.08.2022 requiring the Id AO to conduct enquiry before issuing notice u/s 148A(b) of the Act, pass a speaking order u/s 148A(d) of the Act after considering the reply filed by the assessee and affording personal hearing to the assessee and verification of the information available on database/portal of the department to ascertain the accuracy thereof.

7.

On the facts and circumstances of the case, the assumption of jurisdiction is vitiated because after notification of E-ASSESSMENT OF INCOME ESCAPING ASSESSMENT SCHEME, 2022 on 29.03.2022 u/s 151A of the Act, the notice u/s 148 of the Act could have been issued in a faceless manner, the issue of notice u/s 148 of the Act dated 26.03.2022, by the Id AO, WARD 59(8) DELHI is without jurisdiction which deserves to be declared as a nullity in the eyes of law.

8.

That the appellant craves leave of this Hon'ble Tribunal to add, amend, alter or withdraw any ground at the time of hearing.”

“5.1. Ground 3

Vide this ground, the Appellant has objected to the addition of Rs.62,20,390/-u/s 69C of the Act, on account of bogus purchases. In In this regard, the Appellant has submitted that the AO has accepted amount of opening stock and purchases on the debit side; and sales and closing stock in the credit side in the books of accounts. Thus, the AO cannot hold some amount of purchases recorded in the books as unexplained. The AO has neither discarded the quantitative details of stock, purchases and sales for the assessment year 2018-2019, nor pointed out any defect and therefore, purchases as debited in the books of accounts cannot be added u/s 69C of the Income Tax Act, 1961. Moreover, the balancing figure of the gross profit shown by the appellant has not been disturbed. There has been no finding by the AO that the gross profit shown by the appellant during the subject assessment year was less as compared to earlier assessment years. If all the entries in the trading account including the quantitative tally of purchases, opening stock, sales and closing stock are found to be correct and no discrepancy has been found, then no addition on account of unexplained/ bogus purchases can be made, because nowhere it has been found that appellant has made purchases outside the books. The Appellant has placed reliance on various case laws in support of the contention.

5.1.1.

I have considered the submissions made by the Appellant and I am in agreement with the same. On perusal of the assessment order, I find that the AO has accepted the trading results shown by the Appellant. The AO has accepted the sales made by the Appellant. There are no discrepancies pointed out by the AO in respect of stock statement of the Appellant or in respect of trading results, etc. In background of these undisputed facts, it is also important to keep in mind that Appellant's books of accounts are duly audited.

In this regard, I find that on same set of facts, Hon'ble Jurisdictional ITAT Delhi, has decided the issue in favour of the assessee in the case of Manoj Sharma vs Income Tax Officer, 103 taxmann.com 105 (Delhi-Trib.) dated 28/01/2019. Relevant part of the decision is reproduced hereunder:

"2.

In various grounds of appeal, assessee has challenged the validity of reopening u/s 147; and on merits he has challenged the addition of Rs. 12,56,068/- made on account of bogus purchases. The facts in brief are that assessee has filed his return of income on 19.8.2009, declaring income of Rs. 2,85,650/- which was duly processed u/s 143 (1). Later, on the basis of certain information received from CIT Central Circle II, New Delhi, enclosing letter dated 15/11/2018 of ACIT Central Circle -10, which contained the list of the persons to whom bogus purchases /accommodation entries were provided by Shri Rakesh Gupta, Shri Vishesh Gupta, Shri Navneet Jain, Shri Valbhav Jain. Since assessee was also one of the name included in the list, the AO issued a notice u/s 148 on 7.3.2016/ 23.3.2016 for reopening the case u/s 147. In the reasons recorded AO has noted that assessee has taken accommodation entry from the following three parties

(ⅰ) M/s. Vishnu Trading Co. Rs. 3,53,973/-

(ii)

M/s. Shree Shyam COME TA Co-Rs 4,64,987/-

(iii)

M/s. Om Trading Co. Rs. 4,37,108/-……………………..

8.

I have considered rival submissions, perused the relevant finding given in the impugned order as well as the material referred to at the time of hearing. Assessee is engaged in the business of trading in scrap metals and during the year under consideration, he has shown purchases of Rs. 90,12,049/-. Out of the said purchases, sums amounting to Rs. 12,56,068/- has been held to be bogus purchases on the ground that assessee has obtained purchase bills from three parties who were owned and controlled by Shri Vishesh Gupta and his family members, who in the course of their assessment proceedings have admitted that they were providing bogus purchase bills/ accommodation entry bills to the concerned parties. The cheques were received from the concerned parties which were deposited in the bank account of the their concerns from where purchase/accommodation bill has been received and thereafter cash was withdrawn after deducting the commission and was handed over to the persons seeking accommodation entry. Based on this information, assessees case has been reopened u/s 147 and also addition has been made u/s 69C as bogus purchases. One undisputed fact as culled out from the impugned orders as well as material referred to before us are that, assessee is maintaining quantitative wise stock register, purchase and sale bills alongwith regular books of account which were produced before the AO in the trading account. Assessee has disclosed following figures in the trading account:- Opening stock: Rs.9,05,814 Sales: Rs.88,49,043 Purchases: Rs.90,12,049 Closing stock: Rs. 18,73,690 Gross profit: Rs. 8,04,869 The above figures of opening stock, purchases, sales, closing stock and gross profit has been accepted by the AO, including all the quantitative tally in the trading account.

9.

From the perusal of the bills as placed in the paper book, it is seen that assessee has shown purchase of steel scraps, aluminium scraps, brass scraps and in these bills, lorry / truck number for delivery has also been mentioned which is even evident from the scanned copy of one particular bill at page 69 in the impugned order. The purchases admittedly have been made through account payee cheque and the source of the purchases are from the books of account as it is not the case of AO that purchases from any party is outside books of account. The quantitative details of stock as on 31.3.2009 was as under:- Quantitative details of stock as on 31.03.2009 ……………Sl. No. Items OP. STOCK PURCHASES SALE CL Stock ……………………………………….. 1. Aluminium Scrap 4345:500 42578.650 39188.900 7735.250 2. Brass Scrap 837.550 20902.050 19850.700 2788.900 3. Copper Scrap 1216.500 4125.100 2790.400 2551.200 4. Copper Wire 166.000 NIL 166.000 NIL 5. Steel Scrap 290.000 4396.000 4250.000 436.000 …………………………..TOTAL 6855.550 72001.800 65346.000 13511.350 -----------------------This has also been mentioned in the audit report and certified by the tax auditors.

10.

Once the quantity of opening stock and purchases on the debit side; and sales and closing stock in the credit side in the books of account has been accepted, then to hold that the some quantity of purchases recorded in the books are unexplained or outside books of account, is very difficult proposition to accept. Because, the quantitative details of stock, purchases, sales have not been discarded or any defect has been found, then purchases as debited in the books of accounts cannot be added u/s 69C. Here in this case, even balancing figure of the gross profit shown by the assessee has not disturbed. Even if it is to be accepted that the purchases made from the three parties were in the nature of accommodation entries, then it has to be seen, firstly, whether these purchases have been made outside books or does not matches with the quantitative tally; or secondly, whether such bills have been obtained merely to suppress the gross profit. Ostensibly, the first reason is lacking here in this case as discussed above; and in so far as the second reasoning is concerned, one has to examine, if purchases have been made through cheques, the source of which are from the books of accounts and if later on, cash has been received in lieu of such cheque but no purchases have been made, then clearly there would be a difference in quantitative tally of purchases as well as in the stock and such a discrepancy has been found then purchases can be held to be bogus. But here in this case no such difference in the quantitative tally has been found Further, if assessee after receiving the cash in lieu of the cheque has made purchases from the grey market for getting the same quantity of material in cash ash from from some different vender, then at the most it could be a case of the suppressing of gross profits in other words, assessee has debited higher amount for the t for the purchase which in fact has purchased the same material and quantity at a lesser amount, thereby suppressing the gross profit. Under these circumstances any addition at all which could be made, is by enhancing the Gross Profit on such purchases. Nowhere there is a finding or whisper either by the AO or CIT (A) that the gross profit shown by the assessee during the year was less as compared to earlier or subsequent years or there is any material to show that gross profit has been low during the year. If all the entries in the trading account including the quantitative tally of purchases, opening stock, sales and closing stock are found to be correct and no discrepancy has been found, then no addition on account of unexplained purchases can be made, because nowhere it has been found that assessee has made purchases outside the books. The entire finding of the Ld. CIT (A) hinges upon the fact that there was material indicating purchase under consideration are bogus without even appreciating that if the source of purchases are from the books and through account payee cheque, then how such purchases can be treated as un accounted. Since gross profit rate and gross profit has been accepted including the trading account then no such addition can be made. In the result on merits addition made by the AO is deleted and consequently assessees appeal is allowed.

11.

Since we have already allowed the addition of Rs. 12.56.068/- on merits. therefore, the validity of reopening u/s 147 has become purely academic and the same is kept open.

12.

In the result appeal of the assessee is allowed."

Thus, in view of facts discussed hereinabove and respectfully, following the decision of Hon'ble Jurisdictional ITAT Delhi (supra), I hold that the AO has erred in making addition on account of bogus purchases, though, sales have been accepted and no discrepancies have been pointed out vis a vis stock statement, trading results, etc. Accordingly, addition of Rs.62,20,390/-is directed to be deleted. Ground is, thus, allowed.

As regards case laws relied upon by the AO in the assessment order, the same are distinguishable on facts, as has been rightly pointed out and discussed by the Appellant. These case laws are, therefore, not relevant in the case of the Appellant.

5.2. Ground 4

Vide this ground, the Appellant has objected to the addition of Rs. 1,24,408/-u/s 69C on the ground that the Appellant has paid commission for availing accommodation entries. The Appellant has submitted that the AO has not brought out any evidence that the Appellant has paid any commission. Also, the AO has made the impugned addition without issuing show cause notice to the Appellant.

5.2.1.

I have considered the submissions made by the Appellant. I have also perused the assessment order. I find that the AO has not brought any evidence as regards to whom commission has been paid by the Appellant for availing accommodation entries. The addition has been made on assumption that since, the Appellant has availed accommodation entries, he must have paid certain commission to the broker who has arranged the entry. In my considered opinion, the addition does not sustain in absence of any evidences. Accordingly, the addition of Rs.1,24,408/- is directed to be deleted. Ground is, thus, allowed.”