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M/s. Mohan Clothing Co. Pvt. Ltd, 2E/22, Jhandewalan Extn., New Delhi Vs. ACIT, Circle-5(1), New Delhi
March, 18th 2020
              DELHI BENCH: `E', NEW DELHI


                   ITA No.6093/Del/2010
                  Assessment Year: 2002-03
                   ITA No.4304/Del./2011
                  Assessment Year: 2003-04

M/s. Mohan Clothing Co.      Vs.   ACIT,
Pvt. Ltd,                          Circle-5(1),
2E/22, Jhandewalan Extn.,          New Delhi
New Delhi
         (Appellant)                        (Respondent)

             Appellant by     Shri K. Sampath, Adv.
                              Shri Raja Kumar, Adv.
             Respondent by    Ms. Rakhi Vimal, Sr. DR
                      Date of hearing             21.01.2020
                      Date of pronouncement       17.03.2020



    Out of the above two appeals, the appeal bearing ITA No.
6093/Del./2010 for assessment year 2002-03 has arisen due to
remission back by the Hon'ble Delhi High Court vide decision
dated 29/08/2012 for deciding on merit. The appeal bearing ITA
No. 4304/Del./2011 for assessment year 2003-04 has been
preferred by the assessee against the order dated 09/08/2011
                                                   ITA No.6093/Del./2010 &

passed by the Learned CIT(Appeals)-VIII, New Delhi [in short `the
Ld. CIT(A)']. In both these appeals of same assessee, identical
issues are involved, therefore, both were hard together and
disposed off by the of this consolidated order for convenience.

ITA No.6093/Del/2010
Assessment Year: 2002-03
2.   First we take up the appeal of the assessee bearing ITA No.
ITA No.6093/Del./2010 for assessment year 2002-03. The
grounds raised by the assessee are reproduced as under:

     "That on the facts and in the circumstances of the case and in law
     the learned CIT(A) erred in confirming the following actions of the
     Assessing Officer:-

     (i)   initiating proceedings u/s 147 of the Income Tax Act and
     completing the assessment u/s 147/143(3) of the Act on income of

     (ii)  making an addition of Rs.38,99,527/- on account of alleged
     undisclosed purchase on surmises and conjectures; and

     (iii) making an addition of Rs.38,995/- as unexplained
     expenditure allegedly by way of commission paid even though there
     was no material in support of such allegations.

2.1 This appeal was earlier decided by the Tribunal vide order
dated 14/10/2011 wherein the first ground of appeal was decided
in favour of the assessee and it was held that issuance of notice
u/s 148 and the communication and furnishing of the reasons
would go hand-in-hand. It was further held that the reasons were
to be supplied to the assessee before the expiry of the period of
the six years. The Tribunal quashed the reassessment on the
ground that reasons were not supplied before the expiry of the
                                                    ITA No.6093/Del./2010 &

six years from the end of the relevant assessment year. The
Tribunal did not adjudicate the ground Nos. (ii) & (iii) of the
appeal. On further appeal by the Revenue, the Hon'ble Delhi High
Court vide decision dated 29/08/2012, after considering various
precedents on the issue in dispute, set aside the order of the
Tribunal and remanded the matter back to the Tribunal for
deciding on merit, observing as under:

     "7.     This Court has considered the arguments of the parties. The
     decisions cited by the learned counsel for the revenue are exactly on
     the issue that arises in this case. The relevant provisions to the
     extent they are material, are reproduced below:

           "147. 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 sections
           148 to 153, assess or reassess such income and also any other
           income chargeable to tax which has escaped assessment and
           which comes to his notice subsequently in the course of the
           proceedings under this section, or recompute 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) :


           "148. Before making the assessment, reassessment or
           recomputation under section 147, the Assessing Officer shall
           serve on the assessee a notice requiring him to furnish within
           such period...


           149 (1) No notice under section 148 shall be issued for the
           relevant assessment year,--

           (a) if four years have elapsed from the end of the relevant
           assessment year, unless the case falls under clause (b);

           (b) if four years, but not more than six years, have elapsed
           from the end of the relevant assessment year unless the
                                                   ITA No.6093/Del./2010 &

      income chargeable to tax which has escaped assessment
      amounts to or is likely to amount to one lakh rupees or more
      for that year.

The Supreme Court emphasized the need to issue notice, within the
prescribed period, in R.K. Upadhyaya v. Shanabhai P. Patel [1987]
166 ITR 163 (SC), in the following terms:

      "Section 148(1) provides for service of notice as a condition
      precedent to making the order of assessment. Once a notice is
      issued within the period of limitations, jurisdiction becomes
      vested in the Income-tax Officer to proceed to reassess. The
      mandate of Section 148(1) is that reassessment shall not be
      made until there has been service. The requirement of issue of
      notice is satisfied when a notice is actually issued. In this
      case, admittedly, the notice was issued within the prescribed
      period of limitation as March 31, 1970, was the last day of
      that period. Service under the new Act is not a condition
      precedent to conferment of jurisdiction in the Income-tax
      Officer to deal with the matter but it is a condition precedent to
      making of the order of assessment. The High Court in our
      opinion lost sight of the distinction and under a wrong basis
      felt bound by the judgment in [1964]53ITR100(SC) ."

In G.K.N. Driveshafts (supra), it was held that:

       "[W]e clarify that when a notice under Section 148 of the
       Income Tax Act is issued, the proper course of action for the
       notice is to file return and if he so desires, to seek reasons for
       issuing notices. The Assessing Officer is bound to furnish
       reasons within a reasonable time. On receipt of reasons, the
       notice is entitled to file objections to issuance of notice and
       the Assessing Officer is bound to dispose of the same by
       passing a speaking order."

A.G.Holdings (supra) held that:

      "There is no requirement in Section 147 or Section 148 or
      Section 149 ITA 317/2012 Page 5 that the reasons recorded
      should also accompany the notice issued under Section 148.
      The requirement in Section 149(1) is only that the notice
      under Section 148 shall be issued. There is no requirement
      that it should also be served on the assessee before the period
      of limitation. There is also no requirement in Section
      148(2) that the reasons recorded shall be served along with
                                                ITA No.6093/Del./2010 &

      the notice of reopening the assessment. The requirement,
      which is mandatory, is only that before issuing the notice to
      reopen the assessment, the Assessing Officer shall record his
      reasons for doing so. After the decision of the Supreme Court
      in GKN Driveshafts (India) Ltd. (supra) the Assessing Officer is
      duty bound to supply the reasons recorded for reopening the
      assessment to the assessee, after the assessee files the
      return in response to the notice issued under Section 148 and
      on his making a request to the Assessing Officer to that

8. The decisions cited above point out the fallacy in the impugned
order. R.K. Upadhyaya clarifies that serving of the notice is a pre-
condition to making the assessment order under section 148. It is
not the service of notice upon the assessee that confers jurisdiction
in the Assessing Officer to reopen assessment; instead, his
jurisdiction is derived from the conditions specified in section 147,
viz. the existence of reasons to believe that income has escaped
assessment. Thus, since the notice was issued within the six year
limit prescribed under Section 149, i.e., on 27.3.2009, there is no
infirmity with the assumption of jurisdiction by the AO even though
the service of the notice was after the expiry of the six year period.

9. Secondly, A.G. Holdings, a decision of an earlier Division Bench of
this Court, elucidates that there is no requirement under the Act, or
under even the judicially laid down procedure to furnish the
assessee with the "reasons to believe" on the basis of which
reassessment proceedings under section 147 are intimated. The
contentions of the assessee, in this regard, have no merit are thus
rejected. The decision in Haryana Acrylic (supra), ITA 317/2012
Page 6 being consistent with that in G.K.N. Driveshafts (supra),
merely held that when reasons are sought, they should be supplied
within reasonable time. In Haryana Acrylic the reasons were
supplied more than three and a half years after they were sought. In
the present case, however, the assessee filed his response to the
notice under Section 148 on 10.4.2009. The record further reveals
that the reasons recorded for reopening were made available to the
assessee company on 31.9.2009. The reassessment order was
made on 15.12.2009, and it is clear from the same that the assessee
had adequate notice of the "reasons recorded", and had presented
objections against it. It is clear that the opportunity that was
conceived in G.K.N. Driveshafts to be given to assessees before
reassessment was satisfactorily accorded to the assessee in the
present case. Hence, there was no shortcomings in the
reassessment proceedings.

10. For the above reasons this Court is of the opinion that the
Tribunal's order cannot be sustained. The same is accordingly set
                                                 ITA No.6093/Del./2010 &

     aside. The matter is remanded back to the Tribunal, which shall
     consider assessee's appeal on its merits and decide in accordance
     with law."

2.2 In view of the above decision of the Hon'ble Delhi High
Court, we are required to adjudicate the ground No. (ii) and (iii) of
the appeal only.
3.   In ground No. 2, the assessee has challenged addition of 
38,99,527/- made by the Assessing Officer on account of
undisclosed purchases which has been confirmed by the Ld.
CIT(A). The ground No. 3 is in relation to addition of  38,995/- as
unexplained expenditure by way of commission paid for arranging
the accommodation entries bills of purchase amounting to 
3.1 The briefly stated facts qua the issue in dispute are that the
Assessing Officer received information from the Additional
Commissioner of Income-tax, Range-14, Mumbai. As per the
information, the assessee had obtained accommodation purchase
bills of  38,99,527/- from three parties, namely, Shri Rakesh
Kumar M. Gupta, Prop. of M/s. Manoj Mills (Rs.22,11,176/-);
Smt. Hema R Gupta Prop. of             M/s Aastha Silk Industries
(Rs.5,00,013/-) and Shri Mohit Gupta Prop. of M/s. Shree Ram
sales and synthetics (Rs. 11,88,338/-), who were running their
activities of issuing accommodation entries bills from the
premises of shop No. 4, Ram Gally, Pankaj Market ,Champa Gally
X-Lane, Kalba Devi, Mumbai-400002. Sh. Rakesh Kumar Gupta,
who was responsible for managing and controlling all the
aforesaid concerns, in his statement recorded on oath admitted
that he was engaged in the activity of providing accommodation
                                              ITA No.6093/Del./2010 &

entries bills for the past nine years and earning commission at
the rate of 1% on amount of sale bills issued. He admitted the
modus operandi of issuing sale bills on the requirement of the
parties after receipt of cheque for the amount as per the bills,
which was deposited in the bank account and same amount of
cash was returned to the party concerned after reducing his
commission charges. He admitted that to correlate the sales, the
purchase bills were prepared by himself by getting the bill book
printed in the name of the various firms. During the course of the
assessment proceeding the assessee was asked to justify the
above referred purchases of  38.99 lakhs from the concerned
parties. The assessee explained that these purchases were
genuine in view of the copy of the bills, goods received notes
(GRN), orders placed on the brokers for supply of goods,
payments made by account payee cheque. The assessee further
submitted that during the course of Income-tax survey at the
premises of the assessee on 03/12/2002, unexplained stock of 
1.36 crore was found and the assessee already paid advance tax
of Rs. 50 lakhs against that additional stock and thus no addition
should be made on account of unexplained or bogus purchases.
3.2 Above contention of the assessee was not accepted by the
Assessing Officer mainly on the ground that the goods were
allegedly purchased from the above three parties at Mumbai, but
the assessee failed to file any evidence and proof of transportation
of those goods from Mumbai to Gorgon, where the assessee's
factory is located and also failed to file evidence of transport
expenses incurred against those purchases. The Assessing Officer
noted that the assessee had filed copy of 17 sales bills of the
                                                   ITA No.6093/Del./2010 &

parties but in none of the bills mode of transport, LR number,
Packing challan number, name of the agent, document to which
sales made etc. had been mentioned. He also observed that bill
number was also not printed and number was written in hand.
The Assessing Officer asked the assessee to file confirmation of its
account from the above three parties, however the assessee failed
to file said confirmation. In view of above facts, the learned
Assessing Officer held the purchase of  38.99 lakhs as
unexplained and also added commission of Rs.38,995/- at the
rate of the 1% of unexplained purchases for getting the
accommodation entries bills from Sri Rakesh Kumar Gupta.
3.4 During first appellate proceedings, the assessee was also
provided copy of statement of Shri Rakesh Kumar Gupta. Before
the Ld. CIT(A) also, the assessee              failed to produce any
documentary evidence in support of the transfer of goods from
Mumbai to Gurgaon, loading and unloading expenses etc. After
considering the arguments of the learned Counsel of the assessee,
the Ld. CIT(A) upheld the addition in dispute observing as under:

     "4.3 Further, in the course of appellate proceedings, the learned
     counsel for the appellant was required to produce the necessary
     records and prove the payment of freight, cartage and loading and
     unloading expenses, if any, incurred by the appellant in connection
     with the purchases allegedly made from the aforesaid concerns
     controlled by Sh. Rakehs Kumar Gupta. However, the ld. counsel
     has fairly conceded that it was not possible to correlate any such
     expenditure with specific purchases. Thus, there is no independent
     proof which may support the purchases from the aforesaid concerns.

     As said earlier, the accommodation purchase bills are normally
     obtained by an assessee either to utilize them for undisclosed
     manufacturing/production or inflate the cost of production.
     Therefore, in the course of appellate proceedings, the appellant was
     required to submit a note on the manufacturing process, specifically
                                                      ITA No.6093/Del./2010 &

     explaining the stages where shortages/leakages/wastages take
     place. However, on a careful examination of the note submitted by
     the appellant company it was found that there was no
     systematic/scientific method to record the aforesaid items of
     shortages nor there was any plausible explanation for such
     shortages. The Id. Counsel as well as Sh. Nikhil Mohan, the director
     could not give any specific reply rather a vague and indirect and
     unspecific explanation was given by them to the effect that in some
     cases shortage is on account of defective raw material received from
     the suppliers or the shrinkages and defects pointed out by the job
     workers. It was also explained that defective pieces and cuttings etc
     are disposed of in bulk/ by holding local sales etc. Therefore, in my
     view, the appellant is not properly recording the details of production
     activities, perhaps, deliberately, and the same is providing required
     space to adjust the accounts by way of obtaining accommodation
     purchase bills.

     4.4 In view of the aforesaid discussion, I hold that the AO was fully
     justified in bringing to tax the amounts of Rs 3899527 and Rs 38995
     representing value of accommodation purchase bills and payment of
     commission thereon respectively. Accordingly, both the additions are
     being sustained."

3.5 Before us, the learned Counsel of the assessee has filed a
paper-book containing pages 1 to 34 and relied on the
submission made before the lower authorities. The learned
Counsel has submitted that addition has been sustained merely
on the statement of the third-party and no other corroborative
evidence has been found to support the contention of the third-
3.6 On the contrary, the Learned DR relied on the order of the
lower authorities and submitted that the assessee has neither
filed any confirmation from third parties in support of the alleged
purchases nor filed any proof of transport of the goods from
Mumbai to Gurgaon and thus assessee failed to discharge its
onus. The learned DR submitted that excess stock found cannot
be adjusted against the bogus purchases as the assessee has
                                                 ITA No.6093/Del./2010 &

failed to co-relate the excess stock with the accommodation
entries bills. According to the learned DR, the learned Assessing
Officer has not made addition only on the basis of the statement
of the third parties but in view of the failure on the part of the
assessee to substantiate the alleged purchases and, therefore,
providing of cross examination of those parties was not sine qua
non for making the addition. She relied on following decisions in
support of her claim:

     1.   N K Proteins Ltd. Vs. CIT (2017-TIOL-23-SC-IT)
          N K Proteins Ltd. Vs. CIT (2016-TIOL-3165-HC-AHM-IT)
     2.   N.K. Industries Ltd. Vs. DCIT [2016] 72 289
          (Gujarat)/[2017] 292 CTR 354 (Gujarat)
     3.   CIT Vs. Arun Malhotra, 47 385 (Delhi)/[2014] 363
          ITR 195
     4.   CIT Vs. La Medica [2001] 117 Taxman 628 (Delhi)/[2001] 250 ITR
          575 (Delhi)/[2001] 168 CTR 314 (Delhi)
     5.   Vijay Proteins Ltd. Vs. ACIT, [2015] 58 44 (Gujarat)

3.7 In support of the contention that entire undisclosed income
generated out of bogus transaction deserve to be added, the
learned DR relied on following decisions:

     1.   ITO Vs. M Pirai Choodi [2012] 20 733 (SC)/[2011]
          334 ITR 262 (SC)/[2011] 245 CTR 233 (SC) (Supreme Court).
     2.   M/s. Pebble Investment and Finance Ltd. Vs. ITO [2017-TIOL-238-
          SC-IT] (Supreme Court)
     3.   CIT Vs. Kuwer Fibers (P.) Ltd. [2017] 77 345 (Delhi)
     4.   CIT Vs. Sonal Construction [2012-TIOL-851-HC-DEL-IT] (Delhi)
     5.   Nokia India (P.) Ltd. Vs. DCIT [2015] 59 2012 (Delhi
          ­ Trib.)
     6.   GTC Industries Ltd. Vs. ACIT [1998] 65 ITD 380 (BOM)

3.7 We have heard the rival submission of the parties and
perused the relevant material on record. In the instant case, the
                                             ITA No.6093/Del./2010 &

assessee in its books of accounts, have shown purchases from
the above-mentioned three parties amounting to  38.99 lakhs. In
view of the information in the possession of the Assessing Officer,
that the assessee has obtained only accommodation entries bills
in the form of the purchases without any actual purchase of the
goods, the Assessing Officer asked the assessee to substantiate
the purchases. From the orders of the lower authorities, we find
that the assessee not only failed in produce confirmation from
those parties but also failed to substantiate transport of goods
mentioned in those bills from Mumbai i.e. the place of purchase
to the factory located at Gurgaon i.e. the place of consumption of
goods. Even before us, the assessee has not filed any such
evidence to rebut the finding of the Assessing Officer as well as
the Learned CIT(Appeals). Mere filing of copy of purchase bills,
goods received notes or payment by cheque was not sufficient to
establish the purchases. The assessee was required to discharge
its onus of substantiating the purchases with deliveries of goods.
The responsibility of the assessee to substantiate purchases was
further increased in view of the statement of Shri Rakesh Kumar
Gupta that he had provided accommodation entry bills without
supplying the goods physically. But in view of the failure on the
part of the assessee in discharging its onus, we do not find any
infirmity in the order of the lower authorities on the issue in
dispute and accordingly we uphold the same. The ground No. 2
and 3 of the appeal of the assessee are accordingly dismissed.
                                                     ITA No.6093/Del./2010 &

ITA No. 4304/Del./2011
Assessment year: 2003-04

4.   In ITA No. 4304/del/2011 for assessment at 2003-04, the
assessee has raised following grounds of the appeal:

     "That on the facts and in the circumstances of the case and in law
     the Ld. CIT(A) erred confirming the following actions of the Assessing

     (i) initiating proceedings u/s 147 of the Income Tax Act and
     completing the assessment u/s 147/143(3) of the Act on income of

     (ii) making an addition of Rs.22,63,222/- on account of alleged
     undisclosed purchase on surmises and conjectures; and

     (iii) making an addition of Rs.22,632/- as unexplained
     expenditure allegedly by way of commission paid even through there
     was no material in support of such allegations.

5.   The ground No. 1 of the appeal being identical to the ground
No. 1 of the appeal for assessment year 2002-03 and, therefore, it
is squarely covered by the decision of the Hon'ble Delhi High
Court in the case of the assessee for assessment year 2002-03.
The assessee also did not press this ground before us.
Accordingly, this ground of the appeal is dismissed.
6.   In ground Nos. 2 and 3, the issue of undisclosed purchases
and commission thereon is involved. Identical issue has been
adjudicated by us in assessment year 2002-03. In the instant
year, the Ld. CIT(A) has also upheld the addition following his
finding in assessment year 2002-03. In the present appeal, the
assessee has also filed paper-book containing pages 1-35,
comprising of copy of the bills issued by the accommodation
entries providers. On perusal of the bills, it is apparent that there
                                                ITA No.6093/Del./2010 &

is no mention of mode of transport on those bills, and thus
assessee has failed to substantiate its purchases. To have
consistency of our decision, we uphold additions made by the
Assessing Officer and confirmed by the Ld. CIT(A). The ground
No. 2 and 3 of the instant appeal are also dismissed accordingly.
8.     In the result, both the appeals of the assessee are dismissed.
           Order pronounced in the open court on 17th March, 2020.

            Sd/-                                     Sd/-
     (BHAVNESH SAINI)                           (O.P. KANT)
     JUDICIAL MEMBER                        ACCOUNTANT MEMBER

Dated: 17th March, 2020.
Copy forwarded to:
1.       Appellant
2.       Respondent
3.       CIT
4.       CIT(A)
5.       DR
                                              Asst. Registrar, ITAT, New Delhi
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