2017 (3) TMI 1731 - AT - Income Tax

Reopening of assessment - unexplained purchases - Held that - AO was not having information about the statements of RKG. After receiving the information about the survey action carried out at the business premises of RKG concerns he came to know about the new facts. Therefore in our opinion he was justified in issuing the notice under section 148 of the Act. Confirming the order of the FAA in that regard we decide the 1st ground of appeal against the assessee. Addition with regard to non-genuine purchase - FAA has held that there was no doubt about the sales made by the assessee that the assessee was not given a chance to cross-examine RKG that the quantity details of the sales and closing stock of not challenged that no meaningful investigation was done after the survey proceedings at the business premises of RKG that 10% of the total purchases should be added to the income of the assessee. In our opinion there was no justification for upholding the addition of 10% of the purchases also. Once the sales and closing stock details were found to be genuine then without bringing some positive material on record to prove the unaccounted purchases no addition should have been made - the supplier i.e. RKG has retracted his statements. Considering the peculiar facts and circumstances of the case we are of the opinion that the order of the FAA cannot be endorsed. So reversing the same we decided second ground of appeal in favour of the assessee.

Summary

Issues:
1. Validity of reopening assessment under section 147 of the Act.
2. Addition of non-genuine purchases made from a group of concerns.

Analysis:

Issue 1: Validity of reopening assessment under section 147 of the Act
The Appellant, a company engaged in trading, challenged the order of the CIT(A) regarding the assessment completed by the Assessing Officer (AO) under section 143(3) r.w.s. 148 of the Act. The AO determined the income of the Appellant at a higher amount than declared. The Appellant objected to the addition made by the AO, claiming the purchases were genuine. The AO relied on the statement of RKG, who admitted to issuing accommodation bills, and made an addition to the Appellant's income. The FAA upheld the AO's decision to reopen the assessment under section 147. The ITAT found that the AO was justified in issuing the notice under section 148 after learning new facts from the survey action at RKG's business premises. Consequently, the ITAT decided the 1st ground of appeal against the Appellant.

Issue 2: Addition of non-genuine purchases made from a group of concerns
Regarding the addition of non-genuine purchases made from RKG group, the FAA had upheld the addition of 10% of the disputed purchases. However, the ITAT disagreed with this decision. The ITAT noted that there was no doubt about the sales made by the Appellant, and the quantity details of sales and closing stock were not challenged. Without positive material to prove unaccounted purchases, the ITAT found no justification for the addition. RKG retracted his statements, leading the ITAT to reverse the FAA's decision and decide the second ground of appeal in favor of the Appellant. As a result, the appeal filed by the Appellant was allowed.

In conclusion, the ITAT upheld the validity of reopening the assessment under section 147 but reversed the addition of non-genuine purchases made from the RKG group, ultimately allowing the appeal filed by the Appellant.