2017 (8) TMI 1599 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - bogus purchases - HELD THAT - Returns were processed u/s 143(1) of the Act and notice u/s 148 of the Act in both the years were issued on 03-12-2012 within four years. The re-opening was done on the basis of information from DGIT investigation, Mumbai that the assessee has claimed bogus purchases and therefore income has escaped assessment. Accordingly, we also confirmed the action of the AO as confirmed by CIT(A). Bogus purchases - CIT(A) restricting the profit rate at 12.5% - HELD THAT - Assessee might have made purchases from grey market and obtained these bogus bills from hawala parties by paying some commission. In these circumstances the assessee might have saved VAT and also purchased material from grey market at a lower price. For that the CIT(A) has restricted the addition made by the AO of unproved purchases by estimating and applying the profit rate @ 12.5% as against addition made by the AO of 100% of the bogus purchases. According to us, the profit rate applied by CIT(A) at 12.5% is quite reasonable and accordingly a reasonable profit rate is estimated. We find that the in the decision of the Hon ble Gujarat High Court in the case of CIT vs. Smith P Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT wherein the profit rate is estimated at 12.5%. We find that the CIT(A) has rightly restricted the profit rate on unverified purchases and we are of the view that he has rightly estimated the profit. - Decided against assessee.

Summary

Issues Involved:
1. Reopening of assessment
2. Restriction of profit rate on unverified purchases

Reopening of Assessment:
The appeals by the assessee challenged the CIT(A)'s confirmation of the reopening of assessment for the A.Ys. 2009-10 & 2010-11. The re-opening was based on information from DGIT investigation indicating bogus purchases by the assessee. The AO issued notices under section 148 of the Income Tax Act, 1961, within four years. The ITAT confirmed the AO's action, as upheld by the CIT(A), citing lack of in-depth inquiries by the AO and failure of the assessee to substantiate purchases from listed hawala dealers. The ITAT found the re-opening justified based on the information received.

Restriction of Profit Rate on Unverified Purchases:
The second issue in the appeals pertained to the CIT(A)'s decision to restrict the profit rate on unverified purchases at 25% instead of the 100% added by the AO. The assessee, engaged in the steel products business, failed to prove purchases from hawala parties listed by the Sales Tax Department. The CIT(A) restricted the disallowance to 25% of the bogus purchases, citing the absence of conclusive evidence of purchases from the listed parties. The ITAT upheld the CIT(A)'s decision, considering the lack of proof of purchases and the reasonable estimation of profit rate at 12.5% based on similar precedents. The ITAT found the CIT(A)'s decision appropriate and dismissed the appeals of the assessee.

In conclusion, the ITAT Mumbai upheld the reopening of assessment based on information from the DGIT investigation and confirmed the CIT(A)'s decision to restrict the profit rate on unverified purchases at 25%. The ITAT found the CIT(A)'s estimation of profit rate reasonable, considering the lack of evidence supporting purchases from the listed hawala parties.