2019 (6) TMI 1462 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus purchases - parties were not responded in respect of 133(6) notices - HELD THAT - On perusal of facts available on record the assessee is engaged in the business of manufacturing of steel products. Considering the nature of business carried out by the assessee and also taken support from the judicial precedence where it was held that only profit element embedded in bogus purchases needs to be taxed we are of the considered view that the AO is incorrect in making additions towards 100% alleged bogus purchases from the so called Hawala/suspicious dealers. Although the ld. CIT(A) has accepted the fact that only profit element embedded in bogus purchases needs to be taxed but yet adopted 25% profit without bringing on record any comparable cases of similar nature. Therefore considering the nature of business carried out by the assessee and also consistent with view taken by the Co-ordinate Bench of ITAT Mumbai in number of cases we deem it appropriate to scale down additions made by the AO towards alleged bogus purchases to the extent of 12.5% of such purchases. Accordingly we direct the AO to estimate 12.5% profit on alleged bogus purchases. Validity of reopening of assessee - We find that although the assessee has challenged validity of reopening of assessment we find that the AO has reopened the assessment on the basis of information received from DGIT(Inv.) which was further supported by report of M-Vat Govt. of Maharashtra which suggest escapement of income within the meaning of section 147 of the Act. Therefore there is no merit in the argument of the assessee is that the assessment has been reopened without their being any tangible material accordingly reject the ground taken by the assessee challenging the reopening of assessment.

Summary

Issues Involved:
1. Binding Precedent
2. Assessment Based on Suspicion & Surmises
3. Addition of Rs. 1,03,50,862 for Alleged Bogus Purchases
4. Reassessment Validity

Issue-Wise Detailed Analysis:

1. Binding Precedent:
The appellant contended that the CIT(A) failed to follow binding precedents, specifically citing the cases of CIT v. Nikunj Eximp Enterprises (P) Ltd. and Babulal C. Borana. However, the Tribunal did not specifically address this issue in the final judgment, indicating that the primary focus was on the factual matrix of the case rather than the precedential value of the cited cases.

2. Assessment Based on Suspicion & Surmises:
The appellant argued that the assessment was based on suspicion and surmises, without rejecting the books of accounts. The Tribunal noted that the AO had based his conclusions on the information received from the DGIT(Inv.) and the Maharashtra Sales Tax Department, which indicated that the purchases were from suspicious/hawala dealers. The Tribunal acknowledged that the AO had failed to produce the parties for verification and did not find discrepancies in the books of accounts or evidence of sales outside the books. Thus, the Tribunal found it difficult to accept the AO's conclusion that the purchases were non-genuine solely based on non-appearance of parties in response to notices.

3. Addition of Rs. 1,03,50,862 for Alleged Bogus Purchases:
The CIT(A) had scaled down the addition made by the AO from 100% of the alleged bogus purchases to 25%, citing the need to tax only the profit element embedded in those purchases. The Tribunal, however, found that the CIT(A) did not bring on record any comparable cases to justify the 25% profit estimation. After considering judicial precedents, the Tribunal deemed it appropriate to further scale down the additions to 12.5% of the alleged bogus purchases. The Tribunal referenced the case of Simit P. Seth vs CIT, where it was held that only the profit element in bogus purchases should be taxed.

4. Reassessment Validity:
The appellant challenged the validity of the reassessment, arguing that it was based on a change of opinion without tangible material. The Tribunal found that the AO had reopened the assessment based on information from the DGIT(Inv.) and the Maharashtra Sales Tax Department, which suggested escapement of income. Therefore, the Tribunal rejected the appellant's argument, upholding the validity of the reassessment.

Conclusion:
The Tribunal partly allowed the appeals, directing the AO to estimate a 12.5% profit on the alleged bogus purchases instead of the initial 25% estimated by the CIT(A). The Tribunal upheld the validity of the reassessment, finding that it was based on tangible material suggesting escapement of income. The decision emphasized the need to tax only the profit element embedded in the alleged bogus purchases, aligning with judicial precedents.