2019 (9) TMI 1509 - AT - Income Tax

Reopening of assessment u/s 147 - Estimation of income on bogus purchases - HELD THAT - In the original return of income was processed u/s 143(1) and the only requirement under law to initiate reassessment proceedings was that learned AO had reasons to believe that certain income escaped assessment in the hands of the assessee. AO was clinched with tangible material in the shape of information from investigation wing / Sales Tax Department which, prima facie, suggested possible escapement of income in the hands of the assessee. Nothing more was required at this stage. Therefore, the reassessment proceedings were perfectly valid. Nothing on record support the legal grounds raised by assessee before us. Therefore, these grounds stand dismissed. Estimation of additions of bogus purchases - There could be no sale without actual purchase of material keeping in view the assessee s nature of business. The assessee was in possession of primary purchase documents and the payments to the supplier was through banking channels. The sales turnover reflected by the assessee was not disputed / disturbed by Ld.AO. However, at the same time, the assessee miserably failed to substantiate the purchases during assessment proceedings. Notices issued u/s 133(6) remained unresponded to in all the cases. Under such circumstances, the additions which could be sustained, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which Ld. first appellate authority has rightly done. Assessee was dealing in a low-margin item like iron steel which attracts lower rate of tax, the estimation made by Ld. CIT(A) would be slightly on the higher side. We modify the same to 5% of suspicious purchases which comes to ₹ 4,64,973/-. The Ld. AO is directed to recompute the income in terms of our order. The grounds, on merits, stands partly allowed.

Summary

Issues:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Addition of alleged profit element in purchases from non-genuine parties.
3. Disputing initiation of penalty proceedings under section 271(1)(c).

Analysis:
1. The appeal involved a recalled matter where the original dismissal was set aside upon the assessee's application. The appeal contested the order of the Ld. Commissioner of Income Tax (Appeals) regarding the reopening of assessment under section 147 of the Income Tax Act, 1961. The reassessment proceedings were found to be valid as the assessing officer had tangible material suggesting possible income escapement. The legal grounds raised by the assessee were dismissed as the reassessment was deemed valid based on the information from the investigation wing. The reassessment was upheld, and the legal grounds were rejected.

2. The addition of a profit element in purchases made from alleged non-genuine parties was disputed in the appeal. The assessee failed to substantiate the purchases during assessment proceedings, leading to an estimated addition of 12.5% to the income. The appellate tribunal modified the estimation to 5% of suspicious purchases, amounting to ?4,64,973, considering the nature of the business and the low-margin item involved. The assessing officer was directed to recompute the income based on this modification. The grounds on merits were partly allowed, resulting in a partial allowance of the appeal.

3. The issue regarding the initiation of penalty proceedings under section 271(1)(c) was raised in the appeal. The appellate tribunal found this ground disputing the penalty proceedings premature. The appellant denied liability for such penalty, but the tribunal did not find sufficient grounds to address this issue at the current stage. Therefore, this ground was not considered in the final decision of the appeal.

Overall, the appellate tribunal partially allowed the appeal, modifying the addition of the profit element in purchases and dismissing the legal grounds related to the reassessment validity. The penalty proceedings issue was deemed premature and not addressed in the final decision. The judgment was pronounced on 9th September 2019 by the Appellate Tribunal ITAT Mumbai.