2019 (3) TMI 1982 - AT - Income Tax

Reopening of assessment u/s 147 - bogus purchases - information received from sales tax department about hawala transactions of purchases made by the assessee - HELD THAT - AO does not treats the purchases as non-genuine / bogus but makes addition by treating the purchases as URD purchases . The addition is made only of the Gross profit on such alleged URD purchases . We find in the case of Jet Airways ( 2010 (4) TMI 431 - HIGH COURT OF BOMBAY has held that if after issuing notice u/s 148 of the Act AO holds that the income which he has initially formed a reason to believe had escaped assessment has not escaped assessment then it is not open to him to independently assess some other income. In the present case when seen in the light of the aforesaid decision of Hon ble Bombay High Court (supra) the reasons for reopening was on account of bogus/non genuine purchases but no addition has been made on that count but addition has been made for the reason that the purchases are URD purchases . As during the course of reassessment proceedings assessee had furnished the details called for to prove his contention that the purchases are genuine except for the confirmation of the parties from whom the purchases were made. Before me no fault has been pointed out in those details submitted by the assessee - Decided in favour of assessee.

Summary

Issues:
- Addition of GP ratio on unregistered dealer purchases
- Distinction between bogus purchases and URD purchases
- Jurisdiction of the Assessing Officer in making additions

Analysis:
1. Addition of GP ratio on unregistered dealer purchases:
- The appeals filed by the assessee were based on common issues for different assessment years. The AO made additions based on the GP involved in purchases from unregistered dealers. The assessee contended that the GP ratio was already declared and adding more would lead to double taxation. The CIT(A) upheld the AO's order, citing various court decisions supporting GP additions. However, the ITAT found that the reassessment was initiated based on alleged bogus purchases, not URD purchases. As per the Hon'ble Bombay High Court, if the initial reason for reassessment is found invalid, no further additions can be made. The ITAT set aside the assessment orders for all three years, allowing the assessee's appeals.

2. Distinction between bogus purchases and URD purchases:
- The AO treated the purchases as URD purchases instead of bogus purchases, leading to GP ratio additions. The assessee argued that the AO's actions were beyond jurisdiction as no additions were made for alleged bogus purchases. The ITAT agreed, emphasizing the importance of the initial reason for reassessment. Since the AO did not differentiate between bogus and URD purchases, the ITAT found the reassessment proceedings unjustified and set aside the orders.

3. Jurisdiction of the Assessing Officer in making additions:
- The AO's decision to add GP ratio on URD purchases was challenged by the assessee, highlighting the lack of distinction between bogus and URD purchases. The ITAT, following the decision of the Hon'ble Bombay High Court, ruled that if the initial reason for reassessment was not valid, no further additions could be made. As the reassessment was based on alleged bogus purchases and not URD purchases, the ITAT found the AO's actions unjustified and set aside the assessment orders for all three years, allowing the assessee's appeals.