2017 (11) TMI 2051 - AT - Income Tax

Reopening of assessment - Estimation of income - bogus purchases - CIT(A) confirmed addition being 17.5% of the total bogus purchases - HELD THAT - We find that the reopening has been done on the basis of information from the Sales Tax Department, GOM that the assessee has availed hawala entries for purchase of goods from the hawala operators - In our opinion, the said information was not available before the AO at the time of framing of the assessment and therefore was constituted valid reason for reopening the assessment u/s 148 of the Act. We are in agreement with the conclusion drawn by the CIT(A) on the issue of reopening of the assessment and accordingly the cross objection raised against re-opening is dismissed. Addition at the rate of 17.5% of bogus purchases - We find that the assessee failed to prove the genuineness of purchases by producing the relevant documentary and circumstances evidences before the lower authorities as desired by them whereas the consumption of the materials is not disputed. Therefore, reasonable addition should be made to cover the various types of savings which the assessee might have made by purchasing the goods from the gray market. Accordingly, we feel reasonable if the addition is sustained to the tune of 5% of the amount of bogus purchases. Accordingly, the CO of the assessee is partly allowed and appeal of the revenue is dismissed. As the addition made by the ld. CIT(A) at the rate of 17.5% of the bogus purchase is on higher side, it should be made on reasonable account which brings the tax and savings which the assessee might have made. Resultantly, the appeal of the revenue stands dismissed.

Summary

Issues:
1. Deletion of addition of Rs.1,61,38,686/- by CIT(A)
2. Reopening of assessment u/s 147 r.w.s.148
3. Confirmation of addition at the rate of 17.5%

Analysis:

Issue 1: Deletion of addition by CIT(A)
The appeals by the revenue were directed against the common order passed by CIT(A) pertaining to the assessment years 2009-10 and 2011-12. The AO added Rs.1,61,38,686/- to the income of the assessee on account of bogus purchases. The CIT(A) partly allowed the appeal by sustaining the addition to the extent of 17.5% of the total purchases. The AO concluded that the purchases made by the assessee were mostly bogus or made in cash. The CIT(A) upheld the reopening of assessment u/s 147 and considered various contentions and submissions before partially sustaining the addition.

Issue 2: Reopening of assessment
The assessee challenged the reopening of assessment u/s 147 r.w.s.148. The Tribunal found that the reopening was based on information from the Sales Tax Department indicating hawala entries for purchases. The Tribunal deemed this information as not available to the AO during the original assessment, justifying the reopening. The cross-objection raised against the reopening was dismissed based on this analysis.

Issue 3: Confirmation of addition at 17.5%
The Tribunal noted that the addition should cover potential savings from purchasing goods from the gray market without paying VAT and other taxes. Citing consistent views from other benches, the Tribunal decided to sustain the addition at 5% of the total bogus purchases. The Tribunal emphasized the failure of the assessee to prove the genuineness of purchases, leading to the decision to apply a reasonable percentage to account for potential savings.

In another appeal, the Tribunal applied the same reasoning as in the previous case, deciding in favor of the assessee and partly allowing the cross-objection while dismissing the appeal of the revenue. The appeals of the revenue were ultimately dismissed, and the cross-objections of the assessee were partly allowed.