2019 (7) TMI 2025 - AT - Income Tax

Reopening of assessment u/s 147 - bogus purchase received - credible information from the DGIT (Inv.), Mumbai, indicating that the assessee had received accommodation entries - HELD THAT - The sufficiency of material at this stage in determining whether commencement of proceedings u/s 147(a) was valid, what was to be seen was only the prima facie material; the sufficiency or correctness of the material was not a thing to be considered at that stage. In the case of Phool Chand Bajrang Lal 1993 (7) TMI 1 - SUPREME COURT held that one of the purposes of section 147 is to ensure that a party cannot get away by willfully making a false or untrue statement at the time of the original assessment and when that falsity comes to notice, to turn around and say You accepted my lie, now your hands are tied and you can do nothing. It would be a travesty of justice to allow the assessee that latitude. further relied in the case of Pramamount Communication (P.) Ltd. 2017 (7) TMI 621 - SC ORDER affirming the judgement of Paramount Communication (P.) Ltd. 2017 (4) TMI 188 - DELHI HIGH COURT held that Information regarding bogus purchase by assessee received by DRI for CCE which was passed on to the revenue authorities was tangible material on record to initiate valid reassessment proceedings. Our view is further supported by the judgement of Amit Polyprints (P) Ltd. 2018 (5) TMI 1845 - GUJARAT HIGH COURT wherein it was held that where reassessment proceedings were initiated on the basis of information received for Investigation Wing that the assessee had received certain amount from shell companies working as an accommodation provider, reassessment could not be held unjustified. In the case of Aradhna Estate (P) Ltd. 2018 (2) TMI 1534 - GUJARAT HIGH COURT held that where reassessment proceedings were initiated on the basis of information received from Investigation Wing that the assessee had received certain amount from shell companies working as an accommodation entry provider, merely because these transaction were scrutinized by AO during original assessment , reassessment could not be held unjustified. AO has in his possession a credible information that income chargeable to tax has escaped assessment hence proceedings u/s. 147 read with section 148 of the Act has been correctly initiated. Therefore, the contention and arguments raised by the learned counsel for the assessee are not sustainable in law. Accordingly, the validity of reopening of assessment is held to be sustainable in law, and therefore, upheld. Consequently, Ground No. 1 of the appeal is therefore, dismissed. Estimation of income - bogus purchases - HELD THAT - As decided in Deluxe Diamonds 2018 (4) TMI 1892 - ITAT SURAT wherein the Tribunal has restricted the estimation of 5% of bogus phases and not of entire purchases disclosed in books of accounts by the assessee by following decision of Mayank Diamonds Pvt. Ltd 2014 (11) TMI 812 - GUJARAT HIGH COURT Therefore, in the light of above facts and circumstances and considering the net profit of 5% as the average rate of the industry as observed by the Hon ble Jurisdictional High Court and following the judicial pronouncements by the Co-ordinate Bench of Tribunals and the decision in the case of Mayank Diamonds Pvt. Ltd 2014 (11) TMI 812 - GUJARAT HIGH COURT we deem it fit to restrict the addition to 5% of total bogus purchases Accordingly, addition @ 5% is sustained as against the addition sustained by the CIT (A) and balance is deleted. Accordingly, Ground of the assessee are therefore, partly allowed.

Summary

Issues Involved:
1. Reopening of assessment u/s 147 of the Act.
2. Rejection of books of account and addition based on bogus purchases.
3. Estimation of net profit at 5% of total purchases.
4. Deletion of addition by estimating income at 5% of total purchases.

Summary of Judgment:

Issue 1: Reopening of Assessment u/s 147 of the Act
The case was reopened based on credible information from the Investigation Wing, Mumbai, which indicated that the assessee had taken accommodation entries from bogus concerns operated by Shri Praveen Kumar Jain. The Tribunal upheld the reopening of the assessment, stating that the AO had tangible material to form a reason to believe that income chargeable to tax had escaped assessment. The Tribunal referenced several case laws, including Phoolchand Bajranglal v. ITO [1993] 203 ITR 456 (SC) and Dishman Pharmaceuticals & Chemicals v. DCIT [2012] 346 ITR 228 (Gujarat), to support its decision.

Issue 2: Rejection of Books of Account and Addition Based on Bogus Purchases
The AO treated the entire purchases of Rs. 8,78,00,035 as bogus based on the statement of Shri Pravin Kumar Jain, who admitted to providing accommodation entries. The CIT(A) upheld the rejection of books of account, observing that the assessee failed to produce supporting documents and stock registers. The Tribunal noted that the purchases were made through banking channels and were reflected in the audited accounts. However, the Tribunal found that the assessee could not substantiate the purchases by producing the parties in question.

Issue 3: Estimation of Net Profit at 5% of Total Purchases
The CIT(A) estimated the net profit at 5% of total purchases, relying on the average profit margin in the diamond trade. The Tribunal agreed with this estimation, referencing the Hon'ble Gujarat High Court in Mayank Diamonds Pvt. Ltd. v. ITO [Tax Appeal No. 200 of 2003] which observed a net profit margin between 3% to 7%. The Tribunal found it reasonable to apply a 5% net profit rate on the bogus purchases.

Issue 4: Deletion of Addition by Estimating Income at 5% of Total Purchases
The Tribunal restricted the addition to 5% of the total bogus purchases, amounting to Rs. 43,90,000, and deleted the balance addition. The Tribunal referenced several decisions, including Deluxe Diamonds v. ITO [I.T.A. No. 1396/Ahd/2017] and DCIT v. J. B. Brothers [I.T.A. No. 3661/Ahd/2015], which supported the estimation of profit on bogus purchases rather than the entire purchase turnover.

Conclusion:
The appeal of the assessee was partly allowed, restricting the addition to 5% of the bogus purchases, while the appeal of the Revenue was dismissed. The Tribunal upheld the validity of the reopening of assessment and the estimation of net profit at 5% of the bogus purchases. The order was pronounced in the open Court on 18.07.2019.