2019 (7) TMI 2026 - AT - Income Tax

Reopening of assessment u/s 147 - proceedings made after completing of 4 years - AO had received information from Investigation Wing Mumbai as assessee had indulged in bogus transaction - HELD THAT - As in the case 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. Similarly, 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 r.w.s.148 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 - We observe that the assessee has failed to substantiate the purchases by not producing the parties in question and admission of the party that they have indulged in providing bogus accommodation entries - In the light of above facts and circumstances and considering the net profit of 5% as the average rate of the industry as observed as 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 Ld. CIT(A) and balance is deleted. Accordingly, Ground No. 2 to 4 of appeal 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 against bogus purchases.
3. Estimation of net profit on total sales and purchases.

Summary:

Issue 1: Reopening of assessment u/s 147 of the Act

The Tribunal examined the validity of the reopening of assessment u/s 147. The AO had received credible information from the Investigation Wing, Mumbai, regarding bogus purchases amounting to Rs. 7.15 crores from entities controlled by Shri Pravin Kumar Jain, who admitted to providing accommodation entries. Despite the assessee's argument that there was no failure to disclose material facts, the Tribunal upheld the reopening, citing sufficient prima facie material and credible information justifying the AO's belief that income had escaped assessment. The Tribunal relied on precedents such as Phoolchand Bajranglal v. ITO and Dishman Pharmaceuticals & Chemicals v. DCIT.

Issue 2: Rejection of books of account and addition against bogus purchases

The Tribunal addressed the rejection of the books of account and the addition of Rs. 2,98,97,701/- against bogus purchases. The AO treated the entire purchases from the entities as bogus based on the statement of Shri Pravin Kumar Jain and the non-production of the parties for verification. The CIT(A) estimated net profit at 5% of total purchases, considering the industry average and corroborating evidence. The Tribunal found that while the purchases were inflated, corresponding sales were not doubted, and thus, it was not reasonable to disallow 100% of the purchases. The Tribunal upheld the rejection of books but modified the addition to 5% of the bogus purchases, totaling Rs. 35,75,002/-.

Issue 3: Estimation of net profit on total sales and purchases

The Tribunal considered the CIT(A)'s estimation of net profit at 5% of total sales and purchases. The assessee argued that the estimation should be on disputed purchases only, not total turnover. The Tribunal agreed, referencing decisions such as Mayank Diamonds Pvt. Ltd. v. ITO and other Tribunal rulings, and restricted the addition to 5% of the bogus purchases amounting to Rs. 35,75,002/-. Consequently, the assessee's appeal was partly allowed, and the Revenue's appeal, challenging the deletion of the addition, was dismissed.

Conclusion:

The Tribunal upheld the reopening of assessment u/s 147, confirmed the rejection of books of account, and modified the addition to 5% of the bogus purchases, resulting in a partly allowed appeal for the assessee and a dismissed appeal for the Revenue.