2017 (1) TMI 1329 - AT - Income Tax

Reopening of assessment - addition to the total income on account of non-genuine purchases - GP addition - AO made a specific addition on account of unverified purchases u/s 68 - Held that - It is quite clear that at the level of the Assessing Officer, the purchases have been held to be unverifiable primarily for the reason that the notices issued by the Assessing Officer under section133(6) of the Act were either not served or if they were served, the same were not responded to by the respective parties. In contrast, the CIT(A) has recorded a categorical finding in para 6.29 to 6.30 of her order and has observed that the purchases were liable to be held as genuine and not bogus. In the context of assessment year 2010-11, we find that the said findings of the CIT(A) have not been assailed by the Revenue and cannot be said to be based on irrelevant material. Even before us, the Ld. Departmental Representative has merely reiterated the stand of the Assessing Officer, which in our opinion cannot be sustained in the face of the findings of the CIT(A). The CIT(A) has observed that the payments made are supported by confirmation of the parties, copies of invoices, bank statements and further that none of the parties have named the assessee in their statements. Considering these circumstances, we hereby affirm the order of the CIT(A) in principle that the purchases cannot be treated as bogus. On conclusion of the CIT(A) is that even if, some of the purchases were not verifiable, the addition, if any, could be made only for the embedded profit. In this context, for assessment year 2010-11, the CIT(A) has examined the G.P rate declared by the assessee @11.67% and not that considering the nature of asessee s business, the G.P rate of 10% is quite acceptable. Since the declared profit of 11.67% was more than the rate of 10%, the CIT(A) has chosen to delete the entire addition. In the absence of any infirmity in the action of the CIT(A), the same is affirmed.

Summary

Issues Involved:
1. Deletion of addition on account of non-genuine purchases.
2. Reopening of assessment under section 148 of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition on Account of Non-Genuine Purchases:

The Revenue's primary contention was the deletion of an addition of ?4,70,32,085/- made by the Assessing Officer (AO) on account of non-genuine purchases. The AO had based this addition on information from the Sales Tax Department of Maharashtra, which listed certain parties as suspicious or hawala dealers providing accommodation bills without actual delivery of goods. Notices issued under section 133(6) of the Act to these parties were either not served or not responded to, leading the AO to treat the purchases as bogus.

However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee provided substantial evidence, including ledger accounts, confirmations from parties, bank statements showing payments via account payee cheques, invoices, and purchase orders. The CIT(A) noted that the assessee was engaged in government contracts and provided work orders from municipal corporations, supporting the genuineness of the purchases. Furthermore, there was no evidence that the payments made by the assessee were returned in cash. The CIT(A) also observed that none of the parties had stated that the purchases were not genuine. Consequently, the CIT(A) held the purchases to be genuine and deleted the entire addition for the assessment year 2010-11.

For the assessment year 2011-12, the CIT(A) noted a lower Gross Profit (G.P) rate of 8.60% compared to the acceptable rate of 10% in the assessee's line of business. Therefore, the CIT(A) retained an addition of ?17,27,223/-, representing the difference in G.P rates.

The Tribunal upheld the CIT(A)'s findings, noting that the CIT(A) had provided a reasoned and evidence-based conclusion. The Tribunal affirmed that the purchases could not be treated as bogus, and any addition should be based on embedded profit, which was adequately addressed by the CIT(A) in both assessment years.

2. Reopening of Assessment Under Section 148:

The assessee challenged the reopening of the assessment under section 148, arguing that it was based on information from the Director General of Income Tax (Investigation) [DGIT (Inv)], Mumbai, without forming an independent belief that income had escaped assessment. The assessee contended that there was no "reason to believe" and no tangible material linking the information to the formation of such a belief, rendering the reopening invalid.

However, the Tribunal found no serious persuasion from the assessee's representative on this issue and dismissed the cross-objection, thereby upholding the reopening of the assessment.

Conclusion:

The Tribunal dismissed the appeals of the Revenue and the cross-objections filed by the assessee. The CIT(A)'s orders for both assessment years were affirmed, validating the deletion of the addition for non-genuine purchases for the assessment year 2010-11 and retaining a partial addition for the assessment year 2011-12 based on the G.P rate discrepancy. The reopening of the assessment under section 148 was also upheld.