2017 (4) TMI 402 - AT - Income Tax

Reopening of assessment - Gross profit additions @ 12.5% over the total bogus purchases - Held that - There were definite tangible and material incriminating information before the AO based on information received from the DGIT(Inv) Mumbai which is backed with information from Maharashtra Sales Tax Department that there are 28 entities through whom assessee made bogus purchases of material as these entities were engaged in providing accommodation entries only without supplying any material, which in turn was also supported by deposition s by way of affidavit/statements of these 28 hawala entry providers. While, we are conscious that the reassessment notice should not have been routinely issued, at the same time, the nature of power is wide enough that when there is an escapement of income and the Revenue has information ruling that this escapement is also relatable to suppression of material facts (which could include false claims), the power to reopen concluded assessment can validly be exercised. Re-opening of the assessment as done in the instant case by the AO u/s 147 of 1961 was valid and legal which is upheld by us , and the contentions of the assessee are , hereby, rejected. The books of accounts were not rejected u/s 145(3) of 1961 Act by the Revenue . In the immediately preceding year i.e. assessment year 2008-09, the assessee earned GP ratio of 4.3% on total turnover, while for the year under consideration GP ratio earned was 5.45%. Thus end of justice will be met in this case if GP ratio of 12.5% on alleged bogus purchases is added to income of the assessee against which credit for the declared GP ratio on the alleged bogus purchases will be granted by the AO after verification by the AO because of failure of the assessee to come forward to discharge primary onus cast upon him as detailed above for which assessee is to be blamed and in the midst of afore-stated un-rebutted allegation against the assessee and non discharge of primary onus, the declared lower GP ratio of 5.45% in the instant previous year under appeal cannot be accepted. Thus, in nut-shell we are inclined to adopt GP ratio of 12.5% on alleged bogus purchases in the instant case which in our considered view is fair, reasonable and rational keeping in view factual matrix of the case , while the assessee shall be granted credit of GP ratio declared on these bogus purchases in the return of income filed with the Revenue. The assessee gets part relief.

Issues Involved:
1. Addition on account of gross profit on alleged bogus purchases.
2. Conclusion of the Assessing Officer that purchases made by the appellant are bogus.
3. Estimation of gross profit rate on alleged bogus purchases.
4. Validity of initiating proceedings under section 147 of the Income-tax Act by issuing notice under section 148.
5. Validity of the assessment order under section 143(3) read with section 147.
6. Charging of interest under sections 234A, 234B, 234C, and 234D.

Issue-wise Detailed Analysis:

1. Addition on Account of Gross Profit on Alleged Bogus Purchases:
The assessee challenged the addition of ?29,97,908/- on account of gross profit at 12.50% on alleged bogus purchases of ?2,39,83,261/-. The Tribunal noted that the assessee did not press this ground during the hearing, leading to its dismissal.

2. Conclusion of the Assessing Officer that Purchases Made by the Appellant are Bogus:
The AO concluded that the purchases made by the assessee were bogus based on information from the Sales Tax Department, which indicated that 28 parties had issued invoices without actual delivery of goods. The AO observed that these parties admitted to issuing invoices for a commission without supplying goods. The assessee failed to produce original documents or evidence of the movement of goods, leading the AO to conclude that the purchases were bogus and made from the grey market at a lower price.

3. Estimation of Gross Profit Rate on Alleged Bogus Purchases:
The AO applied a gross profit rate of 12.5% on the alleged bogus purchases, which was upheld by the CIT(A). The Tribunal noted that the AO had not made any industry comparisons to arrive at a fair estimation and relied on the presumption that the material was purchased from the grey market. The Tribunal held that the estimation of gross profit should be fair and rational, and in this case, a gross profit rate of 12.5% on the alleged bogus purchases was deemed appropriate, with credit given for the declared gross profit rate.

4. Validity of Initiating Proceedings under Section 147 by Issuing Notice under Section 148:
The Tribunal upheld the validity of the reopening of the assessment under section 147. The AO had received tangible and material information from the DGIT (Inv.), Mumbai, based on information from the Maharashtra Sales Tax Department, indicating that the assessee was a beneficiary of bogus purchase entries. The Tribunal noted that the reopening was based on incriminating information and was done within four years from the end of the assessment year. The Tribunal relied on the Supreme Court's decision in ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. to support the validity of the reopening.

5. Validity of the Assessment Order under Section 143(3) read with Section 147:
The Tribunal upheld the validity of the assessment order under section 143(3) read with section 147. The assessment was reopened based on tangible and material information, and the AO had provided the assessee with the reasons for reopening and disposed of the assessee's objections. The Tribunal found that the AO had followed due process and that the reopening was justified based on the information received.

6. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee did not press this ground during the hearing, leading to its dismissal.

Conclusion:
The Tribunal partly allowed the appeal. It upheld the validity of the reopening of the assessment and the estimation of gross profit at 12.5% on the alleged bogus purchases, with credit given for the declared gross profit rate. The Tribunal dismissed the grounds not pressed by the assessee and provided detailed reasoning for its decisions on each issue.

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