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2017 (10) TMI 636 - AT - Income TaxReopening of assessment - Disallowance of 100% of bogus purchase - Held that - Tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the guilt. As relying on CIT Versus Rajesh Jhaveri Stock Brokers P. Limited 2007 (5) TMI 197 - SUPREME Court we justify the validity of reopening in this case.
Issues Involved:
1. Sustaining disallowance of 100% of bogus purchase amounting to ?22,39,511. 2. Validity of reopening the assessment. Detailed Analysis: 1. Sustaining Disallowance of 100% of Bogus Purchase: The primary issue in this case is whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in sustaining the disallowance of 100% of bogus purchases amounting to ?22,39,511. The assessee, a partnership firm engaged in the manufacturing of ready-made garments, filed its return of income for AY 2009-10, which was assessed under section 143(3) of the Income Tax Act. Subsequently, the Assessing Officer (AO) received information from the Directorate General of Income Tax (Investigation) indicating that the assessee had made bogus purchases and taken accommodation bills. During the assessment proceedings, the AO attempted to verify the purchases from four hawala dealers but received no response to notices issued under section 133(6) of the Act. The assessee claimed that a fire had destroyed all relevant documents, preventing them from furnishing any reply. Consequently, the AO added ?22,39,511 under section 69C of the Act as bogus/unproved purchases. The CIT(A) upheld the AO's decision, noting that the assessee failed to substantiate its claims with evidence. The CIT(A) emphasized that the onus was on the assessee to prove the genuineness of the purchases, which they failed to do. The CIT(A) referenced similar cases where claims were rejected due to lack of evidence and inability to cross-examine witnesses. Upon appeal to the ITAT, it was found that credible information indicated the use of bogus suppliers for accommodation entries. The assessee failed to produce any confirmation from the parties or evidence of transportation of goods. The ITAT concluded that the assessee had obtained bogus purchase bills and that mere documentation could not override the overwhelming evidence of non-existent suppliers. However, the ITAT noted that while the sales were not doubted, 100% disallowance for bogus purchases was not justified, as sales could not occur without actual purchases. Citing the jurisdictional High Court decision in the case of Nikunj Eximp Enterprises, the ITAT held that a 12.5% disallowance out of the bogus purchases was appropriate, considering the savings from grey market purchases. 2. Validity of Reopening the Assessment: The second issue pertains to the validity of reopening the assessment. The AO received information from the DGIT (Investigation) and the Maharashtra Sales Tax Authority about parties engaged in hawala transactions and issuing bogus purchase bills. The information indicated that the assessee was a beneficiary of these bogus entries. The AO reopened the assessment based on this information, which was supported by statements and affidavits from the hawala dealers admitting to issuing bogus bills. The ITAT found that the AO had tangible and cogent material justifying the reopening of the assessment. The information received had a live link with the reason to believe that income had escaped assessment. The ITAT referenced the Supreme Court decision in the case of CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, which stated that the AO only needed a prima facie belief based on tangible information about escapement of income at the stage of issuing notice. Conclusion: The ITAT partly allowed the appeal, reducing the disallowance to 12.5% of the bogus purchases while upholding the validity of reopening the assessment. The order was pronounced in the open court on 12.10.2017.
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