2017 (11) TMI 1058 - AT - Income Tax

Validity of reopening of assessment - eligible reasons to believe - Held that - AO issued notice u/s 148 of the I.T. Act after receiving information from the Sales Tax Department that some of the parties from whom the assessee had made purchases were bogus and they are engaged in the business of providing bills without actual delivery of goods and thus there was escapement of income from assessment. This information received from the Investigation wing construed tangible material for the purpose of reopening the assessment. Hence reopening of the assessment by the AO and upheld by Ld. CIT(A) is valid. Hence this ground raised by the assessee is dismissed. Confirmation of disallowance @ 12.5% of the bogus purchases - Held that - Facts and circumstances of the case clearly prove that assessee has booked bogus purchases. The assessee has made purchase from grey market. Making purchases from the grey market gives the assessee selling on account of non-payment of tax and others at the expense of the exchequer. In such circumstances, following the precedent from Hon ble Gujarat High Court decision in the case of Simit P. Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) we are of the considered opinion that 12.5% disallowance in this case would serve the interest of justice. - Decided against assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment
2. Disallowance of purchase amount as bogus purchases

Validity of Reopening of Assessment:
The Appeals were filed against the order of Commissioner of Income Tax (Appeals) for A.Y. 2010-11. The issues raised in the two appeals were identical, so they were clubbed together. The first appeal by the assessee challenged the reopening of assessment. The AO had received information from the Sales Tax Department about bogus purchase entries, leading to the disallowance of purchases amounting to ?1,54,45,712. The AO's decision to reopen the assessment was based on tangible material received from the Investigation wing, making the reopening valid. The Tribunal upheld the decision, dismissing the assessee's challenge.

Disallowance of Purchase Amount as Bogus Purchases:
The second issue revolved around the disallowance of the purchase amount as bogus purchases. The assessee contended that the disallowance was unjustified as all payments were made through banking channels and supported by various documents. The CIT(A) partly allowed the appeal and restricted the addition to 12.5% of the total bogus purchases. The Tribunal examined the grounds raised by the assessee, including the argument for adopting the concept of real income. The Tribunal referred to various case laws cited by the assessee and upheld the CIT(A)'s decision based on the judgment of the Gujarat High Court. The Tribunal found no new facts or contrary judgments to overturn the CIT(A)'s findings, leading to the dismissal of the grounds raised by the assessee.

Revenue's Appeal:
The revenue also filed an appeal challenging the addition of ?19,30,714 on an estimate basis for the bogus purchases. However, based on the decision in the assessee's appeal, where the Tribunal upheld the CIT(A)'s order, the revenue's appeal was dismissed. In conclusion, both the appeals by the assessee and revenue were dismissed by the Tribunal on 19th Sept., 2017.