2017 (11) TMI 1141 - AT - Income Tax

Bogus purchases - estimation of income - Held that - We modify the order of the Ld. CIT(A) and sustain the addition of 12.5% of the total amount of bogus purchases determined by the AO. We therefore, partly allow the appeal of the revenue and direct the AO to compute the addition @ 12.5% of the total amount of bogus purchases.

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income Tax Act.
2. Addition of income based on alleged bogus purchases.
3. Justification of the addition percentage applied by the CIT (A).

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147 of the Income Tax Act:
The assessee contested the reopening of the assessment, arguing it was invalid and bad in law. The reopening was based on information received from the Sales Tax Department, Maharashtra, through the Directorate General of Income Tax (Inv.), Mumbai, regarding bogus purchases. The Tribunal noted that under Section 147, the Assessing Officer (AO) has the jurisdiction to reassess the income if there is reason to believe that any income chargeable to tax has escaped assessment. The AO had recorded reasons for reopening and issued notice under Section 148, concluding that the income of ?1,04,30,084/- had escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary. The Tribunal upheld the AO's action, referencing the Supreme Court's decision in Income Tax Officer Vs. Purushottam Das Bangur, which justified reopening based on information from the investigation wing without further investigation.

2. Addition of Income Based on Alleged Bogus Purchases:
The AO added ?1,04,30,084/- to the assessee's income, determining the purchases from Vardhman International and Maharaja Impex were bogus. Despite the assessee providing bills, delivery challans, bank statements, and utilization certificates, the AO found the transactions unverifiable as notices sent under Section 133 (6) were returned unserved, and the assessee could not produce the parties. The CIT (A) partly allowed the appeal, restricting the addition to 10% of the total bogus purchases, referencing the Gujarat High Court's decision in CIT vs. Simit P. Sheth, which held that only the profit element embedded in such purchases should be added to the income.

3. Justification of the Addition Percentage Applied by the CIT (A):
The Revenue appealed, arguing the CIT (A) erred in restricting the addition to 10% of the total bogus purchases. The Tribunal noted that since the AO accepted the sales, the entire amount of purchases could not be added to the income as there cannot be sales without purchases. It was inferred that purchases were made from parties other than those mentioned in the books. The Tribunal followed the Bombay High Court's decision in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd., which stated that non-appearance of suppliers before tax authorities does not conclude the purchases were not made. The Tribunal modified the CIT (A)'s order, sustaining the addition of 12.5% of the total bogus purchases, aligning with the Gujarat High Court's precedent in CIT vs. Simit P. Sheth.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, directing the AO to compute the addition at 12.5% of the total bogus purchases. The assessee's cross-objection challenging the reopening of the assessment was dismissed, as the Tribunal found the AO's action justified and in line with the Supreme Court's rulings. The Tribunal also condoned the delay in filing the cross-objection due to the Director's personal circumstances, emphasizing a justice-oriented approach.

Order Pronouncement:
The appeal filed by the Revenue for the assessment year 2009-10 was partly allowed for statistical purposes, and the cross-objection filed by the assessee was dismissed. The order was pronounced in the open court on 23rd October 2017.

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