2017 (12) TMI 1122 - AT - Income Tax

Validity of reopening of assessment - whether there was relevant material to form a reasonable belief is to be seen? - bogus purchases - Held that - There is a specific information received during the investigation by the authority and it has been prima facie found that assessee is also the beneficiary of the said parties, the re-reopening of assessment is valid. Notice under section 148 for re-opening the assessment was issued after four year from the end of relevant assessment year and the AO has not specified as to what material facts and information the assessee has failed to disclose. However, all these leaches are not available in the present case. The other submissions of the assessee that no prior permission or approval of JCIT was obtained has no force. The ld AR for the assessee is his written submissions dated 04.10.2017 has specifically contended that From the documents relating to the approval of JCIT was with the LAO and therefore he has to prove that the approval was with the application of mind . No other material was brought to our notice to take a contrary view that there was no approval of JCIT for reopening the assessment. Thus, we do not find any force in the submission of ld. AR of the assessee; hence, the Ground No.1 of the appeal is dismissed. Addition on account of bogus purchases - Held that - Under Income-tax Act, the only real income can be taxed by the Revenue, even if the transaction is not verifiable due to any reason, the only taxable is the taxable income component and not aggregate of the transaction. After considering the fact and nature of business of assessee, we are of the opinion that in order to fulfil the gap of revenue leakage, the disallowance of reasonable percentage of impugned purchases would meet the end of justice. The Hon ble Bombay High Court in CIT v. Hariram Bhambhani 2015 (2) TMI 907 - BOMBAY HIGH COURT held that revenue is not entitled to bring the entire sales consideration to tax, but only the profit attributable on the total unrecorded sales consideration alone can be subject to income tax. We have noted that the ld CIT(A) after relying on various decisions restricted the disallowance at 12.5% of the tainted/ bogus purchase. Thus, we do not find any illegality or infirmity in the order passed by ld CIT(A), which we sustained. - Decided against assessee.

Summary

Issues Involved:
1. Validity of reopening the original assessment under Section 147 of the Income Tax Act.
2. Legitimacy of additions made by the Assessing Officer (AO) regarding bogus purchases.
3. Levying of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of Reopening the Original Assessment:
The assessee contested the reopening of the original assessment completed under Section 143(3). The reopening was based on information that the assessee obtained bogus bills worth ?42,95,62,364 from entities listed as hawala dealers by the Sales Tax Department, Government of Maharashtra. The assessee argued that complete details were furnished during the original assessment, including the Tax Audit Report and details of sundry debtors and creditors. The assessee claimed that the reopening was based on third-party information without the application of mind and without the necessary approval from the Joint Commissioner of Income Tax (JCIT). The Departmental Representative (DR) countered that the AO received credible information from the Directorate General of Income Tax (Investigation) and that the reopening was valid and lawful.

The Tribunal upheld the reopening of the assessment, stating that at the initial stage, what is required is a "reason to believe" and not the established fact of income escapement. The Tribunal referred to the Supreme Court's decision in Rajesh Jhaveri Stock Broker Pvt. Ltd. vs. ACIT and the Gujarat High Court's decision in Peass Industrial Engineers (P.) Ltd. vs. Deputy Commissioner of Income-tax, which supported the AO's action based on reasonable belief formed from credible information. The Tribunal found no merit in the assessee's arguments and dismissed Ground No.1.

2. Legitimacy of Additions Made by AO Regarding Bogus Purchases:
The assessee argued that the purchases from the four parties were genuine and provided affidavits from two suppliers confirming the transactions. However, the AO disallowed the entire purchases from these parties, as the assessee failed to produce the parties for verification or provide relevant documents to prove the genuineness of the purchases. The CIT(A) restricted the disallowance to 12.5% of the total impugned purchases, considering that the assessee could not substantiate the purchases with proper evidence.

The Tribunal noted that the AO did not issue any notice under Section 133(6) or summons under Section 131 of the Act and disallowed the entire purchases based on the assessee's failure to prove the genuineness of the transactions. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 12.5%, citing various High Court decisions, including Bholanath Poly Feb Pvt. Ltd., Sanket Steel Traders vs. ITO, Vijay Proteins Ltd. vs. ACIT, and CIT vs. Simit P. Sheth. The Tribunal emphasized that only the profit attributable to the bogus purchases should be taxed, not the entire purchase amount. Therefore, the Tribunal found no illegality in the CIT(A)'s order and sustained the disallowance at 12.5%.

3. Levying of Interest Under Sections 234A, 234B, and 234C:
The Tribunal did not provide a detailed analysis of this issue in the judgment. However, given that the appeal was dismissed, it can be inferred that the Tribunal upheld the AO's decision to levy interest under Sections 234A, 234B, and 234C.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the validity of the reopening of the assessment and the restriction of disallowance to 12.5% of the bogus purchases. The Tribunal emphasized the importance of reasonable belief at the initial stage of reopening and supported the CIT(A)'s approach to tax only the profit component of the bogus purchases. The order was pronounced in the Open Court on 20.12.2017.