2018 (1) TMI 396 - AT - Income Tax

Validity of reopening and sustaining disallowance of 2% 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. See CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd 2007 (5) TMI 197 - SUPREME Court Necessary evidence relating to transportation of the goods was also not on record. In this factual scenario, it is amply clear that the assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills is bogus and nonexistent. The Sales Tax Department in its enquiry has found the parties to be providing bogus accommodation entries. The assessing officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee has not been able to produce any of the parties. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent. I find it further strange that assessee wants the Revenue to produce assessee s own vendors, whom the assessee could not produce. The purchase bills from these non-existent/bogus parties cannot be taken as cogent evidence of purchases. In light of the overwhelming evidence, the Revenue authorities cannot put upon blinkers and accept these purchases as genuine - Decided against assessee

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Sustaining the disallowance of 2% of bogus purchase.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:

The issue raised by the assessee was whether the Assessing Officer (AO) was justified in reopening the assessment for the year 2010-11 based on information received from the DGIT(Inv.), Mumbai. The AO acted on information that the assessee had obtained bogus accommodation entries from concerns floated by Shri Bhanwarlal Jain, an alleged bogus biller. The AO believed that income to the extent of ?1,65,85,055/- had escaped assessment.

The Commissioner of Income Tax (Appeals) upheld the reopening, stating that the assessment was based on concrete and credible information received from the Investigation Wing, which was unearthed during a search and seizure action on Shri Bhanwarlal Jain Group. The reopening was not based on a subjective opinion or suspicion but on tangible material. The sufficiency of the material was not to be considered at this stage, only the existence of prima facie material was necessary. The reopening was deemed valid as it was not a change of opinion but based on new information that had come to light.

The ITAT confirmed the validity of the reopening, noting that tangible and cogent incriminating material showed the assessee was a beneficiary of bogus purchase entries. The AO's belief that income had escaped assessment was based on reasonable grounds and credible information. The ITAT referred to the Supreme Court's decision in CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, which supports the AO's action if there is a reasonable cause to believe that income has escaped assessment. The ITAT upheld the reopening, finding no infirmity in the CIT(A)'s order.

2. Sustaining the Disallowance of 2% of Bogus Purchase:

On the merits, the AO found that the assessee had obtained bogus purchase bills from various entities without the actual delivery of goods. The AO concluded that the entire amount of ?1,65,85,055/- could not be taxed, but the profit element embedded in these purchases should be subject to tax. The AO made a Gross Profit (GP) addition of 11.03% of the bogus purchases, amounting to ?18,29,332/-.

The CIT(A) confirmed the action of the AO in treating the purchases as bogus but sustained only 2% of the bogus purchase as an addition. The CIT(A) noted that the assessee failed to furnish purchase orders, delivery challans, or receipts, lending credence to the AO's finding that the purchases were accommodation entries without actual movement of goods.

The ITAT upheld the CIT(A)'s decision, noting that credible information indicated the assessee had taken accommodation entry/bogus purchase bills. The AO's enquiry revealed that the parties were non-existent, and the assessee could not produce any confirmation or evidence of transportation of goods. The ITAT found overwhelming evidence that the purchases were bogus and supported the CIT(A)'s decision to sustain only 2% of the bogus purchase as an addition.

The ITAT also referred to various judicial precedents, including decisions from the Supreme Court and High Courts, which supported the disallowance of bogus purchases. However, since this was not an appeal by the Revenue, the ITAT did not take away the relief already granted to the assessee by the CIT(A).

Conclusion:

The appeal filed by the assessee was dismissed, and the ITAT upheld the orders of the CIT(A) on both the validity of reopening the assessment and the disallowance of 2% of the bogus purchase. The judgment emphasized the importance of credible information and tangible material in justifying the reopening of assessments and the disallowance of bogus purchases.

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