2018 (2) TMI 266 - AT - Income Tax

Reopening of assessment - addition made u/s. 69C towards unexplained expenditure for an alleged bogus purchases - Held that - It is pertinent to mention that the Revenue has originally processed return of income u/s. 143(1) of the Act and no scrutiny assessment u/s. 143(3) was framed by the Revenue . The Ld. DR did not objected to dismissal of the grounds of appeal being ground no.1 and 2 raised by the assessee challenged the reopening of the assessment u/s. 147 of the Act. Thus, keeping in view the factual matrix of the case we are inclined to dismiss the ground raised by the assessee being ground no. 1 and 2 challenging the reopening of the concluded assessment u/s. 147 of the Act. The possibility of assessee buying the material actually from grey market at lower rates and obtaining corresponding bills from the said parties namely AVI Export and Rajeev Impex to reconcile the quantitative records and books of accounts cannot be ruled out . Under these circumstances , we are inclined to confirm aforesaid well reasoned appellate order of the Ld. CIT-A which aimed to make additions to the income by estimating profits embedded in the said alleged bogus purchases which profits the assessee gained by obtaining material from grey market at lower rate while obtaining bills from these parties namely AVI Exports and Rajiv Impex to reconcile records and books of accounts. The profits estimated by the learned CIT(A) appears to be reasonable keeping in view factual matrix of the case and in such type of cases, fair estimation of profits is required to be made which requires some guess work and in our considered view, the estimation made by learned CIT(A) is reasonable and fair as it could not be said to be arbitrary or excessive to call for interference by us and more-so estimation made by learned CIT-A is backed by judicial precedence as is found mentioned in learned CIT(A) appellate order. CIT(A) has rightly relied upon the orders of the Hon ble Courts as is contained in his appellate orders wherein estimation of embedded profits in the case of alleged bogus purchases were upheld by Hon ble Courts.

Summary

Issues Involved:

1. Assumption of jurisdiction by the AO for initiating reassessment proceeding.
2. Validity of the assessment order due to non-compliance with the procedure laid down by the Supreme Court.
3. Addition on account of unexplained expenditure u/s 69C of the Act amounting to ?77,70,765.
4. Addition on account of unexplained expenditure u/s 69C of the Act amounting to ?29,09,702.
5. Deletion of the entire addition of ?93,45,409 by the CIT(A) on account of bogus purchases.

Detailed Analysis:

1. Assumption of Jurisdiction by the AO for Initiating Reassessment Proceeding:

The assessee challenged the jurisdiction of the AO to initiate reassessment proceedings under sections 147 to 151 of the Income-tax Act, 1961, arguing that the conditions for initiating such proceedings were not fulfilled. However, the assessee did not press these grounds of appeal before the tribunal, and the tribunal dismissed these grounds accordingly.

2. Validity of the Assessment Order Due to Non-Compliance with Supreme Court Procedure:

The assessee contended that the assessment order was invalid as the AO did not follow the procedure laid down by the Supreme Court in the case of GKN Driveshafts (India) Ltd. However, this ground was also not pressed by the assessee before the tribunal, leading to its dismissal.

3. Addition on Account of Unexplained Expenditure u/s 69C of the Act Amounting to ?77,70,765:

The AO added ?77,70,765 as unexplained expenditure under section 69C, stating that the purchases from M/s AVI Exports were bogus. The AO based this on information from the DGIT(Inv.), Mumbai, and the statement of Shri Rajendra Jain, who admitted to providing accommodation entries without actual transactions. The CIT(A) reduced the addition by estimating the profit embedded in the alleged bogus purchases at 12.5%, amounting to ?13,35,058. The tribunal upheld the CIT(A)'s decision, agreeing that the estimation was reasonable and supported by judicial precedents.

4. Addition on Account of Unexplained Expenditure u/s 69C of the Act Amounting to ?29,09,702:

Similarly, the AO added ?29,09,702 as unexplained expenditure for purchases from M/s Rajiv Impex, which did not respond to notices under section 133(6). The CIT(A) applied the same 12.5% profit estimation, reducing the addition to ?3,63,713. The tribunal confirmed the CIT(A)'s approach, noting that the assessee failed to produce the parties and the possibility of purchases from the grey market could not be ruled out.

5. Deletion of the Entire Addition of ?93,45,409 by the CIT(A) on Account of Bogus Purchases:

The Revenue appealed against the CIT(A)'s decision to delete the entire addition of ?93,45,409, arguing that the purchases were bogus based on information from the Sales Tax Department and statements from hawala dealers. The tribunal found that the CIT(A)'s estimation of 12.5% profit was reasonable and supported by judicial precedents, thus dismissing the Revenue's appeal.

Conclusion:

The tribunal upheld the CIT(A)'s decision to estimate the profit embedded in the alleged bogus purchases at 12.5%, dismissing both the assessee's and the Revenue's appeals. The tribunal emphasized the importance of a fair estimation in cases involving alleged bogus purchases and supported the CIT(A)'s approach as reasonable and backed by judicial precedents.