2018 (4) TMI 187 - AT - Income Tax

Reopening of assessment - Addition of bogus purchases - Held that - Addition of bogus purchases - reopening of assessment - 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. Uphold the order of the Ld. CIT(A) on the issue of reopening. Assessee has not been able to produce any of the parties. The assessing officer has noted that there is no cogent evidence of the provision of goods. Neither the assessee has been able to produce any confirmation from these parties. There is no doubt that these parties are non-existent - purchase bills from these non-existent the/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. The overall consideration of facts and circumstances and following the decision of Hon ble Gujarat High Court in the case of CIT vs Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. - Decided partly in favour of assessee.

Summary

Issues:
Validity of reopening and addition on account of bogus purchases.

Validity of Reopening:
The case involved appeals by the assessee against the Commissioner of Income Tax (Appeals) for the assessment years 2010-11 and 2011-12. The primary issue raised was the validity of the reopening and the addition on account of bogus purchases. The Assessing Officer reopened the assessment based on information from the Sales Tax Department regarding the assessee's involvement in accommodation bills of purchase from bogus hawala dealers. The AO issued summons to the parties involved, but most remained unserved. The Assessing Officer concluded that the assessee failed to establish the genuineness of the purchases, leading to disallowance and addition to the total income. The ITAT upheld the reopening based on tangible incriminating material and the reason to believe that income had escaped assessment. The decision referenced the Supreme Court's stance on the initiation of action under section 147.

Merits of Addition - Bogus Purchases:
Regarding the addition on account of bogus purchases, the Assessing Officer received credible information that the assessee obtained bogus purchase bills from accommodation entry providers. Despite necessary inquiries and unserved notices to the parties involved, the assessee failed to provide confirmations or evidence of transportation of goods. The ITAT noted the lack of cogent evidence supporting the purchases and referenced apex court decisions to support the disallowance of such purchases. The ITAT also referred to a Gujarat High Court decision where 100% disallowance was upheld for bogus purchases. Ultimately, the ITAT decided to restrict the disallowance to 12.5% of the bogus purchases, considering the nature of the dealings and the overall circumstances.

In conclusion, the ITAT partially allowed the appeals by the assessee, modifying the disallowance to 12.5% of the bogus purchases.