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2018 (4) TMI 439 - AT - Income TaxValidity of reopening of assessment - reasons to believe - purchases from grey market - addition @ 12.50% of alleged bogus purchases - Held that - There was cause or justification for the AO to invoke provisions of sec. 147 and issue notice u/s. 148. As already mentioned, at the initiation stage, what is required to be seen is there are prima-facie reasons to believe1 but not the established fact of escapement of income. The AO also recorded proper reasons for formation of the belief that income has escaped assessment. It is also important to note that the information relating to Hawala operators was also made available in public domain i.e. in the official website of the Maharashtra Sales Tax Department and therefore the reasons for reopening the assessment are not based on mere suspicion. Thus, all the conditions necessary for reopening of the assessment under the provisions of sec. 147 and for issue of notice u/s. 148 are satisfied in the case of the appellant for the year under appeal. Hence the reopening the assessment u/s 148 of the Act was absolutely valid. For the addition for bogus purchases as seen assessee has engaged into dealings in the grey market. Dealings in the grey market give the assessee various savings at the expense of the Exchequer. Hence, on 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. Hence, I affirm the order of the authorities below. - Decided against assessee
Issues Involved:
1. Validity of reopening of assessment. 2. Addition of 12.50% of alleged bogus purchases. Issue-wise Detailed Analysis: 1. Validity of Reopening of Assessment: The assessee filed its return for A.Y. 2009-10 on 09.09.2009 declaring a total income of ?30,551/-. The case was reopened under section 147 by issuing a notice under section 148 on 10.02.2014 based on information from the DGIT (Inv.), Mumbai, indicating the assessee was a beneficiary of accommodation entries from MVAT dealers involved in issuing bogus sale/purchase bills. The assessment was completed under section 143(3) read with section 147 on 27.02.2015, determining the total income at ?5,06,750/- with an addition of ?4,78,194/- for bogus purchases. The Commissioner of Income Tax (Appeals) upheld the validity of the reopening, stating that there was no prior assessment or reassessment for the year under consideration before the notice under section 148 was issued. The Supreme Court in ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (291 ITR 500) clarified that "reason to believe" means cause or justification to suppose that income had escaped assessment. The AO had received credible information from DGIT(Inv.), Mumbai about the assessee's involvement in bogus purchases, justifying the reopening. The information from the Maharashtra Sales Tax Department was publicly available, confirming the AO's reasons were not based on mere suspicion. Thus, the reopening under section 148 was deemed valid. 2. Addition of 12.50% of Alleged Bogus Purchases: During the assessment proceedings, the AO issued notices under section 133(6) to verify the genuineness of purchases, which were returned unserved. The assessee failed to provide adequate supporting evidence or produce the parties for verification. Consequently, the AO concluded the purchases were not genuine, rejected the books of accounts under section 145(3), and estimated the profit at 12.5% of the total non-genuine purchases of ?38,25,554/-, resulting in an addition of ?4,78,194/-. The Commissioner of Income Tax (Appeals) confirmed the AO's action. The ITAT noted that the AO had received tangible and cogent incriminating material indicating the assessee was a beneficiary of bogus purchase entries. The reopening was based on credible information, and the AO's belief that income had escaped assessment was justified. The ITAT referred to the Supreme Court's decision in CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, 291 ITR 500, which supports the AO's prima facie belief based on tangible material. On the merits, the ITAT observed that the AO had made necessary inquiries, and the assessee failed to provide confirmations or produce the parties. There was no evidence of transportation of goods, and the suppliers were found to be non-existent. The ITAT upheld the addition, noting that mere preparation of documents could not counter the overwhelming evidence of bogus purchases. The ITAT referred to the Gujarat High Court's decision in N K Industries vs Dy CIT, which held that 100% of bogus purchases should be disallowed. However, considering the facts and circumstances, the ITAT followed the Gujarat High Court's decision in CIT vs Simit P. Sheth, holding that a disallowance of 12.5% of bogus purchases was appropriate. Conclusion: The ITAT dismissed the appeal, upholding the reopening of the assessment and the addition of 12.5% of the alleged bogus purchases. The order was pronounced in the open court on 26.03.2018.
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