2018 (5) TMI 241 - AT - Income Tax

Reopening of assessment - estimating profit @ 25% out of alleged hawala purchases - Held that - In case of return of income processed u/s 143(1), the only condition to be satisfied for reopening is taxable income has escaped assessment and the assessee s plea that no fresh material was there before the AO warranting re-opening, is not relevant. We uphold the re-opening made by the AO by issuing notice u/s 148 of the Act. For bogus purchases we are of the considered view that the contentious issues in the instant case could be resolved by proper hearing by the AO. A proper hearing must always include a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view. Cross-examination is allowed by procedural rules and evidently also by the rules of natural justice. We set aside the order of the CIT(A) on the above issue and restore the matter to the file of the AO to make a de novo order after examining the parties mentioned and allowing cross-examination to the assessee. It is the duty of the assessee to file before the AO the recent address of the above parties. Appeal is allowed for statistical purposes.

Summary

Issues:
1. Validity of reopening u/s 147 of the Income Tax Act.
2. Estimation of profit on alleged hawala purchases.

Issue 1: Validity of Reopening u/s 147:
The appeal challenged the order of the Commissioner of Income Tax (Appeals) confirming the reopening by the Assessing Officer (AO) under section 147 of the Income Tax Act for the assessment year 2011-12. The AO received information from the Sales Tax Department indicating accommodation-entry providers had given entries without delivering goods. The AO issued a notice u/s 148 on 20.06.2013, which was served on the assessee. Citing legal precedents, the Appellate Tribunal upheld the reopening, emphasizing that for returns processed u/s 143(1), the sole condition for reopening is escaped taxable income, irrespective of fresh material before the AO.

Issue 2: Estimation of Profit on Hawala Purchases:
The second ground of appeal concerned the estimation of profit at 25% on alleged hawala purchases of Rs. 25,74,568. The AO found transactions unsupported by relevant documents and issued notices u/s 133(6) to parties involved, which were returned unserved. The AO treated the purchases as unsubstantiated and added Rs. 25,74,768 to the income. The Appellate Tribunal, considering legal decisions, restricted the disallowance to Rs. 6,43,642. The assessee contested the AO's decision, highlighting various errors by the CIT(A) and submitting relevant case laws. The DR supported the CIT(A)'s decision. The Tribunal emphasized the importance of cross-examination and fair hearing, citing legal precedents, and directed the AO to allow cross-examination and reexamine the matter after obtaining necessary documents and evidence from the parties involved.

In conclusion, the Appellate Tribunal partly allowed the appeal, setting aside the CIT(A)'s order on the estimation of profit on hawala purchases and restoring the matter to the AO for a fresh adjudication with the opportunity for cross-examination and submission of relevant documents. The Tribunal stressed the importance of fair hearings and directed the assessee to provide updated addresses of involved parties for the reexamination process.