2018 (7) TMI 130 - AT - Income Tax

Disallowance of 12.5 % of bogus purchase - Held that - It will not be appropriate to consider and take away the relief already granted by the ld. CIT(A) to the assessee as held in CIT JAIPUR VERSUS M/S SHRUTI GEMS 2017 (5) TMI 1485 - RAJASTHAN HIGH COURT when sales are not doubted 100% disallowance for bogus purchase is not disallowable. Hence, we confirm the order of ld. CIT(A) in arriving at a disallowance by adopting a Gross Profit ratio of 12.50% on alleged bogus purchases

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act.
2. Confirmation of purchases as non-genuine under section 69C.
3. Appropriateness of the disallowance percentage for alleged bogus purchases.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The appellant challenged the reopening of the assessment under section 147 on multiple grounds, including the lack of valid reason for reopening and failure to provide reasons for reopening. The Tribunal noted that the Assessing Officer (AO) received information from the Sales-tax Department, Maharashtra, indicating that the assessee was involved in transactions with hawala dealers who provided bogus purchase bills without actual delivery of goods. The Tribunal emphasized that the information received by the AO constituted tangible and cogent incriminating material, forming a "reason to believe" that income had escaped assessment. Citing the Supreme Court's decision in CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, it was established that at the stage of reopening, a prima facie belief based on tangible information is sufficient. The Tribunal upheld the validity of the reopening, dismissing the appellant's challenge on this ground.

2. Confirmation of Purchases as Non-Genuine under Section 69C:
The Tribunal examined the merits of the addition made by the AO, who had added ?1,04,23,000 to the assessee's income on account of unproved purchases from hawala dealers. The AO's investigation revealed that the parties from whom the purchases were claimed were non-existent, as evidenced by returned notices and the inability of the assessee to provide confirmations or produce the parties. The Tribunal found that the overwhelming evidence, including the lack of transportation proof and the Sales-tax Department's findings, supported the conclusion that the purchases were bogus. The Tribunal referenced the Supreme Court decisions in Sumati Dayal and Durga Prasad More, emphasizing that mere documentation cannot override substantial evidence of non-existence. Thus, the Tribunal upheld the AO's finding that the purchases were non-genuine.

3. Appropriateness of the Disallowance Percentage for Alleged Bogus Purchases:
The appellant contested the 12.5% disallowance adopted by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing it was arbitrary and without basis. The Tribunal acknowledged the CIT(A)'s action of confirming the AO's addition of 12.5% of the bogus purchases. The Tribunal noted precedents where courts have upheld partial disallowances in similar cases. It referenced the Gujarat High Court decision in N K Industries vs Dy CIT, which supported 100% disallowance of bogus purchases, though the Tribunal chose not to disturb the relief already granted by the CIT(A) to the assessee. The Tribunal concluded that since the Revenue had not appealed, it would be inappropriate to increase the disallowance percentage. Hence, the Tribunal confirmed the CIT(A)'s order of 12.5% disallowance.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the reopening of the assessment under section 147, confirming the non-genuineness of the purchases under section 69C, and maintaining the 12.5% disallowance for bogus purchases. The judgment emphasized the importance of tangible evidence and the legal precedents supporting the AO's and CIT(A)'s actions. The decision was pronounced in the open court on 02.07.2018.