2018 (10) TMI 258 - AT - Income Tax

Reopening of assessment - mere change of opinion - bogus purchase sales transactions - Held that - The ratio laid down in Claggett Brachi Company Ltd. vs CIT (1989 (4) TMI 2 - SUPREME COURT), in Anusandhan Investment Ltd. vs DCIT 2006 (8) TMI 146 - BOMBAY HIGH COURT and Piaggio Vehicles Pvt. Ltd. vs DCIT 2007 (2) TMI 173 - BOMBAY HIGH COURT held that in a case of reopening after four years subsequent to scrutiny assessment, contradiction was recovered by between tax audit report and return of income, it was a case of omissions and/or failure on the part of the assessee to disclose fully and truly all facts for computation of income, therefore, respectfully following the aforesaid decisions and the factual matrix narrated before us, we find no infirmity in the conclusion of CIT(Appeal), therefore, the on the impugned issue of validity of reopening, we uphold the same, resulting in to, dismissal of the ground raised by the assessee. Addition with respect to purchases/sales from six parties - non-compliance to the notice issued u/s. 133(6) - Held that - In the present appeals, it is noticed that the notices issued under section 133(6) were not complied with and the assessee did not produce the parties before the learned Assessing Officer to prove the genuineness of the transactions. Even the new addresses, if any, of these parties were never supplied by the assessee to the AO so that the noticed could be issued to such parties at the new addresses. The genuineness of the transactions thus, could not be established by the assessee. Therefore, considering the totality of facts, cases relied upon by both sides, discussion made hereinabove, to plug the leakage of revenue, we are of the view that the learned CIT(A) has taken one of the best possible view to estimate the profit @12.5%. Thus, the stand taken by the learned CIT(A) is affirmed.

Summary

Issues involved:
1. Validity of reopening the case under sections 147/148.
2. Addition of income based on alleged bogus purchases.
3. Estimation of profit from alleged bogus purchases.

Issue-wise detailed analysis:

1. Validity of reopening the case under sections 147/148:

The assessee challenged the reopening of the assessment under sections 147/148, arguing that it was based on general, vague, and untested information. The Revenue defended the reopening, stating that the assessee made purchases from hawala parties, and the notices issued under section 133(6) were not served as the addresses were fictitious. The Tribunal examined the validity of the reopening, citing provisions of section 147 and various judicial precedents. It concluded that the Assessing Officer had reason to believe that income had escaped assessment based on tangible material, thus justifying the reopening.

2. Addition of income based on alleged bogus purchases:

The Assessing Officer made an addition of 100% of the alleged bogus purchases, which was reduced to 12.5% by the Commissioner of Income Tax (Appeal). The assessee argued that the purchases were made through account payee cheques, and thus could not be bogus. The Tribunal considered various judicial decisions, including those from the Hon’ble Gujarat High Court and the Hon’ble Apex Court. It was noted that the assessee failed to produce the concerned parties to prove the genuineness of the transactions. The Tribunal upheld the addition of 12.5%, as determined by the Commissioner of Income Tax (Appeal), citing the need to plug revenue leakage and the inability of the assessee to establish the genuineness of the purchases.

3. Estimation of profit from alleged bogus purchases:

The Tribunal discussed the estimation of profit embedded in the alleged bogus purchases, referring to various judicial precedents. It was highlighted that in cases where the genuineness of purchases is in doubt, only the profit element embedded in such purchases should be taxed. The Tribunal affirmed the approach of estimating the profit at 12.5% of the alleged bogus purchases, considering it a reasonable measure to address the revenue leakage while acknowledging the actual receipt of goods by the assessee.

Conclusion:

The Tribunal dismissed the appeals of both the assessee and the Revenue, upholding the reopening of the assessment under sections 147/148 and the addition of 12.5% of the alleged bogus purchases as income. The decision was based on the assessee's failure to establish the genuineness of the transactions and the need to prevent revenue leakage.