2018 (11) TMI 504 - AT - Income Tax

Validity of reassessment proceedings - purchase of material in the grey market - receipt of certain information from Sales Tax Department, Maharashtra regarding dealers indulging in bogus purchase bills and it was noted that the assessee stood beneficiary of such bogus purchase bills - Held that - The original return was processed u/s 143(1) and therefore, the only requirement to initiate the reassessment proceedings was that AO had reasons to believe that certain income escaped assessment. The tangible material came in the possession of AO in the shape of information from Sales Tax Authority which suggested escapement of income. Therefore, the proceedings were validly initiated and we concur with the stand of lower authority in this regard. This ground of assessee s appeal stand dismissed. So far as the merits concerned, there could be no sale without purchase of material since the assessee was engaged in trading activities. The sales turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. The assessee was in possession of primary purchases documents. At the same time, the assessee could not conclusively substantiate the delivery of material and failed to produce any of the party to confirm the transactions. Notices issued u/s 133(6) elicited no satisfactory response. All these factors cast a serious doubt on assessee s claim. Therefore, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which Ld. CIT(A) has rightly done. - Decided against assessee.

Summary

Issues:
- Assessment of alleged bogus purchases for AY 2011-12.

Analysis:
1. Background and Appeal: The appeal by the assessee for Assessment Year 2011-12 challenges the order of the Commissioner of Income-Tax (Appeals) confirming certain additions on account of alleged bogus purchases. The assessment was framed by the Income Tax Officer under sections 143(3) and 147 of the Income Tax Act, 1961, determining the assessee's income at ?32.15 Lacs against the returned income of ?18.37 Lacs. The issue revolves around estimated additions against alleged bogus purchases.

2. Reassessment Proceedings: Reassessment was initiated based on information from the Sales Tax Department, Maharashtra, regarding dealers involved in bogus purchase bills benefiting the assessee. The assessee defended the purchases with documentary evidence, but responses from the entities involved were unsatisfactory. The Income Tax Officer estimated additions at 12.5% of the bogus purchases, resulting in an addition of ?13,78,116 in the assessee's hands.

3. Appeal Before CIT(A): The assessee contested the additions on legal and merit grounds before the Commissioner of Income-Tax (Appeals) and partially succeeded. The CIT(A) upheld the reassessment proceedings but restricted the additions to 8% of the alleged bogus purchases. Unsatisfied, the assessee appealed further. The Departmental Representative supported the lower authorities' stand.

4. Judgment on Legal Grounds: The Tribunal found the reassessment proceedings valid as the Income Tax Officer had tangible reasons to believe income had escaped assessment based on information from the Sales Tax Authority. The initiation of proceedings was deemed appropriate, and the ground of appeal on legal aspects was dismissed.

5. Merits of the Case: The Tribunal noted that trading activities require purchases for sales to occur. While the sales turnover was not disputed, the assessee failed to conclusively prove the delivery of material or provide confirmation from the involved parties. Lack of satisfactory responses to notices and doubts cast on the transactions led to the Tribunal upholding the additions made by the CIT(A) to account for the profit element in the purchase transactions.

6. Final Decision: Considering the circumstances, the Tribunal dismissed the assessee's appeal, upholding the additions made against the alleged bogus purchases. The order was pronounced on 22nd June 2018.