2019 (5) TMI 1311 - AT - Income Tax

Re-assessment proceeding u/s 147 - reopening within period of four years - no sanction u/s 151(2) - Bogus purchases - HELD THAT - We concur with the stand taken by Ld. first appellate authority. The proceedings were triggered within 4 years from the end of relevant AY and therefore, sanction u/s 151(2) was not required and also, the first proviso to Section 147 was not applicable since the original return was processed u/s 143(1). AO was clinched with tangible information in the shape of information from Sales Tax Authorities which prima-facie suggested possible escapement of income in the hands of the assessee. Hence, no infirmity could be found in triggering reassessment proceedings against the assessee - Decided against assessee Violation of principle of natural justice would stand dismissed since nothing on record suggest that the assessee was not provided with sufficient opportunity of being heard and defend his case. Rejection of books of accounts - HELD THAT - AO has only disturbed the purchases and partial relief has already been provided by first appellate authority. Therefore, there could be no occasion to be aggrieved by rejection of books since the issue is limited to estimation on account of alleged bogus purchases only. This ground stand dismissed. Bogus purchases - Quantum additions - there could be no sale without actual purchase of material keeping in view the assessee s nature of business. The sales turnover was not disputed by AO and the assessee was in possession of primary purchase documents viz. copies of invoices and the payments were through banking channels. At the same time, notices issued u/s 133(6) elicited no satisfactory response. The assessee failed to produce any of the suppliers to confirm the transactions. In fact, the assessee, in statement u/s 131, could not even identify the suppliers. Therefore, Ld. CIT(A), in our opinion, clinched the issue in right perspective. Keeping in view the fact that the applicable VAT rate on iron steel was on lower side and the assessee was trading in low-margin item, we reduce the estimation to 5% of alleged bogus purchases of ₹ 2,78,12,020/- which comes to ₹ 13,90,601/-. The balance addition stand deleted. Ground partly allowed.

Summary

Issues:
1. Validity of reassessment proceedings under section 147.
2. Addition of alleged bogus purchases.
3. Rejection of books of accounts under section 145(3).
4. Estimation of profit on purchases.
5. Interest charged under sections 234A, 234B, 234C & 234D.
6. Initiation of penalty provisions under section 271(1)(c).

Validity of Reassessment Proceedings:
The appeal contested the order of the Ld. Commissioner of Income-Tax (Appeals) confirming the re-assessment proceedings under section 147 initiated by the Ld. Assessing Officer. The case was reopened due to information received from the Sales Tax Department indicating accommodation purchase bills by the assessee from suspicious entities. The reassessment was held valid as it was within 4 years from the end of the relevant assessment year, and the first proviso to Section 147 was not applicable. The reassessment was considered legitimate based on tangible information suggesting possible income escapement. Grounds 1, 2, and 4 were dismissed.

Addition of Alleged Bogus Purchases:
The reassessment was based on alleged bogus purchases of ?278.12 Lacs, and the assessee failed to substantiate these purchases. The Sales Tax Authorities revealed that the suppliers were involved in providing accommodation entries without actual business transactions. The assessee could not prove the genuineness of the transactions, leading to rejection of books under section 145(3) and addition of the amount as unexplained investment under section 69C. The first appellate authority partially allowed the appeal, restricting the addition to 20% of the alleged bogus purchases. The Tribunal further reduced the estimation to 5% of the purchases, deleting the balance addition. Ground 6 was partly allowed.

Rejection of Books of Accounts:
The rejection of books of accounts was based on the failure to substantiate the alleged bogus purchases. Since the issue was limited to estimation of bogus purchases, the rejection of books was not a substantial concern. The Tribunal found no grounds to be aggrieved by the rejection of books, as the issue centered around estimation of purchases. This ground was dismissed.

Estimation of Profit on Purchases:
The Tribunal considered that there could be no sale without actual purchase of material in the nature of the assessee's business. While the sales turnover was not disputed, the assessee failed to provide satisfactory responses regarding the transactions. The estimation of profit on purchases was reduced to 5% of the alleged bogus purchases, considering the low-margin nature of the business. The balance addition was deleted, and the impugned order was modified accordingly. Ground 6 was partly allowed.

Interest Charged and Penalty Provisions:
The interest charged under sections 234 and the initiation of penalty provisions under section 271(1)(c) were deemed mandatory, consequential, or premature, requiring no further consideration. Therefore, these grounds were dismissed. The appeal was partly allowed, with the order pronounced on 16/05/2019.