2019 (8) TMI 542 - AT - Income Tax

Reopening of assessment u/s 147 - as per assessee argued that it is not a fit case for reopening U/s 147 but provisions of Section 153C of the Act should have been invoked - bogus purchases - HELD THAT - AO on the basis of information received from Investigation Wing regarding assessee's obtaining accommodation bills of purchases etc. from the entry providers without physically taking in the possession of the goods, made inquiry and then reopened the assessment after duly recording the reasons to believe that there was escapement of income. The AO on the basis of Investigation Report made his own enquiry and found that there was sufficient reason to believe that income of the assessee has escaped assessment in so far as assessee has taken accommodation entries from the number of identities controlled and managed by Rajendra Jain Group and others, entry operators at Bombay in whose case search was conducted by the Income Tax Department wherein it was admitted by him that he was in the business of providing accommodation entries. Since the assessee was claiming purchases from the parties which were only issuing accommodation bills and were not having any stock available with them, the A.O. formed an opinion that there was escapement of income. The reopening of assessment was done by the AO after properly recording the reasons and following due procedure of law. The sufficiency or correctness of material is not a thing to be considered at the time of reopening the assessment. Proper approval was taken by the AO before reopening the assessment. Accordingly, we do not find any merit in the contention of the ld.AR that reopening was not justified. Addition u/s 68 - we found that the assessee was unable to prove the genuineness of the purchase, accordingly, the AO added 25% of such alleged purchases in assessee's income. After rejection of books of account, the addition is to be made keeping in view gross profit rate actually declared by the assessee during the year as compared to average gross profit shown by him in earlier years. We found that in the Assessment Year 2009-10, the assessee had shown the gross profit rate of 21.24%, in Assessment Year 2010-11- gross profit rate of 18.97%, in Assessment Year 2011-12- gross profit rate of 17.37%, in Assessment Year 2012-13- gross profit rate of 15.45% which are higher than the average gross profit rate of 14.13%. Accordingly, as per our considered view, no addition in these Assessment Years is warranted. Accordingly, we delete the part addition so upheld by the ld. CIT(A) in Assessment Year 2009-10 to 2012-13. However, in Assessment Year 2013-14, the assessee had shown gross profit rate of 13.21%, in the Assessment Year 2014-15 gross profit rate 11.02% which are undoubtedly lower than the average gross profit rate of 14.13%. Accordingly, we direct the AO to compute the gross profit of 2013-14 and 2014-15 by applying gross profit rate of 14.13% to the actual sales shown by the assessee which are at ₹ 5.23 crores in A.Y. 2013-14 and ₹ 8.71 crores in A.Y. 2014-15. The shortfall so worked out by applying the gross profit rate of 14.31% is to be upheld. As per our calculation of A.Y. 2014-15, the gross profit addition works out to be at ₹ 27,06,815/- whereas in the Assessment Year 2013-14, the gross profit additions works out to be at ₹ 4,79,752/-. We direct accordingly.

Summary

Issues:
Appeals against CIT(A) orders for AYs 2009-10 to 2014-15 under IT Act, 1961.

Analysis:
1. Reopening of Assessment: The AO reopened assessments based on information from Investigation Wing about accommodation entries in purchases. The AO conducted a thorough inquiry, found sufficient reasons for escapement of income, and followed proper procedures. Legal precedents support the sufficiency of reasons for reopening, and proper approval was obtained. The contention that reopening was unjustified was dismissed.

2. Merits of Addition: The AO added 25% of alleged bogus purchases to income due to lack of proof of genuineness. The CIT(A) deleted substantial additions in earlier years but upheld major addition in AY 2014-15. The AO rejected book results as purchases couldn't be verified, leading to estimation of profit based on past records. Past history guides additions after book rejection, as seen in Vaibhav Gems Ltd case. The average gross profit rate of 14.13% was crucial in determining additions. No addition warranted for AYs 2009-10 to 2012-13, but for AYs 2013-14 and 2014-15, additions were calculated based on the average gross profit rate.

3. Conclusion: The ITAT allowed appeals for AYs 2009-10 to 2012-13, while partially allowing appeals for AYs 2013-14 and 2014-15. The gross profit additions were computed based on the average rate, resulting in specific amounts for each year. The judgment emphasized proper procedures in reopening assessments and the importance of past history in determining additions post-rejection of book results.