2019 (12) TMI 663 - AT - Income Tax

Reassessment proceedings u/s.147 - as argued issue of notice u/s.148 without application of mind on the material provided by the Investigation Wing of the Department and giving mechanical approval of 151(2) with proper satisfaction and reasons and competent authority - HELD THAT - Where the content of the notice are correct and which has been issued in the correct context then typographical error in address of PAN does not have material impact as per provisions of section 292B of the Act. We, further find that the assessee has duly received the notice u/s.148 of the Act and duly participated in the assessment proceedings and also stated that the original return filed by it may be treated as return in response to notice u/s.148, therefore any defect in the notice presumed to have been validly served as per provisions of section 292BB of the Act. With regard to contention of the assessee that the AO has failed to apply his mind and notice has been issued without application of mind, we find that the AO was in possession of the information from the ACIT, Central Circle-10, New Delhi which stated that the parties under consideration from whom the assessee has shown transactions were only accommodation entry provider, which was admitted in their statement recorded u/s.131 of the Act. We, further note from the reasons recorded at para 2, page 36 that the AO has categorically mentioned that he has scrutinized the audited accounts for the assessment year ending March 2006 which shows that the assessee has disclosed these transactions but the fact that the assessee company has obtained accommodation entries from the above mentioned three entities controlled by Shri Rakesh Gupta, Shri Vishesh Gupta, Shri Navneet Jain and Shri Vaibhav Jain was not disclosed. The entry provider entries did not have any genuine business activity as admitted before ACIT, Central Circle-10, New Delhi, therefore, the AO had reason to believe that by the taxable income represented the transactions with the above cited entities escaped assessment due to failure on the part of the assessee company to disclose material facts truly and fully necessary to make assessment for A.Y. 2006-07. Thus, we find that the AO has duly applied his mind and verified the information from the audited accounts of the assessee. Therefore, the contention of the ld.Counsel that the notice u/s.148 has been issued without application of mind does not hold water. - Decided against assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 and issuance of notice under Section 148 of the Income Tax Act.
2. Addition of ?12,25,610 due to the difference in average purchase rates from alleged bogus parties.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 and Issuance of Notice under Section 148:

The primary contention of the assessee was that the reassessment proceedings initiated under Section 147 and the notice issued under Section 148 were without proper application of mind. The assessee argued that the Assessing Officer (AO) acted on information provided by the ACIT, Central Circle-10, New Delhi, without independently verifying the material facts. The AO issued a notice under Section 148 on 30.03.2013, which was served on the appellant. The assessee contended that the notice was issued to an incorrect PAN and address, indicating non-application of mind.

The Tribunal found that the AO had received information about the assessee being a beneficiary of accommodation entries from certain parties. The AO scrutinized the audited accounts and found that the transactions were disclosed, but the nature of these transactions as accommodation entries was not. The AO had reasons to believe that the income of ?50,67,260 had escaped assessment due to the assessee's failure to disclose material facts fully. The Tribunal noted that the AO had applied his mind and verified the information with the audited accounts before issuing the notice. The Tribunal also considered the provisions of Section 292B, which save proceedings from being invalidated due to minor errors, and Section 292BB, which states that participation in proceedings implies valid service of notice. The Tribunal upheld the reassessment proceedings, dismissing the assessee's grounds.

2. Addition of ?12,25,610 Due to Difference in Average Purchase Rates from Alleged Bogus Parties:

The AO made an addition of ?53,58,954, considering the purchases from certain parties as bogus based on their admission of providing accommodation entries. The CIT(A) upheld the addition but recalculated it by comparing the average purchase rate from bogus parties with other parties, resulting in an addition of ?12,25,610.

The assessee argued that the purchases were duly accounted for in the books, and the sales were not doubted by the AO. The assessee's books were audited, and the stock records were maintained accurately. The Tribunal found that while the purchases from the said parties were not genuine, the sales were not doubted, indicating that the purchases must have occurred, albeit not from the stated parties. The Tribunal noted that the AO's complete addition was not justified, and the CIT(A)'s method of calculating the average rate difference was also not appropriate.

The Tribunal referred to the Gujarat High Court's decision in the case of Mayank Diamonds, where a 5% Gross Profit rate on unverifiable purchases was deemed reasonable. Applying this principle, the Tribunal restricted the addition to 5% of the unverifiable purchases, amounting to ?2,67,948, and deleted the balance addition of ?9,57,662.

Conclusion:

The Tribunal upheld the reassessment proceedings under Section 147 and the issuance of notice under Section 148, dismissing the assessee's objections. On the issue of bogus purchases, the Tribunal restricted the addition to 5% of the unverifiable purchases, providing partial relief to the assessee. The appeal was partly allowed, with the final addition being ?2,67,948.