2020 (4) TMI 565 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus purchases - HELD THAT - There is sufficient materials in the possession of the AO to form reasonable belief of escapement of income in form of information from DGIT(Inv), which was further supported by sales tax report on suspicious dealers, which is sufficient to reopen assessment and hence, we reject legal ground taken by the assessee. Addition towards bogus purchases - Estimation of profit- AO has made 100% additions towards alleged bogus purchases as assessee is one of the beneficiary of accommodation entries of bogus purchase bills issued by Hawala dealers - CIT(A) has restricted addition to 25% profit - HELD THAT - In a situation where purchase is made from alleged hawala dealers, various High Courts and Tribunals had considered an identical issue in light of investigation carried out by the Sales Tax Department and held that in case purchases claims to have made from alleged hawala dealers, only profit element embedded in those purchases needs to be taxed, but not total purchase from those parties. In the case of CIT vs Simith P.Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT considered a similar issue and held that at the time of estimation of profit from alleged bogus purchases no uniform yardsticks could be adopted, but it depends upon facts of each case - considering the nature of business of the assessee both authorities have considered different rate of profit for addition towards alleged bogus purchase, but no one could support said addition with necessary evidences or any comparable cases - we direct the ld. AO to estimate 12.50% profit on alleged bogus purchases. - Decided partly in favour of assessee.

Summary

Issues:
Reopening of assessment under section 147 of the Act
Disallowance of alleged bogus purchases under section 69C of the Act

Reopening of Assessment under Section 147 of the Act:
The case involved a partnership firm engaged in the business of builder and developer, which filed its return for Assessment Year 2007-08. The assessment was reopened under section 147 of the Act based on information received from the Directorate General of Income Tax Investigation, Mumbai, regarding actions taken by the Sales Tax Authorities against Hawala dealers issuing bogus purchase bills. The AO made additions towards alleged bogus purchases, and the Ld.CIT(A) upheld the reassessment proceedings. The assessee challenged the reopening on the ground of lack of nexus between reasons and income escapement. However, the Tribunal rejected this legal ground, finding sufficient material to support the reopening.

Disallowance of Alleged Bogus Purchases under Section 69C of the Act:
The AO made 100% additions towards alleged bogus purchases, claiming the assessee benefited from accommodation entries of bogus purchase bills. The Ld. AO relied on investigations and findings of the Sales Tax Department, while the assessee provided evidences like books of accounts and bank statements to prove genuine purchases. The Ld.CIT(A) scaled down the additions to 25% profit on alleged bogus purchases. The Tribunal found both sides failed to conclusively prove their cases with necessary evidence. Considering precedents, it directed the AO to estimate 12.50% profit on alleged bogus purchases, emphasizing the need for evidence-based decisions in such cases.

The judgment highlighted the importance of substantiating claims with concrete evidence in cases of alleged bogus purchases and emphasized the need for thorough investigations and logical conclusions to support additions. It also underscored the significance of following precedents and adopting a balanced approach in estimating profits on such transactions.