2020 (6) TMI 236 - AT - Income Tax

Reopening of assessment - Bogus purchases - addition made by the AO towards alleged bogus purchases to 12.50% gross profit - HELD THAT - In so far as legal ground challenging reopening of assessment, we find that the AO has reopened assessment on the basis of fresh materials in form of information from DGIT(Inv) which was further supported by report of MVAT, Department, Govt. of Maharastrha which constitutes fresh material to form reasonable belief of escapment of income. We, therefore are of the view that there is no merit in legal ground taken by the assessee challenging reopening assessment and hence, the same is rejected. Additions towards alleged bogus purchase - AO has made addition of 25% profit less gross profit declared on alleged bogus purchases on the ground that the assessee is one of the beneficiary of accommodation entries of bogus purchase bills issued by Hawala dealers - CIT(A) has scaled down additions to 12.50% profit - HELD THAT - Although, both authorities have taken different rate of profit for estimation of income from alleged bogus purchase, but no one could support said rate of gross profit with necessary evidences or any comparable cases. Therefore we are of the considered opinion that the ld. CIT(A) has taken a fair view and estimated 12.50% gross profit on alleged bogus purchases to settle dispute between the parties and hence, we are inclined to uphold order of the ld. CIT(A) and dismiss appeal filed by the assessee.

Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Validity of the addition made on account of possible profit element embedded in alleged bogus purchases.
3. Charging of interest under Sections 234B and 234C of the Income Tax Act, 1961.
4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147 of the Income Tax Act, 1961:
The assessee challenged the reopening of the assessment under Section 147, arguing that the prescribed conditions were not satisfied. The Tribunal found that the Assessing Officer (AO) had reopened the assessment based on fresh material, specifically information from the Directorate General of Income Tax (Investigation) and the Sales Tax Department of Maharashtra regarding hawala dealers issuing bogus purchase bills. This constituted fresh material, forming a reasonable belief of income escapement. Hence, the Tribunal rejected the assessee's legal ground challenging the reopening of the assessment.

2. Validity of the Addition Made on Account of Possible Profit Element Embedded in Alleged Bogus Purchases:
The AO had made an addition of 25% profit on the alleged bogus purchases, less the gross profit declared by the assessee, based on information that the assessee was a beneficiary of accommodation entries from hawala dealers. The AO relied on the fact that notices issued under Section 133(6) to the parties were returned unserved, indicating the purchases were bogus. The assessee contended that the purchases were genuine and supported by necessary evidence, including books of accounts, stock details, and bank statements.

The Commissioner of Income Tax (Appeals) [CIT(A)] scaled down the addition to 12.5% gross profit on the total purchases from those parties, following the decision of the Gujarat High Court in CIT vs. Simith P. Sheth (356 ITR 451). The Tribunal noted that both the assessee and the AO failed to conclusively prove their cases. The AO did not find discrepancies in the books of accounts or sales outside the books. The Tribunal upheld the CIT(A)'s decision to estimate the profit embedded in the accommodation entries of bogus purchases at 12.5%, considering it a fair view consistent with the decisions of various High Courts and Tribunals.

3. Charging of Interest under Sections 234B and 234C of the Income Tax Act, 1961:
The assessee raised grounds against the charging of interest under Sections 234B and 234C. However, the Tribunal did not provide a detailed analysis or ruling on this issue in the judgment.

4. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee also challenged the initiation of penalty proceedings under Section 271(1)(c). Similar to the issue of charging interest, the Tribunal did not elaborate on this matter in the judgment.

Conclusion:
The Tribunal dismissed the appeals filed by the assessee for both assessment years 2009-10 and 2011-12, upholding the CIT(A)'s decision to estimate the profit element embedded in the alleged bogus purchases at 12.5%. The Tribunal found no merit in the legal ground challenging the reopening of the assessment and agreed with the CIT(A)'s rationale and methodology for estimating the profit from the bogus purchases.

← Previous Next →