2020 (8) TMI 354 - AT - Income Tax

Reopening of assessment u/s 147 - Information received from Sales Tax Department - Estimation of income - bogus purchases - CIT- A sustained the addition made by the AO towards alleged bogus purchases to 12.50% gross profit on total purchases from those parties - HELD THAT - For Reopening of assessment AO has formed reasonable belief of escapement of income on the basis of report of Investigation Wing, which is further supported by the report of Sales Tax Department, Govt. of Maharashtra. Further, in our considered view, information relied upon by the ld. AO constitutes a fresh tangible material which is sufficient to reopen the assessment. We, therefore, are of the opinion that there is no merit in grounds taken by the assessee challenging reopening of assessment and hence, we reject grounds raised by the assessee, challenging of reopening assessment. Bogus purchases - ITAT, Mumbai, in number of cases had considered an identical issue and depending upon facts of each case, directed the Ld. AO to estimate gross profit of 10% to 15% on total alleged bogus purchases. In this case, considering the nature of business of the assessee the Ld. AO has made 12.50% additions, which has been affirmed by the ld. CIT(A) on total alleged bogus purchase. Both authorities have taken uniform 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. Rate of profit adopted by the AO is appears to be on higher side when compared to nature of business of the assessee. Therefore rate profit adopted @ 12.50% on alleged bogus purchases is on higher side going by the nature of business of the assessee and hence, we order the Assessing Officer to restrict the addition at the rate of 5% on alleged bogus purchases. Appeal of the assessee is partly allowed.

Summary

Issues:
1. Validity of reopening of assessment under section 147 of the IT Act 1961.
2. Addition of estimated profit at 12.5% on alleged non-genuine purchases.

Issue 1: Validity of reopening of assessment under section 147 of the IT Act 1961

The case involved a reassessment under section 147 initiated by the Assessing Officer based on information received from the DGIT, Mumbai, regarding the assessee's involvement in non-genuine purchases. The appellant challenged the reopening, arguing that the reasons provided were contrary to the Income Tax Act and rules. The Tribunal noted that the Assessing Officer had sufficient cause to believe that income had escaped assessment, supported by tangible material from the Investigation Wing and Sales Tax Department. Citing relevant case law, the Tribunal upheld the reopening, emphasizing that at the initiation stage, a "reason to believe" is required, not the established fact of income escapement. The Tribunal dismissed the appeal challenging the reopening of assessment.

Issue 2: Addition of estimated profit at 12.5% on alleged non-genuine purchases

The Assessing Officer had added 12.5% as estimated profit on alleged non-genuine purchases made by the assessee. The appellant contended that the purchases were genuine and supported by evidence. However, the Sales Tax Department's findings indicated that the parties involved provided accommodation entries without actual goods delivery. The Tribunal observed that both parties failed to conclusively prove their cases with necessary evidence. While the Assessing Officer relied on investigation reports and departmental findings, the appellant provided basic evidence but failed to substantiate further. Citing precedents, the Tribunal noted that in cases of purchases from suspicious dealers, only the profit element should be taxed, not the total purchase amount. Considering the nature of the business, the Tribunal found the 12.5% profit addition to be on the higher side and directed the Assessing Officer to restrict the addition to 5% on alleged bogus purchases. Consequently, the Tribunal partly allowed the appeal.

In conclusion, the judgment addressed the validity of the reassessment under section 147 and the addition of estimated profit on alleged non-genuine purchases, providing detailed reasoning and legal interpretations for each issue while ultimately partially allowing the appellant's appeal.