2021 (1) TMI 1016 - AT - Income Tax

Reopening of assessment - HELD THAT - The assessee has assailed the reopening before the CIT(A). No contrary material is available on record to rebut the findings of CIT(A). We find no reason to interfere with the order of CIT(A) on this issues. Accordingly, ground No.1 of the appeal is dismissed being devoid of any merit. Estimation of income - bogus purchases - CIT-A estimating GP at 12.5% - HELD THAT - The assessee is in the business of trading of ferrous and nonferrous metals. The estimation of GP by CIT(A) is on the higher side. The GP in the trade of ferrous and non-ferrous metals is generally around 4% to 6%. In our considered view the ends of justice would meet if the GP on bogus purchases be estimated at 6%. We hold and direct accordingly. The ground No.2 of the appeal is partly allowed in the terms aforesaid. Disallowance on interest under section 36(1) (iii) - HELD THAT - It is not emanating from records whether the assessee was having own sufficient funds for advancing of loans to its sister concern. The assessee has submitted that the advances have been given in connection with business. However, we find that there is no reference to the material by authorities below that have been placed on record by the assessee to substantiate that the advances were in respect of business transactions. In the absence of complete facts and reference to material brought on record by assessee, we deem it appropriate to restore this issue back to the file of Assessing Officer for fresh adjudication. While deciding this issue, the Assessing Officer shall also consider the applicability of decision rendered in the case of CIT vs. Reliance Utility Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT .

Summary

Issues:
Reopening of assessment, Disallowance on bogus purchases, Disallowance on interest under section 36(1)(iii) of the Act

Reopening of Assessment:
The appellant contested the reopening of assessment before the CIT(A), but no contrary material was presented to challenge the findings. The Tribunal found no reason to interfere with the CIT(A)'s decision, dismissing the appeal on this issue for lacking merit.

Disallowance on Bogus Purchases:
The Assessing Officer added the entire amount of alleged bogus purchases under section 69 of the Income Tax Act, 1961. The CIT(A) accepted the findings but restricted the disallowance by estimating GP at 12.5% on the bogus purchases. The appellant argued that confirmations with PAN of the alleged hawala operators were provided, and no independent inquiry was conducted by the Assessing Officer. However, the appellant failed to produce essential documents like lorry receipts to prove the genuineness of the purchases. The Tribunal observed that without purchases, there cannot be sales, and estimated the GP on bogus purchases at 6%, considering the nature of the appellant's business in trading ferrous and non-ferrous metals. Thus, the ground related to bogus purchases was partly allowed.

Disallowance on Interest under Section 36(1)(iii) of the Act:
The Assessing Officer disallowed interest amounting to a specific sum on the grounds that the appellant advanced interest-bearing funds to its sister concern without charging any interest. The Tribunal noted the lack of clarity on whether the appellant had sufficient funds for such advances and whether they were related to business transactions. As there was no conclusive evidence to support the business purpose of the advances, the issue was remanded back to the Assessing Officer for fresh adjudication, with directions to consider relevant legal precedents. Consequently, the appeal was partly allowed on this issue.

In conclusion, the Tribunal addressed the issues of reopening of assessment, disallowance on bogus purchases, and disallowance on interest under section 36(1)(iii) of the Act comprehensively, providing detailed analysis and reasoning for each decision made.