2021 (3) TMI 216 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus purchases - estimation of income - HELD THAT - After processing of return of income under section 143(1) Assessing Officer had received specific information from the Sales Tax Department that certain purchases claimed to have been made by the assessee during the year are non genuine. Therefore, the Assessing Officer has tangible material in his possession to form a belief regarding escapement of income. Mentioning of a wrong figure in the reasons recorded, therefore, would not invalidate the proceeding. Therefore uphold the validity of re opening of assessment under section 147. Bogus purchases - added back the profit element embedded in such purchases by estimating it @ 25% - Considering the fact that the disputed goods purchased by the assessee is steel, wherein, as per industry norms, the profit rate varies between 5% and 8% and further, the fact that the assessee has paid applicable VAT on such purchases to the Sales Tax Authorities because of the default made by the selling dealers, disallowance @ 8% of the alleged non genuine purchases would be fair and reasonable. Accordingly, direct the Assessing Officer to restrict the disallowance to 8% of the non genuine purchases. The grounds raised by the assessee are partly allowed.

Summary

Issues: Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961 and merits of the disallowance made on account of alleged non-genuine purchases.

Validity of Re-opening of Assessment: The appeal challenged the re-opening of assessment under section 147 of the Income Tax Act, 1961. The Assessing Officer re-opened the assessment based on information from the Sales Tax Department indicating non-genuine purchases of steel by the assessee. The assessee argued that the reasons recorded showed a discrepancy in the amount mentioned, but the Tribunal upheld the re-opening citing tangible material to form a belief of income escapement, despite the error in the recorded reasons. The Tribunal deemed the re-opening valid.

Merits of Disallowance on Non-genuine Purchases: The assessee contested the disallowance made on non-genuine purchases of steel. The Assessing Officer disallowed 25% of the purchases as non-genuine, adding back an amount to the income. The Tribunal noted that the assessee had paid VAT on the disputed purchases and had varying profit ratios on steel purchases. Considering industry norms and VAT payments, the Tribunal deemed a disallowance of 8% of the alleged non-genuine purchases fair and reasonable. Thus, the Tribunal directed the Assessing Officer to limit the disallowance to 8% of the non-genuine purchases, partially allowing the grounds raised by the assessee.

Conclusion: The Tribunal partially allowed the appeal, upholding the re-opening of assessment under section 147 of the Income Tax Act, 1961, and directing a reduced disallowance of 8% on the non-genuine purchases of steel.