2021 (7) TMI 764 - AT - Income Tax

Reopening of assessment u/s 147 - AR has assailed the reassessment proceedings on the ground that original return was scrutinized u/s 143(3) and the case was reopened beyond four years - Bogus purchases - HELD THAT - There is no allegation by Ld. AO in the recorded reasons to the fact that there was any failure on the part of the assessee during scrutiny assessment. We do not concur with the same since assessment was framed u/s 143(3) on 18/12/2009 whereas search action on tainted group took place on 03/10/2013 which is a subsequent event. The Ld. AO was clinched with tangible material arising out of a subsequent event. This material established possible escapement of income in the hands of the assessee. Therefore, nothing more was required at this stage to reopen the case of the assessee. Ground No.1 stands dismissed. Bogus purchases - Purchases made by the assessee was to undergo strict rules regulations as well as verification by customs authorities. Not only this, the utilization of the same while exporting the goods was also to be demonstrated by the assessee. There is complete one-to-one corelation of the purchases vis- -vis diamonds utilized in exports made by the assessee. The documentary evidences as furnished by the assessee as elaborated by us in para-5 duly support the said propositions. The assessee s books of accounts have duly been audited as per Income Tax Rules and there are no adverse remarks by the Tax Auditor with respect to purchases, utilization of raw material, sale or closing stock. Upon perusal of the Tax Audit Report, it could be gathered that the assessee has maintained complete quantitative details of raw materials, work-in-progress as well as finished goods sold by it. Upon perusal of financial statements, it could be observed that the assessee has reflected Net profit Rate of around 6% in this year as against net Profit Rate of 5.85% in immediately preceding year. We are of the considered opinion that the onus casted upon assessee to substantiate the purchases was duly discharged and the onus was on revenue to dislodge the assessee s submissions as well as documentary evidences. The whole basis of addition is statement made by the tainted group during search operations. The opportunity to cross-examine the same has never been provided to the assessee. It could be concluded that the additions are made merely on the basis of allegations without there being any cogent material in the armory of the revenue. Therefore, considering the facts of the case, we are inclined to delete the impugned additions - Decided in favour of assessee partly.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income Tax Act.
2. Denial of opportunity to cross-examine third-party statements.
3. Addition of ?4,17,27,832 by treating genuine local purchases/deemed imports as accommodation entries.
4. Compliance with procedures for 100% Export Oriented Unit (EOU) regarding deemed imports.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 147 of the Income Tax Act:
The assessee contested the assumption of jurisdiction by the Assessing Officer (AO) under Section 147, arguing that the conditions for initiating reassessment proceedings were not fulfilled. The Tribunal noted that the original assessment was completed under Section 143(3) on 18/12/2009. However, a subsequent search operation on 03/10/2013 provided tangible material indicating possible income escapement. Thus, the Tribunal upheld the reassessment proceedings, dismissing the assessee's ground on this issue.

2. Denial of Opportunity to Cross-Examine Third-Party Statements:
The assessee argued that the AO erred by not providing an opportunity to cross-examine the third-party statements relied upon for making additions. The Tribunal found that the additions were based on allegations without cogent material, and the opportunity to cross-examine was not provided. Therefore, the Tribunal concluded that the additions were unjustified and deleted them, allowing this ground in favor of the assessee.

3. Addition of ?4,17,27,832 by Treating Genuine Local Purchases/Deemed Imports as Accommodation Entries:
The AO disallowed purchases from M/s Sun Diam, alleging they were bogus. The assessee provided extensive documentation, including procurement certificates, endorsed invoices, and end-use certificates, demonstrating compliance with SEZ rules and regulations. The Tribunal found that the assessee followed strict procedures for deemed imports and provided sufficient evidence to substantiate the purchases. The Tribunal noted that the purchases underwent verification by customs authorities and were used in manufacturing exported goods. Consequently, the Tribunal deleted the additions, allowing this ground in favor of the assessee.

4. Compliance with Procedures for 100% Export Oriented Unit (EOU) Regarding Deemed Imports:
The assessee, a 100% EOU, argued that it followed strict procedures for deemed imports, including obtaining procurement certificates and customs endorsements. The Tribunal reviewed the detailed procedures and documentation provided by the assessee, confirming compliance with SEZ rules. The Tribunal noted that the purchases were verified by customs authorities and used in manufacturing exported goods. The Tribunal concluded that the assessee met the compliance requirements, supporting the genuineness of the transactions. Thus, this ground was allowed in favor of the assessee.

Conclusion:
The Tribunal partly allowed the appeals for the assessment years 2007-08 to 2010-11, upholding the reassessment proceedings but deleting the additions made by the AO. The Tribunal directed the AO to re-compute the assessee's income in accordance with its findings. The appeals were allowed in similar fashion for all assessment years involved.