2021 (7) TMI 1223 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus purchases - information gathered from DGIT (Investigation) Mumbai that Sanjay Choudhary group persons had floated various companies which are engaged in the business of providing accommodation entries in the form of bogus unsecured loans, bogus purchases, bogus capital gains and assessee also was one of the beneficiaries by obtaining bogus purchases - HELD THAT - Admittedly this information was obtained by the Ld. AO based on search and seizure action carried out in the case of Shri Sanjay Choudhary group wherein it was found that the said group was engaged in providing accommodation entries without actual supply of goods, which had ultimately triggered the reopening of assessment in the case of the assessee. CIT(A) had observed that from the information so received, the assessee's name appeared in the list of beneficiaries who had taken accommodation entries. Obviously this would result in formation of belief in the mind of the AO that income of the assessee had escaped the assessment as the said information constituted tangible material. We find that the Ld. CIT(A) had also placed reliance on the decision of the Hon'ble Gujarat High Court in the case of Peass Industrial Engineers Pvt. Ltd. 2016 (8) TMI 280 - GUJARAT HIGH COURT in support of its contentions, while upholding the validity of reopening. Hence, we do not find any infirmity in the order of the Ld. CIT(A) upholding the validity of reopening of the assessment in the instant case. Accordingly, the ground No. 1 raised by the assessee for both the years is hereby dismissed. Bogus purchases - In the instant case, the sales made by the assessee within the disputed purchases had not been doubted by the Revenue. Hence, it could be safely concluded that assessee could have made purchases from grey market in order to have some savings in indirect taxes and incidental profit element thereon by making cash purchases. Hence, it would be just and fair to bring to tax only profit element embedded in the value of such disputed purchases. We find based on the report of the task group for diamond sector published by the Government of India, Ministry of Commerce and Industry, in this regard, wherein the benign/presumptive taxation threshold was set at 2.5%. We hold that profit percentage embedded in the value of disputed purchases estimated at 2.5% thereon, would meet the ends of justice. The Ld. AO is directed accordingly.

Summary

Issues:
1. Validity of reopening of assessment.
2. Addition made on account of bogus purchases.

Validity of reopening of assessment:
The appeals in ITA No. 7150/Mum/2019 & 7149/Mum/2019 for A.Yrs. 2013-14 & 2014-15 were filed against the order by the Ld. Commissioner of Income Tax (Appeals)-41, Mumbai. The first ground raised by the assessee challenged the reopening of assessment. The Ld. AO sought to reopen the assessment for A.Y. 2013-14 based on information indicating the assessee's involvement in bogus transactions. The Ld. AO observed the assessee was a beneficiary of bogus purchases and had not disclosed true income. The Ld. CIT(A) upheld the validity of reopening based on tangible material and legal precedents. The Tribunal dismissed the ground challenging the reopening, citing the formation of a belief that income had escaped assessment.

Addition made on account of bogus purchases:
The second ground raised by the assessee challenged the addition on account of bogus purchases. The Ld. AO noted significant purchases from certain parties, which the assessee failed to prove as genuine during assessment proceedings. Despite providing some documentation, the parties did not respond to summons, and their statements indicated the purchases were bogus. The Ld. AO estimated a profit percentage on the disputed purchases and made an addition to the assessment. The Tribunal, considering the sales made by the assessee within the disputed purchases, directed to tax only the profit element embedded in the value of such purchases, following a benign/presumptive taxation threshold set by the Government of India. The Tribunal partly allowed the ground related to the addition on account of bogus purchases for both years.

In conclusion, the Tribunal upheld the validity of reopening the assessment for A.Y. 2013-14, dismissing the challenge raised by the assessee. Regarding the addition made on account of bogus purchases, the Tribunal directed to tax only the profit element embedded in the disputed purchases, following a prescribed threshold. The appeals of the assessee were partly allowed, with the decision pronounced on 19/07/2021.