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2021 (10) TMI 653 - AT - Income TaxReopening of assessment u/s 147 - Reopening based on information of investigation wing - Bogus purchases - HELD THAT - As relying on PUSHPAK BULLION PVT LTD 2017 (8) TMI 961 - GUJARAT HIGH COURT assessing officer validly assumed the jurisdiction for making re-opening under section 147 on the basis of information of investigation wing Mumbai. So far as other submissions of the ld AR for the assessee that there is no live link of the reasons recorded, we find that the Hon ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd 2016 (8) TMI 277 - GUJARAT HIGH COURT clearly held that when assessing officer received information from the investigation wing that two well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified. Hence, the ground No. 1 in assessee s appeal is dismissed. Estimation of income - CIT(A) was of the view that disallowance of 12.5% of impugned purchases/bogus purchases would be reasonable to meet the end of justice - As in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. Appeal raised by the assessee is partly allowed.
Issues Involved:
1. Validity of reopening under Section 147 of the Income Tax Act. 2. Disallowance of non-genuine purchases. 3. Estimation of profit on alleged bogus purchases. 4. Procedural fairness in assessment proceedings. Detailed Analysis: 1. Validity of Reopening under Section 147: The assessee challenged the reopening of the assessment under Section 147, arguing that the Assessing Officer (AO) acted solely on third-party information without independent investigation. The AO received information from the Investigation Wing, Mumbai, indicating that the assessee was a beneficiary of accommodation entries provided by the Bhanwarlal Jain Group. The Tribunal upheld the reopening, citing precedents from the Gujarat High Court in Peass Industrial Engineers (P) Ltd and Pushpak Bullion (P) Ltd, which allowed reopening based on credible information from the Investigation Wing about accommodation entries. 2. Disallowance of Non-Genuine Purchases: The AO disallowed 100% of the purchases from entities managed by the Bhanwarlal Jain Group, treating them as bogus. The assessee provided various documents, such as purchase bills, bank statements, and stock registers, to substantiate the purchases. The AO, however, relied on the Investigation Wing's report and the statement of Bhanwarlal Jain. The Tribunal noted that the AO did not conduct an independent investigation or reject the assessee's books of accounts, which showed that the purchases were routed through banking channels. 3. Estimation of Profit on Alleged Bogus Purchases: The CIT(A) reduced the disallowance from 100% to 12.5%, citing the Tribunal's decision in Bholanath Poly Fab Private Limited and the Gujarat High Court's decision in Mayank Diamonds Pvt. Ltd. The Tribunal acknowledged that the assessee had shown a Gross Profit (GP) rate of 0.78%, which was lower than the industry average. Therefore, the Tribunal concluded that a 6% disallowance of the disputed purchases would be reasonable, considering the overall facts and circumstances. 4. Procedural Fairness in Assessment Proceedings: The assessee argued that the AO did not provide an opportunity for cross-examination of the alleged hawala dealers and did not furnish the statements relied upon. The Tribunal observed that the AO's reliance on the Investigation Wing's report without providing the assessee an opportunity to rebut the evidence was procedurally unfair. The Tribunal emphasized that tax authorities should only tax the income component of disputed transactions to prevent revenue leakage, aligning with the principle that procedural fairness is crucial in tax assessments. Separate Judgments: The Tribunal's decision applied consistently across multiple appeals involving different assessees and assessment years. The Tribunal dismissed the appeals of the revenue and partly allowed the appeals of the assessees by sustaining a 6% disallowance of the disputed purchases, ensuring consistency and fairness in the judgments. Summary: The Tribunal upheld the validity of reopening under Section 147 based on credible information from the Investigation Wing. It reduced the disallowance of non-genuine purchases to 6%, considering the procedural lapses by the AO and the need for a fair estimation of income. The Tribunal emphasized the importance of procedural fairness and consistency in tax assessments, ensuring that only the income component of disputed transactions is taxed.
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