2021 (12) TMI 860 - AT - Income Tax

Reopening of assessment u/s 147 - Addition of bogus purchases - addition on account of disallowance of 25% of purchases - HELD THAT - AO has not disputed the sales of the assessee. No sale is possible without purchases. The statement of accounts of the assessee was not rejected by the assessing officer. CIT(A) confirmed the addition made by AO - even if the parties are failed to prove the genuineness of entire transaction of such tainted purchases, the revenue authorities are not entitled to bring the substantial or entire transaction to tax, rather to tax the income component in such tainted transactions to avoid the possibility of revenue leakage. After considering the decision of Tribunal in assessee s own case for earlier year and the GP and NP ratio declared by assessee for the year under consideration. We find that assessee has declared in AY 2009-10 the assessee has declared GP at 4.95 %, in AY 2010-11 at 17.55% and in AY 2011-12 at 5.38%. It is a settled law that principles of res judicata is not applicable in the income tax proceeding, similarly it is also settled legal view that consistency must be followed if there is no variation in the facts qua earlier or subsequent years. Therefore, in order to avoid the possibility of revenue leakage 6%, would meet the end of justice. Similar view was adopted by this combination, wherein the beneficiary of such purchases has shown very meagre GP. Therefore, we modify the order of ld. CIT(A) and restrict the addition of impugned/bogus purchases to the extent of 6%.Appeal of assessee for AY 2009-10 is partly allowed.

Summary

Issues:
Validity of reopening under section 147
Disallowance of 25% purchases
Addition of suspicious purchases
Cross-examination rights of the assessee
Principles of natural justice

Validity of Reopening under Section 147:
The appeals were directed against the orders of the Commissioner of Income Tax for assessment years 2009-10. The assessee challenged the initiation of proceedings under section 148 without jurisdiction and on borrowed reasons. The case was reopened based on information from the Investigation Wing regarding accommodation entries and bogus purchases. The Assessing Officer relied on this information to disallow 25% of purchases from a specific entity. The assessee contended that the reopening lacked jurisdiction and proper sanction. The Commissioner upheld the reopening but sustained the additions on merit. The Tribunal noted that no specific submissions were made during the hearing on this issue, leading to these grounds being treated as not pressed.

Disallowance of 25% Purchases:
The main contention of the assessee was against the disallowance of 25% of purchases from a particular entity. The Assessing Officer solely relied on the report of the Investigation Wing without considering the documentary evidence provided by the assessee. The Tribunal emphasized that no sales could occur without purchases and that the books of accounts were not rejected. The Commissioner upheld the disallowance, but the Tribunal found that the revenue authorities should only tax the income component in such transactions to prevent revenue leakage. Considering the GP and NP ratios declared by the assessee in previous years, the Tribunal modified the order and restricted the addition of bogus purchases to 6%.

Addition of Suspicious Purchases and Cross-Examination Rights:
The Assessing Officer disallowed 25% of purchases based on the investigation findings without providing the assessee with the opportunity for cross-examination. The Tribunal emphasized the importance of allowing cross-examination to ensure natural justice. The Tribunal considered the assessee's evidence supporting the purchases and the lack of comments from the Assessing Officer on this evidence. The Tribunal found that a 6% restriction on the disallowance of purchases would be justifiable to prevent revenue leakage.

Principles of Natural Justice:
The Tribunal highlighted the significance of following principles of natural justice, including the right to cross-examination and providing evidence to support claims. The Tribunal emphasized that consistency in applying decisions across years is crucial in tax proceedings. The Tribunal modified the Commissioner's order to restrict the disallowance of purchases to 6% based on the GP ratios declared by the assessee in previous years.

Conclusion:
The Tribunal partly allowed the appeals, modifying the disallowance of purchases to 6% to prevent revenue leakage. The Tribunal stressed the importance of providing cross-examination rights to the assessee and following principles of natural justice in tax proceedings. The decision aimed to strike a balance between tax compliance and fairness in assessment.