2022 (3) TMI 1033 - AT - Income Tax

Reopening of assessment u/s 147 - estimation of income on bogus purchases - retention of the addition to the extent of 12.5% of the bogus purchases - whether such notice has been received by the assessee in time or not? - HELD THAT - The notice for assessment year 2010 11 could have been issued up to 31st of March 2017. Though the notice have been issued on 7/10/2016 but as it has been served on the assessee on 16/2/2017, we do not find any infirmity in the reopening proceedings. Accordingly we uphold the reopening of the assessment made by the learned holding that assessee has e been served notice u/s 148 of the Act in time. Assessee has not been served the notice as there was no reference that notice u/s 148 of the act on 16/2/17 have been served on whom - The signature placed on the above notice as well as the signature of the assessee completely matches, we are of the opinion that notice u/s 148 of the act has been served on the assessee himself on 16/2/2017. Assessee has challenged that the approval was mechanical - AR could not show that there is any infirmity in the reasons recorded. The satisfaction has been recorded by the learned principal Commissioner of income tax as per performa at serial number 12 has clearly recorded his satisfaction which shows that he has gone through the reasons recorded by the learned assessing officer and then he is satisfied with the proposal of issuing notice u/s 148 and thereafter he granted his approval. Naturally, when reasons recorded are sound enough to stand on its own legs, clear, unassailable, manner or language of recording approval does not matter much. More so, as there is no specific manner and language of recording such approval prescribed by law, therefore approval granted if shows application of sound mind, deserves to be upheld. All decision cited before us shows flawed reasons and consequently approval also failed. In view of this, we are not in agreement with the argument of the learned authorised representative that the approval granted by the learned principal Commissioner of income tax is cryptic and does not show application of mind. - Decided against assessee. Bogus purchases - The amount of purchase consideration paid to above 4 parties are through account payee cheques and the sale consideration received by assessee from bill Power Ltd is also through account payee cheques. As held by the honourable Bombay High Court in case of principal Commissioner of income tax versus Muhammad Haji Adam and Co and others 2019 (2) TMI 1632 - BOMBAY HIGH COURT that when compared the purchases and sale statement of the assessee, revenue accepted the sale, there is no reason to reject the purchases because without purchases there could not have been sale of goods. As the fact of purchases from hawala parties is not disputed, the additions limited to the extent of bringing the gross profit rate on purchases at the same rate of other genuine purchases were upheld. In the present case, the gross profit rate on total purchases of ₹ 1,064,411,721 at the rate of 0.35% We direct the learned assessing officer to retain the addition in the hands of the assessee on account of the bogus purchases of ₹ 906,090 against the addition confirmed by ld CIT (A) of ₹ 32,819,832/ . Accordingly, ground number 2 of the appeal of the assessee is partly allowed.

Issues Involved:
1. Reopening of Assessment under Section 147 of the Income Tax Act.
2. Disallowance of alleged bogus purchases.
3. Quantum of addition for bogus purchases.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The assessee challenged the reopening of the assessment, arguing that the notice under Section 148 was served beyond the prescribed time limit. The notice was issued on 07.10.2016 but was claimed to be received by the assessee only on 27.07.2017. The assessee contended that the assessment order was invalid due to the delayed service of the notice. However, the tribunal found that the notice dated 07.10.2016 was indeed served on the assessee on 16.02.2017, within the permissible time frame. The tribunal upheld the reopening of the assessment, stating that the reasons recorded for reopening were sound and the approval granted by the Principal Commissioner of Income Tax was valid, showing application of mind. Consequently, the tribunal dismissed the assessee's challenge to the reopening of the assessment.

2. Disallowance of Alleged Bogus Purchases:
The assessee was engaged in trading of iron and steel products and had declared purchases from four entities alleged to be hawala traders. The Assessing Officer (AO) disallowed the entire amount of ?26,25,58,657/- as bogus purchases, based on information from the Sales Tax Department and affidavits from the alleged hawala traders. The assessee provided audited accounts, tax audit reports, and bank statements to support the genuineness of the purchases. The CIT(A) partially allowed the appeal, confirming the addition of 12.5% of the total purchases as bogus, amounting to ?3,28,19,832/-, and deleting the rest. The tribunal found that the purchases were debited in the books and the corresponding sales were credited, resulting in a gross profit of 0.09%. The tribunal held that the addition should be limited to the extent of bringing the gross profit rate on purchases at the same rate as other genuine purchases, following the decision of the Bombay High Court in the case of Mohammad Haji Adam And Co.

3. Quantum of Addition for Bogus Purchases:
The tribunal concluded that the addition should be based on the gross profit rate of genuine purchases. The gross profit rate on total purchases was 0.35%, while the gross profit rate on the alleged bogus purchases was 0.09%. The tribunal determined that the balance addition required to bring the gross profit rate of the bogus purchases to the rate of genuine purchases was ?9,06,090/-. Therefore, the tribunal upheld the addition of ?9,06,090/- instead of the 12.5% confirmed by the CIT(A), and rejected the AO's addition of 100% of the bogus purchases. The tribunal dismissed the grounds raised by the revenue and partly allowed the assessee's appeal.

Conclusion:
The tribunal upheld the reopening of the assessment under Section 147, limited the addition for bogus purchases to ?9,06,090/-, and dismissed the revenue's appeal for a higher addition. The tribunal's decision was based on the principle of bringing the gross profit rate of bogus purchases in line with that of genuine purchases, as established by the Bombay High Court.

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