2022 (3) TMI 1308 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of reasons to believe - bogus purchases - HELD THAT - As gone one through the reasons recorded by the Assessing Officer and noted reasons were recorded by the Assessing Officer as per the provision of section 147 and the reasons so recorded by the Assessing Officer are valid in the eye of law, therefore we dismiss the ground raised by assessee on technical issue of reopening under section 147. As relying on SHRI PANKAJ KANWARLAL JAIN HUF VERSUS THE INCOME TAX OFFICER, WARD-2 (3) (8) , SURAT 2019 (8) TMI 1769 - ITAT SURAT 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. Bogus purchases - 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, we are of the view that disallowances @ 6% of impugned purchases/disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No. 2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed.

Issues Involved:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Confirmation of addition of entire purchases as accommodation entries.
3. Lack of opportunity for cross-examination and absence of corroborative evidence.
4. Consideration of statements made during remand proceedings.
5. Confirmation of genuineness of transactions by alleged parties.

Detailed Analysis:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961:

The assessee argued that the reassessment proceedings initiated under Section 147 were invalid as the conditions laid down under the Act were not fulfilled. The Departmental Representative countered that the Assessing Officer (AO) had recorded valid reasons for reopening the case. The Tribunal reviewed the reasons recorded by the AO and found them to be in accordance with Section 147, thus dismissing the assessee’s ground on this technical issue. The Tribunal referenced the case of Pankaj K. Chaudhury, where similar reassessment proceedings were upheld, and cited judgments from various High Courts supporting the validity of reopening based on credible information from the Investigation Wing.

2. Confirmation of addition of entire purchases as accommodation entries:

The assessee contended that the addition of ?11,04,370/- as accommodation entries was erroneous. The Departmental Representative supported the AO's decision, citing the case of Pankaj K. Chaudhury, where the Tribunal upheld an addition at the rate of 6% of bogus purchases. The Tribunal noted that the AO had relied heavily on the Investigation Wing's report without independent verification, and the CIT(A) had reduced the addition to 12.5%. However, considering the facts and the precedent set in similar cases, the Tribunal decided that a disallowance at the rate of 6% would be reasonable to prevent revenue leakage.

3. Lack of opportunity for cross-examination and absence of corroborative evidence:

The assessee argued that the AO confirmed the addition without providing an opportunity for cross-examination and without corroborative evidence. The Tribunal acknowledged that the AO had not provided the assessee with the statements relied upon or allowed cross-examination, which was a lapse. Despite this, the Tribunal found that the overall facts and circumstances justified a partial disallowance of the purchases.

4. Consideration of statements made during remand proceedings:

During remand proceedings, the partner of the party from whom the alleged accommodation entries were taken confirmed the transactions as genuine under Section 131 of the Act. The Tribunal considered this statement but also weighed it against the Investigation Wing’s findings and the lack of independent verification by the AO.

5. Confirmation of genuineness of transactions by alleged parties:

The alleged parties had replied to notices under Section 133(6), confirming the genuineness of the transactions. The Tribunal took these confirmations into account but noted that the AO had not disputed the sales, indicating that some purchases were genuine. The Tribunal balanced these confirmations with the need to prevent revenue leakage, leading to the decision to disallow 6% of the disputed purchases.

Conclusion:

The Tribunal concluded that the reassessment proceedings were valid and dismissed the ground challenging it. On the merits, the Tribunal found that a disallowance of 6% of the impugned purchases was appropriate, partly allowing the assessee's appeal and dismissing the revenue's appeal. The judgment was pronounced on 23/02/2022.

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