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2022 (4) TMI 279 - AT - Income TaxReopening of assessment u/s 147 - Reliance on information of investigation wing Mumbai - Bogus purchases - HELD THAT - We find that the 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 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 on bogus purchases - CIT(A) restricted to addition to the extent of 12.5% of the total purchase shown from three parties - We are of the view the disallowance restricted by Ld. CIT(A) is on higher side. The profit margin in the industry is 5% to 7%. It is settled law in case of disputed purchases shown from such hawala dealers on the profit element embedded to avoid the possibility of revenue leakage is to be disallowed. No doubt made the assessee has shown extremely low G.P yet the disallowance at rate of 12.5% is on higher side. This combination in similar cases, wherein the purchases are shown from Bhawarlal Jain, have restricted or enhanced the addition to the extent of 6% of impugned or disputed purchases. Therefore, taking the consistent the disallowance of purchases in the present case is also restricted to 6% of the disputed purchases. In the result, the grounds of appeal raised by assessee is partly allowed.
Issues Involved:
1. Validity of reopening under Section 147/148 of the Income Tax Act. 2. Addition on account of alleged bogus purchases. Issue-wise Detailed Analysis: 1. Validity of Reopening under Section 147/148: The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) initiated the reassessment based on third-party information without conducting any preliminary investigation. The AO received information from the DGIT (Investigation), Mumbai, indicating that the assessee was a beneficiary of bogus purchases from entities managed by Bhanwarlal Jain Group. The AO issued a notice under Section 148 after forming an opinion that income had escaped assessment. The Tribunal noted that the AO had disposed of the assessee’s objections in a detailed speaking order. The CIT(A) upheld the reopening, stating that the AO had received credible information from the investigation wing, which justified the reopening. The Tribunal referred to the jurisdictional High Court's decisions in Peass Industrial Engineers (P) Ltd Vs DCIT and Pushpak Bullion (P) Ltd Vs DCIT, which supported the AO’s action based on information from the investigation wing about accommodation entries provided by known entry operators. Consequently, the Tribunal found the reopening under Section 147/148 to be valid and dismissed the assessee’s ground on this issue. 2. Addition on Account of Alleged Bogus Purchases: The AO made additions based on information from the investigation wing, which indicated that the assessee had shown bogus purchases from entities managed by Bhanwarlal Jain Group. The AO disallowed 25% of the aggregate transactions amounting to ?1,73,49,664/-, resulting in a disallowance of ?43,37,416/-. The assessee contended that the purchases were genuine, supported by proper documentation, and that the sales were accepted by the AO. The assessee also argued that no cross-examination of Bhanwarlal Jain was allowed, and no corroborative evidence was provided. The CIT(A) observed that the AO did not examine the detailed evidence provided by the assessee, such as books of accounts, stock registers, and sales registers, and noted that no defects were pointed out in these documents. The CIT(A) referred to the Tribunal’s decision in Bholanath Polyfab Pvt. Ltd. and the jurisdictional High Court's decision in M/s Mayank Diamond Pvt. Ltd., which suggested that disallowance of 100% of purchases was not justified, and a reasonable percentage should be considered to avoid revenue leakage. Consequently, the CIT(A) restricted the disallowance to 12.5% of the disputed purchases. The Tribunal, after considering submissions from both parties and examining the documentary evidence, concluded that the AO’s addition was solely based on third-party information without rejecting the assessee’s books of accounts. The Tribunal noted that the profit margin in the industry ranged from 5% to 7% and that similar cases involving purchases from Bhanwarlal Jain had seen disallowances restricted to 6% of the disputed purchases. Therefore, the Tribunal found the 12.5% disallowance by the CIT(A) to be on the higher side and restricted the disallowance to 6% of the disputed purchases. Conclusion: The Tribunal upheld the validity of the reopening under Section 147/148 but found the disallowance rate of 12.5% to be excessive. The disallowance was reduced to 6% of the disputed purchases, and the appeal was partly allowed. The order was pronounced on 28/03/2022, and the result was placed on the notice board.
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