2022 (5) TMI 947 - AT - Income Tax

Reopening of assessment u/s 147 - eligibility of reason to believe - addition of bogus purchases - HELD THAT - CIT(A) had confirmed the action with regard to initiation of proceedings under Section 147 of the Act by holding that the Assessing officer had received report of the Investigation Wing, Mumbai that the assessee was beneficiary of accommodation entry operators. Before us the ld AR for the assessee has not made specific submissions in challenging the reopening except making general submissions that no notice of reopening was received. We find that otherwise the issue of reopening is against the assessee by the decision of Jurisdictional High Court in Priya Blue Industries (P) Ltd 2021 (8) TMI 486 - GUJARAT HIGH COURT wherein held that where the assessing officer has reason to believe that income chargeable to tax had escaped assessment as the assessee was beneficiary of accommodation entries and basis of belief were several inquiries and investigation by investigation wing that there had been escapement of income of assessee from assessment because of his failure to disclose fully and truly all the material facts, reopening is justified. Thus, considering the above law, coupled with facts of this case, we affirm the action initiated under Section 147 of the Act. In the result, ground No. 1 2 of the appeal is dismissed. Bogus purchases - The assessee has shown gross profit at 3.42% and net profit at 1.98%, thus the assessee was shown an extremely low profit. The combination of this bench in other similar cases wherein the purchases are shown from Bhanwarlal Jain or Rajendra Jain or Gautam Jain group have restricted or enhanced the addition to the extent of 6% of such amount or disputed purchases. Therefore, taking a consistent view, the disallowance which was confirmed to the extent of 100% by learned CIT(A) are restricted to 6% of the impugned purchases - grounds of appeal raised by the assessee are partly allowed.

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147/148 of the Income Tax Act, 1961.
2. Validity of the ex parte order under Section 144 of the Income Tax Act, 1961.
3. Disallowance of purchases as bogus and the extent of such disallowance.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessment Under Section 147/148:
The assessee challenged the validity of the reopening of the assessment, arguing that the notices under Section 148 were not received, and thus compliance could not be made. The Tribunal found that the Assessing Officer (AO) had valid reasons to believe that income had escaped assessment based on information from the DGIT (Investigation) Mumbai, which indicated that the assessee was a beneficiary of accommodation entries provided by Bhanwarlal Jain and his group. The Tribunal upheld the reopening, citing the jurisdictional High Court's decision in Priya Blue Industries (P) Ltd Vs ACIT, which supports reopening when the AO has reason to believe that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. Therefore, the Tribunal dismissed the assessee's grounds challenging the reopening of the assessment.

2. Validity of the Ex Parte Order Under Section 144:
The assessee contended that the ex parte order passed under Section 144 was erroneous. The Tribunal noted that multiple notices were issued and served upon the assessee, but there was no response or appearance from the assessee or its authorized representative. Given the lack of cooperation from the assessee, the AO completed the assessment ex parte. The Tribunal found no fault in the AO's approach and upheld the ex parte order under Section 144, dismissing the assessee's grounds on this issue.

3. Disallowance of Purchases as Bogus and the Extent of Such Disallowance:
The primary issue was the disallowance of purchases from M/s Nice Diamonds and other entities managed by Bhanwarlal Jain, which the AO deemed bogus. The AO made a 100% disallowance of the purchases, relying on third-party information without conducting an independent investigation. The Tribunal observed that while the AO identified the purchases as suspicious, the sales made by the assessee were not disputed, and the books were not rejected. The Tribunal referred to the Gujarat High Court's decisions in CIT Vs Bholanath Polyfab Pvt Ltd. and CIT Vs Simith P Sheth, which held that only the profit element embedded in such transactions should be disallowed to avoid revenue leakage. Consequently, the Tribunal restricted the disallowance to 6% of the disputed purchases, aligning with its consistent view in similar cases involving hawala dealers. This resulted in a partial allowance of the assessee's appeal on this ground.

Conclusion:
The Tribunal dismissed the assessee's grounds challenging the reopening of the assessment and the ex parte order under Section 144. However, it provided partial relief by restricting the disallowance of bogus purchases to 6% of the total amount, rather than the 100% disallowance made by the AO. The appeals for both assessment years were partly allowed, and the order was pronounced on 17/05/2022.