2022 (7) TMI 543 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Bogus purchases - HELD THAT - Assessee has not brought any material to our notice as to why the re-opening is bad in law and he simply argued that Daksh Diamonds is not managed by Bhanwarlal Jain and that the reopening is not valid. We find that the Hon'ble jurisdictional High Court in the case of Pass Industrial Engineers Pvt. Ltd. 2016 (8) TMI 280 - GUJARAT HIGH COURT on similar set of facts held that when after scrutiny assessment the Assessing Officer received information from Investigation Wing that well known entry operators of Country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, the Assessing Officer was justified in re-opening assessment. No merit in the submission raised by assessee. Thus, Ground No.1 raised by assessee is dismissed. Addition of 25% on account of disputed / bogus purchases shown by assessee from Daksh Diamonds - We find that neither the books of account of assessee were rejected nor sale of assessee was doubted by Assessing Officer. And the assessing officer made the disallowance @ 25% of purchase shown from Daksh Diamonds on the basis of information of investigation wing. CIT(A) confirmed the action of AO, without giving any specific finding. We find that the assessee is in the business of cut and polish diamonds and the disallowances confirmed by the lower authorities are on excessive side in the business of assessee. We are of the view that when there is allegation of bogus purchases against the assessee and the assessee claimed that the transaction is genuine and payments are made through bank, only the component of profit element embedded in such transaction may be disallowed to avoid the possibility of revenue leakage. This combination in a number of cases of similar type of purchase, wherein purchase are shown either from Bhanwarlal Jain or Gautam Jain Group or Pankaj K Chaudhary have restricted the similar disallowance @ 6% of purchase. Therefore, following the consistency the Assessing Officer is directed to restrict the disallowance @ 6% of the purchase shown by assessee from Daksh Diamonds. In the result, ground No.2 raised by assessee is partly allowed.

Summary

Issues:
1. Validity of re-opening assessment under section 147 of the Income Tax Act.
2. Addition of 25% on account of disputed/bogus purchases from Daksh Diamonds.

Issue 1: Validity of re-opening assessment under section 147 of the Income Tax Act:
The appeal challenged the order of the ld. National Faceless Appeal Centre (NFAC)/Ld.CIT(A) dated 19.08.2021 for AY 2012-13, which arose from the assessment order passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961. The case was reopened based on information received regarding hawala transactions involving Shri Bhanwarlal Jain & Others. The Assessing Officer had reasonable suspicion that income had escaped assessment due to the assessee's involvement in bogus purchases from Daksh Diamonds, managed by Shri Bhanwarlal Jain. The Hon'ble jurisdictional High Court precedent supported the re-opening based on similar facts. The Tribunal dismissed the appeal challenging the validity of re-opening, citing the binding decision of the High Court.

Issue 2: Addition of 25% on account of disputed/bogus purchases from Daksh Diamonds:
The Assessing Officer disallowed 25% of the purchases made from Daksh Diamonds based on information from the investigation wing. The ld. CIT(A) upheld this disallowance, considering the alleged bogus nature of the purchases. The assessee contended that the purchases were genuine, supported by complete evidence such as bills, invoices, and payment records. The Tribunal found the disallowance excessive and directed a reduction to 6% of the purchases, considering the business nature of the assessee and the possibility of revenue leakage. The Tribunal partly allowed the appeal, reducing the disallowance percentage.

In conclusion, the Tribunal upheld the re-opening of assessment under section 147 and partially allowed the appeal by reducing the disallowance percentage on disputed purchases from Daksh Diamonds.