2022 (7) TMI 943 - AT - Income Tax

Reopening of assessment u/s 147 - information of investigation wing Mumbai - bogus purchases - HELD THAT - We find that in case Peass Industrial Engineers (P) Ltd 2016 (8) TMI 280 - GUJARAT HIGH COURT while considering the validity of similar notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a person who is engaged in providing accommodation entries, held that where after scrutiny assessment the assessing officer received information from the investigation wing that well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in re-opening assessment. Similar view was taken by Hon ble Jurisdictional High Court in Pushpak Bullion (P) LTD. 2017 (8) TMI 961 - GUJARAT HIGH COURT - Therefore, respectfully following the order of Hon ble High Court, 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. Mandatory Permission u/s 151 - The other objection raised by the ld AR of the assessee that no permissions as required under section 151 was obtained by the assessing officer. We find that the ld AR for the assessee raised this objection for the first time, however, no evidence to substantiate such submission is placed on record. Thus, in absence of any proof or evidence that no permission under section 151 was availed by assessing officer before making reopening has substance. Therefore, we do not find any merit in the ground No. 1 of appeal by assessee. Hence, the ground No. 1 in assessee s appeal is dismissed. Estimation of income for bogus purchases - As profit margin in the trade and business of assessee is ranging from 5% to 7% and the disallowances restricted by the assessing officer are at 12.5% of the disputed/ impugned purchase shown from the entry provider. Considering all disallowance restricted by Ld. CIT(A) is on higher side, keeping in view of the profit margin in the industry. It is settled law that in case of disputed purchases shown from such hawala dealers only the profit element embedded in such transaction, to avoid the possibility of revenue leakage, is to be disallowed, and not the substantial part of the transaction. No doubt 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 Bhanwarlal 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 are partly allowed

Summary

Issues Involved:
1. Validity of reopening under Section 147/148 of the Income Tax Act.
2. Addition on account of bogus purchases.
3. Estimation of profit percentage on alleged bogus purchases.
4. Treatment of the appellant as a diamond trader versus a commission agent.
5. Opportunity for cross-examination and provision of corroborative evidence.

Detailed Analysis:

1. Validity of Reopening under Section 147/148:
The primary contention was whether the reopening of assessments under Section 147/148 was valid. The assessee argued that the reopening was based on vague third-party information without preliminary investigation and lacked a live link to the assessee. The AO's reopening was justified by credible information from the Investigation Wing about accommodation entries provided by Bhanwarlal Jain Group. The Tribunal upheld the reopening, referencing jurisdictional High Court decisions (Peass Industrial Engineers (P) Ltd Vs DCIT and Pushpak Bullion (P) Ltd Vs DCIT), which supported reopening based on credible information from the Investigation Wing.

2. Addition on Account of Bogus Purchases:
The AO added 25% of the purchases from entities managed by Bhanwarlal Jain Group, identified as entry providers. The assessee claimed to be a commission agent and provided various documents to substantiate genuine purchases. The CIT(A) noted the AO's reliance on the Investigation Wing's report without considering the assessee's evidence. The CIT(A) reduced the addition to 12.5% of the alleged bogus purchases, considering the profit margin in the diamond trading industry.

3. Estimation of Profit Percentage on Alleged Bogus Purchases:
The CIT(A) and Tribunal found that disallowing 100% of the purchases was unjustified. Instead, they estimated a reasonable percentage to avoid revenue leakage. The CIT(A) initially set this at 12.5%, but the Tribunal found this excessive, reducing it to 6%, consistent with similar cases involving Bhanwarlal Jain Group.

4. Treatment of the Appellant as a Diamond Trader vs. Commission Agent:
The assessee contended that they were merely commission agents, not diamond traders. The AO and CIT(A) treated the appellant as a diamond trader based on the nature of transactions and evidence from the Investigation Wing. The Tribunal upheld this treatment, noting the lack of sufficient evidence to prove the assessee's claim of being a commission agent.

5. Opportunity for Cross-Examination and Provision of Corroborative Evidence:
The assessee requested cross-examination of Bhanwarlal Jain and access to the Investigation Wing's report, which was not provided. The Tribunal noted that the AO did not reject these demands but also did not provide the requested opportunities. Despite this, the Tribunal upheld the additions based on the available evidence and the Investigation Wing's report, adjusting the disallowance percentage to 6%.

Conclusion:
The Tribunal upheld the reopening of assessments under Section 147/148, justified by credible information from the Investigation Wing. It acknowledged the assessee's evidence but found the AO's reliance on the Investigation Wing's report reasonable. The Tribunal adjusted the disallowance for bogus purchases to 6%, aligning with industry profit margins and previous similar cases. The appeals of the assessee were partly allowed, and those of the revenue were dismissed, maintaining consistency in the treatment of disputed purchases.