2022 (8) TMI 192 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - We note that in the case of beneficiaries of the accommodation entry providers being Shri Rajender Jain, Shri Pravin Jain and Shri Bhawarlal Jain, this bench has taken the view to sustain addition @6% of bogus purchases. The ld Counsel submitted before us that only two parties belong to Rajendra Jain group cases, therefore in case of remaining five parties the addition should not sustain @6% of bogus purchases. We do not agree with ld Counsel s stand, because all remaining five parties are also engaged in bogus purchases/sales, hence the issue under consideration is squarely covered by the decision of Co-ordinate Bench of this Tribunal in the case of ITO Ward3(1)(5), Surat vs. Pankaj K. Choudhary Otrs. 2021 (10) TMI 653 - ITAT SURAT We find no reason to interfere in the said order of Co-ordinate Bench, therefore respectfully following the binding order of Co-ordinate Bench we allow Revenue s appeal partly with same direction. Addition u/s 68 on account of unverifiable purchases - mistake of quoting wrong Section - HELD THAT - The matter discussed by the AO in the assessment order was related to bogus purchases therefore ld CIT(A) corrected unintentional mistake committed by AO that is, corrected the mistake of quoting wrong section. We note that just to quote wrong section while making an assessment order does not vitiate the findings of the entire assessment order. CIT(A) has co-terminus power as that of assessing officer and to correct the mistake of section as per the substance discussed in the assessment order does not mean enhancement of assessment without giving notice to the assessee. That is, when the substance of the transactions, as discussed in the assessment order by the assessing officer are in the nature of bogus purchases, then it would not mean enhancement of assessment, and just because ld CIT(A) made correction in the section in accordance with the substance discussed in the assessment order does not vitiate the appellate order. As relying on case of Navinchandra Mafatlal 1961 (1) TMI 9 - SUPREME COURT we dismiss the ground no.2 and 3 raised by the assessee. Revision u/s 263 - applicability of section 2(22)(e) - long term loans were given by the assessee to various persons appear to be related to the assessee-company and also no interest receipt in respect of these long term loans given was shown - HELD THAT - As no interest receipt in respect of these long term loans given has been shown. It is also noticed that the assesseecompany during the year under consideration has given loans to various persons/entities the assessee had not received any interest. AO concerned should had to examine the following points to invoke the applicability of Section 2(22)(e) of the Act. We note that during assessment stage, the AO has not issued any notice under section 142(1) to conduct inquiry on the above issues raised by ld PCIT nor assessee has replied. We have gone through the assessment order passed under section 143(3) and noted that there is no any discussion or adjudication on the issue raised by the ld PCIT, hence order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. PCIT noted that it was required to be examined during the course of assessment proceedings as to whether or not Long term loans given by the assessee-company to various persons as per note 9 to the balance sheet which stands at Rs.81.49 crores as on 31.03.2015 qualify for deemed dividend u/s 2(22)(e) - AO concerned had not carried out any investigation during the course of assessment proceedings regarding these facts; therefore these issues required examination. Further, it was not clear whether the parties to whom loans and advances given, were shareholder or creditor, therefore AO failed to conduct necessary inquiry. As noticed that sales against H Form i.e. export sales during the year of Rs.30.47 crores. Rest of the sales is local sales. H form is the certificate issued by Sales tax/VAT department as proof of export. Only register dealer who exports the goods outside Indian can get H form. Against these export sales, profit on account of fluctuation in exchange rates is shown at Rs.64.80 lakhs import of cut polished diamonds during the year of Rs.33.71 crores. As against this import, loss in account of fluctuation in exchange rates is claimed at Rs.3.92 crores. In view of the above gross disproportions between the figures of foreign exchange rate fluctuation loss and fluctuation gain vis-a-vis the corresponding export and import, the correctness of this account was required to be verified for thoroughly which was not done during the course of assessment proceedings therefore order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. It is also to be noted that ld Counsel, during the course of hearing stated that assessee is not exporter, however, on examination of Balance Sheet of the assessee, the ld PCIT noticed that assessee has shown foreign exchange gain/loss in its Balance Sheet therefore if the assessee is not exporter then wherefrom these foreign exchange gain and loss arised in the Balance Sheet. Hence, we are of the view that assessing officer failed to conduct inquiry. - Decided against assessee.

Issues Involved:
1. Bogus Purchases and Disallowance Percentage
2. Validity of Reopening Assessment
3. Section 263 Revision Order on Loan and Forex Gain/Loss

Issue-wise Detailed Analysis:

1. Bogus Purchases and Disallowance Percentage:
The Revenue challenged the CIT(A)'s decision to restrict the disallowance on account of bogus purchases from 100% to 5%. The Assessing Officer (AO) had initially made an addition of Rs. 11,47,32,742/- under section 68 of the Income Tax Act, 1961, due to the assessee's failure to prove the genuineness of purchases from seven parties deemed non-existent. The CIT(A) reduced this disallowance to 5%, citing principles of uniformity and consistency. The Tribunal, referencing similar cases, found that a 6% disallowance was appropriate for bogus purchases, aligning with the decision in the case of ITO Ward3(1)(5), Surat vs. Pankaj K. Choudhary & Others. The Tribunal upheld the CIT(A)'s partial relief but adjusted the disallowance rate to 6%.

2. Validity of Reopening Assessment:
The assessee contested the reopening of the assessment under section 147, arguing it was based on vague third-party information without independent investigation by the AO. The Tribunal, however, upheld the reopening, citing jurisdictional High Court rulings that supported reopening based on credible information from the investigation wing about accommodation entries. The Tribunal found that the AO had validly assumed jurisdiction for reopening the assessment based on the information received.

3. Section 263 Revision Order on Loan and Forex Gain/Loss:
The Principal Commissioner of Income Tax (PCIT) exercised jurisdiction under section 263, identifying that the AO had not verified the applicability of section 2(22)(e) concerning loans given to related parties and the correctness of significant forex gain/loss claims. The PCIT directed the AO to re-examine these issues. The Tribunal upheld the PCIT's order, agreeing that the AO had failed to conduct necessary inquiries during the original assessment. The Tribunal noted that the AO did not investigate whether the loans were given to shareholders or creditors and did not verify the forex gain/loss claims, which justified the revision under section 263.

Separate Judgments:
The Tribunal delivered a combined judgment, addressing the Revenue's appeal, the assessee's cross-objection, and the assessee's appeal against the PCIT's order. The Revenue's appeal was partly allowed, the assessee's cross-objection was dismissed, and the assessee's appeal against the PCIT's order was also dismissed. The Tribunal emphasized the need for thorough investigation and proper application of legal provisions in all cases.

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