2022 (11) TMI 276 - AT - Income Tax

Reopening of assessment u/s 147 - Estimation of income for bogus purchases - AO disallowed 12.5% of those purchases as embedded profit - HELD THAT - The assessee is a partnership firm engaged in the business of trading of ferrous as well as nonferrous metals. Original return filed was not picked up for scrutiny. Subsequently when the information was received about assessee engaging in purchase from 14 parties who are listed as bogus parties, the case of the assessee was reopened. We find that there is a tangible material available with the assessing officer for reopening of the material and it is rightly upheld by the learned CIT A. He relied on the decision of the Honourable Bombay High Court in case of principal Commissioner of income tax versus Batliboi environmental engineering Ltd 2022 (6) TMI 903 - BOMBAY HIGH COURT wherein 12.5% of the bogus purchases were held to be reasonable. On the merits of the addition, we find that issue squarely covered by the decision of the Honourable Bombay High Court in Principal Commissioner of Income-tax V Batliboi Environmental Engineering Ltd 2022 (6) TMI 903 - BOMBAY HIGH COURT Wherein 12.5% of the amount of the bogus purchases were appellant is an addition in such cases - Appeal filed by the assessee is dismissed.

Issues Involved:
1. Delay in filing the appeal.
2. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
3. Failure of the Assessing Officer to provide reasons for reopening the assessment.
4. Non-availability of materials and documents relied upon by the Assessing Officer.
5. Right to cross-examine entry providers.
6. Genuineness of purchases from 14 parties.
7. Interest levied under Sections 234B and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was delayed because the appellate order dated 6/8/2019 was communicated to the assessee on 5/3/2022. The delay was attributed to a change in the assessee's address due to building development. The appellate order was served at the old address, and the assessee became aware of it only upon receiving a penalty order under Section 271(1)(c). The appeal was subsequently filed on 11/4/2022. The delay was supported by an affidavit from the partner of the firm. The Tribunal found sufficient cause for the delay and condoned it.

2. Validity of Reassessment Proceedings:
The reassessment was initiated based on information from the Sales Tax Department and DGIT (Investigation), Mumbai, indicating that the assessee had engaged in bogus purchases from 14 parties. The Assessing Officer (AO) issued a notice under Section 148 after recording reasons for reopening the assessment. The Tribunal upheld the reassessment proceedings, finding that there was tangible material available for reopening the case, in line with the norms laid down by the jurisdictional Bombay High Court and other higher courts.

3. Failure to Provide Reasons for Reopening:
The assessee contended that the AO did not provide the reasons for reopening the assessment despite a written request. This issue was raised before the Commissioner of Income Tax (Appeals) [CIT(A)], but the CIT(A) did not decide on it. The Tribunal noted that the AO's conduct could render the reassessment order invalid, but this argument was not sufficient to overturn the reassessment proceedings upheld by the CIT(A).

4. Non-availability of Materials and Documents:
The assessee argued that the materials, documents, and statements from the 14 parties were not made available for their review, which violated the principles of natural justice. The Tribunal did not find this argument compelling enough to invalidate the reassessment order, as the AO had sufficient information to justify the reopening.

5. Right to Cross-examine Entry Providers:
The assessee claimed that they were not given an opportunity to cross-examine the entry providers, which is a requirement when the authority relies on statements from such providers. The Tribunal acknowledged this but upheld the reassessment, indicating that the AO had made a reasonable addition based on the information available.

6. Genuineness of Purchases from 14 Parties:
The AO made an addition of Rs. 1,722,871, being 12.5% of the bogus purchases totaling Rs. 13,782,968, as the purchases could not be substantiated. The assessee provided purchase bills and other documents but could not produce the parties for verification. The Tribunal upheld the addition, relying on the Bombay High Court's decision in Principal Commissioner of Income-tax vs. Batliboi Environmental Engineering Ltd., which supported a 12.5% addition for bogus purchases.

7. Interest Levied under Sections 234B and 234C:
The assessee requested the deletion of interest levied under Sections 234B and 234C due to the ongoing legal proceedings. The Tribunal did not specifically address this issue, but the overall dismissal of the appeal implies that the interest levied was upheld.

Conclusion:
The Tribunal dismissed the appeal, upholding the reassessment proceedings and the addition made by the AO. The decision was based on the tangible material available for reopening the case and the reasonableness of the 12.5% addition for bogus purchases, as supported by the Bombay High Court's precedent. The delay in filing the appeal was condoned, but the merits of the case did not favor the assessee.

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