2023 (1) TMI 13 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - As relying on case of Pankaj K. Choudhary others 2021 (10) TMI 653 - ITAT SURAT we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. Reopening of assessment u/s 147 - reasons to believe - HELD THAT - We note that Assessing Officer re-opened the assessment by issuing Notice u/s 148 of the Act. We note that function of the Assessing Authority at the stage of recording reasons is to administer the statute and what is required is a reason to believe and not to establish fact of escapement of income and therefore, looking to the scope of section 147 as also sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the assessee has escaped assessment, it is always open for the Assessing Authority to reopen the assessment. Therefore, based on these facts and circumstances, we do not find any infirmity in the reasons recorded by Assessing Officer, hence, we dismiss ground nos.1 and 3 raised by the assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Addition on account of bogus purchases.
3. Restriction of the addition to a certain percentage of the bogus purchases.

Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The Tribunal addressed the validity of reopening the assessment under Section 147. The assessee argued that the reopening was based solely on third-party information without independent investigation, rendering it invalid. However, the Tribunal noted that the Assessing Officer (AO) received credible information from the Investigation Wing about the assessee being a beneficiary of accommodation entries provided by known entry operators. The Tribunal referenced the Gujarat High Court decisions in Peass Industrial Engineers (P) Ltd and Pushpak Bullion (P) Ltd, which upheld the validity of reopening assessments based on such information. Consequently, the Tribunal found the reopening justified and dismissed the related grounds of appeal raised by the assessee.

2. Addition on Account of Bogus Purchases:
The AO made additions for bogus purchases, arguing that the purchases were non-genuine and intended to inflate expenses and reduce taxable profit. The AO relied on the statement of an entry provider and other investigative findings. The CIT(A) restricted the addition to 5% of the bogus purchases, citing similar cases where such disallowances were deemed reasonable. The Tribunal noted that the AO did not conduct an independent investigation and accepted the sales reported by the assessee, indicating that some purchases must have been genuine. The Tribunal referenced the case of Pankaj K. Choudhary, where a 6% disallowance was deemed appropriate for similar issues. Consequently, the Tribunal upheld the CIT(A)'s decision to restrict the addition to a percentage of the bogus purchases, but adjusted it to 6% in line with the precedent set by Pankaj K. Choudhary.

3. Restriction of the Addition to a Certain Percentage of the Bogus Purchases:
The CIT(A) and the Tribunal both acknowledged that while the purchases were found to be non-genuine, disallowing the entire amount would be unreasonable. The CIT(A) initially restricted the addition to 5%, but the Tribunal, following the decision in Pankaj K. Choudhary, adjusted this to 6%. The Tribunal emphasized that tax authorities should only tax the income component of the disputed transactions to prevent revenue leakage. The Tribunal's decision to restrict the addition to 6% was based on the assessee's low gross profit rate and the need to balance fairness with preventing revenue loss.

Conclusion:
The Tribunal dismissed the assessee's appeals challenging the reopening of assessments and the partial disallowance of purchases. It partially allowed the Revenue's appeal by adjusting the disallowance rate from 5% to 6% for bogus purchases, aligning with the precedent set by similar cases. The decision underscores the importance of credible information and the need for a balanced approach in handling cases of alleged bogus transactions.