2023 (1) TMI 1082 - AT - Income Tax

Validity of reopening of assessment - three reasons so recorded, the subject matter of income escaped assessment, and quantum of income escaped - Accommodation entry pertaining to bogus purchases - HELD THAT - Assessing Officer may reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148 of the Act. Therefore, there is no restriction on the number of reasons to be recorded, that is, reasons may be recorded twice, thrice etc. as per the circumstances, hence we do not agree with the ld Counsel to the effect that reasons cannot be recorded three times. Assessment was reopened after a period of four years and there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for making original assessment - We do not agree with the ld Counsel, as in assessee s case the original assessment was framed under section 143(3) of the Act, wherein the assessing officer had never discussed the issue of bogus purchases. The issue pertaining to bogus purchases was fresh issue before the Assessing Officer and it is a fresh and new information therefore assessing officer has rightly reopened the assessment. We note that reasons were recorded by the Assessing Officer within the legal framework of provisions of section 147 of the Act therefore, second objection/question raised by the ld Counsel is hereby rejected. As observed earlier not only there existed new information with the Assessing Officer from the credible sources, but also he had applied his mind and recorded the conclusion that the purchases claimed were non-genuine and therefore bogus, (clearly meaning that what was disclosed was false and untruthful). The requirements of section 147 r.w.s. 148 have clearly been met; and the reopening is held justified and legal. Therefore, we dismiss the additional ground raised by the assessee. Estimation of income - bogus purchases - Since, the issue under consideration is squarely covered by the judgment of the Co-ordinate Bench of ITAT, Surat in the case of Pankaj K. Chaudhary 2021 (10) TMI 653 - ITAT SURAT - There is no change in facts and law and the Revenue, as well as Assessee are unable to produce any material to controvert the aforesaid findings of the Coordinate Bench (supra), wherein the Tribunal considering overall facts and circumstances held that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. Therefore, respectfully following the binding judgment of Co-ordinate Bench, the appeal of the Revenue is partly allowed and cross objection filed by the assessee are dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of accommodation entry pertaining to bogus purchases.
2. Estimation of income on unverifiable purchases.
3. Acceptance of proper books of accounts and stock register.
4. Reopening of assessment under section 147/148 of the Income Tax Act, 1961.

Detailed Analysis:

1. Deletion of Addition on Account of Accommodation Entry Pertaining to Bogus Purchases:
The Revenue contested the deletion of Rs.16,54,65,748/- made on account of bogus purchases. The Assessing Officer (AO) had noted that the assessee received accommodation entries for bogus purchases amounting to Rs.17,41,74,472/- from various entities linked to Pravin Jain and Gautam Jain groups. The AO argued that these purchases were fraudulent, as confirmed by statements from the directors of these entities, who admitted to running paper-based companies with no real business activities. The AO added the entire amount of Rs.17,41,74,472/- to the assessee's income under section 69C of the Act. However, the CIT(A) reduced this addition to Rs.87,08,724/- by estimating the profit at 5% of the total unverifiable purchases, following the Gujarat High Court's decision in Mayank Diamond Pvt. Ltd.

2. Estimation of Income on Unverifiable Purchases:
The CIT(A) estimated the income at 5% of the total unverifiable purchases of Rs.17,41,74,472/-, resulting in an addition of Rs.87,08,724/-. The CIT(A) reasoned that the assessee's gross profit rate was significantly lower than the industry average, and entire purchases could not be disallowed. The Tribunal, following the precedent set in Pankaj K. Chaudhary's case, modified this estimation to 6% of the impugned purchases, considering it sufficient to meet the possibility of revenue leakage.

3. Acceptance of Proper Books of Accounts and Stock Register:
The Revenue argued that the CIT(A) erred in accepting the assessee's plea of maintaining proper books of accounts and stock register without giving the AO an opportunity to rebut this contention. The AO had rejected the books of accounts under section 145(2) of the Act, citing the failure to produce necessary documents and the incriminating evidence found during the search and seizure operations.

4. Reopening of Assessment under Section 147/148 of the Act:
The assessee challenged the reopening of the assessment, arguing that the reasons for reopening were recorded multiple times and that there was no failure on their part to disclose all material facts. The Tribunal noted that the reasons for reopening were recorded three times, each with different amounts and invoices, and found no legal restriction on recording reasons multiple times. The Tribunal upheld the reopening, stating that the AO had received fresh and specific information about bogus purchases, which justified the reassessment. The Tribunal also cited various judgments, including the Hon'ble Supreme Court's decision in Phul Chand Bajrang Lal, supporting the AO's jurisdiction to reopen the assessment based on new and credible information.

Conclusion:
The Tribunal dismissed the additional ground raised by the assessee regarding the validity of the reopening of the assessment. On merits, the Tribunal partly allowed the Revenue's appeal by modifying the addition to 6% of the impugned purchases and dismissed the cross-objection filed by the assessee. The Tribunal's decision was based on the precedent set by the Co-ordinate Bench in Pankaj K. Chaudhary's case and other relevant case laws.