2022 (6) TMI 1509 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - We note that the issue under consideration is squarely covered by the decision of Pankaj K. Choudhary 2021 (10) TMI 653 - ITAT SURAT and there is no change in facts and law therefore respectfully following the binding precedent we confirm the addition at the rate of 6% of bogus purchases / accommodation entry in respect of bogus purchases. Validity of reopening of assessment - HELD THAT - As gone through the entire gamut of facts and circumstances we are of the view that not only there existed new information with the AO from the credible sources but also that he has applied has mind and recorded the conclusion that the purchases claimed were non-genuine/mere accommodation entry on bogus purchases and therefore bogus (clearly meaning that what was disclosed was false and untruthful). As observed earlier not only there existed new information with the AO from the credible sources but also he had applied his mind and recorded the conclusion that the purchases claimed were non-genuine/bogus 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 ground raised by the assessee challenging the validity of reassessment.

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Addition on account of bogus purchases/accommodation entries.
3. Rate of disallowance for bogus purchases.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) based the reopening on third-party information without conducting a preliminary investigation. The AO received information from the Investigation Wing, Mumbai, indicating that the assessee was a beneficiary of accommodation entries provided by certain parties. The AO recorded reasons for reopening the assessment under section 148(2) and issued a notice under section 148, which was duly served on the assessee. The assessee raised objections to the reopening, which were disposed of by the AO. The Tribunal found that the AO had validly assumed jurisdiction for reopening the assessment based on credible information from the Investigation Wing, and the reopening was justified and legal. The Tribunal dismissed the ground raised by the assessee challenging the validity of the reassessment.

2. Addition on Account of Bogus Purchases/Accommodation Entries:
The AO made a 100% addition of the bogus purchases shown by the assessee, relying on the report from the Investigation Wing, Mumbai, which indicated that the assessee was involved in non-genuine transactions. The AO issued a show cause notice to the assessee and made the addition on account of unverifiable purchases and the rejection of diamonds from opening stocks. The CIT(A) restricted the addition to 5% of the bogus purchases, following the judgment of the Hon'ble Gujarat High Court in the case of M/s Mayank Diamond Ltd. The Tribunal noted that the issue was covered by its earlier decision in the case of Pankaj K. Chaudhary, where the addition was sustained at 6% of the bogus purchases. The Tribunal confirmed the addition at the rate of 6% of bogus purchases/accommodation entries, following the binding precedent.

3. Rate of Disallowance for Bogus Purchases:
The CIT(A) restricted the addition to 5% of the bogus purchases, whereas the AO had made a 100% addition. The Tribunal referred to its earlier decision in the case of Pankaj K. Chaudhary, where it had sustained the addition at 6% of the bogus purchases. The Tribunal considered the overall facts and circumstances of the case, including the gross profit rate shown by the assessee, and concluded that a disallowance at the rate of 6% of the impugned purchases would be sufficient to meet the possibility of revenue leakage. The Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal on this issue.

Conclusion:
The Tribunal dismissed the appeals filed by the assessees and partly allowed the appeals filed by the Revenue. The Tribunal confirmed the addition at the rate of 6% of bogus purchases/accommodation entries in respect of bogus purchases, following the binding precedent set in the case of Pankaj K. Chaudhary. The Tribunal also held that the reopening of the assessment under section 147 was justified and legal. The order was pronounced in the open court on 28/06/2022.

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