2023 (10) TMI 1497 - AT - Income Tax

Estimation of income - bogus purchases - CIT(A) restricted the addition from 100% to 6% - HELD THAT - Since the issue is squarely covered by the decision of Pankaj K. Chaudhary 2021 (10) TMI 653 - ITAT SURAT wherein @ 6% addition was upheld on bogus purchases and there is no change in facts and law and Revenue is unable to produce any material to controvert the aforesaid findings. We dismiss the appeals of the assessees and we allow the appeals of the Revenue partly.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses the following core legal questions:

• Whether the assumption of jurisdiction by the Assessing Officer for initiating reassessment proceedings under Section 147 of the Income Tax Act, 1961, was valid.
• Whether the purchases made by the assessee from M/s Rose Gems Pvt. Ltd. were genuine or constituted accommodation entries, justifying the disallowance of such purchases.
• Whether the addition of 6% of the turnover, as determined by the CIT(A), was appropriate, or if the entire amount of alleged bogus purchases should be disallowed.
• Whether the terminology used in the appellate order regarding the addition based on "turnover" was a typographical error and should be interpreted as "bogus purchases."

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings

• Relevant legal framework and precedents: The reassessment was initiated under Section 147 of the Income Tax Act, 1961, which allows reopening of assessment if income has escaped assessment. The court referenced precedents such as Pushpak Bullion (P) Ltd Vs DCIT and Peass Industrial Engineers (P) Ltd Vs DCIT.
• Court's interpretation and reasoning: The court found that the Assessing Officer had credible information from the Investigation Wing regarding accommodation entries provided by Bhanwarlal Jain Group, justifying the reopening of the assessment.
• Key evidence and findings: The court noted the report from the Investigation Wing indicating that the assessee was a beneficiary of accommodation entries.
• Application of law to facts: The court held that the information provided a reasonable basis for the Assessing Officer to believe that income had escaped assessment, thus validating the reassessment proceedings.
• Treatment of competing arguments: The assessee argued that the reopening was based on vague information without specific evidence against them. The court dismissed this argument, citing the sufficiency of the Investigation Wing's report.
• Conclusions: The court upheld the validity of the reassessment proceedings.

Issue 2: Genuineness of Purchases from M/s Rose Gems Pvt. Ltd.

• Relevant legal framework and precedents: The case involved the determination of whether purchases were genuine or accommodation entries, with reference to precedents like Mayank Diamond Private Limited.
• Court's interpretation and reasoning: The court considered the evidence of the Investigation Wing and the lack of genuine business activity by M/s Rose Gems Pvt. Ltd.
• Key evidence and findings: The court noted the absence of physical stock and the admission by Bhanwarlal Jain of providing accommodation entries.
• Application of law to facts: The court found that the purchases were not genuine and were accommodation entries.
• Treatment of competing arguments: The assessee claimed to have provided all necessary documentation to prove the genuineness of purchases. The court found this insufficient against the Investigation Wing's findings.
• Conclusions: The court concluded that the purchases were accommodation entries.

Issue 3: Appropriateness of 6% Addition

• Relevant legal framework and precedents: The CIT(A) restricted the addition to 6% of the turnover, referencing CBDT instructions and similar cases.
• Court's interpretation and reasoning: The court noted that similar cases involving Bhanwarlal Jain had sustained additions at 6% of bogus purchases.
• Key evidence and findings: The court relied on the pattern of decisions in similar cases and the absence of genuine business activity.
• Application of law to facts: The court applied the precedent of sustaining 6% of bogus purchases, rather than the entire amount.
• Treatment of competing arguments: The Revenue argued for 100% disallowance, while the assessee argued for no addition. The court found a middle ground based on precedent.
• Conclusions: The court upheld the addition of 6% on bogus purchases.

Issue 4: Interpretation of "Turnover" vs. "Bogus Purchases"

• Relevant legal framework and precedents: The court examined whether the terminology used in the appellate order was a typographical error.
• Court's interpretation and reasoning: The court determined that the reference to "turnover" was indeed a typographical error and should be interpreted as "bogus purchases."
• Key evidence and findings: The court relied on consistent terminology used in similar cases and the context of the order.
• Application of law to facts: The court corrected the interpretation to align with established precedent.
• Treatment of competing arguments: Both parties acknowledged the confusion, and the court clarified the intended meaning.
• Conclusions: The court concluded that the addition should be based on bogus purchases, not turnover.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The Hon'ble jurisdictional High Court upheld the addition @ 6% on bogus purchases."
• Core principles established: The court reaffirmed the principle that additions for bogus purchases should be limited to a reasonable percentage, in this case, 6%, to account for revenue leakage while recognizing some level of genuine business activity.
• Final determinations on each issue: The court upheld the reassessment proceedings, confirmed the purchases as accommodation entries, sustained the addition at 6% of bogus purchases, and clarified the typographical error regarding "turnover."