2024 (6) TMI 820 - AT - Income Tax

Estimation of income - bogus purchases - information received from Investigation Wing wherein the assessee has purchased material from Apex Associates which is controlled by the accommodation entry providers and based on the statement recorded from the entry providers, he came to the conclusion that the assessee has received accommodation entries - HELD THAT - After considering the facts on record, in our considered view, no doubt assessee had purchased material from Apex Associates which was treated by the AO as non genuine. In our view, the AO has accepted the sales declared by the assessee and only proceeded to disallow purchases from Apex Associates, therefore, it was held in the decision of various High Courts, the AO cannot proceed to disallow only the purchases in isolation, therefore, in our considered view disallowance of 12.5% will serve the purpose of justice to both parties. Accordingly, we direct the AO to disallow the purchases @ 12.5%. Accordingly, the appeal filed by the assessee is partly allowed. With regard to appeal filed by the assessee for Assessment Year 2014-15, we observed from the record submitted by the assessee that assessee had made only payment towards the purchases of previous year. AO has only observed that assessee has paid 4,85,000/- to the Apex Associates from the bank statement and he presumed that assessee has purchased the material. Since, there is no purchases recorded nor claimed by the assessee during this year from Apex Associates, the addition made by the Assessing Officer is unjustified and accordingly deleted.

Summary

Issues involved:
The issues involved in this case are related to the reopening of assessment u/s 147, disallowance of purchases made by the assessee, violation of natural justice principles, and the validity of the assessment order.

Reopening of Assessment u/s 147:
The case involved the reopening of the assessee's assessment u/s 147 of the Income Tax Act, 1961. The Assessing Officer reopened the assessment based on the belief that the assessee had failed to disclose full and true material facts regarding purchases from M/s Apex Associates through fake purchase bills issued by certain individuals providing accommodation entries. The assessee's return of income was filed in response to the notice u/s 148, and subsequent statutory notices u/s 143(2) and 142(1) were issued and served. The Assessing Officer treated the purchases made by the assessee from Apex Associates as bogus and disallowed them, making an addition of Rs. 8,79,843.

Violation of Natural Justice Principles:
The assessee raised several grounds of appeal before the Appellate Tribunal, alleging violations of natural justice principles by the Learned Commissioner of Income Tax (Appeals) [CIT(A)]. The grounds of appeal included contentions that the CIT(A) erred in confirming the order of the Assessing Officer without providing the assessee a reasonable opportunity to be heard, that the reopening of assessment u/s 147 was illegal and invalid, and that the assessment order was passed without issuing a valid notice u/s 143(2) of the Income Tax Act.

Disallowance of Purchases:
The Assessing Officer disallowed the purchases made by the assessee from Apex Associates, based on the belief that they were not genuine. The assessee contended that the disallowance was made without proper enquiry and solely based on statements from alleged accommodation entry providers. The Appellate Tribunal, after considering the facts on record, held that a partial disallowance of 12.5% of the purchases would serve the interests of justice to both parties. Consequently, the appeal filed by the assessee for Assessment Year 2013-14 was partly allowed.

Decision for Assessment Year 2014-15:
For the appeal filed by the assessee for Assessment Year 2014-15, it was observed that the assessee had only made payments towards purchases from previous years and had not made any purchases from Apex Associates during the relevant assessment year. The addition made by the Assessing Officer was deemed unjustified and was accordingly deleted. Thus, the appeal for Assessment Year 2014-15 was allowed.

Conclusion:
In conclusion, the Appellate Tribunal partially allowed the appeal for Assessment Year 2013-14 by directing a 12.5% disallowance of purchases made by the assessee from Apex Associates. The appeal for Assessment Year 2014-15 was allowed as the addition made by the Assessing Officer was found to be unjustified.