2024 (7) TMI 276 - AT - Income Tax

Validity of reassessment notice u/s 148 without getting approval u/s 151 - as argued notice u/s 148 has not served / issued within time limit of 6 years and therefore, the proceeding is bad in law and void - HELD THAT - AO has recorded reasons for reopening the assessment on 19.03.2018, which is prior to the sanction u/s 151 of the Act dated 23.03.2018. Notice u/s 148 of the Act was issued on 27.03.2018. The last date for issue of notice for AY 2011-12 was 31.03.2018. Hence, the issue of notice was well within the time. The AO has also mentioned in his assessment order that notice u/s 148 with prior approval was issued on 27.03.2018. After carefully considering facts of the case, rival submissions including paper book filed by Ld.AR of the assessee and the original assessment records of the AO, we find that the AO has duly followed the procedure mandated in the Income-tax Act, 1961 and the procedure laid down by Hon ble Supreme Court in case of GKN Driveshofts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT and hence, we do not find any infirmity in the order of Ld.CIT(A). Reasons to believe - Similar addition had come up for consideration before this Tribunal in the case of Sunilkumar Parasmai Jain 2024 (5) TMI 582 - ITAT SURAT as held AO validly assumed the jurisdiction for making re-opening u/s 147 on the basis of information of investigation wing Mumbai. When assessing officer received information from the investigation wing that two well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in initiating reopening proceedings. Estimation of income - bogus purchases - assessee has stated that the books of account have not been rejected and therefore there is no question of making any addition - HELD THAT - As following the case of Pankaj K. Chaudhary 2021 (10) TMI 653 - ITAT SURAT we restrict the disallowance to 6% of the disputed bogus purchase.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Timeliness and procedural compliance of the notice under Section 148.
3. Adequacy of reasons recorded for reopening the assessment.
4. Rejection of the assessee's books of accounts and the addition of Rs. 8,28,40,884/- as bogus purchases.
5. Non-provision of cross-examination of witnesses and inquiry details.
6. Justification for making additions despite audited books of accounts.
7. Discharge of onus by the assessee regarding disputed purchases.
8. Relationship between sales and purchases in the context of the addition made.
9. Acceptance of gross profit and its impact on the addition.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The assessee argued that the notice under Section 148 dated 27.03.2018 was issued without proper approval under Section 151, making it invalid. The Tribunal found that the reasons for reopening were recorded on 19.03.2018, and the approval was granted on 23.03.2018 by the competent authority. Thus, the notice was issued in compliance with the procedural requirements, and the Tribunal upheld its validity.

2. Timeliness and Procedural Compliance of the Notice Under Section 148:
The assessee contended that the notice was not served within the six-year time limit. The Tribunal noted that the notice was issued on 27.03.2018, within the permissible period, and the necessary approvals were obtained before issuance. Therefore, the notice was deemed timely and procedurally compliant.

3. Adequacy of Reasons Recorded for Reopening the Assessment:
The assessee claimed that the reasons for reopening were recorded after the notice was issued, violating Section 148(2). The Tribunal reviewed the records and confirmed that the reasons were recorded on 19.03.2018, prior to the issuance of the notice on 27.03.2018. The Tribunal also found that the reasons were based on credible information from the Investigation Wing, thereby justifying the reopening of the assessment.

4. Rejection of the Assessee's Books of Accounts and Addition of Rs. 8,28,40,884/- as Bogus Purchases:
The Tribunal upheld the AO's decision to reject the assessee's books of accounts and add Rs. 8,28,40,884/- as bogus purchases. The AO had credible information from the Investigation Wing about the assessee's transactions with the Bhanwarlal Jain Group, which were found to be fictitious. The Tribunal found that the AO followed due procedure and provided adequate opportunities for the assessee to respond.

5. Non-provision of Cross-examination of Witnesses and Inquiry Details:
The assessee argued that the AO did not provide the complete statement of Bhanwarlal Jain or allow cross-examination. The Tribunal noted that the AO had credible information and tangible evidence from the Investigation Wing, which justified the addition. The Tribunal found no merit in the assessee's claim as the AO had followed the due process.

6. Justification for Making Additions Despite Audited Books of Accounts:
The Tribunal held that the mere fact that the books were audited did not preclude the AO from making additions if there was credible evidence of bogus transactions. The AO had sufficient material to justify the addition, and the Tribunal upheld the AO's decision.

7. Discharge of Onus by the Assessee Regarding Disputed Purchases:
The assessee contended that it had provided confirmation from all disputed parties and made payments through banking channels. The Tribunal found that the AO had credible information indicating that the transactions were bogus. The Tribunal held that the assessee failed to discharge its onus to prove the genuineness of the purchases.

8. Relationship Between Sales and Purchases in the Context of the Addition Made:
The assessee argued that there could not be sales without purchases, and hence the addition was unjustified. The Tribunal noted that while sales were not disputed, the purchases were found to be bogus. The Tribunal upheld the AO's decision to treat the purchases as non-genuine and make the necessary additions.

9. Acceptance of Gross Profit and Its Impact on the Addition:
The assessee claimed that since the gross profit was accepted, no addition should be made for disputed purchases. The Tribunal referred to its earlier decisions and held that even if the gross profit was accepted, the AO was justified in making additions for bogus purchases. The Tribunal restricted the disallowance to 6% of the disputed purchases, following the precedent set in similar cases.

Conclusion:
In conclusion, the Tribunal upheld the validity and procedural compliance of the notice issued under Section 148. It found that the AO had credible information and followed due process in rejecting the assessee's books of accounts and making additions for bogus purchases. The Tribunal restricted the disallowance to 6% of the disputed purchases, providing partial relief to the assessee. Both appeals were partly allowed, with the Tribunal directing the Registry to place a copy of the order in all appeals folders.

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