2024 (7) TMI 1131 - AT - Income Tax

Reopening of assessment - Bogus purchases - prima facie reason at the initial stage of reopening - HELD THAT - In the present case, the AO has received credible information from the Investigation Wing and ED about money laundering and foreign outward remittances by twelve entities of Hassanfatta group from their bank accounts to Dubai and Hong Kong based companies on strength of fake documents. Assessee had purchased from four of these companies. The assessee had also purchased from other three concerns of Hassanfatta group. Such details are given in the assessment order and have also been briefly discussed in the facts of the case of this order. Even, CIT(A) has found that assessee had transaction with the Hasanfatta group. Therefore, the Assessing Officer had credible information which had live link with the reason to believe . The decisions relied upon by the Ld. AR are distinguishable on facts and in any case are of non-jurisdictional Tribunals and Hon ble Courts. On the other hand, we have direct decisions i.e., Keshav Diamonds Pvt. Ltd. 2021 (4) TMI 224 - GUJARAT HIGH COURT Pushpak Bullion 2017 (8) TMI 961 - GUJARAT HIGH COURT , Peass Industrial Engineers Pvt. Ltd. 2016 (8) TMI 277 - GUJARAT HIGH COURT and Sajani Jewels 2016 (6) TMI 741 - GUJARAT HIGH COURT supporting case of Revenue. Revenue is further supported by the decisions of the Hon ble Supreme Court Raymand Woolan Mills Ltd., 1997 (12) TMI 12 - SUPREME COURT which is the law of land in view of Article 141 of the Constitution. In view of the above facts, and respectfully following the decisions cited (supra), the ground of the appeal raised by appellant is dismissed. Estimation of income - Bogus purchases - It is clear that the issue is squarely covered by the decision Pankaj K. Chaudhary 2021 (10) TMI 653 - ITAT SURAT and there is no change in facts and law and since Revenue is unable to produce any material to controvert the aforesaid findings, thus sustain addition @ 6% of the bogus purchase of the appellant. Addition u/s 69 - unexplained loans given - Section 69 is related to unexplained investment, which are not recorded in the books of account maintained by the appellant. In the present case, these are duly recorded in the books of assessee and such finding by the CIT(A) has not been disproved by Revenue by adducing necessary evidence. Hence, the advances cannot come under the purview of the Section 69 of the Act. We may also refer to the decision of Ayachi Chandrashekar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT where the Hon ble court held that where the department has accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit. Addition of transactions in penny stock - assessee has submitted that the AO has made the addition without any basis or proper inquiry - HELD THAT - The entire investment of Birla Pacific Madspa Ltd. and M/s Orissa Mineral Development Co.Ltd. has been added though payment was made from disclosed bank account. The assessee has made loss of Rs. 1,86,641/- in the transaction of Birla Pacific Madspa Ltd. but AO has added the total investment of Rs. 53,06,816/-. Similarly, there was loss of Rs. 35,11,427/- in the trading of M/s Orissa Mineral Development Co.Ltd. which is a PSU. We find that the Ld.CIT(A) has duly discussed the facts in proper perspective and given the decision which is proper and logical. We find no reason to interfere in the findings of Ld.CIT(A). Accordingly, both grounds of Revenue are dismissed.

Summary

Issues Involved:
1. Validity of re-assessment proceedings under Section 147 of the Income Tax Act.
2. Addition on account of bogus purchases.
3. Addition on account of transactions in penny stocks.
4. Addition on account of unexplained share transactions.
5. Treatment of advances as unexplained investments under Section 69 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Re-assessment Proceedings under Section 147 of the Income Tax Act:
The Tribunal examined whether the re-assessment proceedings initiated under Section 147 were valid. The Revenue argued that credible information was received from the DDIT (Inv.) and the Enforcement Directorate (ED) about money laundering and foreign remittances using fake import documents. The Revenue contended that the Assessing Officer (AO) had sufficient reason to believe that income had escaped assessment. The Tribunal upheld the validity of the re-assessment proceedings, citing that there was prima facie material to justify the AO's belief, supported by the decisions of the Hon'ble Supreme Court in Raymond Woollen Mills Ltd. and Rajesh Jhaveri Stock Brokers Pvt. Ltd., and the Hon'ble Gujarat High Court in Keshav Diamonds Pvt. Ltd.

2. Addition on Account of Bogus Purchases:
The AO made an addition of Rs. 49,98,58,018/- on account of bogus purchases from entities related to Afroz Mohd Hassanfatta. The CIT(A) restricted the addition to Rs. 27,29,810/- by applying a profit element of 2% on the alleged bogus purchases. The Tribunal, following the precedent set in the case of Pankaj K. Chaudhary, held that a 6% addition on the bogus purchases would be appropriate. Consequently, the Tribunal partly allowed the Revenue's appeal and sustained the addition to the extent of 6% of the bogus purchases.

3. Addition on Account of Transactions in Penny Stocks:
The AO added Rs. 51,24,834/- related to transactions in the penny stock of Birla Pacific Madspa Ltd., alleging that the assessee was a beneficiary of accommodation entries. The CIT(A) deleted the addition, stating that the transactions were made in the regular course of trading, resulting in a loss of Rs. 1,86,641/-, and were funded from explained sources. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the findings.

4. Addition on Account of Unexplained Share Transactions:
The AO added Rs. 13,09,599/- related to unexplained share transactions in M/s Orissa Mineral Development Co. Ltd. The CIT(A) deleted the addition, noting that the transactions were supported by broker notes and bank statements, and the assessee incurred a loss of Rs. 35,11,427/-. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's grounds.

5. Treatment of Advances as Unexplained Investments under Section 69 of the Income Tax Act:
The AO treated advances of Rs. 2,65,00,000/- and Rs. 57,00,000/- given to M/s MB Offshore Distributors Pvt. Ltd. and M/s RA Distributor Pvt. Ltd. respectively as unexplained investments under Section 69. The CIT(A) found that these amounts were advances returned the next day and were recorded in the books of the assessee. The Tribunal upheld the CIT(A)'s decision, citing the Hon'ble Gujarat High Court's decision in CIT vs. Ayachi Chandrashekar Narsangji and the Tribunal's decision in Mega Polymers vs. ITO.

Conclusion:
The Tribunal partly allowed the Revenue's appeals and dismissed the assessee's cross objections. The Tribunal sustained an addition of 6% of the bogus purchases and upheld the CIT(A)'s decisions on the other issues. The Tribunal's order was consistent with the principles established in similar cases and supported by relevant judicial precedents.