2024 (8) TMI 869 - AT - Income Tax

Reopening of assessment - bogus purchases - HELD THAT - Admittedly in this case, the information was received that assessee is one of the beneficiaries of obtaining accommodation bills of bogus purchases from one party. There is tangible material, information available from the sales tax department as well as the director general of income tax investigation. Assessee did not respond to the notice u/s 148 of the act. He did not file the return of income as well as did not file any objection before the learned AO. Therefore, no fault can be found in the reopening of the assessment. Reopening of assessment without proper opportunity of cross-examination - The opportunity of cross-examination does not hamper the case of the assessee because the assessee on its own could not fulfil and show the genuineness of the purchases, therefore, there is no ground to entertain the argument of the learned authorized representative about failure on part of the assessing officer to grant an opportunity of cross-examination. Estimation of income - Assessee is into the business of ferrous and nonferrous metal as a trader, therefore if there is a bogus purchase, and quantitative details are available, only the profit embedded therein is required to be taxed in the hands of the assessee. Honourable Bombay High Court in case of Monmouth Haji Adam 2019 (2) TMI 1632 - BOMBAY HIGH COURT has laid down the amount of addition required to be made in the hands of the assessee if the purchases are bogus. Therefore, we direct the learned assessing officer to make the addition to that extent only. For this purpose, as the information is not available before us, we are handicap and restore the issue back to the file of the learned assessing officer with a direction to the assessee to produce the net profit ratio of purchases which are not alleged to be bogus and net profit ratio of purchases which are alleged to be bogus. The learned assessing officer after examination may decide the issue afresh. Appeal of assessee partly allowed.

Summary

Issues:
Assessment based on alleged nongenuine purchases, Reopening of assessment without proper opportunity of cross-examination, Taxability of profit in case of bogus purchases.

Analysis:
The appeal was filed by the assessee against the appellate order passed by the National faceless appeal Centre for assessment year 2009-10. The assessee, an individual trader in ferrous and nonferrous metals, was found to have obtained accommodation entries and hawala bills from a non-existing entity. The assessing officer made an addition of nongenuine purchases to the assessee's income, resulting in a higher total income. The assessee did not respond to notices and failed to provide information during the assessment process. The appeal before the CIT - A was dismissed due to lack of material from the appellant.

The assessee challenged the assessment reopening, claiming lack of independent application of mind by the AO and denial of cross-examination opportunity. The authorized representative argued that only the profit element should be added, not the entire amount of alleged bogus purchases. The departmental representative contended that the assessee had sufficient opportunities to present evidence, failed to prove the genuineness of purchases, and thus, cross-examination was unnecessary. The department argued that the profit should be taxed unless the material went into sales, and the whole purchase should be added.

The Tribunal found tangible material supporting the reopening of assessment based on information received about the bogus purchases. As the assessee did not respond to notices or objections, the Tribunal upheld the reopening. The Tribunal noted that the opportunity of cross-examination was not crucial since the genuineness of purchases was not proven by the assessee. The Tribunal directed the assessing officer to tax only the profit embedded in the bogus purchases based on the net profit ratio. The case was remanded to the assessing officer for further examination based on the directions given.

In conclusion, some grounds of the appeal were dismissed, while others were partly allowed. The Tribunal partially allowed the appeal, directing the assessing officer to re-examine the issue based on the net profit ratio provided by the assessee.