2024 (12) TMI 256 - HC - Income Tax

Validity of assessment u/s 153C V/S reopening the assessment u/s 147 - AO has relied upon the material seized during the course of search for making addition in the hands of the appellants-assessees - HELD THAT - Both the CIT (Appeals) and the Tribunal have not taken into consideration and no such plea was raised before the CIT (Appeals) and the Tribunal and once the reopening is held to be valid, there is no material on record to show that the Assessing Officer has found any seized material pertaining to or belonging to the assessees during the course of search and therefore, we are of the opinion that the reopening under Section 147 of the Act as held by both the CIT (Appeals) and the Tribunal to be valid and the contention raised by the appellants-assessees at this stage is not tenable. Estimation of income on bogus purchases - Both the CIT (Appeals) and the Tribunal has given cogent reasons for making addition on estimate basis at 5% by the CIT (Appeals) which was increased to 6% by the Tribunal and such estimated addition is confirmed by this Court arrived at by the fact finding authority being CIT (Appeal) and Tribunal, in such circumstances, we are in agreement with the decision rendered. Addition of 6% of the purchases on estimate basis arrived at by the Tribunal and the Tax Appeals preferred by the Revenue are also dismissed by this Court in number of similarly situated assessees. Therefore, in order to maintain the consistency of addition of 6% in cases of the assessees who have been found taking accommodation entries during the course of search in case of Pravinkumar Jain Group/Bhavarlal Jain Group, no interference is required to be made in the impugned order.

Issues Involved:
1. Validity of reassessment under Section 147 of the Income Tax Act, 1961.
2. Applicability of Section 153C versus Section 147 for reassessment.
3. Rejection of books of accounts and estimation of profit.
4. Violation of principles of natural justice due to denial of cross-examination.
5. Justification for addition of 6% of the alleged bogus purchases.
6. Consistency of Tribunal's decision with higher court rulings.

Detailed Analysis:

1. Validity of Reassessment under Section 147:
The appellants challenged the reassessment of income under Section 147, arguing it was illegal and arbitrary. The reassessment was initiated based on information from the DIT (Investigation), Mumbai, indicating that the appellants were beneficiaries of bogus purchase bills from the Pravin Kumar Jain Group. The court upheld the reassessment, noting that the Assessing Officer had credible information and followed due process by issuing a notice under Section 148 after recording reasons for reopening.

2. Applicability of Section 153C versus Section 147:
The appellants contended that the reassessment should have been conducted under Section 153C, as it involved material seized during a search. However, the Tribunal and the CIT (Appeals) did not address this plea, and the court found no evidence of seized material directly pertaining to the appellants. Consequently, the court upheld the validity of the reassessment under Section 147, dismissing the appellants' argument.

3. Rejection of Books of Accounts and Estimation of Profit:
The Tribunal confirmed the rejection of the appellants' books of accounts, supporting the Assessing Officer's view that the purchases were bogus. The court noted that mere documentation and payments through account payee cheques were insufficient to establish the genuineness of transactions when the authenticity of the purchases was in doubt. The Tribunal's decision to estimate profit at 6% of the alleged bogus purchases was upheld, as it was consistent with industry standards and previous rulings.

4. Violation of Principles of Natural Justice:
The appellants argued that their rights were violated due to the denial of cross-examination of individuals whose statements were used against them. The court found that this issue was not raised before the lower authorities and thus could not be entertained at this stage. The Tribunal's decision did not reflect any procedural unfairness warranting interference.

5. Justification for Addition of 6% of the Alleged Bogus Purchases:
The Tribunal enhanced the addition from 5% to 6% of the disputed purchases, considering it adequate to address potential revenue leakage. This decision was based on the consistent application of similar rulings in related cases, where the courts had determined a reasonable percentage for disallowance to reflect the true nature of the transactions.

6. Consistency of Tribunal's Decision with Higher Court Rulings:
The Tribunal's decision was consistent with the Gujarat High Court's earlier ruling in the case of Navratan Gautam Singh Jain, where similar issues were adjudicated. The court emphasized the importance of maintaining consistency in decisions involving similar facts and legal questions. The appeals were dismissed as the Tribunal's findings were aligned with established legal principles and did not raise any substantial questions of law.

In conclusion, the court upheld the Tribunal's decision, finding no merit in the appellants' challenges to the reassessment process, the estimation of profits, or the alleged procedural violations. The judgment reinforced the importance of adhering to established legal standards and maintaining consistency in judicial decisions.

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