2025 (1) TMI 695 - AT - Income Tax

Reopening of assessment - reasons to believe - Addition u/s 69C r.w.s.115BBE - HELD THAT - Information received from the Investigation Wing, Mumbai constitutes new and tangible material for initiating the reassessment proceedings in the case of the assessee. In ACIT v/s Rajesh Jhaveri Stock Brokers (P.) Ltd, 2007 (5) TMI 197 - SUPREME COURT held that if there is relevant material on the basis of which a reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings u/s 147 can be validly initiated. It is also well settled that the sufficiency or correctness of the material is not a thing to be considered at the stage of recording the reasons. As a result, we find no infirmity in the reassessment proceedings initiated by the AO under section 147 of the Act. Addition u/s 69C - From the material available on record it is evident that the assessee has failed to prove the genuineness of the aforenoted two purchases made from M/s Swastik Corporation. Thus, it appears to be a case of bogus bills arranged from the aforesaid entities and materials purchased from somewhere else at a lower cost. Thus, we are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. Quantification of the profit element embedded in making such bogus/unsubstantiated purchases - As respectfully following the aforesaid decision of M. Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT we set aside the impugned order passed by the learned CIT(A) and restore the matter to the file of the jurisdictional AO with the direction to restrict the addition as regard the afore-noted two bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchase. We further direct that if the gross profit rate on bogus purchases is higher than the other genuine purchases and the same has already been offered to tax by the assessee then no further addition be made. Appeal by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses the following core issues:

• Whether the reassessment proceedings initiated under section 147 of the Income Tax Act, 1961, based on information from the Investigation Wing, were valid.
• Whether the addition of INR 3,62,45,000 under section 69C of the Act, due to alleged bogus purchases from M/s Swastik Corporation, was justified.
• Whether the assessee's claim that the purchases were genuine, supported by industry practices and documentation, holds merit.
• Whether the retraction of the statement by Mr. Bijal Ashok Shah affects the evidentiary value of the original statement made during the survey.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings

• Legal Framework and Precedents: Section 147 of the Income Tax Act allows reassessment if there is reason to believe that income has escaped assessment. The Supreme Court in ACIT v/s Rajesh Jhaveri Stock Brokers (P.) Ltd held that new and tangible material can justify reassessment.
• Court's Interpretation and Reasoning: The court found that the information from the Investigation Wing constituted new and tangible material, thereby justifying the reassessment proceedings.
• Key Evidence and Findings: The original return was not scrutinized, and the information from the Investigation Wing was deemed sufficient for reassessment.
• Application of Law to Facts: The court applied the precedent from Rajesh Jhaveri to affirm the validity of the reassessment based on new material.
• Treatment of Competing Arguments: The court dismissed arguments against the sufficiency of material, emphasizing the new evidence's relevance.
• Conclusions: The reassessment proceedings were validly initiated.

Issue 2: Justification of Addition under Section 69C

• Legal Framework and Precedents: Section 69C deals with unexplained expenditure, and the burden of proof lies on the assessee to substantiate the genuineness of transactions.
• Court's Interpretation and Reasoning: The court found that the assessee failed to provide sufficient evidence to prove the genuineness of purchases from M/s Swastik Corporation.
• Key Evidence and Findings: The assessee could not substantiate the delivery of goods or correlate purchases with sales, and the vendor's statement indicated bogus transactions.
• Application of Law to Facts: The court applied Section 69C, emphasizing the lack of documentary evidence and the vendor's admission of bogus transactions.
• Treatment of Competing Arguments: The court rejected the assessee's reliance on industry practices and the retraction of the vendor's statement, viewing it as an afterthought.
• Conclusions: The addition under Section 69C was justified, but the court directed a reassessment of the profit element embedded in the bogus purchases.

Issue 3: Retraction of Vendor's Statement

• Legal Framework and Precedents: Statements made during surveys hold evidentiary value unless convincingly retracted.
• Court's Interpretation and Reasoning: The court viewed the retraction as an afterthought and upheld the original statement's evidentiary value.
• Key Evidence and Findings: The vendor's initial statement admitted to providing accommodation entries, which the court found credible.
• Application of Law to Facts: The court emphasized the original statement's consistency with other evidence.
• Treatment of Competing Arguments: The court found the retraction unconvincing and upheld the original statement's use in proceedings.
• Conclusions: The retraction did not affect the original statement's evidentiary value.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The information received from the Investigation Wing, Mumbai constitutes new and tangible material for initiating the reassessment proceedings."
• Core Principles Established: The court reinforced the principle that new and tangible evidence can justify reassessment and that the burden of proof for genuine transactions lies with the assessee.
• Final Determinations on Each Issue:
• The reassessment proceedings were validly initiated.
• The addition under Section 69C was justified, but the profit element should be reassessed.
• The retraction of the vendor's statement did not affect its evidentiary value.