2025 (2) TMI 448 - AT - Income Tax

Reopening of assessment u/s 147 - change of opinion - bogus purchases and unexplained investments - HELD THAT - As the reopening of the concluded assessment in the case of the assessee was inter alia based on the aforesaid reasons i.e. facts which were not there before the AO while framing the original assessment therefore we are unable to comprehend as to how the present reassessment proceedings initiated by him could be brought within the meaning of change of opinion as had been claimed by the Ld. AR. We thus are of the view that the claim of the assessee that his concluded assessment was reopened based on a mere change of opinion cannot be accepted and is accordingly rejected. Estimation of income - bogus purchases - assessee had claimed to have purchased paddy/broken rice from outside state and from local parties - quantification of the profit element which the assessee would have made by procuring the goods not from the six bogus concerns from whom purchase bills were obtained but at a discounted value from the open/grey market - HELD THAT -CIT(Appeals) for quantifying the profit which the assessee would have made by procuring the goods at a discounted value from the open/grey market as against the value booked in his books of accounts based on the bogus purchase bills of the aforesaid bogus/hawala parties had after by taking cognizance of the fact that in the business of rice millers/traders the GP rate varied between 3% to 10% adopted GP rate of 10% had after allowing credit of the GP rate of 1.53% that was already disclosed by the assessee in his audited books of accounts thus made a balance addition of 8.47% of the value of the bogus purchases. As such the CIT(Appeals) had sustained the addition of Rs. 1, 22, 08, 002/- (out of the addition of Rs. 3, 70, 33, 063/- made by the A.O). We have thoughtfully considered the view taken by the CIT(Appeals) and find no infirmity in the same. As the CIT(Appeals) had fairly quantified the profit element which the assessee would have made by procuring the subject goods not from the aforementioned six bogus concerns but from the open/grey market by adopting the GP rate prevailing in the business of rice miller/traders therefore we find no infirmity in the view taken by him and thus sustain the addition to the extent that was upheld by him. Unaccounted investment - We are of the view that as observed by the CIT(Appeals) and rightly so the assessee would have made certain unexplained investment in his business of providing bogus billing. Ostensibly the A.O had taken the amount of peak purchase appearing in the account of one of the aforesaid bogus concerns as a bogus outstanding liability and made an addition of the same in the hands of the assessee correctly.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered several core legal issues across multiple assessment years:

• Validity of reopening of assessments under Sections 147/148 of the Income Tax Act, 1961, particularly whether it was based on a "change of opinion".
• Validity of approval granted under Section 151 for reopening assessments.
• Determination of the genuineness of purchases claimed by the assessee and whether they were bogus.
• Appropriate method for quantifying profits from alleged bogus purchases, including the application of Gross Profit (GP) rates.
• Justification for additions made towards unexplained investments in alleged bogus purchases.

2. ISSUE-WISE DETAILED ANALYSIS

Reopening of Assessments (Sections 147/148)

• Legal Framework and Precedents: The Tribunal examined the principles laid down in various judgments, including the Supreme Court's decision in CIT Vs. Kelvinator India Limited, which restricts reopening based on a mere change of opinion.
• Interpretation and Reasoning: The Tribunal concluded that the reopening was not based on a change of opinion but on new material obtained during survey operations, which indicated bogus purchases.
• Conclusions: The Tribunal upheld the validity of the reopening of assessments.

Approval under Section 151

• Legal Framework and Precedents: The Tribunal referred to precedents that mandate a proper application of mind by the approving authority.
• Interpretation and Reasoning: Despite some procedural errors in the approval form, the Tribunal found that the essence of the approval process was maintained.
• Conclusions: The Tribunal rejected the challenge to the validity of the approval under Section 151.

Bogus Purchases and GP Rate Application

• Legal Framework and Precedents: The Tribunal considered the legal principles surrounding the treatment of bogus purchases, relying on various judicial pronouncements.
• Interpretation and Reasoning: The Tribunal agreed with the lower authorities that the purchases were bogus but found the disallowance of 25% of the purchase value to be excessive.
• Application of Law to Facts: The Tribunal upheld the CIT(A)'s approach of applying a GP rate of 10% to determine the profit element in the bogus purchases, after accounting for the GP already disclosed by the assessee.
• Conclusions: The Tribunal sustained the additions based on the adjusted GP rate.

Unexplained Investment in Bogus Purchases

• Legal Framework and Precedents: The Tribunal examined the rationale for adding unexplained investments under Section 68.
• Interpretation and Reasoning: The Tribunal found that the assessee had indeed made unexplained investments, as evidenced by peak purchase amounts.
• Conclusions: The Tribunal upheld the additions for unexplained investments.

3. SIGNIFICANT HOLDINGS

• Reopening of Assessments: The Tribunal held that reopening based on new material is valid, even if the same issue was considered in the original assessment, provided it is not a mere change of opinion.
• Approval under Section 151: The Tribunal emphasized that procedural errors in the approval form do not invalidate the approval if the substantive requirements are met.
• Bogus Purchases and GP Rate: The Tribunal established the principle that in cases of bogus purchases, the profit element should be quantified based on the prevailing GP rate in the industry, adjusted for the GP already disclosed by the assessee.
• Unexplained Investment: The Tribunal upheld the addition of unexplained investments based on peak purchase amounts, reinforcing the need for assessees to substantiate their claims with evidence.

The Tribunal's decision across the assessment years consistently applied these principles, dismissing the appeals filed by both the assessee and the revenue.