2015 (8) TMI 327 - AT - Income Tax

Reopening of assessment - assessee has inflated the purchases by accepting bogus bills from the market - Held that - In this case, the order U/s 143(1) was passed. There was a reason to believe that the assessee has inflated the purchases by accepting bogus bills from the market on which this case was reopened and quantified additions were made by the Assessing Officer after verification as the Hon ble Supreme Court in various cases has held that reason to believe does not have certainty that Assessing Officer in each and every case should have made addition but there should be prima facie believe of escapement of income. The finding given by the ld CIT(A) had not controverted by the AR. The subsequent year finding as held in Siemens Information Systems Ltd. Versus ACIT 2012 (2) TMI 281 - Bombay High Court can be reason in reopening wherein ld Assessing Officer had made the addition on account of bogus purchases by rejecting the books of account U/s 145(3) of the Act, which has been confirmed by the ld CIT(A), therefore, we dismiss this ground of appeal. - Decided against assessee. Rejection of books of accounts - Held that - The assessee raised this ground before us. On verification of form No. 35, there was no specific ground on rejection of books U/s 145(3) of the Act. Further the Hon ble Rajasthan High Court as well as the Coordinate Bench of the ITAT, Jaipur in various cases of gems and jewellery business has held that the book result is not reliable and accordingly Assessing Officer s action U/s 145(3) is justified. The detailed findings on this issue has been given by this Bench in the case of Shri Anuj Kumar Varshney Vs. ITO 2015 (4) TMI 533 - ITAT JAIPUR - Decided against assessee. Trading addition by applying G.P. rate of 17% as against the G.P. rate of 12.61% declared by the assessee - CIT(A) deleting the addition by applying the G.P. @ 17% as against the disallowance of ₹ 45,03,020/- @ 25% on unverifiable purchases made by the Assessing Officer - Held that - Similar line of cases, this Bench has decided in the case of Shri Anuj Kumar Varshney Vs. I.T.O. and other cases 2015 (4) TMI 533 - ITAT JAIPUR where on unverifiable/bogus purchases 15% disallowances has been decided. Accordingly, we also apply 15% disallowances on unverifiable purchases in this case also. The Assessing Officer is directed to recalculate the income as per above direction. - Decided partly in favour of revenue.

Issues Involved:
1. Condonation of delay in filing the Cross Objection (C.O.) by the assessee.
2. Validity of assessment framed under Section 147 of the Income Tax Act, 1961.
3. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.
4. Trading addition by applying Gross Profit (G.P.) rate on unverifiable purchases.

Detailed Analysis:

1. Condonation of Delay in Filing the Cross Objection (C.O.) by the Assessee:
The assessee filed the C.O. belatedly by 293 days, attributing the delay to the misplacement of Form No. 36 by an employee. The assessee argued that this constituted a reasonable cause for the delay. However, the Departmental Representative (DR) opposed this, stating that the delay was not adequately explained and did not conform to general human conduct. The Tribunal found merit in the DR's contentions, noting that the assessee failed to provide specific details or explain the day-to-day delay reasonably. The Tribunal relied on the Madras High Court decision in Madhu Dadha Vs. ACIT and concluded that the delay could not be condoned due to the lack of reasonable and sufficient cause.

2. Validity of Assessment Framed Under Section 147:
The assessee challenged the reopening of the case under Section 147, arguing that the reasons recorded did not indicate any income escaping assessment. The DR supported the reopening, citing a survey that revealed the assessee had taken bogus bills to inflate purchases. The Tribunal upheld the reopening, noting that the Assessing Officer had a "reason to believe" that income had escaped assessment based on the survey findings and subsequent verification. The Tribunal referenced the Supreme Court decision in ACIT Vs. Rajesh Jhaweri Stock Brokers (P) Ltd., emphasizing that the Assessing Officer only needed a prima facie belief of escapement of income.

3. Rejection of Books of Accounts Under Section 145(3):
The assessee argued that complete day-to-day books of accounts were maintained and audited, with all transactions verifiable from supporting documents. The DR contended that the assessee did not take a specific ground before the CIT(A) regarding the rejection of books. The Tribunal found that the assessee did not maintain a stock register and that the books were not reliable, referencing previous decisions in similar cases within the gems and jewellery business. The Tribunal upheld the rejection of books under Section 145(3), aligning with the findings of the CIT(A).

4. Trading Addition by Applying Gross Profit (G.P.) Rate on Unverifiable Purchases:
The Assessing Officer observed a decline in the G.P. rate and identified bogus purchases. The CIT(A) confirmed the addition by applying a G.P. rate of 17% on the total turnover, resulting in a net addition of Rs. 10,61,214/-. The Tribunal referenced a similar case, Shri Anuj Kumar Varshney Vs. ITO, where a 15% disallowance on unverifiable purchases was applied. The Tribunal directed the Assessing Officer to recalculate the income by applying a 15% disallowance on unverifiable purchases, partially allowing the revenue's appeal and dismissing the assessee's C.O.

Conclusion:
The Tribunal dismissed the assessee's C.O. due to the failure to adequately explain the delay in filing. The reopening of the assessment under Section 147 was upheld, and the rejection of books under Section 145(3) was justified. The Tribunal directed a 15% disallowance on unverifiable purchases, modifying the CIT(A)'s application of a 17% G.P. rate. The revenue's appeal was partly allowed, while the assessee's C.O. was dismissed.

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