2017 (5) TMI 1101 - AT - Income Tax

Addition on the alleged bogus purchase - information obtained from the Sales Tax Department - addition of 12.5% profit in addition to the normal profit declared by the assessee - Held that - Without corresponding purchases being effected the assessee could not have made the sales. Moreover, the Assessing Officer has not brought any material on record to conclusively establish the fact that purchases are bogus. Merely relying upon the information from the Sales Tax Department or the fact that parties were not produced the Assessing Officer could not have treated the purchases as bogus and made addition. If the Assessing Officer had any doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transactions. Without making any further enquiry or investigation the Assessing Officer cannot sit back and make the addition by simply relying upon the information obtained from the Sales Tax Department and issuing notices under section 133(6) of the Act. When the payment to the concerned parties are through proper banking channel and there is no evidence before the Assessing Officer that the payments made were again routed back to the assessee, the addition made by estimating further profit of 12.5% earned by the assessee is not sustainable in law and facts. Keeping in view the totality of facts and circumstances of the case, we are inclined to restrict the addition to the extent of 2% of such purchases. - Decided partly in favour of assessee.

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Addition on account of alleged bogus purchases.
3. Levy of interest under section 234B of the Income Tax Act, 1961.
4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under Section 147, contending that the prescribed conditions were not satisfied. The CIT(A) upheld the AO's action in reopening the assessment based on information received from the Sales Tax Department about suspicious dealers. The Tribunal noted that the reopening was based on credible information and upheld the CIT(A)'s decision, confirming the validity of the reopening under Section 147.

2. Addition on Account of Alleged Bogus Purchases:
The primary issue was the addition made by the AO on account of alleged bogus purchases. The AO had added 12.5% of the total alleged bogus purchases as profit, relying on the case of CIT Vs Simit P. Sheth and information from the Sales Tax Department. The assessee argued that all purchases were genuine, supported by sufficient materials, and backed by corresponding sales. The Tribunal acknowledged that the AO had not doubted the sales and that the purchases were recorded in the books of account. The Tribunal noted that the AO had not provided the assessee an opportunity to cross-examine the parties alleged to have provided accommodation entries. The Tribunal concluded that merely because the suppliers did not appear before the AO, it could not be concluded that the purchases were not made. The Tribunal directed the AO to restrict the addition to 2% of the alleged bogus purchases, considering the facts and circumstances of the case.

3. Levy of Interest under Section 234B:
The assessee contested the levy of interest under Section 234B, arguing against its liability. The CIT(A) held that the levy of interest under Section 234B was mandatory. The Tribunal upheld the CIT(A)'s decision, confirming that the interest levy was indeed mandatory under the law.

4. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee disputed the initiation of penalty proceedings under Section 271(1)(c). The CIT(A) held that the ground raised disputing the initiation of penalty proceedings was premature. The Tribunal agreed with the CIT(A), stating that the initiation of penalty proceedings was a separate matter and could not be contested at this stage.

Conclusion:
The Tribunal partly allowed the appeals of the assessees. It upheld the reopening of the assessment under Section 147 and the mandatory levy of interest under Section 234B. However, it directed the AO to restrict the addition on account of alleged bogus purchases to 2% instead of 12.5%. The initiation of penalty proceedings under Section 271(1)(c) was deemed premature and not addressed at this stage. The order was pronounced in the open court on 05/05/2017.

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