2017 (9) TMI 302 - AT - Income Tax

Reopening of assessment u/s 148 - receipt of information from the DGIT(Inv) Mumbai regarding issuing of bogus invoices of purchases - Held that -Reopening of assessment is done on the receipt of information from the DGIT(Inv) Mumbai and as per the information from the Sales Tax Department, that the assessee has availed some entries of bogus purchases from the hawala dealers. Though assessee submitted various details in regard to above but in absence of nay response from suppliers against notice u/s 133(6) served upon them the ld.CIT(A) therefore is correct that the case of the assessee was rightly reopened. Accordingly, ground taken by the assessee on the issue of reopening of the assessment stands dismissed. Disallowance on account of bogus purchases - Held that - We find that the assessee could not produce any documentary evidences to prove the genuineness of the purchases and even the notice sent u/s 133(6) of the Act were returned unserved but simultaneously, we find that the AO has not doubted the sales out of materials purchased by the assessee from these hawala operators which means that the assessee purchased the material from the grey market thereby making savings of taxes like VAT octroi etc. These purchases and sales were duly recorded in the books of accounts of the assessee. The co-ordinate benches of the Tribunal in similar cases have been taking a consistent view in such cases by upholding the disallowance @ 12.5% of such unverified purchases towards various savings and leakages of revenue. Accordingly, we set aside the order of ld.CIT(A)and AO is directed accordingly - Decided partly in favor of assessee. Addition on account of unexplained expenditure u/s 69C - evidences to prove the genuineness of purchase - Held that - We find that the purchases from M/s Shree Sundha Steel Pvt Ltd amounting to ₹ 25,96,500/- were rightly deleted by the CIT(A) as the said party was not hawala dealer and the AO has not recorded any findings against M/s Shree Sundha Steel Pvt Ltd being hawala dealer when the assessee specifically submitted in that context during re-assessment proceedings by way of written submissions. However,in respect of the remaining parties, a reasonable disallowance at the rate of 12.5% of the total purchase should be made towards various savings of taxes and other levies which the assessee may have made by making the purchases from the gray market. Therefore, we direct the AO to apply 12.5% of the bogus purchases from remaining five parties who were declared hawala dealers from whom the assessee have purchased material to the tune of ₹ 12,57,357/-. The AO is directed to make addition @12.5% of ₹ 12,57,357/-. Accordingly, this ground is partly allowed.

Summary

Issues Involved:
- Reopening of assessment u/s 148 of the Income Tax Act, 1961
- Disallowance of amount on account of bogus purchases
- Deletion of addition of unexplained expenditure u/s 69C of the IT Act, 1961
- Restriction of addition to the extent of purchases from hawala dealers

Reopening of Assessment:
The AO reopened the assessment based on information from DGIT(Inv) regarding a racket involving hawala dealers issuing bogus invoices. The AO disallowed and added a sum relating to bogus purchases to the total income of the assessee. The ld.CIT(A) upheld the reopening, citing specific information with a live link to income escapement. The Tribunal found the reopening justified due to the tangible information available, dismissing the assessee's contention against the reopening.

Disallowance of Bogus Purchases:
The ld.CIT(A) confirmed the disallowance of a portion of the bogus purchases. The Tribunal noted the lack of evidence to prove the genuineness of purchases, highlighting the absence of served notices to suppliers. However, as the sales were not doubted, indicating purchases from the gray market, a 12.5% disallowance was applied on the unverified purchases. The Tribunal directed the AO to make the disallowance accordingly.

Deletion of Unexplained Expenditure:
The AO added an amount as unexplained expenditure, which the ld.CIT(A) deleted due to the appellant providing ample documentary evidence to establish the purchases as genuine. The Tribunal upheld the deletion of the addition related to purchases from a specific supplier not declared as a hawala dealer, while directing a 12.5% addition on purchases from other hawala dealers.

Restriction of Addition on Bogus Purchases:
The AO disallowed purchases from hawala dealers, and the ld.CIT(A) restricted the addition to 16% of the total purchases. The Tribunal found the ld.CIT(A)'s decision reasonable as the sales were not doubted, and the appellant provided supporting documents. The Tribunal upheld the restriction on the addition, dismissing the appeal of the revenue.

Conclusion:
In conclusion, the appeals of the assessee for certain assessment years were partly allowed, while the appeals of the revenue for specific years were dismissed. The cross-objection filed by the assessee was dismissed, and the appeals of the revenue were also dismissed. The Tribunal pronounced the order on 28th Aug, 2017, after considering the various issues and submissions presented during the proceedings.