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2017 (12) TMI 746 - AT - Income TaxReopening of assessment - disallowance of bogus purchase - Held that - As regards the reopening, we find the Commissioner of Income Tax (Appeals) has passed an apposite order. The reopening has been done on the basis of cogent information regarding the assessee dealing with hawala operators. The case laws referred by the Commissioner of Income Tax (Appeals) are germane and support the validity of reopening in this case. As regards the merits of the case, facts of the case indicate that the assessee has engaged into obtaining bogus purchase bills. Since, sales have not been doubted; entire disallowance of purchase is not sustainable in light of Hon ble jurisdictional High Court decision in the case of Nikunj Enterprises 2013 (1) TMI 88 - BOMBAY HIGH COURT . We further note that the Assessing Officer has also himself not done any investigation and enquiry. The assessee s request for cross examination has not been entertained by the Assessing Officer. In these circumstances, 6% disallowance of bogus purchase sustained by the Commissioner of Income Tax (Appeals) is appropriate and does not need any interference on our part. Both the ld. Counsel also fairly agreed to this proposition.
Issues Involved:
1. Validity of the reopening of the assessment under Section 143(3) read with Section 147 of the Income-tax Act, 1961. 2. Merits of the addition on account of alleged bogus purchases. 3. Confirmation of the addition based on information from the Investigation Wing without corroborative evidence. 4. Denial of the opportunity to cross-examine the persons whose statements were relied upon by the Assessing Officer (AO). Detailed Analysis: 1. Validity of the Reopening of the Assessment: The assessee challenged the reopening of the assessment, arguing it was not in conformity with legal provisions. The key points raised were: - The AO relied on information from the Investigation Wing without independent application of mind. - No live link was established between the material relied upon and the assessee. - The reassessment was initiated on a change of opinion without tangible material. - The AO did not spell out any failure on the part of the assessee to disclose all material facts necessary for the assessment. The Commissioner of Income Tax (Appeals) upheld the reopening, citing that the AO had acted on external information received from the DIT(Inv)-II, Mumbai, indicating that the assessee had taken accommodation entries of bogus purchases. The reopening was deemed valid based on several rulings, including: - OPG Metals and Finsec Ltd v. CIT (358 ITR 144) and Export Credit Guarantee Corporation of India Ltd v. Addl.CIT (30 taxmann.com 211), which held that reassessment is valid if the issue was not a subject matter of the earlier assessment. - Kalyanji Mavji & Company v. CIT (102 ITR 287), which held that there is no change of opinion if the assessment is reopened on new facts that came to notice subsequently. 2. Merits of the Addition on Account of Alleged Bogus Purchases: The AO added the peak amount of ?95,94,427/- to the total income of the assessee under Section 69C, based on information that the assessee had taken accommodation entries of bogus purchases. The Commissioner of Income Tax (Appeals) restricted the addition to 6% of the bogus purchases, following the principle laid down by the Gujarat High Court in the case of Simit P Seth (356 ITR 451), which allowed only the profit element embedded in such purchases to be added to the assessee's income. 3. Confirmation of the Addition Based on Information from the Investigation Wing: The Commissioner of Income Tax (Appeals) held that the AO had acted on information received from the Investigation Wing, which was based on thorough investigations and categorical statements by the Bhanwarlal Jain group admitting to providing bogus bills. The Commissioner noted that the AO could not substantiate that the amounts paid to the sellers had come back to the assessee, but the information from the Investigation Wing was sufficient to establish the link between the bogus purchases and the assessee. 4. Denial of Opportunity to Cross-Examine: The assessee's request for cross-examination of the parties whose statements were relied upon by the AO was denied. The Commissioner of Income Tax (Appeals) justified this by stating that the Investigation Wing's findings were extensive and covered all aspects of the inquiry, making further cross-examination unnecessary and a waste of time. Conclusion: The Appellate Tribunal upheld the order of the Commissioner of Income Tax (Appeals) on both the validity of the reopening and the merits of the addition. The Tribunal agreed that the reopening was based on cogent information and that a 6% disallowance of the bogus purchases was appropriate, given that the sales were not doubted and the AO had not conducted further investigation or allowed cross-examination. Both the appeals by the assessee and the Revenue were dismissed.
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