2018 (2) TMI 970 - AT - Income Tax

Validity of reopening of assessment - addition u/s 69C - bogus purchases - Held that - The assessee had shown purchases from the above company of Shri Praveen Kumar Jain amounting to ₹ 20,96,965/-. The AO on examination of the records found that no actual purchases were made from these parties but their names were only used to inflate the business expenses and thereby reducing the income chargeable to tax. According to the AO, it is established on the basis of information provided by the Investigation Wing that purchase from the parties are bogus and the bogus purchases pertaining to the Assessment Year under consideration representing income of ₹ 20,96,965/- had therefore, escaped assessment. AO noted that it was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Hence reasons for reopening of the cases were recorded and notice u/s 148 was issued on 24-03-2014 which was duly served upon the assessee. It is also noted that copy of reasons recorded were supplied to the assessee alongwith notice u/s 142(1) and notice u/s 143(2) dated 21-04-2014. The AO on examination of purchase details noted that the assessee had shown purchases from M/s. JPK Trading Pvt. Ltd amounting to ₹ 20,96,965/-. As per the statement of Shri Praveen Kumar Jain, it was found that M/s. JPK Trading Pvt. Ltd had never sold any goods and were only issuing bogus sales invoices and charged commission. Thus AO was justified in reopening the case of the appellant for the year under consideration u/s 147 of the Act - Decided against assessee

Summary

Issues Involved:

1. Legality of initiation of action under Section 147 of the Income Tax Act.
2. Addition of ?3,14,545/- based on purchases from M/s. JPK Trading (I) Pvt. Ltd.
3. Opportunity to cross-examine the seller M/s. JPK Trading (I) Pvt. Ltd.

Detailed Analysis:

1. Legality of initiation of action under Section 147 of the Income Tax Act:

The assessee contested the initiation of proceedings under Section 147, arguing that it was based on "borrowed satisfaction" and that objections raised were disposed of through a non-speaking order. The Tribunal noted that the Assessing Officer (AO) had sufficient information indicating that the assessee had taken accommodation entries from Shri Praveen Kumar Jain, who admitted to issuing bogus invoices on commission. The AO had reason to believe that income had escaped assessment, which justified reopening the case under Section 147. The Tribunal referenced the Supreme Court's decisions in Raymond Woollen Mills Ltd. vs. ITO and ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., affirming that the sufficiency of reasons for reopening an assessment is not subject to judicial scrutiny at this stage. Thus, the Tribunal upheld the AO's action in reopening the case.

2. Addition of ?3,14,545/- based on purchases from M/s. JPK Trading (I) Pvt. Ltd.:

The assessee argued that the purchases were genuine, supported by cheque payments, and that the AO had not doubted the sales. However, the Tribunal noted that the Investigation Wing had established that Shri Praveen Kumar Jain was issuing bogus invoices without actual delivery of goods. The AO had issued a show-cause notice to the assessee, who failed to provide satisfactory explanations. The AO rejected the books of accounts under Section 145(3) and made an addition of ?5,24,240/- (25% of ?20,96,965/-) to the income. The Tribunal referenced the ITAT Jaipur Bench's decision in Anuj Kumar Varshney vs. ITO, which upheld a 15% disallowance of bogus purchases. Consequently, the CIT(A) reduced the addition to ?3,14,545/- (15% of ?20,96,965/-). The Tribunal found no reason to interfere with the CIT(A)'s decision.

3. Opportunity to cross-examine the seller M/s. JPK Trading (I) Pvt. Ltd.:

The assessee contended that the AO relied on statements taken behind its back without providing an opportunity for cross-examination. The Tribunal held that proceedings under the Income Tax Act are not strictly governed by the Indian Evidence Act. The seller had admitted to not selling any goods to the assessee, and the assessee was given a reasonable opportunity to rebut this claim. The Tribunal cited the Supreme Court's ruling in Vasantlal (45 ITR 206), which requires only a reasonable opportunity of being heard before making an addition. The Tribunal concluded that the assessee was provided with adequate opportunity, and the plea for cross-examination was not warranted.

Conclusion:

The Tribunal dismissed the appeal, upholding the CIT(A)'s order in its entirety. The initiation of proceedings under Section 147 was deemed justified, the addition of ?3,14,545/- was sustained, and the opportunity for cross-examination was considered adequately provided. The appeal of the assessee was dismissed, and the order was pronounced in open court on 9-02-2018.