2018 (4) TMI 186 - AT - Income Tax

Addition of bogus purchases - reopening of assessment - Held that - Tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the guilt. Uphold the order of the Ld. CIT(A) on the issue of reopening. Assessee has not been able to produce any of the parties. The assessing officer has noted that there is no cogent evidence of the provision of goods. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent - purchase bills from these non-existent the/bogus parties cannot be taken as cogent evidence of purchases, in light of the overwhelming evidence the revenue authorities cannot put upon blinkers and accept these purchases as genuine. The overall consideration of facts and circumstances and following the decision of Hon ble Gujarat High Court in the case of CIT vs Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. - Decided partly in favour of assessee.

Summary

Issues:
Validity of reopening and confirming the addition of ?13,78,911/- on account of bogus purchases.

Analysis:

Issue 1: Validity of Reopening
The Assessing Officer reopened the assessment based on information received regarding hawala transactions and issuance of bogus purchase bills. The AO received tangible incriminating material showing the assessee's involvement in bogus purchase entries. The ITAT upheld the validity of the reopening, citing the need for a prima facie belief of income escapement. The decision referenced the case law CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, emphasizing the subjective satisfaction of the AO at the initiation stage. The ITAT found no infirmity in the CIT(A)'s decision, supporting the reopening based on tangible information.

Issue 2: Merits of Addition
The assessing officer found that the assessee obtained bogus purchase bills from non-existent parties, supported by evidence of hawala transactions. Despite the lack of confirmation from the parties or evidence of goods transportation, the ITAT concluded that the purchases were non-genuine. Citing precedents like Sumati Dayal and Durga Prasad More, the ITAT emphasized that documents from non-existent suppliers cannot be considered as credible evidence. Referring to the Gujarat High Court's decision, the ITAT held that a 12.5% disallowance of the bogus purchases was appropriate, given the grey market dealings of the assessee. The ITAT partially allowed the appeal, restricting the disallowance to 12.5% of the bogus purchases.

In conclusion, the ITAT upheld the validity of the reopening based on tangible incriminating material and confirmed the addition of ?13,78,911/- on account of bogus purchases, restricting the disallowance to 12.5% of the amount.