2019 (6) TMI 93 - AT - Income Tax

Reopening of assessment u/s 147 - reopening based on opinion given by DCIT and not by DVO - live link between incriminating tangible information received by the AO and formation of belief that income of the assessee has escaped assessment - Bogus purchases - HELD THAT - In the instant case before us, It is based on admission of key persons of searched persons that their group were indulging in providing bogus accommodation entries by way of sales and unsecured loans wherein name of the assessee also found mentioned in the list of beneficiaries of the said accommodation entries being compiled by Revenue during search operations u/s 132, the AO reopened the concluded assessment u/s 147 and as held that this information received by the AO from DGIT(inv.), Mumbai and DCIT, Surat to be tangible incriminating information coming into possession of the AO which has live link with formation of prima facie belief that income of the assessee has escaped assessment. AO received information from DDIT(Inv.), Mumbai and DCIT, Surat and not from DVO, which we have already held was a tangible incriminating information having live link with formation of belief that income of the assessee has escaped assessment to invoke provisions of Section 147 in the instant appeal before us. We uphold the reopening of the assessment by the AO u/s 147 in the instant case before us and decide ground number 1 raised by assessee in memo of appeal filed with tribunal against assessee Bogus purchases - HELD THAT - We are unable to impress ourselves with this feeble argument advanced by the assessee, firstly that was addition made by AO on account of shortage/excess of stock and it was for the assessee to show with cogent evidences/explanation that this item of stock bought from M/s Mani Prabha Impex Private Limited was infact added in its entirety to income as shortages of stock by the AO and now making further additions will lead to double additions of the same income and secondly, this tangible incriminating information of the assessee indulging in obtaining bogus accoomodation bills was received by AO after completion of the assessment by the AO for AY 2012-13 u/s 143(3) on 30.03.2014. Under these facts and circumstances of the case, in our considered view keeping in view factual matrix of the case, the profit embedded in these purchases are required to be brought to tax which requires estimation of income as held by Hon ble Supreme Court in the case of Kachwala Gems v. JCIT 2006 (12) TMI 83 - SUPREME COURT In our considered view keeping in view factual matrix of the case, estimation of additional income @ 10% of the alleged bogus purchases to the tune of ₹ 8,33,985/- made from said M/s Mani Prabha Impex Private Limited will meet end of justice. The AO had itself estimated additions to income @10.33% of alleged bogus purchases in immediately succeeding assessment year viz. AY 2012-13. Thus, we estimate the additional income over and above what was declared in the return of income filed with the revenue being profit embedded in these alleged bogus purchased from M/s Mani Prabha Impex Private Limited @ 10% of the alleged bogus purchases. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income-tax Act, 1961.
2. Addition of profit element embedded in alleged bogus purchases.

Analysis of the Judgment:

Issue 1: Validity of Reopening Assessment under Section 147

The assessee challenged the reopening of the assessment by the Assessing Officer (AO) under Section 147 of the Income-tax Act, 1961. The AO had received information from the Directorate General of Income Tax (Investigation), Mumbai, and the Deputy Commissioner of Income Tax, Surat, indicating that the assessee was a beneficiary of bogus accommodation entries for purchases amounting to ?8,33,985 from M/s Mani Prabha Impex Private Limited. The AO recorded reasons for reopening the assessment on 07.01.2016 and issued a notice under Section 148 on 27.01.2016.

The assessee contended that the reopening was based on mere information without independent application of mind by the AO. The tribunal, however, upheld the reopening, stating that the AO had received fresh tangible incriminating material which had a live link with the formation of reasons to believe that income had escaped assessment. The tribunal emphasized that at the stage of reopening, only a prima facie belief of escapement of income is required, not conclusive proof. The tribunal cited the Supreme Court decision in ACIT v. Rajesh Jhaveri Stock Brokers Private Limited (291 ITR 500) to support its conclusion.

Issue 2: Addition of Profit Element Embedded in Alleged Bogus Purchases

On the merits of the case, the AO had added 14.55% of the alleged bogus purchases (?1,21,345) to the assessee's income, based on the gross profit rate declared by the assessee. The assessee provided purchase invoices, ledger accounts, and bank statements to substantiate the purchases from M/s Mani Prabha Impex Private Limited. However, the AO's investigation revealed that the said party was not operating at the given address, and the assessee could not produce the party or its current address.

The tribunal noted that the onus was on the assessee to prove the genuineness of the purchases, especially given the incriminating material from the investigation. The tribunal observed that the assessee likely procured goods from the grey market to save on costs and taxes while obtaining bogus invoices to tally its books. The tribunal referred to the Supreme Court decision in Kachwala Gems v. JCIT (288 ITR 10) and the Bombay High Court decision in PCIT v. M/s Mohammad Haji Adam & Co. to justify estimating the profit embedded in the bogus purchases.

The tribunal reduced the addition from 14.55% to 10% of the alleged bogus purchases, deeming it a fair estimation of the profit element embedded in these transactions.

Conclusion:

The tribunal upheld the reopening of the assessment under Section 147, finding that the AO had sufficient tangible material to form a prima facie belief of income escapement. On the merits, the tribunal partly allowed the assessee's appeal by reducing the addition from 14.55% to 10% of the alleged bogus purchases, aligning with the principle of estimating the profit element in such cases.