2019 (10) TMI 127 - AT - Income Tax

Reopening of assessment - Bogus purchases - AO got information from Sales Tax Department that the concerned assessees received fake purchase bills from hawala dealers - HELD THAT - AOs received information from the Sales Tax Department about the details of accommodation entry providers and the assesses had also recorded purchases from such hawala entry providers. There was a close nexus between the report of the Sales tax Department and the formation of belief by the Assessing Officer about the escapement of income of the assessee for the year(s) under consideration. Such information was specific, not general or vague. Thus, it is abundantly clear that receipt of such an information was sufficient enough for the Assessing Officer to initiate the reassessment. In our considered opinion, no exception can be taken to the view canvassed by the AO(s) in initiating the reassessment on this score. The ground(s) taken by the assessee in challenging the initiation of reassessment proceedings in general way are thus dismissed. Bogus purchase bills received by the assessee(s) as accommodation entries from hawala dealers. It is seen that the issue of bogus purchases has recently come up for consideration before the Hon ble Bombay High Court in Pr.CIT Vs. Mohommad Haji Adam Co 2019 (2) TMI 1632 - BOMBAY HIGH COURT and others, the Hon ble jurisdictional High Court has held that no ad hoc addition for bogus purchases should be made. It laid down that the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases. Such case specific details are not readily available with the respective ld. ARs or the ld. DRs for facilitating the calculation of gross profit rates of genuine and hawala purchases. Under these circumstances, we set-aside the impugned orders and remit the matter to the file of the respective AOs for reconsideration. Going by the ratio laid down in the case of M/s. Chhabi Electricals Pvt. Ltd. and others 2017 (6) TMI 514 - ITAT PUNE which both the sides agree to be applied for the instant case, we hold that the addition should be sustained on the amount of hawala purchases @10% plus the normal GP rate shown by the assessee for the year under consideration. We, therefore, set aside the impugned order and remit the matter to the file of AO for recomputing the amount of addition accordingly.

Summary

Issues Involved:
1. Delay in filing appeals.
2. Confirmation/reduction of additions on account of bogus purchases.
3. Initiation of reassessment proceedings.
4. Specific challenges to reassessment proceedings.
5. Non-supply of reasons for reassessment.
6. Non-confrontation with adverse material and lack of opportunity for cross-examination.
7. Recalculation of additions based on differential profit rates.

Detailed Analysis:

1. Delay in Filing Appeals:
The Tribunal condoned the delay in filing appeals after being satisfied with the reasons provided by the assessees.

2. Confirmation/Reduction of Additions on Account of Bogus Purchases:
The common issue in all appeals was the addition on account of bogus purchases. The Assessing Officers (AOs) made additions at 100% of the bogus purchases based on information from the Sales Tax Department. The Commissioners of Income Tax (Appeals) [CIT(A)] confirmed or reduced these additions to various percentages (5%, 7.15%, 12.50%, 15%, 20%, 23%, and 25%).

3. Initiation of Reassessment Proceedings:
The Tribunal upheld the initiation of reassessment proceedings, citing the Supreme Court's rulings that the AO only needs a "reason to believe" that income has escaped assessment, not conclusive evidence at the initiation stage.

4. Specific Challenges to Reassessment Proceedings:
- General Challenge: The Tribunal dismissed the general challenges to reassessment initiation, stating that the AO had specific, reliable, and relevant information from the Sales Tax Department.
- Case-Specific Challenges: The Tribunal addressed specific challenges separately, such as non-supply of reasons for reassessment and non-confrontation with adverse material.

5. Non-Supply of Reasons for Reassessment:
- Ms. Archana P. Sangai Case: The CIT(A) quashed the reassessment due to non-supply of reasons despite a specific request. The Tribunal upheld this decision, citing precedents from the Bombay High Court.

6. Non-Confrontation with Adverse Material and Lack of Opportunity for Cross-Examination:
- Chandrasekhar A. Joshi Case: The Tribunal remitted the matter back to the AO, directing that the assessee be confronted with adverse material and allowed cross-examination.
- M/s. Viraj Steels Case: Similar to Chandrasekhar A. Joshi, the Tribunal remitted the matter for proper confrontation and cross-examination.

7. Recalculation of Additions Based on Differential Profit Rates:
- Pr.CIT Vs. Mohommad Haji Adam & Co.: The Tribunal followed the Bombay High Court's ruling that additions should be made based on the difference between the gross profit rate on genuine purchases and hawala purchases. The Tribunal remitted several cases back to the AO for recalculating additions based on this differential profit rate.

Separate Judgments:
- Ms. Archana P. Sangai: Reassessment quashed due to non-supply of reasons.
- M/s. Prima Pvt. Ltd.: Addition to be recalculated at 10% plus normal GP rate due to consumption of raw materials in manufacturing.
- Chandrasekhar A. Joshi: Matter remitted for proper confrontation and cross-examination.
- M/s. Viraj Steels (A.Y. 2009-10): Reassessment upheld, but matter remitted for recalculation based on differential profit rates.
- M/s. Viraj Steels (A.Y. 2010-11): Reassessment quashed due to inadequate opportunity to file writ petition.
- Rajesh U. Pardeshi: Matter remitted for recalculation based on differential profit rates.
- DACS Electrosystems Pvt. Ltd.: Matter remitted for recalculation based on differential profit rates.
- M/s. PNG Jewellery & Gems: Matter remitted for recalculation based on differential profit rates.
- Renuka Auto Components India Pvt. Ltd.: Matter remitted for recalculation based on differential profit rates.
- M/s. Saraswati Extrusion Pvt. Ltd.: Matter remitted for recalculation based on differential profit rates.

Conclusion:
The Tribunal provided detailed rulings on various issues related to the confirmation and reduction of bogus purchase additions, initiation of reassessment proceedings, and procedural fairness. The cases were mostly remitted back to the AO for recalculating additions based on the differential profit rates between genuine and bogus purchases, following the Bombay High Court's guidelines.