2020 (1) TMI 74 - AT - Income Tax

Additions towards alleged bogus purchases - CIT(A) reduced the rate to 3% from @ 12.50% as made by the AO - Assessee sought further relief - HELD THAT - In this case, the assessee is into the business of diamond trading. The profit element in diamond trading is around 2 to 3% depending upon nature of trade. Even, the BEP had recommended profit percentage of 2% in case of trading and 3% for manufacturers. AO, considering the nature of business of the assessee had estimated 12.50% profit, whereas the CIT(A) has scaled down estimation of profit to 3% on total alleged bogus purchase. Although, both authorities have taken different rate of profit for estimation of income from alleged bogus purchase, but no one could support said rate of gross profit with necessary evidences or any comparable cases. On the other hand, the assessee had also failed to file any comparable cases to support its arguments for lessor gross profit rate. Therefore,CIT(A) has taken one of the possible method for estimation of profit to settle dispute between the parties and also considering nature of industry and BEP rate has scaled down profit estimated by the AO to 3% on alleged bogus purchases. CIT(A) has rightly scaled down addition made by the AO from 12.50% to 3% profit on alleged bogus purchases. Hence, we are inclined to uphold order of the ld. CIT(A) and dismiss appeal filed by the assessee.

Summary

Issues Involved:

1. Validity of reassessment proceedings under Section 147.
2. Addition under Section 69C for alleged bogus purchases.
3. Reliance on retracted statements and lack of cross-examination opportunity.

Detailed Analysis:

1. Validity of Reassessment Proceedings Under Section 147:

The assessee challenged the reassessment proceedings initiated under Section 147, arguing that the action was based solely on third-party information without independent verification. The reassessment was triggered by the discovery of bogus purchase bills during a search on the Bhanwarlal Jain group, identifying the assessee as a beneficiary. The CIT(A) upheld the reassessment's validity, citing several precedents, including the Hon'ble Gujarat High Court in Rhythm Chemicals P Ltd and the Hon'ble Delhi High Court in OPG Metals and Finsec Ltd. The Tribunal agreed with the CIT(A), noting that the reassessment was based on tangible material from the investigation wing and did not constitute a change of opinion. The Tribunal emphasized that reopening is permissible when new facts come to light, even if they were previously on record.

2. Addition Under Section 69C for Alleged Bogus Purchases:

The AO added 12.5% of the total purchases from M/s Mayur Exports as bogus, based on the investigation's findings. The CIT(A) reduced this addition to 3%, considering the nature of the business and the evidence provided. The Tribunal noted that both parties failed to conclusively prove their cases. While the assessee provided basic evidence, it did not fully satisfy the AO. The AO, relying on the investigation and statements from the Bhanwarlal Jain group, did not conduct further inquiries. The Tribunal referenced the Hon'ble Gujarat High Court in CIT vs. Simith P. Sheth, emphasizing that only the profit element in bogus purchases should be taxed. Given the diamond trading business's profit margins and the Board's Instruction No. 02/2008, the Tribunal upheld the CIT(A)'s decision to estimate the profit at 3%.

3. Reliance on Retracted Statements and Lack of Cross-Examination Opportunity:

The assessee argued that the statements from Shri Pravin Kumar Jain, which were heavily relied upon for the addition, had been retracted and lacked evidential value. Additionally, the assessee was not given an opportunity to cross-examine Shri Pravin Kumar Jain. The CIT(A) and Tribunal did not find this argument compelling enough to overturn the addition. The Tribunal noted that the assessee failed to provide sufficient evidence to counter the findings from the investigation wing.

Conclusion:

The Tribunal dismissed the appeals for all assessment years (2009-10 to 2013-14), upholding the CIT(A)'s decision to validate the reassessment proceedings and sustain the addition at 3% of the alleged bogus purchases. The Tribunal emphasized the necessity of tangible material for reassessment and the appropriateness of estimating profit on bogus purchases, considering the specific business context and prevailing judicial precedents.