2020 (5) TMI 181 - AT - Income Tax

Reopening of assessment u/s 147 - whether issuance of notice u/s 148 merely on the basis of doubt and suspicion and without having reason to believe? - HELD THAT - There was no original assessment u/s 143(3) of the Act but the return filed by the assessee was processed u/s 143(1) of the Act. Subsequently, the AO received information as well as statement recorded by the Investigation Wing, Mumbai during search and seizure operation in case of Shri Rajendra Jain, Shri Sanjay Choudhary group and Shri Dharmichand Jain group of Mumbai on 03-10-2013. The assessee claimed to have purchased Diamond from the concerns of Shri Rajendra Jain, Group, therefore, based on the information received from Investigation Wing, Mumbai, there was a prima facie material to form the belief that income assessable to tax has escaped assessment. No error or illegality in the impugned order of the ld. CIT(A) qua this issue. Thus Ground No. 1 of the assessee is dismissed. Rejection of books of account u/s 145(3) - GP estimation - addition of 25% of alleged bogus purchases - CIT(A) has given the details of the average g.p. and arrived to the conclusion that if the income is estimated based on the average g.p. on the turnover of the assessee then it would be more than the addition made by the AO - HELD THAT - If the income of the assessee is estimated as per well settled proposition of law being the past history of the g.p. declared by the assessee and average of past history as the basis of the estimation then the addition on account of low g.p. for the year under consideration would have been more than the addition made by the AO. Accordingly, we do not find any error or illegality in the impugned order of the ld. CIT(A). - Decided against assessee.

Summary

Issues:
1. Validity of initiation of proceedings u/s 147/148 of the Act.
2. Rejection of books of account u/s 145(3) of the Act and addition of ?2,15,936.

Issue 1: Validity of initiation of proceedings u/s 147/148 of the Act:
The appeal challenged the initiation of proceedings u/s 147/148 based on doubt and suspicion without sufficient reason to believe. The assessee argued that reopening the assessment based on a statement from Shri Rajendra Jain was invalid as it lacked evidence of income escaping assessment. However, the Department justified the reopening citing information from the Investigation Wing and the absence of stock with parties from whom purchases were claimed. The Tribunal upheld the reopening, citing precedents and emphasizing that sufficiency of material is not to be considered at this stage. The Tribunal concluded that the AO had a valid reason to believe income had escaped assessment, rejecting the appeal on this ground.

Issue 2: Rejection of books of account u/s 145(3) of the Act and addition of ?2,15,936:
The appeal contested the rejection of books of account and the addition based on alleged bogus purchases. The assessee argued purchases from M/s. AVI Exports were genuine, supported by proper invoices and payments. The Department maintained that once purchases were deemed bogus, the books of account could not be accepted. The Tribunal noted the AO's addition of 25% of alleged bogus purchases but found the CIT(A) considered the matter under Section 145(3) r.w.s. 144, estimating income based on average g.p. declared in prior years. The Tribunal upheld the CIT(A)'s decision, stating that the estimated income based on past g.p. would exceed the AO's addition, finding no error in the CIT(A)'s order. Consequently, the Tribunal dismissed the appeal on these grounds.

In conclusion, the Tribunal upheld the validity of the proceedings u/s 147/148 and the rejection of books of account u/s 145(3) of the Act, along with the addition of ?2,15,936. The appeal by the assessee was dismissed, and the order was pronounced on 04/03/2020.