2020 (5) TMI 598 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus purchases - information received from the investigation wing - HELD THAT - AO had nowhere abandoned reasons which were the foundation for issuance of the notice for re-opening. He had considered the objections of the petitioner and disposed them of on the basis of material on record. The sole ground of the petitioner therefore, must fail. See SIL GOLD, PRAKASH SACHIN CO VERSUS ITO, WARD-53 (4) , NEW DELHI 2018 (12) TMI 1128 - ITAT DELHI In the present case, notice for re-opening having been issued in the case of assessment which was not framed after scrutiny. AO would have considerable latitude in issuing notice for re- opening if it is found that he had tangible material to form a belief that income chargeable to tax had escaped assessment, it would not be appropriate on our part to strike down the notice. For such reasons, the petition is dismissed On the issue of the sanctions/approval granted by the joint Commissioner of income tax, the issue is squarely covered against the assessee by the decision of SONIA GANDHI, OSCAR FERNANDES, RAHUL GANDHI 2018 (9) TMI 720 - DELHI HIGH COURT where identical satisfaction was recorded by the approving authority, the honourable Delhi High Court held that there is no error/infirmity can be pointed out.Therefore we are of the view that sanctioned by the authority for reopening of the assessment is also proper. Assessee's argument that on the date of compliance with the notice of 148 issued AO has issued the notice u/S 143 (2) of the act on the same date find no force in the argument as according to the provisions of section 143 (2), AO on receipt of return, if considers it necessary or expedient, to ensure that assessee has not understated the income or has not computed the excessive loss or has not under paid the tax in any manner asks assessee to attend before him. In the present case the assessing officer was already having the original return of income filed by the assessee under section 139 of the act. Thus, there is no change in the facts contained in original return as well as the letter submitted by the assessee. It was merely reiteration of same facts as contained in that return. On receipt of notice under section 148 of the act the assessee has merely written a letter that original return may be considered as a return filed in response to the notice under section 148 of the act. Therefore, the original return was already available with the revenue/assessing officer Evidences were so clinching in the form of statement of the entry operator, statement of the supplier of the invoice and the inquiries conducted by the income tax department clearly proved that assessee has obtained an accommodation entry. It cannot be said that if the notice has been issued by the assessing officer on the same date on which return of income has been filed/or the return originally filed is intimated to be return in response to notice under section 148 of the act, the assessing officer cannot apply his mind immediately. According to us , he can. There is no minimum threshold or gap of time prescribed under section 143 (2) of the act. Therefore, putting an artificial time break between the time of intimation of the return filed by the assessee and notice to be issued by the assessing officer would be unreasonably putting a burden on the revenue. In view of this, we dismiss this argument of the AR. Bogus purchases assessee has merely procured bill without the goods supplied by the seller and booked in its purchase account. Sales made by the assessee are not disputed. The assessee has submitted the copies of the invoices, copies of the purchase register, copies of the balance sheet trading account and profit and loss account for the year ended on 31st of March for respective years. Identical issue arose in case of SIL gold 2018 (12) TMI 1128 - ITAT DELHI wherein the addition was sustained only to the extent of 2% of the purchase being the commission paid to the entry operator. In the present case we direct the assessing officer to confirm the addition to the extent of 2% of the purchase amount involved in the alleged accommodation entry obtained by the assessee and further addition of 5 % to the extent of investment in goods procured by the assessee which has been sold. Accordingly, AO is directed to delete the balance addition. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Addition of bogus purchases.
3. Validity of notice under Section 143(2) issued on the same day as the return filed in response to Section 148 notice.
4. Reliance on statements and evidence from the investigation wing.
5. Denial of cross-examination and principles of natural justice.
6. Acceptance of books of accounts while making additions.
7. Calculation of addition based on bogus purchases.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment, arguing that it was based solely on information from the investigation wing without independent application of mind by the Assessing Officer (AO). The Tribunal upheld the reopening, citing the tangible material provided by the investigation wing, including statements and evidence from searches, which indicated that the assessee had obtained accommodation entries for bogus purchases. The Tribunal referenced the case of Pushpak Bullion Pvt Ltd v. Deputy Commissioner of Income Tax, where similar circumstances justified reopening.

2. Addition of Bogus Purchases:
The AO added the entire amount of alleged bogus purchases to the assessee's income. The Tribunal noted that while the purchases were shown in the books, the goods were not physically received from the supplier, Mohit International, which was controlled by an accommodation entry provider. The Tribunal acknowledged that the assessee had sold the goods and recorded the gross profit. Consequently, the Tribunal directed the AO to restrict the addition to 2% of the purchase amount as commission for obtaining the accommodation entry and an additional 5% for the investment in goods procured outside the books.

3. Validity of Notice under Section 143(2):
The assessee argued that the notice under Section 143(2) was issued on the same day as the return filed in response to the Section 148 notice, indicating non-application of mind by the AO. The Tribunal dismissed this argument, stating that there is no prescribed minimum time gap between the filing of the return and the issuance of the notice. The AO can apply his mind immediately upon receiving the return.

4. Reliance on Statements and Evidence from the Investigation Wing:
The Tribunal found that the AO's reliance on statements from the investigation wing, including those from the entry provider and the supplier, was justified. These statements confirmed that the supplier was not engaged in genuine business activities and only provided accommodation entries. The Tribunal noted that the evidence was clinching and supported the AO's belief that the purchases were bogus.

5. Denial of Cross-examination and Principles of Natural Justice:
The assessee contended that the denial of cross-examination of the persons who provided statements against them was against the principles of natural justice. The Tribunal did not find merit in this argument, as the statements were part of a larger body of evidence collected during the investigation, which conclusively indicated that the purchases were bogus.

6. Acceptance of Books of Accounts while Making Additions:
The Tribunal observed that the AO accepted the books of accounts and trading results, including sales and closing stock figures, while making the addition for bogus purchases. This indicated that the sales were genuine, and the goods were sold. The Tribunal directed that only the profit margin and investment in goods should be added, not the entire purchase amount.

7. Calculation of Addition Based on Bogus Purchases:
The Tribunal referenced the case of SIL Gold v. ITO, where similar circumstances led to an addition of only 2% of the purchase amount as commission and an additional 5% for investment in goods. Applying this precedent, the Tribunal directed the AO to restrict the addition to 2% for commission and 5% for investment, deleting the balance addition.

Separate Judgments:
The Tribunal issued separate judgments for the three appeals, applying the same reasoning and directives to each case. For each appeal, the Tribunal confirmed the reopening of the assessment and directed the AO to restrict the addition to 2% of the bogus purchase amount as commission and 5% for investment in goods, deleting the remaining addition.

Conclusion:
The appeals were partly allowed, with the Tribunal upholding the reopening of assessments and modifying the additions based on bogus purchases to reflect only the commission and investment in goods, thereby providing partial relief to the assessee.