2020 (6) TMI 323 - AT - Income Tax

Bogus purchases - gp estimation @12.5% on non-genuine purchases - HELD THAT - It is a well settled law that in case of bogus purchases only the profit embedded in non-genuine purchases should be brought to tax. In our considered opinion, estimation of GP @12.5% is on the higher side keeping in view assessee s nature of business - Ends of justice would meet if GP on bogus purchases is estimated at 5% over and above the GP declared by the assessee. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Issues:
1. Reopening of assessment based on accommodation entries obtained from hawala dealers.
2. Estimation of gross profit on non-genuine purchases.
3. Failure to appear for appeal hearings and address change.
4. Justification of addition by Assessing Officer and CIT(A).
5. Adjustment of gross profit estimation from 12.5% to 5%.
6. Premature challenge of penalty initiation under section 271(1)(c) of the Act.
7. General nature of ground not requiring adjudication.
8. Pronouncement of order beyond the 90-day period due to COVID-19 lockdown.

Reopening of Assessment:
The assessment was reopened for the assessment year 2011-12 based on information received regarding accommodation entries from hawala dealers. The Assessing Officer found that the assessee obtained accommodation entries totaling &8377;1,45,80,351 from hawala operators, estimating gross profit at 12.5% on non-genuine purchases, resulting in an addition of &8377;18,22,544. The CIT(A) upheld this addition, leading to the current appeal by the assessee.

Estimation of Gross Profit:
The Assessing Officer estimated gross profit at 12.5% on alleged bogus purchases, a decision supported by the CIT(A) and the Departmental Representative. However, the Tribunal considered this estimation on the higher side given the nature of the assessee's business. Consequently, the Tribunal adjusted the gross profit estimation to 5% above the declared gross profit, partially allowing the assessee's appeal on this ground.

Failure to Appear for Hearings and Address Change:
Despite multiple notices sent to the assessee for appeal hearings, the assessee did not appear or update the address with the Registry. This lack of participation led to the appeal being heard with the assistance of the Departmental Representative and based on available material.

Justification of Addition:
The Departmental Representative supported the Assessing Officer's order, citing the Gujarat High Court judgment in a similar case. It was argued that the assessee failed to prove the genuineness of purchases and suppliers by not providing essential documents such as delivery challans and transport receipts. The Tribunal agreed that the addition was justified but adjusted the gross profit estimation.

Premature Challenge of Penalty Initiation:
The assessee challenged the initiation of penalty under section 271(1)(c) of the Act in their appeal. However, the Tribunal deemed this challenge premature at the current stage and dismissed it accordingly.

Pronouncement of Order Beyond 90-Day Period:
Due to the COVID-19 lockdown and subsequent disruptions, the order was pronounced beyond the 90-day period stipulated by the ITAT Rules, 1963. The Tribunal justified this delay by excluding the lockdown period from the calculation, following a pragmatic approach in light of the extraordinary circumstances.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive overview of the Tribunal's decision on each aspect of the case.

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