2021 (2) TMI 65 - AT - Income Tax

Reopening of assessment u/s 147 - unverifiable purchases - information received by the A.O. regarding search operation conducted in the case of Jain Group of companies and information of which was available to the A.O - Assessee argued there was only statement of third person on the basis of which the A.O. had reopened the case of the assessee - HELD THAT - We are not included to accept the contention of the assessee as the information in this case was received by the A.O. from the Investigation Wing and the A.O. after examining the same had recoded reasons for reopening the assessment, we are of the view that the proceedings U/s 147 of the Act could be initiated on the basis of investigation report, in this respect, we draw strength from the decision in the case of Ankit Agrochem (P) Ltd. 2017 (12) TMI 1625 - RAJASTHAN HIGH COURT wherein it was held that proceedings initiated U/s 147 of the Act on the basis of report received from DIT(Inv.) were valid. Sufficiency and adequacy of the reasons which have led to formation of a belief by the A.O. that the income has escaped assessment cannot be examined by the Court. Therefore, in view of above discussion, we are of the view that the A.O. had specific information based on which and after recording of reasons and approval, the assessment has been reopened. Therefore, up uphold the decision on ld. CIT(A) on this ground and dismissed the ground raised by the assessee. Bogus purchases - rejection of books of accounts of the appellant by the assessing officer u/s 145(3) of the Act on account of alleged unverifiable purchases - CIT-A directing application of G.P. rate of 12% on declared turnover - HELD THAT - The purchases made has been exported as it is and there is bill to bill tally of purchase and export. Photo copies of purchase bills has also been placed on record by the assessee. Therefore, according to us, in view of difference in the circumstances, the results of this year i.e. A.Y. 2010-11 cannot be compared to the results of earlier year as the complete nature of business is changed from this year. In view of the above facts, the allegation of reducing profit by obtaining non-genuine bogus purchase bills is wrong and not sustainable. There is increase in total gross profit and thus results can be held as progressive and therefore, in such circumstances, no additions are called for. Even the Coordinate Bench of Jaipur ITAT in assessee s own case having similar facts, deleted the entire addition confirmed by the ld. CIT(A). Therefore, keeping in view the above facts and circumstances and discussion, we are also of the view that the additions confirmed by the ld. CIT(A) by applying G.P. rate of 12% as against the declared G.P. rate of 9.34% is uncalled for and bad in law and deserves to be deleted and hance the same is directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 148 of the Income Tax Act, 1961.
2. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.
3. Application of Gross Profit (GP) rate and trading addition.

Issue-wise Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 148:

The assessee challenged the reopening of the assessment under Section 148, arguing that it was based solely on information from the Investigation Wing, without the Assessing Officer (A.O.) independently verifying the information. The assessee cited several legal precedents to support the contention that the A.O. must have a reason to believe that income has escaped assessment, and this belief should be based on the A.O.'s own examination rather than borrowed satisfaction.

The tribunal, however, upheld the reopening of the assessment, noting that the A.O. received specific information from the Investigation Wing and recorded reasons for reopening the assessment. The tribunal cited the case of Ankit Agrochem (P) Ltd. Vs JCIT, where it was held that proceedings under Section 147 could be initiated based on an investigation report. The tribunal concluded that the A.O. had sufficient cause to believe that income had escaped assessment and thus upheld the reopening of the assessment.

2. Rejection of Books of Accounts Under Section 145(3):

The A.O. rejected the books of accounts of the assessee under Section 145(3) due to alleged unverifiable purchases amounting to ?11,60,43,373/-. The A.O. made a trading addition by disallowing 25% of these purchases. The assessee argued that it had provided all necessary documentation to prove the genuineness of the purchases, including purchase invoices, VAT registration numbers, PAN numbers, bank statements, and confirmations from the parties involved.

The tribunal noted that the assessee had indeed discharged the initial burden of proving the genuineness of the purchases. However, the A.O. relied on the judgment in the case of Sanjay Oil Cake Industries Vs. CIT to make the disallowance. The tribunal found that the facts of the present case were different from Sanjay Oil Cake Industries and that the assessee's suppliers were traceable and had provided confirmations. The tribunal also noted that the assessee's turnover and trading results showed a shift from colored stones to diamonds, which justified the lower GP rate.

3. Application of Gross Profit (GP) Rate and Trading Addition:

The CIT(A) directed the application of a GP rate of 12% on the total turnover, resulting in an addition of ?41,23,468/-, giving relief to the assessee for the remaining amount. The revenue challenged this, arguing that the average GP rate of the past three years was higher.

The tribunal considered the assessee's argument that the nature of the business had changed, with a shift to diamond trading, which typically has a lower profit margin. The tribunal also noted that the assessee's GP rate was in line with industry standards for diamond trading. The tribunal referred to several legal precedents, including CIT Vs. Simit P. Seth and CIT Vs. Sathya Narayan P. Rathi, which supported the view that only the profit element embedded in such purchases should be added to the income.

The tribunal concluded that the addition confirmed by the CIT(A) by applying a GP rate of 12% was uncalled for and deleted the entire addition. The tribunal upheld the rejection of books of accounts but directed that no addition was warranted based on the facts and circumstances of the case.

Conclusion:

The appeal of the assessee was partly allowed, and the appeal of the revenue was dismissed. The tribunal upheld the reopening of the assessment under Section 148 but deleted the trading addition made by applying a GP rate of 12%, finding it unjustified based on the change in the nature of the assessee's business and the documentation provided. The tribunal emphasized the importance of corroborating evidence and the need for the A.O. to independently verify information before forming a belief that income has escaped assessment.