2022 (3) TMI 1338 - AT - Income Tax

Reopening of assessment u/s 147 - validity of notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a person who is engaged in providing accommodation entries - estimation of income for bogus purchases - HELD THAT - AO validly assumed the jurisdiction for making re-opening under section 147 on the basis of information of investigation wing Mumbai. So far as other submissions of the ld AR for the assessee that there is no live link of the reasons recorded, we find that the Hon ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd 2016 (8) TMI 276 - GUJARAT HIGH COURT clearly held that when assessing officer received information from the investigation wing that two well-known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified. Hence, the ground No. 1 in assessee s appeal is dismissed. Bogus purchase - No comment was made by Assessing Officer on the documentary evidence furnished by assessee. The sales of assessee was not disputed. No sale is possible in absence of purchases. The Assessing Officer estimated addition on account of purchases without rejecting books of accounts of assessee. CIT(A) restricted to addition to the extent of 12.5% of the total purchase shown by taking view that the assessee shown G.P of less than 1.15% .In our view the disallowance restricted by Ld. CIT(A) is on higher side. The profit margin in the industry is 5% to 7%. It is settled law in case of disputed purchases shown from such hawala dealers on the profit element embedded to avoid the possibility of revenue leakage is to be disallowed. No doubt made the assessee has shown extremely low G.P i.e. 1.15% only, yet the disallowance at rate of 12.5% is on higher side. This combination is similar cases, wherein the purchases are shown from Bhawarlal Jain for providing accommodation entry, have restricted or enhanced the addition to the extent of 6% of impugned or disputed purchases. Therefore, taking the consistent the disallowance of purchases in the present case is also restricted to 6% of the disputed purchases. In the result, the grounds of appeal raised by assessee is partly allowed.

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 147/148.
2. Addition on account of alleged bogus purchases.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147/148:

The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) relied on third-party information without conducting any preliminary investigation. The information received from the DGIT (Investigation) Mumbai indicated that Bhanwarlal Jain Group was providing bogus accommodation entries, and the assessee was one of the beneficiaries. The assessee argued that the information was vague and lacked a live link between the reasons recorded and the assessee. The AO had issued a notice under Section 148 based on this information, and the assessee's objections to the reopening were rejected by the AO in a detailed order.

The Tribunal found that the AO had validly assumed jurisdiction for reopening the assessment based on credible information from the investigation wing. The Hon'ble Jurisdictional High Court in cases such as *Peass Industrial Engineers (P) Ltd Vs DCIT* and *Pushpak Bullion (P) Ltd Vs DCIT* supported the AO's action, stating that receiving information from the investigation wing about bogus entries justified reopening the assessment. Consequently, the Tribunal dismissed the assessee's ground challenging the validity of the reopening.

2. Addition on Account of Alleged Bogus Purchases:

The AO made additions based on the information from the investigation wing, which indicated that the assessee had shown bogus purchases from entities managed by Bhanwarlal Jain Group. The AO relied solely on this information without providing the assessee with the investigation report or the statement of Bhanwarlal Jain. The assessee provided detailed evidence, including purchase invoices, stock registers, and sales registers, to prove the genuineness of the purchases. The AO did not reject the books of accounts or the documentary evidence provided by the assessee.

The CIT(A) observed that the AO did not examine the evidence furnished by the assessee and solely relied on the investigation report. The CIT(A) noted that the sales were accepted as genuine, and if the purchases were treated as bogus, it would result in negative stock. Referring to judicial precedents, the CIT(A) restricted the addition to 12.5% of the disputed purchases, considering the low gross profit (GP) rate shown by the assessee.

The Tribunal, after considering the submissions and evidence, found that the disallowance of 12.5% was on the higher side. The profit margin in the industry was typically between 5% to 7%. The Tribunal noted that in similar cases involving purchases from Bhanwarlal Jain Group, the disallowance was restricted to a lower percentage. Therefore, the Tribunal restricted the disallowance to 6% of the disputed purchases, partly allowing the assessee's appeal.

Conclusion:

The appeal of the assessee was partly allowed, restricting the disallowance to 6% of the disputed purchases. The appeal of the revenue was dismissed as the grounds raised became infructuous due to the Tribunal's decision on the assessee's appeal. The order was pronounced on 28/03/2022.