2022 (6) TMI 1004 - AT - Income Tax

Reopening of assessment u/s 147 - Reopening based on information of investigation wing - Bogus purchases - HELD THAT - As decided in Pankaj K Choudhary others 2021 (10) TMI 653 - ITAT SURAT 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 277 - 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. Estimation of income - CIT(A) was of the view that disallowance of 12.5% of impugned purchases/bogus purchases would be reasonable to meet the end of justice - As in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. Appeal raised by the assessee is partly allowed.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of notice under section 148 of the Income Tax Act.
3. Addition of alleged non-genuine purchases.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal filed by the assessee for the assessment year 2008-09 was delayed by 444 days. The assessee requested the tribunal to condone the delay, citing bona fide reasons and compelling circumstances beyond their control, such as the closure of their business and office in Surat and the permanent shift to Mumbai. The assessee explained that the first appeal order was dispatched to their old address in Surat, which remained unserved due to the closure of the office. Upon becoming aware of the dismissal of the first appeal, the assessee obtained a copy of the order and filed the second appeal. The tribunal noted that the power to condone the delay is discretionary and subject to the assessee providing a 'sufficient cause' that is bona fide and cogent. The tribunal found the reasons given in the affidavit convincing and constituting reasonable and sufficient cause for the delay. Citing the Supreme Court's observation in the case of Collector of Land Acquisition vs Mst. Katiji and others, the tribunal preferred substantial justice over technical considerations and condoned the delay, admitting the appeal for hearing.

2. Validity of Notice under Section 148 of the Income Tax Act:
The assessee raised grounds challenging the validity of the notice under section 148 issued by the Assessing Officer (AO) without any fresh tangible material and in the absence of an independent application of mind. However, the assessee's counsel informed the tribunal that they did not wish to press these grounds. Consequently, the tribunal dismissed these grounds as not pressed.

3. Addition of Alleged Non-genuine Purchases:
The AO found that the assessee had received accommodation entries in the nature of bogus purchases amounting to Rs. 50,00,082 from M/s. Casper Enterprises Pvt. Ltd. The AO reopened the case under section 147 and issued a notice under section 148. The assessee did not respond within the statutory period, and subsequent notices issued to the seller company were returned undelivered. The AO conducted an enquiry and found the seller company to be a paper company, leading to the addition of the bogus purchases to the assessee's income. On appeal, the CIT(A) confirmed the AO's action.

The tribunal noted that the issue was covered by the judgment of the Coordinate Bench in the group cases of ITO Wd-3(1)(5) vs. Pankaj K Choudhary & others. The Coordinate Bench had held that the AO was justified in reopening the case based on information from the investigation wing about accommodation entries provided by well-known entry operators. The tribunal found that the AO had validly assumed jurisdiction for reopening under section 147 based on the investigation wing's information.

Regarding the addition of bogus purchases, the Coordinate Bench had observed that the AO made the addition solely based on the investigation wing's report without independent investigation. The CIT(A) had noted that no sale is possible in the absence of purchases and that the AO had not rejected the assessee's books. The CIT(A) had also considered the jurisdictional High Court's decision in Mayank Diamonds Pvt. Ltd., which sustained a gross profit rate of 5% on similar bogus purchases. Considering the overall facts, the CIT(A) had concluded that disallowance of 12.5% of the impugned purchases would be reasonable.

The tribunal, in the present case, noted that the assessee had shown a gross profit rate of 0.78% and a net profit rate of 0.02% on a total turnover of Rs. 66,09,62,458. The tribunal held that the tax authorities are entitled to tax only the income component of the disputed transaction to prevent revenue leakage. Therefore, the tribunal concluded that disallowance of 6% of the impugned purchases would be sufficient to meet the possibility of revenue leakage. Respectfully following the binding judgment of the Coordinate Bench, the tribunal partly allowed the appeal of the assessee.

Conclusion:
The tribunal condoned the delay in filing the appeal, dismissed the grounds challenging the validity of the notice under section 148 as not pressed, and partly allowed the appeal by disallowing 6% of the impugned purchases. The appeal of the assessee was partly allowed.

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