2023 (1) TMI 19 - AT - Income Tax

Addition u/s 69C - Bogus purchases - assessee submitted as relying on assessee own case disallowance can be restricted to 5% in the present case also - HELD THAT - AO has treated the purchases from certain parties as non-genuine and added back the entire amount to the income of the assessee. However, it appears on record that before the Assessing Officer the assessee has furnished the details of sales quantitative tally of purchase and sales etc. Therefore, the fact that the assessee had purchased the goods from some source is established. In such a situation, the entire purchase cannot be disallowed but the disallowance can be restricted to the profit element embedded in such purchases. In fact, adopting this approach in some other assessment years the AO in assessee s own case has restricted the disallowance to 5% in respect of purchases made from very same parties. The same yard-stick can be applied in the impugned assessment year as well. Therefore, direct the AO to restrict the disallowance to 5% of the total purchases - These grounds are partly allowed.

Summary

Issues involved:
Appeal against order of CIT (Appeals) for assessment year 2010-11 - Jurisdiction of AO in framing reassessment order u/s 143(3)/147 - Validity of reassessment proceedings - Aggregate addition u/s 69C on purchases - Charging of interest u/s 234B and 234C.

Analysis:
1. The appeal was filed against the order of the CIT (Appeals) for the assessment year 2010-11. The primary contention raised was regarding the jurisdiction of the Assessing Officer (AO) in framing the reassessment order under sections 143(3)/147. The appellant argued that the AO did not assume jurisdiction as per law, and the reassessment should have been completed under section 153C instead of section 147. Additionally, objections raised by the assessee regarding the reopening were not disposed of in accordance with the law. The appellant also challenged the validity of the reassessment proceedings based on various conditions stipulated under sections 147 to 151.

2. The next issue focused on the aggregate addition of Rs.41,83,821/- under section 69C on purchases made from specific parties mentioned in the reassessment order. The appellant contended that the AO and the CIT (Appeals) erred in confirming the addition without providing the opportunity for cross-examination, disregarding submissions and evidence, and not following the principles of natural justice. The appellant argued that the addition was made based on incorrect facts and findings.

3. Another issue raised was the charging of interest under sections 234B and 234C of the Income Tax Act, 1961. The appellant claimed that the CIT (Appeals) erred in not reversing the AO's decision to charge interest under these sections. However, during the hearing, the appellant's counsel decided to argue only on the merits of the addition of Rs.41,83,821/- under section 69C and not on other grounds, leading to the dismissal of all other grounds except ground Nos. 3 & 4.

4. The facts revealed that the AO reopened the assessment under section 147, alleging non-genuine purchases made by the assessee. Despite the assessee providing documentary evidence, the AO remained unconvinced and added back the entire amount of Rs.41,83,821/- under section 69C. The appellant argued for a restriction on the disallowance to 5%, citing similar approaches adopted by the AO in other assessment years concerning purchases from the same parties.

5. After considering the arguments and perusing the evidence, the Judicial Member directed the AO to restrict the disallowance to 5% of the total purchases, amounting to Rs.41,83,821/-. The decision was based on the principle that the disallowance should be limited to the profit element embedded in the purchases, as evidenced by the sales quantitative tally provided by the assessee in support of the genuine nature of the transactions. The appeal was partly allowed based on this analysis.

6. In conclusion, the judgment addressed multiple issues related to the jurisdiction of the AO, validity of reassessment proceedings, aggregate addition on purchases, and charging of interest under specific sections of the Income Tax Act. The decision provided a detailed analysis of the facts, contentions raised, and legal principles applied to arrive at a partially allowed appeal outcome.