9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (12) TMI 25 - AT - Income TaxReopening of assessment u/s 147 - Addition of non-genuine and merely accommodation entries - assessment was reopened within 4 years from the end of the assessment year - assessee was named as beneficiary of the accommodation entries towards bogus purchases from said company namely Sampada Chemicals Limited - HELD THAT - We do not find any merit in the contention of the assessee that reopening of the assessment was not validly made nor it could be said that there is no application of mind by the AO before reopening of the concluded assessment in the case of the assessee, as the AO after receipt of information from DDIT, Inv. , Mumbai made its own enquiries before reopening of the assessment u/s 147 in the case of the assessee . There was a live nexus between the incriminating material available with the AO and reasons to believe that income of the assessee has escaped assessment, as at the time of reopening , the sufficiency of material to conclusively prove that income has escaped assessment is not required but a prima-facie view is required based on material on record having live nexus with formation of reasons to believe that income has escaped assessment. Thus, it is not a case of borrowed satisfaction , but there was application of mind by the AO also as he made enquiries after receipt of material from DDIT, Inv., Mumbai , and then arrived at the decision that income of the assessee has escaped assessment based on incriminating material available with the AO and it is a fit case which warrant invocation of Section 147. Denial of natural justice - There is a breach of principles of natural justice as copies of statements as well other relied upon incriminating material ought to have been provided by AO to the assessee, before condemning assessee and saddling with tax liabilities. Further, before prejudicing assessee and saddling with tax liability , the said Mr. Vipul Vidur Bhatt ought to have been offered by Revenue for cross examination by the assessee. If the AO did not do so, it was incumbent on ld. CIT(A) to have provided the copies of relied upon documents including statement of Mr. Vipul Vidur Bhatt as well offered said Mr. Vipul Vidur Bhatt for cross examination by the assessee. Right of cross examination is a valuable right but at the same time the said right is not absolute. It will depends upon the factual matrix of the case. Fair hearing as well adherence to principles of natural justice are the two important pillars in robust judicial delivery system. The Revenue has also not brought on record as to the manner in which assessments were framed in the case of Mr. Vipul Vidur Bhatt as well in the case of M/s Sampada Chemicals Limited, and whether finality was achieved in the tax-proceedings against them under the 1961 Act. The fresh confirmation letters post search, affidavits from the said company, production of the responsible functionaries of the said company Sampada Chemicals Limited before authorities, the Audited Accounts of Sampada Chemicals Limited for the relevant period etc. could have been produced by the assessee to prove that purchases were genuine, as discovery of the incriminating material during search and post search enquiries have cast serious doubt on the purchases made by the assessee from said company. There could be several reasons for arranging bogus accommodation entries towards bogus purchases, which could be to suppress profits and evade taxes, or to arrange for the invoices at higher value to reflect purchases in the books of accounts etc. so on and so forth. Estimation of income on bogus purchases - It will be fair that profit element embedded in the aforesaid purchase @12.5% be brought to tax instead of bringing to tax the entire purchase price as the assessee had produced purchase register, consumption register but no defect per-se in consumption of Sodium Alginate(Textile Grade) was pointed out by the AO or by ld. CIT(A), which lead to the conclusion that the purchases of Sodium Alginate(Textile Grade) were made by the assessee from some other suppliers but the bogus invoices were taken from Sampada Chemicals Limited to suppress the profits , and end of justice will be met if profit embedded in these purchases are estimated @12.5% which shall be brought to tax. Thus, the assessee gets part relief, wherein additions to the tune of Rs. 5,21,347/- are sustained. The estimation requires some guess work, but the same has to be reasonable, fair and honest, which we hold that 12.5% estimated profit embedded in purchases as held by us to be added to the income of the assessee is fair, reasonable and honest. The reference is drawn to the decision of Hon ble Supreme Court in the case of Kachwala Gems v. JCIT, Jaipur 2006 (12) TMI 83 - SUPREME COURT Decided partly in favour of assessee.
Issues Involved:
1. Validity of reassessment under Section 147 of the Income-tax Act, 1961. 2. Disallowance of Rs. 41,70,774/- as bogus purchase. 3. Alternative claim for restricting disallowance to Rs. 37,66,550/-. 4. Alternative claim for adding only the percentage of gross profit instead of the entire purchase amount. Summary: Issue 1: Validity of Reassessment under Section 147 The appellant challenged the reassessment under Section 147, arguing that there was no reason to believe that income had escaped assessment and that the reassessment was based on borrowed satisfaction from the Investigation Wing. The Tribunal held that the reopening was valid as the AO had received specific information from the Investigation Wing about bogus accommodation entries and had applied his own mind before reopening the assessment. The Tribunal found a live nexus between the incriminating material and the reasons to believe that income had escaped assessment. Issue 2: Disallowance of Rs. 41,70,774/- as Bogus Purchase The AO disallowed Rs. 41,70,774/- as bogus purchases from Sampada Chemicals Limited, based on the statement of Mr. Vipul Vidur Bhatt, who admitted to providing bogus accommodation entries. The CIT(A) upheld the disallowance. The Tribunal noted that the assessee provided invoices, transport receipts, and bank statements to support the genuineness of the purchases. However, the Tribunal found that the principles of natural justice were breached as the assessee was not provided with the incriminating material or allowed to cross-examine Mr. Vipul Vidur Bhatt. Issue 3: Alternative Claim for Restricting Disallowance to Rs. 37,66,550/- The assessee argued that if any disallowance is to be made, it should be restricted to Rs. 37,66,550/-, the amount of actual purchases from Sampada Chemicals Limited. The Tribunal observed that the AO made an error in adding both the debit and credit entries, leading to double addition. The CIT(A) corrected this by restricting the addition to Rs. 41,70,774/-. Issue 4: Alternative Claim for Adding Only the Percentage of Gross Profit The assessee contended that only the profit element embedded in the bogus purchases should be added to the income. The Tribunal agreed, citing the Gujarat High Court's decision in CIT v. Simit P. Sheth, and held that only the profit element embedded in the purchases should be brought to tax. The Tribunal estimated the profit element at 12.5% of the purchase amount, resulting in an addition of Rs. 5,21,347/-. Conclusion: The Tribunal partly allowed the appeal, holding that the reassessment was valid, but only the profit element embedded in the bogus purchases should be added to the income, estimating it at 12.5% of the purchase amount. The final addition was Rs. 5,21,347/-.
|
