2024 (3) TMI 148 - AT - Income Tax

Reopening of assessment - reason to believe - bogus purchases - information made available to him by the Investigation Wing from third person - HELD THAT - We observe that based on information gathered in the course of search in the case of Jain and Choudary Group, a detailed and comprehensive information was supplied to the Assessing Officer herein. The Investigation Wing had relied upon the statement of various persons in the group search cases wherein it was categorically asserted that the supplier M/s. Kriya is not engaged in any real business and no physical goods were supplied by such entity to any party named in their books. The name of the assessee company figured in books of accounts and the assessee has shown to have obtained supply from such entity. These incriminating facts have emerged in the reasons recorded. Therefore, the reasons recorded are specific in nature and reliable in character. AO has applied his mind properly and has given his independent finding which fact is manifest from the bare reading of the reasons recorded. We thus see no substance in the arguments propped up on behalf of the assessee to assail the validity of assumption of jurisdiction. The challenge to assumption of jurisdiction thus fails. Estimation of income - bogus purchases - CIT(A) has erred in restricting the addition to the extent additional gross profit at 5% of addition made u/s 69C - Where the parties to whom the purchase of diamonds in question have been sold, is not known, one cannot say that the onus which lay upon the assessee has been fully discharged. The bona fides of the supplier Kriya Impex Pvt. Ltd. has been put under serious question by the Investigation Wing. The corresponding purchases of the so called supply made by Kriya Impex Pvt. Ltd. is also not known. Therefore, the action of the CIT(A) in resorting to some reasonable estimation based on the value of diamond stated to have been purchased from Kriya Impex Pvt. Ltd. is quite justified. Without reiteration of reasonings of CIT(A), we see no error in the action of the CIT(A). Hence, the appeal of the Revenue as well as Cross Objection of the assessee challenging the action of the CIT(A) towards estimated additions deserves to be dismissed.

Summary

Issues Involved:
1. Validity of jurisdiction under Section 147/148 of the Income Tax Act.
2. Merits of disallowance towards bogus purchases.
3. Rejection of books of account under Section 145(3) and estimation of turnover and net profit.

Summary:

1. Validity of Jurisdiction under Section 147/148 of the Income Tax Act:
The Revenue reopened the assessment based on information from a search operation on Rajendra Jain Group, identifying the assessee as a beneficiary of bogus accommodation entries. The assessee challenged the jurisdiction under Section 147 r.w. Section 148, arguing that the proper course of action should have been under Section 153C. The Tribunal held that the Assessing Officer (AO) had valid reasons to believe that income had escaped assessment, based on tangible material from the investigation. The Tribunal referenced the case of Shailesh S. Patel vs. ITO, noting that Section 147 can be invoked independently of Section 153C. The Tribunal found no merit in the assessee's argument that the AO failed to apply his mind independently, and upheld the validity of the jurisdiction assumed under Section 147.

2. Merits of Disallowance towards Bogus Purchases:
The AO made an addition of Rs. 65,20,152/- based on the investigation report, which identified the purchases from M/s Kriya Impex Pvt. Ltd. as bogus. The CIT(A) restricted the addition to 5% of the disputed purchases, estimating an additional gross profit of Rs. 3,26,008/-. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide sufficient evidence to support the full disallowance and that the CIT(A)'s estimation was reasonable given the circumstances.

3. Rejection of Books of Account under Section 145(3) and Estimation of Turnover and Net Profit:
The AO rejected the assessee's books of account, estimating a higher turnover and net profit. The CIT(A) found that the AO's reasons for rejecting the books were not substantiated and that the AO failed to provide a rationale for the estimated figures. The Tribunal agreed with the CIT(A), noting that the AO's approach was arbitrary and not supported by evidence. The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, affirming the CIT(A)'s order.

Conclusion:
The Tribunal dismissed both the appeals of the Revenue and the cross-objections of the assessee, upholding the CIT(A)'s decision to restrict the addition to 5% of the disputed purchases and rejecting the AO's estimation of turnover and net profit. The Tribunal found that the AO had validly assumed jurisdiction under Section 147, and that the CIT(A)'s estimation of additional gross profit was reasonable.