2015 (8) TMI 327 - AT - Income Tax

Tribunal Upholds Assessment Reopening & Disallows Purchases

The Tribunal dismissed the assessee's Cross Objection (C.O.) due to failure to adequately explain the delay in filing. The reopening of assessment under ... Condonation of delay in filing cross-objection - reopening of assessment on the basis of reason to believe under section 147 - rejection of books of account as unreliable under section 145(3) - treatment of unverifiable/bogus purchases for assessment - estimation of income by applying past gross/net profit ratesCondonation of delay in filing cross-objection - Whether the delay of 293 days in filing the assessee's cross-objection should be condoned - HELD THAT: - The assessee filed the cross-objection 293 days late and tendered vague affidavits asserting misplacement of a served Form No. 36 by an employee. The assessee failed to provide a day-to-day explanation or specific dates and events during the period of delay and did not discharge the burden of showing sufficient cause. The Tribunal applied principles that delay must be satisfactorily explained on preponderance of probabilities and relied on precedent requiring particularised explanation of delay. On the facts and material on record the condonation petition did not inspire confidence and the Tribunal declined to condone the delay. [Paras 5]Delay of 293 days in filing the cross-objection is not condoned and the cross-objection is dismissed as barred by delay.Reopening of assessment on the basis of reason to believe under section 147 - Validity of reopening assessment for A.Y. 2004-05 under the recorded reasons - HELD THAT: - The Assessing Officer reopened assessment relying on survey material and annexures impounded during survey indicating alleged bogus purchases, and on findings in other assessment years indicating similar irregularities. The Tribunal found that the AO had a prima facie reason to believe that income had escaped assessment because of information from survey and comparable findings in other years; such belief need not be certainty but must be prima facie. The assessee did not controvert the CIT(A)'s findings or establish that the AO lacked any material to form a reason to believe. In these circumstances the Tribunal upheld the reopening. [Paras 6, 8]Reopening of assessment for A.Y. 2004-05 under section 147 is sustained.Rejection of books of account as unreliable under section 145(3) - treatment of unverifiable/bogus purchases for assessment - Whether the Assessing Officer was justified in rejecting the assessee's books of account under section 145(3) on account of unverifiable purchases - HELD THAT: - The Assessing Officer found that purchases from numerous suppliers could not be verified: suppliers were not found at the addresses, summons were returned unserved, and no day-to-day stock records were maintained. The AO placed reliance on established principles that onus lies on the assessee to prove genuineness of purchases and that payment by cheque or presence of formal particulars alone does not establish genuineness. Coordinate decisions in the gems and jewellery trade were noted by the Tribunal and CIT(A) as supporting rejection where purchases are shown to be non-genuine or unverifiable. The assessee also did not take specific grounds before the CIT(A) in the statutory form. On these findings the Tribunal agreed with the CIT(A) that books could be held unreliable and rejection under section 145(3) was justified. [Paras 9, 11]Rejection of books of account under section 145(3) on the ground of unverifiable/bogus purchases is upheld.Estimation of income by applying past gross/net profit rates - treatment of unverifiable/bogus purchases for assessment - Appropriate method and rate for estimating income consequent to unverifiable purchases and the extent of disallowance to be applied - HELD THAT: - The Assessing Officer disallowed 25% of unverifiable purchases and the CIT(A) applied a gross profit rate of 17% on turnover to compute a trading addition. The Tribunal examined precedents of the Bench in gems and jewellery cases and observed that in similar factual situations a 15% disallowance on unverifiable purchases had been applied. Considering consistency with the Tribunal's earlier decision in Shri Anuj Kumar Varshney (ITA No. 187/JP/2012) and the comparative turnover and profit history, the Tribunal concluded that a 15% disallowance on unverifiable purchases is the appropriate measure. The AO was directed to recalculate income applying this rate. [Paras 13, 16]Apply 15% disallowance on unverifiable/bogus purchases; Assessing Officer to recompute income accordingly.Final Conclusion: The cross-objection is dismissed for want of condonation of delay. The reopening of assessment for A.Y. 2004-05 and rejection of books under section 145(3) are upheld. On quantification, the Tribunal directs that a 15% disallowance be applied on unverifiable purchases and the Assessing Officer shall recompute the income accordingly; revenue's appeal is partly allowed. Issues Involved:1. Condonation of delay in filing the Cross Objection (C.O.) by the assessee.2. Validity of assessment framed under Section 147 of the Income Tax Act, 1961.3. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.4. Trading addition by applying Gross Profit (G.P.) rate on unverifiable purchases.Detailed Analysis:1. Condonation of Delay in Filing the Cross Objection (C.O.) by the Assessee:The assessee filed the C.O. belatedly by 293 days, attributing the delay to the misplacement of Form No. 36 by an employee. The assessee argued that this constituted a reasonable cause for the delay. However, the Departmental Representative (DR) opposed this, stating that the delay was not adequately explained and did not conform to general human conduct. The Tribunal found merit in the DR's contentions, noting that the assessee failed to provide specific details or explain the day-to-day delay reasonably. The Tribunal relied on the Madras High Court decision in Madhu Dadha Vs. ACIT and concluded that the delay could not be condoned due to the lack of reasonable and sufficient cause.2. Validity of Assessment Framed Under Section 147:The assessee challenged the reopening of the case under Section 147, arguing that the reasons recorded did not indicate any income escaping assessment. The DR supported the reopening, citing a survey that revealed the assessee had taken bogus bills to inflate purchases. The Tribunal upheld the reopening, noting that the Assessing Officer had a 'reason to believe' that income had escaped assessment based on the survey findings and subsequent verification. The Tribunal referenced the Supreme Court decision in ACIT Vs. Rajesh Jhaweri Stock Brokers (P) Ltd., emphasizing that the Assessing Officer only needed a prima facie belief of escapement of income.3. Rejection of Books of Accounts Under Section 145(3):The assessee argued that complete day-to-day books of accounts were maintained and audited, with all transactions verifiable from supporting documents. The DR contended that the assessee did not take a specific ground before the CIT(A) regarding the rejection of books. The Tribunal found that the assessee did not maintain a stock register and that the books were not reliable, referencing previous decisions in similar cases within the gems and jewellery business. The Tribunal upheld the rejection of books under Section 145(3), aligning with the findings of the CIT(A).4. Trading Addition by Applying Gross Profit (G.P.) Rate on Unverifiable Purchases:The Assessing Officer observed a decline in the G.P. rate and identified bogus purchases. The CIT(A) confirmed the addition by applying a G.P. rate of 17% on the total turnover, resulting in a net addition of Rs. 10,61,214/-. The Tribunal referenced a similar case, Shri Anuj Kumar Varshney Vs. ITO, where a 15% disallowance on unverifiable purchases was applied. The Tribunal directed the Assessing Officer to recalculate the income by applying a 15% disallowance on unverifiable purchases, partially allowing the revenue's appeal and dismissing the assessee's C.O.Conclusion:The Tribunal dismissed the assessee's C.O. due to the failure to adequately explain the delay in filing. The reopening of the assessment under Section 147 was upheld, and the rejection of books under Section 145(3) was justified. The Tribunal directed a 15% disallowance on unverifiable purchases, modifying the CIT(A)'s application of a 17% G.P. rate. The revenue's appeal was partly allowed, while the assessee's C.O. was dismissed.