2018 (7) TMI 1843 - AT - Income Tax

Tribunal upholds reassessment under Income Tax Act, disallows non-genuine purchases. Interest & penalty proceedings initiated.

Smt. Neeta Sanjay Shah Prop. M/s Prime Industries, Versus ITO 26 (2) (3), Mumbai

The Tribunal upheld the reassessment proceedings under Section 147 of the Income Tax Act, citing new material from external agencies as valid grounds for ... Reopening of assessment - bogus purchases - Proof of new material - reason to believe - basis of information received from external agencies like sales-tax department and DGIT (Inv) - Held that:- Admittedly, the AO has reopened assessment on the basis of information received from DGIT(Inv) which was further supported by information received from sales-tax department as per which, the list prepared by MVAT department contained certain parties who were involved in providing accommodation entries. AO has reopened assessment on the basis of said information received from the external agencies which constitutes fresh material for the purpose of formation of reasonable belief of escapement of income. Therefore there is no merit in the argument of the assessee that the assessment has been reopened without there being any new material which amounts to change of opinion. Accordingly, we reject ground taken by the assessee challenging validity of reopening of assessment. Addition towards estimation of net profit on alleged bogus purchases it is an admitted fact that the assessee has made purchases from certain parties, who were appearing in the list of suspicious dealers / hawala operators prepared by sales-tax department. It is also an admitted fact that notices issued u/s 133(6() to such parties returned unserved with the remark “left or not known”. At the same time, the assessee also filed certain basic evidences like purchase bills and bank details for having made payment by account payee cheques. Under these circumstances, it is very difficult to accept that purchases from the above parties are genuine in nature and supported by proper evidence. Having said so, let us examine the profit estimated by the AO. The co-ordinate benches of Tribunal in a number of cases has taken a consistent view and held that 12.5% profit estimation on alleged bogus purchases is fair and reasonable - thus we are of the considered view that the AO was right in estimating 12.5% profit on alleged bogus purchases. - Decided against assessee. Issues Involved:1. Validity of the reassessment proceedings under Section 147 of the Income Tax Act.2. Legitimacy of the disallowance of Rs. 6,46,545/- as non-genuine purchases.3. Appropriateness of charging interest under Sections 234A, 234B, 234C & 234D and initiation of penalty under Section 271(1)(c).Issue-wise Detailed Analysis:1. Validity of the reassessment proceedings under Section 147 of the Income Tax Act:The assessee challenged the reopening of the assessment on the grounds that it was based on a mere change of opinion without any new material. The CIT(A) upheld the reassessment, stating that the AO had validly reopened the assessment based on new information from the DGIT (Inv) and the sales-tax department, which constituted fresh material. The Tribunal agreed with the CIT(A), noting that the AO had reopened the assessment based on credible information from external agencies, thus forming a reasonable belief of income escapement. The Tribunal concluded that the reopening was justified and dismissed the assessee's challenge on this ground.2. Legitimacy of the disallowance of Rs. 6,46,545/- as non-genuine purchases:The AO disallowed Rs. 6,46,545/- as non-genuine purchases, estimating a 12.5% profit margin on total purchases of Rs. 51,72,357/- from suspicious dealers. The assessee argued that the purchases were genuine, supported by purchase bills and payments made via A/C payee cheques. However, the AO found that the parties were hawala operators and the notices sent to them returned unserved. The CIT(A) upheld the AO's decision, referencing the Gujarat High Court's decision in CIT vs Simit P Sheth, which supported taxing the profit element embedded in such purchases. The Tribunal agreed, noting that various courts and tribunals have consistently upheld a profit estimation of 12.5% in similar cases. The Tribunal found the AO's estimation fair and reasonable, thus upholding the CIT(A)'s order and dismissing the assessee's appeal on this ground.3. Appropriateness of charging interest under Sections 234A, 234B, 234C & 234D and initiation of penalty under Section 271(1)(c):The AO charged interest under Sections 234A, 234B, 234C & 234D and initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income and concealing income. The CIT(A) confirmed these actions. The Tribunal did not find any error in the CIT(A)'s order and upheld the decision, thus dismissing the appeal on this ground as well.Conclusion:The Tribunal dismissed the assessee's appeal in its entirety, upholding the reassessment proceedings, the disallowance of non-genuine purchases, and the charging of interest and initiation of penalty. The Tribunal found the AO's actions justified and supported by legal precedents, thereby affirming the CIT(A)'s order.