2017 (3) TMI 1731 - AT - Income Tax

Validity of assessment reopening upheld, non-genuine purchases disallowed, appeal allowed.

The ITAT upheld the validity of reopening the assessment under section 147 but reversed the addition of non-genuine purchases made from the RKG group, ... Reopening assessment on valid grounds - treatment of purchases as non-genuine / unexplained purchases - onus of positive material for making additions - opportunity to cross-examine witness relied upon - reliance on survey proceedings / statements of third-party suppliersReopening assessment on valid grounds - reliance on survey proceedings / statements of third-party suppliers - Validity of reopening the assessment by issuance of notice under reassessment provisions in view of information received about survey proceedings. - HELD THAT: - The Tribunal found that the Assessing Officer did not possess the information about statements recorded during the survey at the time of original assessment under section 143(3). The AO received new information about survey action at the suppliers' premises and statements of the supplier which disclosed the modus operandi of issuing accommodation bills. On receiving this new material the AO was justified in issuing the notice under the reassessment provisions. The First Appellate Authority's confirmation of reopening was accordingly upheld. [Paras 4]Reopening of assessment held valid and confirmation of issuance of notice under reassessment provisions upheld.Treatment of purchases as non-genuine / unexplained purchases - onus of positive material for making additions - opportunity to cross-examine witness relied upon - Whether additions disallowing a portion of purchases (10% of disputed purchases) on the ground that purchases were non-genuine could be sustained. - HELD THAT: - The Tribunal noted the FAA had accepted that sales and closing stock details of the assessee were not in doubt, that no meaningful further investigation was conducted after the survey, and that the supplier had retracted his statements. The assessee had filed material including supplier confirmations and ledger copies and had sought cross-examination of the supplier which did not take place. In these circumstances, absent positive material demonstrating unaccounted purchases or leakage, the imposition of an addition on the basis of general survey statements was not justified. The FAA's restrictive addition of 10% was found to be without adequate foundation and was reversed. [Paras 4]Addition of 10% of purchases rejected; no addition sustained in view of lack of positive material and procedural opportunity to cross-examine the supplier.Final Conclusion: Reopening of assessment was upheld as valid on receipt of new information from survey proceedings, but the addition made on account of allegedly non-genuine purchases was reversed for want of positive material and in view of procedural shortcomings; the assessee's appeal is allowed. Issues:1. Validity of reopening assessment under section 147 of the Act.2. Addition of non-genuine purchases made from a group of concerns.Analysis:Issue 1: Validity of reopening assessment under section 147 of the ActThe Appellant, a company engaged in trading, challenged the order of the CIT(A) regarding the assessment completed by the Assessing Officer (AO) under section 143(3) r.w.s. 148 of the Act. The AO determined the income of the Appellant at a higher amount than declared. The Appellant objected to the addition made by the AO, claiming the purchases were genuine. The AO relied on the statement of RKG, who admitted to issuing accommodation bills, and made an addition to the Appellant's income. The FAA upheld the AO's decision to reopen the assessment under section 147. The ITAT found that the AO was justified in issuing the notice under section 148 after learning new facts from the survey action at RKG's business premises. Consequently, the ITAT decided the 1st ground of appeal against the Appellant.Issue 2: Addition of non-genuine purchases made from a group of concernsRegarding the addition of non-genuine purchases made from RKG group, the FAA had upheld the addition of 10% of the disputed purchases. However, the ITAT disagreed with this decision. The ITAT noted that there was no doubt about the sales made by the Appellant, and the quantity details of sales and closing stock were not challenged. Without positive material to prove unaccounted purchases, the ITAT found no justification for the addition. RKG retracted his statements, leading the ITAT to reverse the FAA's decision and decide the second ground of appeal in favor of the Appellant. As a result, the appeal filed by the Appellant was allowed.In conclusion, the ITAT upheld the validity of reopening the assessment under section 147 but reversed the addition of non-genuine purchases made from the RKG group, ultimately allowing the appeal filed by the Appellant.