2018 (2) TMI 1957 - AT - Income Tax

Tribunal invalidates tax reassessment, upholds part of disallowance, assessee wins on bogus purchases

The Tribunal set aside the reassessment notice issued under Section 148 of the Income Tax Act, as it was found to be invalid due to lack of concrete ... Reopening of assessment u/s 147 - bogus purchases - Assessing Officer received the information from Sales Tax Department -HELD THAT:- Assessing Officer was not having any information at that time because the Assessing Officer received the information from DGIT(Inv.), Mumbai vide letter dated 26.02.2013. When the Assessing Officer was not having any information as on 15.02.2013, therefore, it is strange in which circumstances, the Assessing Officer issued the present notice on the information received through letter dated 26.02.2013 as on date 15.02.2013. The personal knowledge of the Assessing Officer could not be the ground to invoke the proceeding u/s 147/148 of the I.T. Act. Therefore, in the said circumstances the noticed doesn’t seems to be legal. It is held in the case of CIT Vs. Kurban Hussain Ibrahimji Mithiborwala [1971 (9) TMI 9 - SUPREME COURT] that the notice issued for any invalid reason makes the proceeding void an without jurisdiction - Since the notice is not justifiable and is not in accordance with law, therefore, we set aside the notice u/s 147/148 of the Act. Accordingly, this issue is being decided in favour of the assessee against the revenue. Bogus purchases - addition confirmed by CIT(A) @ 6% - HELD THAT:- In the instant case, when the assessee has adduced the sufficient evidence on record which has been discussed above, therefore, in the said circumstances, we are of the view that the no addition is required to be made on account of bogus purchase. Non service of noticed is not a ground to raise the addition of bogus purchase to the income of the assessee in view of the law settled in CIT Vs. M/s. Nikunj Eximp Enterprises P. Ltd. [2013 (1) TMI 88 - BOMBAY HIGH COURT] On seeing the above facts and circumstances of the present case and in view of the law settled relied by the Ld. Representative of the assessee, we are of the view that the no addition is required to be raised in the instant case. We ordered accordingly, we decide this issue in favour of the assessee Disallowance of the television expenses, vehicle expenses, conveyance expenses, office & staff welfare expenses - AO restricted the addition to the extent of 10% on the basis of personal element - HELD THAT:- At the time of the argument the Ld. Representative of the assessee nowhere produced any other cogent evidence in support of his claim. On account of non producing the sufficient evidence in support of the claim, we are of the view that the CIT(A) has rightly restricted the claim to the extent of 10% of the expenses of ₹ 1,34,474/-. Therefore, this issue is being decided in favour of the revenue against the assessee. Issues Involved:1. Validity of the reassessment notice issued under Section 148 of the Income Tax Act.2. Disallowance of 6% amounting to Rs. 4,27,338/- in respect of certain purchases alleged to be bogus.3. Disallowance of 10% amounting to Rs. 13,447/- in respect of business expenses treated as personal in nature.Issue-wise Detailed Analysis:Issue 1: Validity of the Reassessment Notice Issued Under Section 148 of the Income Tax ActThe assessee challenged the validity of the notice issued under Section 148, arguing that the notice was issued on 15.02.2013, while the information from the Sales Tax Department was received on 26.02.2013. This discrepancy indicated that the Assessing Officer (AO) did not have concrete reasons to believe that income had escaped assessment at the time of issuing the notice. The Tribunal found that the AO did not have any information as of 15.02.2013, making the issuance of the notice legally untenable. Citing the Supreme Court's ruling in CIT Vs. Kurban Hussain Ibrahimji Mithiborwala (1971) 82 ITR 821 (SC) and GKN Driveshafts (India) Ltd. Vs. DCIT (2003) 259 ITR 19 (SC), the Tribunal held that the notice issued for invalid reasons makes the proceeding void and without jurisdiction. Consequently, the notice under Section 147/148 was set aside, and this issue was decided in favor of the assessee.Issue 2: Disallowance of 6% Amounting to Rs. 4,27,338/- in Respect of Certain Purchases Alleged to Be BogusThe assessee contested the addition of 6% of the alleged bogus purchases, arguing that the AO and CIT(A) did not consider the evidence provided. The assessee submitted various documents, including ledger accounts, confirmation of accounts by suppliers, purchase and sales invoices, delivery challans, and bank statements highlighting payments made to the alleged hawala parties. The Tribunal noted that the AO had issued notices under Section 133(6) to the parties involved, but these notices were not served, and the parties were not found at the given addresses. Despite this, the Tribunal found that the assessee had provided sufficient evidence to support the genuineness of the transactions. Citing CIT Vs. M/s. Nikunj Eximp Enterprises P. Ltd. 2016 taxman.com 171 (Bombay High Court), the Tribunal concluded that non-service of notice does not invalidate the claim of the assessee. Thus, the Tribunal decided that no addition was required on account of bogus purchases and ruled in favor of the assessee.Issue 3: Disallowance of 10% Amounting to Rs. 13,447/- in Respect of Business Expenses Treated as Personal in NatureThe assessee challenged the disallowance of 10% of business expenses, arguing that sufficient evidence was provided to support the claim. However, the AO had restricted the addition to 10% based on the personal element involved. During the proceedings, the assessee could not produce any additional cogent evidence to support the claim. The Tribunal upheld the CIT(A)'s decision to restrict the claim to 10% of the expenses amounting to Rs. 1,34,474/-, thus deciding this issue in favor of the revenue.ConclusionThe Tribunal partly allowed the appeal filed by the assessee, setting aside the reassessment notice and disallowance of bogus purchases, but upheld the disallowance of 10% of business expenses. The appeal filed by the revenue was dismissed. The order was pronounced in the open court on 21.02.2018.