2019 (6) TMI 1462 - AT - Income Tax

Tax Tribunal: Adjusts Profit Rate on Alleged Bogus Purchases, Upholds Reassessment Validity

M/s Anmol International Versus ITO-24 (1) (3), Mumbai

M/s Anmol International Versus ITO-24 (1) (3), Mumbai - TMI Issues Involved:1. Binding Precedent2. Assessment Based on Suspicion & Surmises3. Addition of Rs. 1,03,50,862 for Alleged Bogus Purchases4. Reassessment ValidityIssue-Wise Detailed Analysis:1. Binding Precedent:The appellant contended that the CIT(A) failed to follow binding precedents, specifically citing the cases of CIT v. Nikunj Eximp Enterprises (P) Ltd. and Babulal C. Borana. However, the Tribunal did not specifically address this issue in the final judgment, indicating that the primary focus was on the factual matrix of the case rather than the precedential value of the cited cases.2. Assessment Based on Suspicion & Surmises:The appellant argued that the assessment was based on suspicion and surmises, without rejecting the books of accounts. The Tribunal noted that the AO had based his conclusions on the information received from the DGIT(Inv.) and the Maharashtra Sales Tax Department, which indicated that the purchases were from suspicious/hawala dealers. The Tribunal acknowledged that the AO had failed to produce the parties for verification and did not find discrepancies in the books of accounts or evidence of sales outside the books. Thus, the Tribunal found it difficult to accept the AO's conclusion that the purchases were non-genuine solely based on non-appearance of parties in response to notices.3. Addition of Rs. 1,03,50,862 for Alleged Bogus Purchases:The CIT(A) had scaled down the addition made by the AO from 100% of the alleged bogus purchases to 25%, citing the need to tax only the profit element embedded in those purchases. The Tribunal, however, found that the CIT(A) did not bring on record any comparable cases to justify the 25% profit estimation. After considering judicial precedents, the Tribunal deemed it appropriate to further scale down the additions to 12.5% of the alleged bogus purchases. The Tribunal referenced the case of Simit P. Seth vs CIT, where it was held that only the profit element in bogus purchases should be taxed.4. Reassessment Validity:The appellant challenged the validity of the reassessment, arguing that it was based on a change of opinion without tangible material. The Tribunal found that the AO had reopened the assessment based on information from the DGIT(Inv.) and the Maharashtra Sales Tax Department, which suggested escapement of income. Therefore, the Tribunal rejected the appellant's argument, upholding the validity of the reassessment.Conclusion:The Tribunal partly allowed the appeals, directing the AO to estimate a 12.5% profit on the alleged bogus purchases instead of the initial 25% estimated by the CIT(A). The Tribunal upheld the validity of the reassessment, finding that it was based on tangible material suggesting escapement of income. The decision emphasized the need to tax only the profit element embedded in the alleged bogus purchases, aligning with judicial precedents.