2019 (2) TMI 1954 - AT - Income Tax

Tribunal Upholds Income Tax Reopening, Rejects Bogus Purchase Addition

The Tribunal dismissed the appeal regarding the jurisdiction of notice under section 148 of the Income Tax Act, upholding the reopening of assessment ... Reopening of assessment u/s 147 - whether no fresh material before the AO warranting reopening? - HELD THAT:- AO reopened the assessment which was processed u/s 143(1) of the Act. In the case of Rajesh Jhaveri Stock Brokers P. Ltd. [2007 (5) TMI 197 - SUPREME COURT] held that intimation u/s 143(1)(a) is not an assessment and held valid the notice issued u/s 148. In the case of Kone Elevator India P. Ltd.[2011 (3) TMI 1340 - MADRAS HIGH COURT], CIT v. Ideal Garden Complex P. Ltd. [2011 (9) TMI 731 - MADRAS HIGH COURT]it is held that in the case of return of income processed u/s 143(1), the only condition to be satisfied for reopening is taxable income has escaped assessment and the assessee’s plea that no fresh material before the AO warranting reopening, is not relevant. Estimation of income on bogus purchases - HELD THAT:- We find that once the onus shifted to the AO, instead of verifying those details, he has jumped into an estimation which is uncalled for. Similarly, there is no merit in the order of the Ld. CIT(A) restricting the disallowance to 3% of such purchases - we set aside the order of the Ld. CIT(A) restricting the disallowance to 3% of such purchases and allow the 2nd ground of appeal. Issues:1. Jurisdiction of notice under section 148 of the Income Tax Act.2. Addition to the tune of Rs. 2,81,572 as 3% of purchases deemed bogus.Analysis:Issue 1: Jurisdiction of notice under section 148 of the Income Tax Act- The assessee appealed against the notice issued under section 148 of the Act, challenging its jurisdiction. The AO reopened the assessment based on information revealing accommodation entries provided by certain parties. The AO treated the profit embedded in these entries as the assessee's income, estimating it at 8% of the total amount. The CIT(A) upheld the reopening citing the decision in ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. The Tribunal noted that as per legal precedents, the only condition for reopening an assessment processed under section 143(1) is the escapement of taxable income, regardless of fresh material before the AO. The Tribunal dismissed the appeal on this issue.Issue 2: Addition to the tune of Rs. 2,81,572 as 3% of purchases deemed bogus- The AO estimated the profit embedded in the alleged bogus purchases at 8% of the total amount, leading to an addition of Rs. 7,50,859. The CIT(A) reduced this addition to 3% of the purchases, relying on industry norms and recommendations for profit margins in the diamond trading sector. The assessee provided corroborative evidence to support the genuineness of the transactions, including purchase invoices, financial statements, and payment details. The Tribunal observed that the AO did not adequately consider the evidence submitted by the assessee and instead relied on a statement without mentioning the assessee's name. The Tribunal found the AO's estimation unwarranted and set aside the CIT(A)'s order, allowing the appeal on this issue.In conclusion, the Tribunal partially allowed the appeal, setting aside the CIT(A)'s order restricting the disallowance and allowing the assessee's appeal against the addition based on alleged bogus purchases.