ITAT Mumbai: Appellate Tribunal upholds re-opening of assessment based on bogus purchases

The Appellate Tribunal ITAT Mumbai partially allowed the appeal, granting relief on the addition of bogus purchases but dismissing challenges to the validity of re-opening assessment and violation of natural justice. The Tribunal upheld the re-opening of assessment under section 147 of the Act based on tangible post-assessment information indicating income escapement from bogus purchases. Despite the appellant's attempts to prove the genuineness of purchases, discrepancies in evidence and indications of dubious nature led to the Tribunal's decision. The appellant's claims of insufficient opportunity to prove purchases' authenticity were also dismissed.

---

---

Issues:
1. Validity of re-opening of assessment u/s. 147 of the Act.
2. Addition of Rs. 37,20,244/- on account of bogus purchases.
3. Violation of rules of natural justice.

Issue 1: Validity of re-opening of assessment u/s. 147 of the Act:
The appellant challenged the re-opening of assessment under section 147 of the Act based on information received after the original assessment was completed. The Assessing Officer re-opened the assessment due to specific information indicating income escapement from bogus purchases made by the appellant. The appellant failed to conclusively prove the genuineness of purchases from a party identified as a hawala operator. The Tribunal held that the re-opening was valid as there was tangible material available post-original assessment, justifying the belief of income escapement. The Tribunal dismissed the appellant's challenge on this ground.

Issue 2: Addition of Rs. 37,20,244/- on account of bogus purchases:
The appellant contested the addition of Rs. 37,20,244/- on the grounds of producing evidence such as purchase invoices, delivery challans, and payment details. However, the Assessing Officer found discrepancies in the evidence provided, including lack of proof of transportation and delivery of goods. The Tribunal noted that the appellant failed to provide conclusive evidence of the purchases' genuineness, and there were indications from the DGIT (Inv) and Sales Tax Department regarding the party's dubious nature. The Tribunal allowed a relief of 12.5% of the disputed amount, considering the profit element in the bogus purchases.

Issue 3: Violation of rules of natural justice:
The appellant raised the issue of violation of natural justice rules, alleging inadequate opportunity to prove the genuineness of purchases. The Tribunal found that the appellant had sufficient opportunity to substantiate the purchases but failed to do so effectively. Notices and summons to the concerned party remained unserved, and the appellant could not establish the purchases' authenticity. Therefore, the Tribunal dismissed the appellant's claim of a violation of natural justice.

In conclusion, the Tribunal partly allowed the appeal, granting relief on the addition of bogus purchases while dismissing challenges to the validity of re-opening assessment and violation of natural justice. The decision was pronounced on 12th September 2018 by the Appellate Tribunal ITAT Mumbai, with detailed analysis provided for each issue raised in the appeal.

---