2016 (6) TMI 527 - AT - Income Tax

Tribunal validates assessment reopening but orders reassessment on profit estimation for bogus purchases

H.V. Goradia (HUF) Versus ITO, Circle-32 (1) (5), Mumbai

The tribunal upheld the validity of the assessment reopening based on information revealing non-genuine purchases. However, it directed a reassessment of ... Validity of reopening of assessment u/s. 147 of the Act - Held that:- We are unable to agree with the contentions of the assessee with regard to the issue relating to validity of reopening of assessment. We notice that the assessing officer has received information from the investigation wing on the basis of search conducted by the sales tax authorities. The parties from whom the assessee has claimed to have purchased goods have admitted before the sales tax authorities that they have given only accommodation bills without actually supplying goods. In our view, this information received by the AO was sufficient to form belief that there was escapement of income. In our view, it cannot be said that the assessing officer has reopened the assessment in a mechanical manner. Accordingly we uphold the order of Ld CIT(A) passed on this issue. - Decided against assessee Addition of gross profit at 30% of non-genuine purchases - Held that:- AO has not given any basis for adopting the profit rate at 30%. Since the assessee was contending that the purchases were genuine one, it did not have an opportunity to advance its arguments with regard to the rate of 30% adopted by the AO. Accordingly, we are of the view that the assessee should be provided with an opportunity to advance its arguments on the rate of profit estimated by the AO. Accordingly we set aside this matter relating to estimation of profit from bogus purchases to the file of the AO with the direction to decide the same afresh, after affording opportunity of being heard to the assessee. The order of Ld CIT(A) passed on this issue stands modified accordingly. - Decided in favour of assessee by way of remand. Issues:1. Validity of reopening of assessment u/s. 147 of the Act.2. Confirming the addition of gross profit at 30% of non-genuine purchases.Validity of Reopening of Assessment:The assessee challenged the reopening of assessment, arguing that it was done mechanically without proper inquiries. The assessing officer received information that parties from whom the assessee claimed to have purchased goods provided only accommodation bills. The tribunal found this information sufficient to establish an escapement of income, upholding the validity of the reopening of assessment. The tribunal rejected the contention that the assessment was reopened mechanically, citing the information received from the investigation wing.Addition of Profit on Non-Genuine Purchases:The assessing officer estimated profit on alleged bogus purchases at 30% due to lack of evidence provided by the assessee. The assessee contended that payments were made through account payee cheques and that gross profit rates were consistent with previous years. The tribunal noted that the assessing officer conducted inquiries, issued notices, and the assessee failed to provide necessary documentation. The tribunal upheld the rejection of the books of account due to lack of evidence for purchases. However, the tribunal found the assessing officer did not provide a basis for the 30% profit rate estimation. Consequently, the tribunal directed the AO to reassess the profit estimation after affording the assessee an opportunity to present arguments on the rate adopted.The tribunal upheld the validity of the reopening of assessment based on information received regarding non-genuine purchases. However, it directed a reassessment of the profit estimation on bogus purchases due to the lack of a clear basis provided by the assessing officer.