2017 (1) TMI 1108 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on reassessment & profit addition

The tribunal dismissed the appeal for A.Y. 2009-10, upholding the CIT(A)'s decision on both the reopening of the assessment under Section 147 and the ... Reopening of assessment under section 147 and notice under section 148 - Burden of proof in income tax proceedings - Estimation of income/profit on bogus purchases - Principles of natural justice and cross examination of informants - Best judgment assessment - surrounding circumstances and human probabilities - Disallowance confined to profit element embedded in non genuine purchasesReopening of assessment under section 147 and notice under section 148 - Principles of natural justice and cross examination of informants - Validity of reopening the assessment and service/consideration of reasons recorded for reopening - HELD THAT: - The assessee contended that reopening for A.Y. 2009 10 was invalid and that reasons recorded were not served, with denial of opportunity to cross examine. The Tribunal examined the record and found that these contentions were not raised before the CIT(A) and there is no material to show that reasons recorded were sought from the AO or that cross examination was requested during assessment proceedings. As these matters were neither pleaded nor pursued at the appellate stage below, the Tribunal held them to be factually erroneous and not maintainable before it. The Tribunal accordingly declined to adjudicate afresh on the validity of reopening where the issue was not taken up in the earlier appellate forum. [Paras 5]Grounds alleging invalid reopening and non service of reasons are dismissed as not raised before the CIT(A) and factually untenable.Estimation of income/profit on bogus purchases - Burden of proof in income tax proceedings - Best judgment assessment - surrounding circumstances and human probabilities - Disallowance confined to profit element embedded in non genuine purchases - Sustainability of addition computed as 12.5% profit on alleged bogus purchases amounting to Rs. 41,23,015/- - HELD THAT: - The AO found suppliers to be non existent and treated purchases as bogus; sales and consumption were not disputed. The CIT(A) after reviewing the facts, surrounding circumstances, and relevant precedents, concluded that direct one to one linkage between the impugned purchases and sales was not established and that taxing the profit element embedded in such purchases would meet the ends of justice. Applying judicial authorities on human probabilities, burden of proof and best judgment assessments, the CIT(A) estimated profit at 12.5% of the impugned purchases. The assessee produced no cogent material to rebut these findings. The Tribunal, on appreciation of the record and the CIT(A)'s reasoning, upheld the estimation at 12.5% as a reasonable exercise of discretion in the absence of direct proof of genuineness or nexus. [Paras 6, 7]Addition sustained by restricting disallowance to profit element estimated at 12.5% of the impugned purchases; ground challenging that estimation is dismissed.Final Conclusion: The appeal is dismissed; the CIT(A)'s order for A.Y. 2009 10 is upheld insofar as it restricted the addition to the profit element estimated at 12.5% of the disputed purchases, and grounds challenging reopening were rejected as not raised below. Issues Involved:1. Reopening under section 147 of the Income Tax Act, 1961.2. Addition by estimating the profit at the rate of 12.5% on alleged bogus purchases.Detailed Analysis:1. Reopening under Section 147 of the Income Tax Act, 1961:The assessee contested the reopening of the assessment for A.Y. 2009-10, arguing that the notice under section 148 was issued without valid reasons, and the reasons for reopening were not served to the assessee. The tribunal found that the issue of reopening was not raised before the CIT(A), and there was no evidence that the assessee requested the reasons for reopening from the AO or sought cross-examination of the persons whose statements were relied upon. Consequently, the tribunal dismissed the ground, stating that the grounds were factually erroneous and misleading.2. Addition by Estimating the Profit at the Rate of 12.5% on Alleged Bogus Purchases:The assessee challenged the CIT(A)’s decision to add Rs. 5,15,377/- as estimated profit on alleged bogus purchases of Rs. 41,23,015/-. The CIT(A) had upheld the AO’s findings that the purchases were from non-existent parties and thus bogus. The CIT(A) noted that the assessee failed to produce evidence of transportation or delivery of goods and did not produce the parties for verification. The CIT(A) determined that the profit element embedded in the bogus purchases should be taxed at 12.5%, following precedents from various judicial pronouncements.The tribunal upheld the CIT(A)’s decision, noting that the assessee did not provide any material evidence to counter the findings. The tribunal agreed that since the direct relationship between purchases and sales was not established, taxing the profit element at 12.5% was justified. Consequently, the tribunal dismissed the assessee’s appeal on this ground as well.Conclusion:The tribunal dismissed the appeal for A.Y. 2009-10, upholding the CIT(A)’s decision on both the reopening of the assessment under section 147 and the addition of Rs. 5,15,377/- as estimated profit on bogus purchases. The tribunal found no merit in the assessee’s arguments and confirmed the CIT(A)’s detailed and reasoned order.