2017 (4) TMI 1103 - AT - Income Tax

Tribunal Upholds Income Tax Notice Validity, Dismisses Appeal

Shri Suresh L. Satyani Versus Income Tax Officer 23 (3) (4), Mumbai

The Tribunal upheld the validity of the notice issued under Section 148 of the Income-tax Act, 1961, based on tangible incriminating information, ... Reopening of assessment - addition to income to the tune of 9% of the purchase - benami transactions - Held that:- On the basis of information received and if the assessing officer is satisfied that reasonable ground exists to believe, then in that case the power of the assessing authority extends to re-opening of assessment, which in the instant case the conditions are duly met for reopening based on factual matrix of the case. The tangible and material incriminating information so received by the AO from DIT(Inv.), Mumbai as detailed above is so obvious that to say that the AO has not applied his mind to reach satisfaction in forming reasons to believe that income of assessee has escaped assessment to initiate re-opening u/s 147 of 1961 , is too farfetched and such contention of the assessee is out-rightly rejected. There is live link between material and tangible incriminating information received by the assessee and formation of reasons to believe that income of the assesse has escaped assessment in the instant case under appeal before us. Thus, Respectfully following the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited (2007 (5) TMI 197 - SUPREME Court) we hold that reopening of the assessment as done in the instant case by the AO u/s 147 of 1961 was valid and legal which is upheld by us , and the contentions of the assessee are , hereby, rejected. We have observed that notice u/s 133(6) of the Act were issued by the A.O. to four benami concerns of Mr Bhanwarlal Jain from whom the assessee allegedly obtained bogus bills for purchase of diamonds against which they only gave part replies. The assessee failed to produce these four parties before the AO despite being called upon by Revenue to produce them. The assessee also could not prove the movement of material so purchased from these alleged entry providers. These are information which are especially in the knowledge of the assessee and the onus is on the assessee to prove that purchases made by him are genuine as these purchases are recorded in the books of accounts of the assessee. In the instant case learned CIT(A) made an honest attempt to estimate net margin on total turnover by adding to income 9% of bogus purchases which led to net margin of 7.22% on total turnover as against net margin of 4.52% on total turnover declared by the assessee , which net margin arrived at 7.22% on total turnover was based on average net margin of the assessee itself for assessment year 2008-09 to 2012-13, which in our considered view was an honest, realistic and rational attempt made by learned CIT(A) and does not fall in the arena of arbitrariness and perversity requiring our interference, and hence we decline to interfere with the well reasoned appellate order of learned CIT(A). The right of cross examination is not absolute. There was an incriminating tangible and material information with the Revenue against the assessee that the assessee has obtained bogus invoices from benami concerns of Mr Bhanwarlal Jain who were engaged in providing accommodation entries through front companies/concerns opened in the name of his benamis . The assessee failed to produce these four parties from whom purchases were made by the assessee before Revenue. The entries for purchase are appearing in books of the assessee and it was incumbent on the assessee to bring on record cogent material to substantiate that purchases were genuine. The assessee is in possession of the facts which were especially in the knowledge of the assessee w.r.t. these bogus purchases and burden of proof lay on the assessee to substantiate that purchases are genuine. The assessee could not establish movement of material as well could not produce the parties before Revenue. The books of accounts were rejected by AO u/s 145(3) of 1961 Act. Thus, we are inclined to confirm the appellate order of learned CIT(A) and this appeal filed by the assessee is dismissed. It is not brought on record before us that Revenue is in appeal before the tribunal against the part relief given by learned CIT(A) to the assessee. - Decided against assessee. Issues Involved:1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.2. Rejection of books of account and confirmation of addition of Rs. 5,44,037/- being 9% of the purchases of Rs. 60,44,860/- as not genuine.Detailed Analysis:1. Validity of the Notice Issued under Section 148 of the Income-tax Act, 1961:The assessee challenged the validity of the notice issued under Section 148, arguing that the proceedings under Section 147 were initiated merely based on information from the DGIT (Inv.) without proper application of mind by the Assessing Officer (AO). The Tribunal noted that the assessee's return for the assessment year 2010-11 was initially processed under Section 143(1) and later reopened under Section 147 within four years from the end of the assessment year based on information from the DIT (Inv.), Mumbai. This information indicated that the assessee had indulged in showing bogus purchases by taking accommodation/fictitious bills from certain entities. The Tribunal upheld the reopening, citing the Supreme Court's decision in ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd., which clarified that if the AO has reason to believe that income has escaped assessment, it suffices to confer jurisdiction to reopen the assessment. The Tribunal concluded that the reopening was based on tangible and material incriminating information, and thus, the notice issued under Section 148 was valid and legal.2. Rejection of Books of Account and Confirmation of Addition:The AO received information from the DIT (Inv.) regarding bogus bills issued by entities controlled by Banwarlal Jain, leading to the conclusion that the assessee purchased materials from the grey market at lower prices and obtained bogus bills to cover sales. The AO rejected the books of account under Section 145(3) and disallowed 25% of the purchases amounting to Rs. 60,44,860/-, resulting in an addition of Rs. 15,11,215/-. The CIT(A) reduced the addition to 9% of the purchases, amounting to Rs. 5,44,037/-, bringing the net margin to 7.22% on total turnover. The Tribunal observed that the assessee could not produce the parties or prove the movement of goods, thus failing to discharge the burden of proof under Section 106 of the Indian Evidence Act, 1872. The Tribunal upheld the CIT(A)'s decision, noting that the estimation was fair, reasonable, and based on the average net margin of the assessee for several years. The Tribunal also emphasized that the right to cross-examination is not absolute and must be balanced against the evidence and circumstances of the case.Conclusion:The Tribunal dismissed the appeal, confirming the validity of the notice issued under Section 148 and the rejection of books of account, along with the addition of Rs. 5,44,037/- being 9% of the purchases. The Tribunal found the reopening justified based on tangible and material incriminating information and upheld the CIT(A)'s estimation of income, considering it fair and reasonable.