2017 (5) TMI 1101 - AT - Income Tax

Appeals partly upheld in assessment reopening, interest levy upheld, addition reduced, penalty premature.

The Tribunal partly allowed the appeals, upholding the reopening of assessment under Section 147 and the mandatory interest levy under Section 234B. ... Bogus purchases - re-opening of assessment under the provisions of reassessment - addition by estimating profit element embedded in purchases - reliance on information from Sales Tax Department without further inquiry - corresponding sales accepted as probative evidence of purchasesBogus purchases - addition by estimating profit element embedded in purchases - Whether the addition of profit element at 12.5% on purchases held to be non-genuine is sustainable - HELD THAT: - The Tribunal examined the material on record and the course adopted by the AO who, relying on information from the Sales Tax Department and non-appearance of suppliers, treated purchases as bogus and made an addition by estimating a profit element of 12.5%. The assessee had placed on record purchase invoices, delivery challans, confirmed ledger copies, bank statements showing payment by account payee cheques, quantitative stock records and evidence of corresponding sales (which the AO did not doubt). The Tribunal held that mere non-appearance of suppliers before the AO or suspicion generated by external information, without any independent enquiry by the AO to controvert the documentary evidence produced by the assessee, is insufficient to conclude that purchases were bogus. In absence of any material demonstrating that payments were routed back to the assessee or that the documentary records were fabricated, the consequential addition by applying a 12.5% embedded profit estimate was not sustainable. Applying the totality of facts and relevant precedents, the Tribunal found it appropriate to restrict the addition and directed that the addition be limited to 2% of such purchases. [Paras 12, 14]Addition of 12.5% disallowed; addition restricted to 2% of the impugned purchases and directed to be recomputed accordingly.Reliance on information from Sales Tax Department without further inquiry - corresponding sales accepted as probative evidence of purchases - Whether reliance solely on Sales Tax Department information and issuing notices under section 133(6) without further investigation justified treating purchases as bogus - HELD THAT: - The Tribunal found that the AO primarily relied upon information received from the Sales Tax Department and the fact that suppliers did not appear before him. However, the assessee had provided corroborative documentary evidence during assessment proceedings which the AO did not discredit. The Tribunal held that when an assessee furnishes invoices, bank payment evidence and ledger confirmations and when sales (which generated the corresponding purchases) are not doubted, the AO must make further inquiries to establish fabrication or routing back of payments before making additions. Mere reliance on external information and non-production of suppliers, without independent verification, does not justify treating purchases as bogus. [Paras 12]AO's reliance on Sales Tax Department information without conducting further enquiry is insufficient; AO to restrict addition to 2% and proceed as directed.Final Conclusion: Appeals allowed in part: the additions sustained by lower authorities insofar as they applied a 12.5% embedded profit on alleged bogus purchases are not upheld; the Assessing Officer is directed to restrict the addition to 2% of such purchases for Assessment Year 2009-10 and recompute assessments accordingly. Issues Involved:1. Reopening of assessment under section 147 of the Income Tax Act, 1961.2. Addition on account of alleged bogus purchases.3. Levy of interest under section 234B of the Income Tax Act, 1961.4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147:The assessee challenged the reopening of the assessment under Section 147, contending that the prescribed conditions were not satisfied. The CIT(A) upheld the AO's action in reopening the assessment based on information received from the Sales Tax Department about suspicious dealers. The Tribunal noted that the reopening was based on credible information and upheld the CIT(A)'s decision, confirming the validity of the reopening under Section 147.2. Addition on Account of Alleged Bogus Purchases:The primary issue was the addition made by the AO on account of alleged bogus purchases. The AO had added 12.5% of the total alleged bogus purchases as profit, relying on the case of CIT Vs Simit P. Sheth and information from the Sales Tax Department. The assessee argued that all purchases were genuine, supported by sufficient materials, and backed by corresponding sales. The Tribunal acknowledged that the AO had not doubted the sales and that the purchases were recorded in the books of account. The Tribunal noted that the AO had not provided the assessee an opportunity to cross-examine the parties alleged to have provided accommodation entries. The Tribunal concluded that merely because the suppliers did not appear before the AO, it could not be concluded that the purchases were not made. The Tribunal directed the AO to restrict the addition to 2% of the alleged bogus purchases, considering the facts and circumstances of the case.3. Levy of Interest under Section 234B:The assessee contested the levy of interest under Section 234B, arguing against its liability. The CIT(A) held that the levy of interest under Section 234B was mandatory. The Tribunal upheld the CIT(A)'s decision, confirming that the interest levy was indeed mandatory under the law.4. Initiation of Penalty Proceedings under Section 271(1)(c):The assessee disputed the initiation of penalty proceedings under Section 271(1)(c). The CIT(A) held that the ground raised disputing the initiation of penalty proceedings was premature. The Tribunal agreed with the CIT(A), stating that the initiation of penalty proceedings was a separate matter and could not be contested at this stage.Conclusion:The Tribunal partly allowed the appeals of the assessees. It upheld the reopening of the assessment under Section 147 and the mandatory levy of interest under Section 234B. However, it directed the AO to restrict the addition on account of alleged bogus purchases to 2% instead of 12.5%. The initiation of penalty proceedings under Section 271(1)(c) was deemed premature and not addressed at this stage. The order was pronounced in the open court on 05/05/2017.