2018 (1) TMI 713 - AT - Income Tax

Reassessment proceedings challenge: Tribunal reduces income addition, allows appeal modification

The reassessment proceedings initiated by the Assessing Officer were challenged, but no detailed judgment was provided. Regarding the disallowance of ... Validity of the reassessment proceedings - information received from the Sales Tax department that the assessee had only taken accommodation bills and not carried out any genuine purchases - Held that:- We are of the considered view that now when it was the claim of the assessee that it had made purchases from the aforesaid parties and had claimed the same as an expense while computing its income, therefore, it was for him to establish the genuineness of the same to the satisfaction of the A.O. We are of the considered view that in the backdrop of the facts emerging from the record, viz. (i). the notices sent by the A.O to the parties were returned unserved by the postal authorities; (ii). neither of the aforesaid parties were produced for examination before the A.O; and (iii). the purchase bills unlike genuine bills did not mention of the mode of delivery (transport), the veracity of the information received from the Sales Tax department that the assessee had only taken accommodation bills and not carried out any genuine purchases further stood fortified. We thus in the backdrop of the view taken in the case of Simit P. Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT), keeping in view the fact that the assessee had mainly purchased acids or corrugated boxes from the aforementioned parties, on which the VAT rates during the year under consideration, viz. F.Y. 2008-09 was 4% and 5%, respectively, therefore, keeping in view certain other monetary benefits which the assessee would had made from making such purchases, therefore, restrict the addition in the hands of the assessee to the extent of 6% of purchases of ₹ 29,81,640/-. We thus restrict the addition in the hands of the assessee to ₹ 1,78,900/- [i.e 6% of ₹ 29,81,640/-]. The order of the CIT(A) is thus modified to the said extent. - Decided partly in favour of assessee. Issues Involved:1. Validity of reassessment proceedings.2. Disallowance of alleged bogus purchases amounting to Rs. 29,81,640/-.Issue-Wise Detailed Analysis:1. Validity of Reassessment Proceedings:The assessee contested the validity of the reassessment proceedings initiated by the Assessing Officer (A.O) under Sec. 143(3) r.w.s 147 of the Income-tax Act, 1961. The reassessment was based on information received from the Investigation Wing of the Income Tax Department, which indicated that the assessee was a beneficiary of transactions routed through hawala dealers as informed by the Sales Tax (VAT) Department, State of Maharashtra. The A.O issued a Notice under Sec. 148 on 25.03.2013, and the assessee responded by treating its original return of income filed on 30.10.2010 as the one filed in response to the notice. The reassessment proceedings were challenged on the grounds of being illegal and invalid, but no separate detailed analysis or judgment on this issue was provided in the text.2. Disallowance of Alleged Bogus Purchases:The A.O, based on information from the Sales Tax Department, identified that the assessee had taken accommodation bills from seven parties, amounting to Rs. 29,81,640/-. The A.O called upon the assessee to provide documentary evidence to verify the genuineness of these transactions. Despite the assessee furnishing details such as purchase orders, bills, material inward notes, and bank statements, the A.O found that the notices issued to these parties under Sec. 133(6) were returned unserved with remarks 'Not Known.' Consequently, the A.O concluded that the purchases were not genuine and added the amount to the assessee's income.The CIT(A) upheld the A.O's decision, noting the absence of clinching documentary evidence from the assessee to prove the actual receipt of materials. The CIT(A) observed discrepancies, such as the lack of delivery mode (transport) details on the bills and the failure to produce the parties for examination.Upon appeal, the assessee argued that the purchases were genuine and consumed in the business, as evidenced by the consistent gross profit rate with the preceding year. The assessee also contended that the entire purchase consideration should not be added, citing a coordinate bench's decision in a similar case.The Tribunal deliberated on the evidence and found that the A.O had provided sufficient opportunity for the assessee to substantiate the genuineness of the transactions. The Tribunal noted the serious doubts raised due to the returned notices and the information from the Sales Tax Department. However, it acknowledged that the book results indicated the purchases were consumed in the business and the corresponding sales were recorded.The Tribunal concluded that while the purchases might not have been made from the identified parties, they were likely made from the open/grey market. Thus, instead of adding the entire purchase amount, the Tribunal deemed it appropriate to add only the profit element involved in such purchases. Referring to the Gujarat High Court's decision in CIT Vs. Simit P. Sheth, the Tribunal restricted the addition to 6% of the purchase amount, considering the VAT rates and other monetary benefits. Consequently, the addition was reduced to Rs. 1,78,900/-.Judgment:The appeal was partly allowed, modifying the CIT(A)'s order to restrict the addition to Rs. 1,78,900/-.Order Pronounced:The order was pronounced in the open court on 27/12/2017.