Tribunal validates income assessment reopening, upholds 12.5% purchase disallowance.

The Tribunal upheld the validity of the reopening of assessment under Section 147/148 of the Income Tax Act, finding the Assessing Officer had tangible material to support the belief that income had escaped assessment. The Tribunal also sustained the disallowance of 12.5% of bogus purchases, noting the lack of evidence provided by the appellant to substantiate the purchases. The appeal was dismissed, affirming both the reopening of assessment and the disallowance of 12.5% of bogus purchases.

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Issues Involved:
1. Validity of reopening of assessment under Section 147/148 of the Income Tax Act.
2. Sustaining disallowance of 12.5% of bogus purchases.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147/148:

Appellant's Argument:
The appellant contended that the Assessing Officer (AO) did not maintain a date-wise proceeding sheet or record the reasoning for reopening the case before issuing the notice under Section 147/148. The AO merely relied on information from the DIGT(I) Mumbai and the Sales Tax Department without conducting independent inquiries. The appellant argued that such reliance on borrowed information and opinions is not permissible for reopening completed assessment proceedings.

Tribunal's Findings:
The Tribunal noted that the AO received specific information from the DGIT Investigation, Mumbai, indicating that the assessee had made purchases from suspicious/hawala parties. This information was based on inputs from the Maharashtra Sales Tax Authority, which identified the assessee as a beneficiary of bogus purchase entries. The AO's belief that income had escaped assessment was based on tangible and cogent incriminating material, forming a "reason to believe" that justified the reopening of the assessment.

The Tribunal referenced the Hon'ble Supreme Court's decision in CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, which clarified that at the stage of issuing a notice under Section 147, the AO needs only a prima facie belief based on tangible material about the escapement of income, not conclusive proof. The Tribunal upheld the validity of the reopening, finding no infirmity in the AO's actions.

2. Sustaining Disallowance of 12.5% of Bogus Purchases:

Appellant's Argument:
The appellant claimed that the AO and the Commissioner of Income Tax (Appeals) did not consider the paper book submitted during the assessment proceedings. The appellant argued that the additions were based on suspicion, conjectures, and third-party opinions without substantial evidence. The appellant also contended that the AO failed to provide any documents or evidence regarding the disputed vendors and did not adhere to the rules of natural justice.

Tribunal's Findings:
The Tribunal observed that the AO had received credible information that the assessee obtained bogus purchase bills from accommodation entry providers. Despite issuing notices under Section 133(6) to the suspected parties, all notices returned unserved, and the assessee could not produce any confirmation from these parties or evidence of transportation of goods.

The Tribunal noted that the assessee's failure to provide delivery challans, stock register entries, and other relevant documents further supported the conclusion that the purchases were bogus. The Tribunal referenced the Hon'ble Gujarat High Court decision in N K Industries vs Dy CIT, which upheld a 100% disallowance of bogus purchases. However, since this was not an appeal by the revenue, the Tribunal did not disturb the 12.5% disallowance sustained by the Commissioner of Income Tax (Appeals).

Conclusion:
The Tribunal dismissed the appeal, upholding the reopening of the assessment and the disallowance of 12.5% of the bogus purchases. The order was pronounced in the open court on 02.01.2018.

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