2018 (12) TMI 183 - AT - Income Tax

Validity of Reopening Assessment Upheld by ITAT, Stress on Tangible Evidence

Hemang Hasmukhray Doshi (Prop of Minolta Chem), Mumbai Versus ITO-27 (1) (3), Mumbai

Hemang Hasmukhray Doshi (Prop of Minolta Chem), Mumbai Versus ITO-27 (1) (3), Mumbai - TMI Issues Involved:1. Sustaining disallowance of 12.5% of bogus purchases amounting to Rs. 25,34,888.2. Validity of reopening the assessment based on information received from the Investigation Wing.3. Assessment of the genuineness of purchases from parties declared as hawala operators.Detailed Analysis:1. Sustaining Disallowance of 12.5% of Bogus Purchases:The primary issue raised by the assessee was the disallowance of 12.5% of the bogus purchases amounting to Rs. 25,34,888. The Assessing Officer (AO) had received credible information from the Investigation Wing that the assessee had taken accommodation bills for purchases from parties declared as hawala operators by the Maharashtra Sales Tax Department. These parties were found to be engaged in providing accommodation entries without actual delivery of goods. Despite the assessee's contention that payments were made through account payee cheques, the AO disallowed the purchases as the assessee failed to provide delivery challans, transportation details, or produce the parties for verification. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, and the ITAT confirmed the disallowance, stating that mere preparation of documents could not override the overwhelming evidence of non-existence of the suppliers.2. Validity of Reopening the Assessment:The AO reopened the assessment based on information from the DGIT Investigation (Mumbai) and Maharashtra Sales Tax Authority, indicating that the assessee was a beneficiary of bogus purchase bills from hawala operators. The information showed that these operators provided bogus sale bills without delivery of goods in exchange for a commission. The ITAT upheld the reopening of the assessment, citing the decision of the Hon'ble Apex Court in CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd., which stated that the AO needs a 'reason to believe' that income has escaped assessment, based on tangible and material information. The ITAT found that the information received had a live link with the reason to believe that income had escaped assessment, justifying the reopening.3. Assessment of the Genuineness of Purchases:The AO conducted inquiries by issuing notices under section 133(6) of the Act to the parties, which were returned unserved. The assessee failed to produce the parties or provide necessary evidence such as delivery challans and transport bills. The Sales Tax Department's inquiry had already established that the parties were providing bogus accommodation entries. The ITAT noted that the assessee's inability to produce confirmation from the parties or evidence of transportation of goods indicated that the purchases were bogus. The ITAT referred to the Hon'ble Apex Court decisions in Sumati Dayal vs. CIT and CIT vs. Durga Prasad More, supporting the view that overwhelming evidence of non-existence of suppliers could not be ignored.The ITAT also considered the Hon'ble Gujarat High Court decision in the case of N K Industries vs. Dy. CIT, which upheld 100% disallowance of bogus purchases. However, since this was not an appeal by the Revenue, the ITAT did not disturb the relief already granted to the assessee by the AO and CIT(A).Conclusion:The ITAT dismissed the appeal filed by the assessee, confirming the disallowance of 12.5% of the bogus purchases. The assessment was validly reopened based on credible information, and the purchases were found to be non-genuine due to the lack of evidence and the non-existence of the suppliers. The ITAT's decision was based on precedents from the Hon'ble Apex Court and High Courts, reinforcing the findings of the lower authorities.