2021 (4) TMI 290 - AT - Income Tax

Tribunal adjusts taxable amount based on reduced profit estimation, upholding reassessment under section 143(3) r.w.s. 147.

The Tribunal partially allowed the appeal by adjusting the taxable amount based on a reduced profit estimation percentage of 6% for non-genuine purchases. ... Estimation of income in reassessment on basis of alleged accommodation entries - Onus of proof and evidentiary requirement in verifying suppliers - Reliance on information from sales tax department for reopening assessment - Adjustment of estimated profit margin on disputed purchases - Validity of ex-parte confirmation of assessment additionsEstimation of income in reassessment on basis of alleged accommodation entries - Onus of proof and evidentiary requirement in verifying suppliers - Adjustment of estimated profit margin on disputed purchases - Whether the addition made by the Assessing Officer of 12.5% of disputed purchases as alleged non genuine purchases was sustainable and, if not, what estimation should be made. - HELD THAT: - The Assessing Officer reopened assessment after receiving information from the Sales Tax Department that the assessee had obtained accommodation entries from ten parties and proceeded to make an estimated addition at 12.5% of disputed purchases, noting that notices issued under the verification provision to the alleged suppliers were returned unserved and that certain documentary evidence such as transport receipts, octroi receipts, weighbridge receipts and goods inward register were not produced by the assessee. The Commissioner (Appeals) confirmed the addition ex parte. Having considered the materials on record and the fact that the suppliers could not be served yet the assessee produced audited financial statements, bank statements, party wise bills and evidence of payment by account payee cheques, the Tribunal found the circumstances required a downward adjustment of the percentage applied for estimation. Applying a fact sensitive evaluative approach rather than sustaining the AO's higher estimate, the Tribunal reduced the rate of deemed profit on the disputed purchases to 6% and directed the Assessing Officer to bring the resulting amount to tax. [Paras 5]The addition is not sustainable at 12.5%; profit on the disputed purchases of Rs. 46,92,697/- is to be estimated at 6%, and the Assessing Officer is directed to bring the resulting amount to tax.Final Conclusion: Appeal partly allowed by reducing the estimation of profit on disputed purchases from 12.5% to 6% for AY 2011-12 and directing the Assessing Officer to assess the reduced amount; the CIT(A)'s confirmation is set aside to that extent. Issues:1. Validity of reassessment u/s 143(3) r.w.s. 1472. Addition of alleged non-genuine purchases3. Levying of penalty u/s 271(1)(c) and interest u/s 234 A, B, C & D4. Confirmation of disallowances by CIT(A)Issue 1: Validity of reassessment u/s 143(3) r.w.s. 147The appeal challenged the reassessment conducted u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961. The assessee contended that the reassessment was erroneous and based on borrowed satisfaction, presumption, and surmises. Despite the assessee's absence during the hearings, the Tribunal proceeded to dispose of the appeal by examining the available materials and hearing the Departmental Representative.Issue 2: Addition of alleged non-genuine purchasesThe Assessing Officer added Rs. 5,86,587 as non-genuine purchases, constituting 12.5% of the total purchases amounting to Rs. 46,92,697. The AO's decision was based on information from the Sales Tax Department indicating accommodation entries from 10 parties. The assessee's attempts to establish the genuineness of purchases were hindered by the inability to trace the suppliers, leading to an estimation of profit at 12.5%. The CIT(A) upheld this estimation, prompting the Tribunal to reevaluate and reduce the estimated profit to 6%, resulting in a revised taxable amount of Rs. 2,81,560.Issue 3: Levying of penalty u/s 271(1)(c) and interest u/s 234 A, B, C & DThe AO imposed penalties under section 271(1)(c) and interest under sections 234 A, B, C & D. The Tribunal's decision to partly allow the appeal did not specifically address the penalties and interest levied. However, the reassessment outcome impacted the taxable amount, which might have implications for the penalty and interest calculations.Issue 4: Confirmation of disallowances by CIT(A)The CIT(A) confirmed the AO's decision regarding the addition of non-genuine purchases. The Tribunal, while setting aside the CIT(A)'s order, directed the AO to estimate the profit at a reduced rate of 6% on the disputed purchases. This adjustment resulted in a lower taxable amount of Rs. 2,81,560, indicating a partial allowance of the appeal.In conclusion, the Tribunal's judgment addressed the validity of reassessment, the addition of non-genuine purchases, and the subsequent revision of the estimated profit for taxation. The decision partially allowed the appeal by adjusting the taxable amount based on a reduced profit estimation percentage. The implications on penalties and interest levied were not explicitly discussed in the judgment.