2022 (1) TMI 585 - AT - Income Tax

Tribunal validates assessment reopening under Income Tax Act for escaped income; purchase disallowance reduced.

The Tribunal upheld the validity of reopening the assessment under section 147/148 of the Income Tax Act, 1961, due to justifiable cause to believe income ... Reopening of assessment u/s 147 - estimation of income for bogus purchases - disallowing purchases by sustaining addition to the extent of 5% of unverifiable purchases - HELD THAT:- There is no infirmity in the reasons recorded by the assessing officer, the assessing officer after getting the information from the Investigation Wing, Mumbai has applied his mind and recorded the reasons. Section 147 of the Act authorizes and permits an Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that the said income for any assessment year has escaped assessment. The expression 'escaped assessment' clearly connotes a very basic postulate that the income for a particular assessment year went unnoticed by the Assessing Officer and because of it not being noticed by him for any reason, it escaped assessment. The words 'reason to believe’ cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes or from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he has reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under section 147, may ultimately stand altered after the hearing and while reaching the conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, the Assessing Officer is not required to base his belief on any final adjudication of the matter. Therefore, we find merit in the submission of the Ld. D.R. that there is no any infirmity in the reasons recorded by the Assessing Officer. In assessee’s case, the reassessment proceedings under section 147 of the Act were initiated after four years from the end of the assessment year 2007-08; and the assessee has disclosed fully and truly all material facts during the original assessment proceedings, therefore reassessment proceedings should not be initiated against the assessee. The said argument of the Ld. Counsel cannot be accepted because the case of the assessee firm was not scrutinized in assessment year 2007-08, therefore Assessing Officer did not get opportunity to verify books of accounts, documents and evidences. For assessee year 2008-09, the assessee did not submit books of accounts and other documents. We have gone through the paper book submitted by Ld. Counsel and observed that assessee has submitted only confirmation, ITR and bank statement; however books of accounts were not submitted before Assessing Officer. Moreover, the reasons recorded by the Assessing Officer are in accordance with law. Therefore, assessee cannot take the benefit of first proviso to section 147 of the Act. Hence, we dismiss the grounds raised by the assessee challenging the reopening of assessment under section 147. Bogus purchases - The issue is squarely covered by the judgment of Pankaj K. Choudhary [2021 (10) TMI 653 - ITAT SURAT] it is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage As the issue is squarely covered by the decision of the coordinate bench, and there is no change in facts and law and the Ld. Counsel is unable to produce any material to controvert the aforesaid findings of the Coordinate Bench (supra). We find no reason to interfere in the said order of the Coordinate Bench, therefore, respectfully following the judgment of the Coordinate Bench, we dismiss all appeals of the assessee and we allow the appeal of the Revenue to the extent indicated above. - Decided against assessee. Issues Involved:1. Validity of reopening assessment under section 147/148 of the Income Tax Act, 1961.2. Disallowance of purchases and the extent of such disallowance.3. Typographical errors in the Ld. CIT(A)'s order regarding the quantum of unverifiable purchases.Detailed Analysis:1. Validity of Reopening Assessment under Section 147/148 of the Income Tax Act, 1961:The assessee challenged the validity of reopening the assessment under section 147/148, arguing that the reasons recorded were general and that the purchases were genuine. The Tribunal examined the reasons recorded by the Assessing Officer (AO) and found no infirmity. The AO had received information from the Investigation Wing, Mumbai, about the assessee being a beneficiary of non-genuine transactions. The Tribunal held that the AO had a justified cause to believe that income had escaped assessment, thus validating the reopening under section 147. The Tribunal dismissed the assessee's contention that reassessment proceedings should not be initiated as the case was not scrutinized in the earlier assessment years.2. Disallowance of Purchases and the Extent of Such Disallowance:The AO disallowed 25% of the purchases amounting to Rs. 8,47,62,961/- for the assessment year 2007-08, which comes to Rs. 2,11,90,740/-. The Ld. CIT(A) reduced this disallowance to 5% of the unverifiable purchases, following the decision in M/s Mayank Diamond Pvt. Ltd. The Tribunal noted that the AO had not made any independent investigation and solely relied on the investigation wing's report. The Tribunal referenced the judgment in the case of Pankaj K. Choudhary, where a similar issue was addressed, and it was held that disallowance should be made to prevent revenue leakage. The Tribunal concluded that a disallowance at the rate of 6% of the impugned purchases would be reasonable, thus partly allowing the assessee's appeal and dismissing the revenue's appeal.3. Typographical Errors in the Ld. CIT(A)'s Order:The revenue pointed out typographical errors in the Ld. CIT(A)'s order. The Ld. CIT(A) had incorrectly upheld the addition at 5% of Rs. 2,11,90,740/- instead of Rs. 8,47,62,961/- for the assessment year 2007-08. For the assessment year 2008-09, the Ld. CIT(A) corrected the figure of unverifiable purchases from Rs. 25,24,67,233/- to Rs. 17,99,86,565/-. The Tribunal acknowledged these errors and corrected the disallowance figures accordingly. The corrected figures were Rs. 42,38,148/- for the assessment year 2007-08, Rs. 89,99,328/- for 2008-09, and Rs. 39,02,390/- for 2013-14.Conclusion:The Tribunal upheld the validity of reopening the assessment under section 147/148, corrected the typographical errors in the Ld. CIT(A)'s order, and modified the disallowance rate to 6% of the impugned purchases. Consequently, the appeals of the assessee were dismissed, and the appeals of the revenue were allowed to the extent indicated.