Tribunal upholds Income Tax Act proceedings, dismisses grounds on sanction, books, and natural justice.

The Tribunal upheld the validity of the proceedings under Section 148 of the Income Tax Act, 1961, citing the judgment of the Gujarat High Court. The grounds related to the adequacy of sanction and rejection of books of account were dismissed. The Tribunal rejected the violation of principles of natural justice due to the nature of transactions and restricted the disallowance to 6% of the impugned purchases, partially allowing the appeal.

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Issues Involved:
1. Validity of proceedings initiated under Section 148 of the Income Tax Act, 1961.
2. Adequacy of sanction from the appropriate authority for reopening the assessment.
3. Rejection of books of account without pointing out any defect.
4. Violation of principles of natural justice by not providing an opportunity for cross-examination.
5. Sustaining the addition of Rs. 13,49,440/- by treating genuine purchases as suspicious.

Detailed Analysis:

1. Validity of Proceedings under Section 148:
The assessee argued that the proceedings under Section 148 were initiated without jurisdiction and based on borrowed reasons. The Tribunal noted that the Assessing Officer (AO) had received a report from the Investigation Wing, Mumbai, indicating that the assessee was a beneficiary of accommodation entry operators. The AO had reason to believe that income had escaped assessment based on this report. The Tribunal emphasized that the expression "escaped assessment" implies that income for a particular year went unnoticed by the AO. The AO formed a belief from the examination and information received. The Tribunal found that the reopening of the assessment was justified as per the provisions of Section 147 of the Act, citing the judgment of the Gujarat High Court in Pushpak Bullion Pvt Ltd. The Tribunal rejected the assessee's contention regarding the jurisdiction and upheld the validity of the proceedings under Section 148.

2. Adequacy of Sanction for Reopening:
The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

3. Rejection of Books of Account:
The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

4. Violation of Principles of Natural Justice:
The assessee argued that the assessment order was framed without providing an opportunity to cross-examine and without furnishing the material and evidence to the assessee, violating the principles of natural justice. The Tribunal found merit in the Revenue's submission that the assessee was engaged in transactions with benami entities and hence, the opportunity for cross-examination was not necessary. The Tribunal noted that during the assessment stage, the assessee did not request the AO to provide an opportunity for cross-examination. The Tribunal dismissed this ground, stating that the interconnected business concerns did not necessitate cross-examination.

5. Sustaining the Addition of Rs. 13,49,440/-:
The CIT(A) had sustained the addition of Rs. 13,49,440/- by treating genuine purchases as suspicious purchases, disallowing 12.5% of the impugned purchases. The Tribunal referred to the judgment of the Coordinate Bench in the case of Pankaj K. Choudhary, where it was held that in cases of bogus purchases, the addition should be restricted to a reasonable percentage of the impugned purchases. The Tribunal noted that the AO had not made any independent investigation and solely relied on the report of the Investigation Wing. The AO did not dispute the sales of the assessee and made no comment on the documentary evidence furnished by the assessee. The Tribunal found that the CIT(A) had reasonably restricted the disallowance to 12.5% of the impugned purchases, considering the overall facts and circumstances. The Tribunal partly allowed the appeal of the assessee, restricting the disallowance to 6% of the impugned purchases to meet the possibility of revenue leakage.

Conclusion:
The Tribunal upheld the validity of the proceedings under Section 148 and dismissed the grounds related to the adequacy of sanction and rejection of books of account as not pressed. It dismissed the ground related to the violation of principles of natural justice and partly allowed the appeal of the assessee by restricting the disallowance to 6% of the impugned purchases. The order was pronounced on 31/01/2022.

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