2022 (10) TMI 419 - AT - Income Tax

Tribunal validates assessment but increases disallowance, balancing procedural objections & revenue interests

Income Tax Officer, Ward-2 (3) (7) Surat Versus Shri Abhishek L. Jain Prop of Manglam Export

The Tribunal upheld the validity of the assessment reopening and notice under Section 143(2), confirming the purchases as bogus but increased the ... Validity of notice under section 143(2) - assessee has raised dispute that the said notice under section 143(2) was not served to assessee - HELD THAT:- We find that the notice under section 143(2) itself contains the Speed Post Registration No - No such objection was raised by assessee about the non-service of notice under section 143(2). Besides, service of notice, the objection of assessee is that the signature of AO is differ from the signature appeared on assessment order. The assessee is failed to show the basic difference in the signature on the notice viz a viz the assessment order. Moreover, the assessee has not disclosed as to what prejudice is caused to the assessee in mere difference in the signature. It is not the case of assessee that the assessment order or the notice under section 143(2) is not signed by competent officer. Further, the assessee or his AR nowhere took the plea that the signature either at the notice under section 143(2) or on the assessment is forged or the revenue is relying on some fabricated or forged signature. It is not the plea that this notice under section 143(2) was not at all issued by the assessing officer. The assessee want favourable order only from the bench without asserting such contention. In our view, the assessee has raised objection only for the sake of technical reasons, which we reject. Estimation of income - bogus purchases - Disallowance restricted to the extent of 5% - As per AO entire purchase from alleged concerns were bogus and was only to suppress the profit of the beneficiaries which is substantiated by the statement on oath given by the entry provider - HELD THAT:- It is matter of common knowledge that PK Jain was well known bogus entry provider, who has provided entry of several thousand crores of rupees. During the search action on PK Jain no stock of any goods was found by search team. In the statement he admitted that he is mere entry provider. The assessee has not disputed that he has not transacted with the entity of PK Jain. CIT(A) restricted the addition to the extent of 5% of aggregate of purchases shown from the entity of PK Jain. Disallowance to the extent of 5% is on lower side particularly when the assessee has shown negligible net profit. The assessee has shown net profit @.03 only, on the turnover of Rs. 70 Crore. The assessee has shown return income of Rs. 1,25,638/- only. Thus, in order to meet out the possibility of revenue leakage 6% of the addition of aggregate of disputed purchase will meet the end of justice. We may refer that this combination, where the assessee is beneficiary of similar disputed purchases, either from Rajender Jain, Bhanwar Lal Jain, Gautam Jain or PK Jain, we have consistently restricted or increased the similar addition to 6% of such purchases. Therefore, taking the consistent view, the disallowance restricted by ld. CIT(A) @ 5% are increased to 6% of the total aggregate of impugned/bogus purchase. In the result, the grounds of appeal raised by the revenue is partly allowed. Issues Involved:1. Validity of the reopening of assessment under Section 147 of the Income-Tax Act.2. Validity of the notice under Section 143(2) of the Income-Tax Act.3. Legitimacy of the additions made on account of bogus purchases.4. Appropriate percentage of disallowance for bogus purchases.Detailed Analysis:1. Validity of the Reopening of Assessment under Section 147:The assessee's case was reopened based on information received from the Investigation Wing, Mumbai, regarding a search and seizure action against the Praveen Kumar Jain Group. The investigation revealed that the assessee was a beneficiary of bogus purchases amounting to Rs. 5.269 crores managed by the Praveen Kumar Jain Group. The Assessing Officer (AO) issued a notice under Section 148 after recording reasons for reopening the case. The assessee's objections to the reopening were disposed of by a speaking order dated 16.02.2015. The Tribunal found that the reopening was based on credible information and upheld its validity.2. Validity of the Notice under Section 143(2):The assessee contended that the notice under Section 143(2) was not served and raised issues regarding the signature on the notice. The Tribunal examined the records and found that the notice was issued within the valid period and contained a Speed Post Registration number. The Tribunal rejected the assessee's objections, noting that no prejudice was caused to the assessee and that the signature differences were not substantiated. The Tribunal concluded that the notice under Section 143(2) was validly issued and served.3. Legitimacy of the Additions Made on Account of Bogus Purchases:The AO made an addition of Rs. 5.269 crores based on the information that the assessee had obtained bogus entries from entities managed by the Praveen Kumar Jain Group. The assessee failed to provide sufficient details to prove the genuineness of the purchases. The CIT(A) restricted the addition to 5% of the bogus purchases, relying on various case laws and the gross profit ratios. The Tribunal noted that the assessee had shown negligible net profit and agreed with the CIT(A) that the purchases were bogus but considered the 5% disallowance to be on the lower side.4. Appropriate Percentage of Disallowance for Bogus Purchases:The Tribunal observed that in similar cases involving bogus purchases, it had consistently restricted or increased the addition to 6% of the total purchases. Considering the negligible net profit shown by the assessee and the need to prevent revenue leakage, the Tribunal increased the disallowance from 5% to 6% of the total bogus purchases. This adjustment was deemed to meet the ends of justice.Conclusion:The Tribunal upheld the reopening of the assessment and the validity of the notice under Section 143(2). It confirmed that the purchases were bogus but increased the disallowance from 5% to 6% of the total bogus purchases, thereby partly allowing the Revenue's appeal. The judgment reflects a balanced approach, ensuring that the assessee's procedural objections were addressed while also safeguarding the revenue's interests.