2022 (10) TMI 845 - AT - Income Tax

Tax Appeals Upheld, Interest Remanded for Adjudication

The Tribunal partly allowed the appeals for statistical purposes, upholding the reassessment proceedings, disallowances, and additions made by the AO and ... Invocation of Reassessment Proceedings - assessee has shown unaccounted purchases and claimed depreciation on plant and machinery, which were found to be bogus - HELD THAT:- If there is relevant material on the basis of which reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings under section 147 of the Act can be validly initiated. Further, it is also well settled that sufficiency or correctness of the material is not a thing to be considered at the stage of recording of reasons. From the reasons recorded for reopening the assessment in the case of assessee it is also evident that the assessee has not disclosed truly and fully all material facts. As a result, we find no infirmity in the reassessment proceedings initiated by the AO under section 147 of the Act. Thus, the grounds raised by the assessee pertaining to this issue are dismissed. Notice u/s 143(2) was not served within the prescribed period - As per section 143(2) of the Act, notice under this section is required to be served on the assessee before the expiry of 6 months from the end of the financial year in which the return under section 139 or in response to notice under section 142(1) of the Act is furnished. Thus, the time period provided in the aforesaid section for issuance of notice is in respect of return filed under section 139 or in response to notice under section 142 (1) of the Act. However, in the present case, reassessment proceedings were initiated by the AO under section 147 and notice under section 143(2) was issued only pursuant there to. Thus, in view of the above, in absence of any other material available on record we are of the considered view that notice u/s 143(2) of the Act was served to the assessee within the prescribed time pursuant to initiation of reassessment proceedings in the present case. Thus, the ground raised by the assessee pertaining to this issue is dismissed. Addition on account of alleged purchases out of books - We find that details/books of accounts were not produced by the assessee despite various opportunities - the assessee though claimed that all his record/books of accounts were destroyed in the fire, however, neither produced the parties from whom it has made the purchases nor filed any documentary evidence to justify its claim that purchases as shown in profit and loss account are the only purchases made by the assessee. Further, there is nothing available on record to dispute the adoption of enhanced GP rate @8% for assessment year 2009–10. Thus, in view of the above, in absence of any material to support the claim of the assessee, we find no infirmity in the impugned order passed by the CIT(A) on this issue. As a result, addition made by the AO on this issue is upheld. Thus, the ground raised by the assessee pertaining to this issue is dismissed. Disallowance of depreciation on account of bogus purchases of plant and machinery - We find that regarding the process of verification, the valuers had submitted that machines were looking very old. Further the metallic plate on the machines which contains all the technical details of the particular machines i.e. machines serial No., model No., year of manufacturing, electrical ratings, operating diagram, make and various details of the machinery was missing. The valuers further submitted that there was no basis to ascertain the model and the year of manufacture and the year of installation of the machines. Further, the valuers submitted that ownership of the machines cannot be verified in absence of invoices and fixed assets register. In absence of details as sought by the lower authorities, the bills produced by the assessee were found to be bogus. Thus, in view of the above findings, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, addition made by the AO on this issue is upheld. Thus, the ground raised by the assessee pertaining to this issue is dismissed. Disallowance of payment of interest expenses - Since, borrowed funds have been siphoned off the interest claimed by the assessee was disallowed by the AO. CIT(A) also dismissed the appeal filed by the assessee as held since borrowed funds have been siphoned off, the interest claimed on the same cannot be considered as used for business. The disallowance is warranted. The computation made by the assessing officer is fair and reasonable.As, findings of learned CIT(A) in respect of bogus purchases have been upheld, we find no infirmity in the aforesaid findings of learned CIT(A) on this issue. Thus, the ground raised by the assessee pertaining to this issue is dismissed. Ad hoc disallowance of administrative expenses - We find that the assessee did not produce any details/evidence in support of its claim of admission to expenses. In absence of the details, the AO disallowed 10% of administrative expenses by the assessee and added the same to total income. During the appellate proceedings before the learned CIT(A), assessee submitted that administrative expenses constitute only minuscule portion of the total turnover. We find that apart from the aforesaid submission nothing has been brought on record to prove that the administrative expenses as claimed was incurred for purpose of business. Thus, in view of the above, we find no infirmity in the impugned order passed by the learned CIT(A) upholding the disallowance of 10% of administrative expenses claimed by the assessee. Thus, the ground raised by the assessee pertaining to this issue is dismissed. Levy of interest under section 234A - We deem it appropriate to remand this aspect to the file of AO for de novo adjudication after necessary examination of the fact whether the return of income was filed by the assessee within the prescribed time under the Act. While, interest levied under section 234B and 234C of the Act are consequential in nature. Accordingly, same is allowed for statistical purpose. Issues Involved:1. Invocation of reassessment proceedings under section 147 of the Act.2. Notice under section 143(2) was not served within the prescribed period.3. Addition on account of alleged purchases out of books.4. Disallowance of depreciation on account of bogus purchases of plant and machinery.5. Disallowance of payment of interest expenses.6. Ad hoc disallowance of administrative expenses.Issue-wise Detailed Analysis:(a) Invocation of Reassessment Proceedings:The assessee company, engaged in trading and manufacturing of knitted fabrics, was subject to reassessment proceedings initiated by the Assessing Officer (AO) under section 147 of the Income Tax Act based on a survey under section 133A revealing unaccounted purchases and bogus depreciation claims. The AO issued a notice under section 148, citing reasons such as purchases from 12 companies controlled by the Tayal Group and the lack of supporting documentation. The Tribunal upheld the reassessment proceedings, referencing the Supreme Court's decision in ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd, emphasizing that the AO needs only 'reason to believe' that income has escaped assessment, not conclusive proof at the initiation stage.(b) Notice under Section 143(2) Not Served within the Prescribed Period:The Tribunal noted that the issue of the notice under section 143(2) was not raised before the AO or CIT(A) but was brought up for the first time in the appeal. It was established that the notice under section 143(2) was served within the prescribed time following the initiation of reassessment proceedings. Hence, the Tribunal dismissed the assessee's ground on this issue.(c) Addition on Account of Alleged Purchases Out of Books:During reassessment, it was found that the assessee's books showed purchases of Rs. 117 crores from 12 parties without supporting documents. These companies were found to be controlled by the Tayal Group, and the purchases were deemed bogus. The AO added Rs. 8.23 crores to the assessee's income based on a gross profit rate of 7.04%. The CIT(A) enhanced this addition to Rs. 9.36 crores by adopting an 8% GP rate. The Tribunal upheld the CIT(A)'s order, noting the lack of evidence from the assessee to support the purchases.(d) Disallowance of Depreciation on Account of Bogus Purchases of Plant and Machinery:The AO disallowed the depreciation claimed on plant and machinery purchases of Rs. 100 crores from M/s Advik Textiles and Realpro Ltd due to lack of genuine supporting documents. The CIT(A) upheld this disallowance, citing the bogus nature of the bills and the absence of verifiable details. The Tribunal concurred, noting the valuers' inability to verify the machinery's details and the bogus nature of the transactions.(e) Disallowance of Payment of Interest Expenses:The AO disallowed the interest expenses claimed by the assessee, asserting that borrowed funds were siphoned off. The CIT(A) upheld this disallowance, linking it to the findings of bogus purchases. The Tribunal found no infirmity in this decision, maintaining the disallowance of interest expenses.(f) Ad Hoc Disallowance of Administrative Expenses:For assessment years 2012-13 to 2014-15, the AO disallowed 10% of administrative expenses due to the lack of supporting bills and vouchers. The CIT(A) upheld this disallowance. The Tribunal agreed, noting the absence of evidence to support the administrative expenses claimed by the assessee.Levy of Interest under Section 234A:The Tribunal remanded the issue of interest under section 234A to the AO for de novo adjudication to verify if the return was filed within the prescribed time. Interest under sections 234B and 234C was deemed consequential.Conclusion:All appeals by the assessee were partly allowed for statistical purposes, with the Tribunal upholding the reassessment proceedings, disallowances, and additions made by the AO and CIT(A). The order was pronounced in open Court on 19/10/2022.