2022 (11) TMI 361 - AT - Income Tax

Tribunal quashes notice under Income Tax Act, upholds net profit rate on gross sales.

The Tribunal allowed the assessee's appeal, quashing the notice issued under section 148 of the Income Tax Act and deleting the addition of Rs. 3,45,200/- ... Reopening of assessment u/s 147 - HELD THAT:- We heard the rival submission and considered the documents available in the record related to the grounds of the appeal by challenging the notice u/s. 148, AO has erred to issue the notice by mentioning Rs. 10 lac paid by the assessee. The said notice has no relevance with the observation in factual aspect. The reasons recorded in fact there is no live nexus related to this payment and assessee's books of account. Recorded reasons itself erroneous and the notice is liable to be quashed. Bogus purchases - The assessee by his evidence able to prove the transaction with the party and also the next stage of transaction was also proved. None of the parties denied the said transactions. In fact, the assessee had not filed return during the assessment year. But in succeeding year the return was filed. There was no proof that the said amount was returned back to the assessee by other mode of transactions. Respectfully considered the order of the Apex Court, the assessee is able to proof the transaction with the party and business activities are going on just beyond the doubt. Issues Involved:1. Validity of notice issued under section 148 of the Income Tax Act.2. Validity of re-assessment proceedings and confirmation of the addition of Rs. 3,45,200/-.3. Consideration of the Hon'ble Supreme Court's order in the case of N.K. Protein Ltd. vs. CIT.4. Alleged bogus purchases from a non-existent entity.5. Application of net profit rate of 1% on gross sales.6. Deletion of the addition of Rs. 3 lakh made by AO u/s. 68 on account of unexplained credit.Issue-wise Detailed Analysis:1. Validity of Notice Issued Under Section 148:The assessee challenged the validity of the notice issued under section 148 of the Income Tax Act, arguing it was illegal and invalid. The notice was based on the alleged transfer of Rs. 27,80,000/- to M/s. Pratap Enterprises, which was claimed to be a non-existent entity. The Tribunal found that the reasons recorded for reopening the assessment were erroneous and lacked a live nexus with the assessee's books of account. The notice was quashed, and the ground was allowed.2. Validity of Re-assessment Proceedings and Confirmation of Addition:The assessee argued against the re-assessment proceedings and the addition of Rs. 3,45,200/- after applying a net profit rate of 1% on disclosed transactions. The Tribunal noted that the purchases from M/s. Pratap Enterprises were substantiated with corresponding sales to M/s. Birla Textile Mills and M/s. Chenab Textile Mills. The Tribunal found that the entire purchase was duly substantiated, and there was no evidence of the amount being recycled back to the assessee. The ground was allowed, and the addition was deleted.3. Consideration of the Hon'ble Supreme Court's Order in N.K. Protein Ltd. vs. CIT:The revenue argued that the CIT(A) failed to appropriately consider the Supreme Court's order in N.K. Protein Ltd. vs. CIT. The Tribunal found that the CIT(A) had differentiated the factual content of the Supreme Court's order and the assessee's case. The Tribunal upheld the CIT(A)'s order, finding no infirmity in it. The revenue's ground was dismissed.4. Alleged Bogus Purchases from a Non-existent Entity:The revenue contended that the purchases from M/s. Pratap Enterprises were bogus as the entity was non-existent. The Tribunal noted that the purchases were substantiated with corresponding sales and that the parties involved had confirmed the transactions. The Tribunal found that the assessee had proved the transactions and business activities beyond doubt. The ground was allowed in favor of the assessee.5. Application of Net Profit Rate of 1% on Gross Sales:The CIT(A) directed applying a net profit rate of 1% on gross sales instead of the rate reported in the audit report. The Tribunal found that the CIT(A)'s approach was appropriate given the circumstances and upheld the application of the 1% net profit rate. The revenue's ground was dismissed.6. Deletion of Addition of Rs. 3 Lakh Made by AO u/s. 68:The revenue challenged the deletion of the addition of Rs. 3 lakh made by the AO under section 68 for unexplained credit. The Tribunal upheld the CIT(A)'s finding that the introduction of capital by the partner should be examined in the hands of the partner, not the partnership firm. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's ground.Conclusion:The Tribunal allowed the assessee's appeal (ITA No. 480/Asr/2018) and dismissed the revenue's appeal (ITA No. 479/Asr/2018). The order was pronounced in the open court on 13.10.2022.