ITAT upholds 5% gross profit addition on bogus purchases after supplier found non-existent during search operations

ITAT Delhi upheld reopening of assessment based on information from Investigation Wing regarding bogus purchases from supplier. During search of third-party group, statements revealed supplier was not engaged in real business and supplied no physical goods. Assessee's name appeared in supplier's books showing transactions. ITAT found AO's reasons specific and reliable, rejecting challenge to jurisdiction assumption. Regarding income estimation, ITAT upheld CIT(A)'s 5% gross profit addition on bogus purchases, noting assessee failed to prove bona fides of supplier or discharge onus regarding sale parties. Both Revenue's appeal and assessee's cross-objection dismissed.

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Issues Involved:
1. Validity of jurisdiction under Section 147/148 of the Income Tax Act.
2. Merits of disallowance towards bogus purchases.
3. Rejection of books of account under Section 145(3) and estimation of turnover and net profit.

Summary:

1. Validity of Jurisdiction under Section 147/148 of the Income Tax Act:
The Revenue reopened the assessment based on information from a search operation on Rajendra Jain Group, identifying the assessee as a beneficiary of bogus accommodation entries. The assessee challenged the jurisdiction under Section 147 r.w. Section 148, arguing that the proper course of action should have been under Section 153C. The Tribunal held that the Assessing Officer (AO) had valid reasons to believe that income had escaped assessment, based on tangible material from the investigation. The Tribunal referenced the case of Shailesh S. Patel vs. ITO, noting that Section 147 can be invoked independently of Section 153C. The Tribunal found no merit in the assessee's argument that the AO failed to apply his mind independently, and upheld the validity of the jurisdiction assumed under Section 147.

2. Merits of Disallowance towards Bogus Purchases:
The AO made an addition of Rs. 65,20,152/- based on the investigation report, which identified the purchases from M/s Kriya Impex Pvt. Ltd. as bogus. The CIT(A) restricted the addition to 5% of the disputed purchases, estimating an additional gross profit of Rs. 3,26,008/-. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide sufficient evidence to support the full disallowance and that the CIT(A)'s estimation was reasonable given the circumstances.

3. Rejection of Books of Account under Section 145(3) and Estimation of Turnover and Net Profit:
The AO rejected the assessee's books of account, estimating a higher turnover and net profit. The CIT(A) found that the AO's reasons for rejecting the books were not substantiated and that the AO failed to provide a rationale for the estimated figures. The Tribunal agreed with the CIT(A), noting that the AO's approach was arbitrary and not supported by evidence. The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, affirming the CIT(A)'s order.

Conclusion:
The Tribunal dismissed both the appeals of the Revenue and the cross-objections of the assessee, upholding the CIT(A)'s decision to restrict the addition to 5% of the disputed purchases and rejecting the AO's estimation of turnover and net profit. The Tribunal found that the AO had validly assumed jurisdiction under Section 147, and that the CIT(A)'s estimation of additional gross profit was reasonable.

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