2024 (5) TMI 582 - AT - Income Tax

Section 147 reopening upheld for bogus purchases but disallowance limited to 6% income component only

The ITAT Surat upheld the AO's reopening of assessment under Section 147 regarding bogus purchases. Following the SC precedent in A.L.A. Firm v. CIT, the ... Reopening of assessment - reason to believe - bogus purchases - HELD THAT:- A three Judges bench of Hon'ble Apex Court in the case of A.L.A. Firm v. CIT [1991 (2) TMI 1 - SUPREME COURT] after an elaborate discussion of the subject opined that the jurisdiction of the Income Tax Officer to reassess income arises if he has, in consequence of specific and relevant information coming into his possession subsequent to the previous concluded assessment, reason to believe that income chargeable to tax had escaped assessment - even if the information be such that it could have been obtained by the I.T.O. during the previous assessment proceedings by conducting an investigation or an enquiry but was not in fact so obtained, it would not affect the jurisdiction of the Income Tax Officer to initiate reassessment proceedings, if the twin conditions prescribed under Section 147 of the Act are satisfied. As observed earlier by us, not only there existed new information with the AO from the credible sources, but also he had applied his mind and recorded the conclusion that the purchases claimed were non-genuine and therefore bogus, clearly meaning that what was disclosed was not true and false. The requirements of section 147 r.w.s. 148 have clearly been met; and the reopening was validly initiated. See Pankaj K. Choudhary [2021 (10) TMI 653 - ITAT SURAT] as clearly held that when assessing officer received information from the investigation wing that two well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified. Decided against assessee. Estimation of income - Bogus purchases - As decided in Pankaj K. Choudhary [2021 (10) TMI 653 - ITAT SURAT] it is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. Issues Involved:1. Validity of Reopening of Assessment u/s 147.2. Addition on Account of Bogus Purchases.Summary:1. Validity of Reopening of Assessment u/s 147:The assessee challenged the reopening of assessment arguing that the notice u/s 148 was issued without proper approval u/s 151 and that there was no application of mind. The Tribunal, after considering the facts and precedents, upheld the reopening of assessment. It was observed that new information from credible sources indicated that the purchases claimed were non-genuine and therefore bogus. The Tribunal cited the Hon'ble Supreme Court's judgment in Phul Chand Bajrang Lal and another vs. ITO and the Hon'ble Jurisdictional High Court's decisions in Peass Industrial Engineers (P) Ltd vs. DCIT and Pushpak Bullion (P) Ltd. vs. DCIT, which supported the validity of the reopening based on new and specific information.2. Addition on Account of Bogus Purchases:The Revenue argued that the CIT(A) erred in restricting the addition to 6% of the bogus purchases without considering relevant judicial precedents and the fact that the books of account were rejected by the AO. On the other hand, the assessee contended that the entire addition should be deleted as the purchases were made through banking channels and were duly confirmed.The Tribunal referred to the Co-ordinate Bench's decision in the case of Pankaj K. Choudhary, where it was held that disallowance at the rate of 6% of bogus purchases was reasonable. The Tribunal noted that the AO had not conducted an independent investigation and had solely relied on the report of the Investigation Wing. It was also observed that the sales were not disputed, and no sales could occur without purchases. Consequently, the Tribunal upheld the CIT(A)'s decision to restrict the addition to 6% of the bogus purchases, dismissing both the Revenue's and the assessee's appeals.Conclusion:The Tribunal dismissed the appeals filed by both the Revenue and the assessee, upholding the validity of the reopening of assessment u/s 147 and the restriction of addition to 6% of the bogus purchases. The order was pronounced on 06/05/2024 in the open court.