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 tribunal found that specific information from investigation wing about entry operators providing bogus entries to the assessee satisfied the twin conditions for valid reassessment. The AO had reason to believe income escaped assessment based on credible sources indicating non-genuine purchases. However, the tribunal limited the disallowance to 6% of disputed purchases, following Pankaj K. Choudhary precedent that only the income component, not the entire transaction, should be taxed to prevent revenue leakage.

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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.

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