2018 (9) TMI 2066 - AT - Income Tax

Validity of reopening of assessment u/s 147 - Bogus purchases - HELD THAT - Though it is a fact that assessment in case of the assessee was originally completed u/s. 143(3) of the Act however it is evident from the facts on record that specific information came to the possession of the Assessing Officer after completion of the original assessment revealing that certain purchases made by the assessee was not genuine. Therefore it cannot be said that there was no tangible material in the possession of the AO after completion of the original assessment. At the time of reopening of assessment u/s.147 AO has to form a prima facie belief that income has escaped assessment. The belief to be formed by the AO must have a rational nexus with the information available on record. In the present case the AO had in his possession specific information/material indicating escapement of income which came to his possession after completion of the original assessment. That being the case in our considered opinion there is no deficiency in the proceedings initiated u/s. 147 of the Act. Accordingly we dismiss the ground raised by the assessee. Bogus purchases - Since the assessee failed to conclusively prove the fact that purchases made from the concerned party was genuine coupled with the fact that there was specific information from DGIT (Inv) as well as Sales Tax Department that the concerned party is a hawala operator it has to be believed that the purchases claimed to have been made from the concerned party is not genuine. However it is a fact on record that the AO has not disputed or disturbed the sales effected by the assessee - there is a possibility that the assessee has purchased goods from sources other than the declared source to avoid payment of VAT/other taxes. In view of the aforesaid it will be appropriate to tax the profit element embedded in such bogus purchases. On considering the overall facts and circumstances of the case and the prevalent VAT rate we are of the view that the addition on account of bogus purchases should be restricted to 12.5% - The assessee gets relief to that extent. This ground is partly allowed. Violation of rules of natural justice - There is no specific argument by the learned AR on this issue. Even otherwise also on analysing the factual matrix of the case we are of the view that full opportunity was given to the assessee to prove the genuineness of purchases made both by the Assessing Officer as well as by the CIT(A). That being the case the plea of the assessee that it was not provided proper opportunity is unacceptable. Fact remains that it is the assessee who has shown purchases from a party identified as hawala operator. Therefore the onus is entirely on the assessee to prove the genuineness of the purchases by either producing the concerned party or obtaining confirmations from him. The assessee has failed to do any such thing. Moreover notices/summons issued by the AO to the concerned party in the given address have returned unserved. In these circumstances the assessee cannot come forward with a plea that principle of natural justice is violated. Therefore there being no merit in this ground it is dismissed.

Summary

Issues:
1. Validity of re-opening of assessment u/s. 147 of the Act.
2. Addition of Rs. 37,20,244/- on account of bogus purchases.
3. Violation of rules of natural justice.

Issue 1: Validity of re-opening of assessment u/s. 147 of the Act:
The appellant challenged the re-opening of assessment under section 147 of the Act based on information received after the original assessment was completed. The Assessing Officer re-opened the assessment due to specific information indicating income escapement from bogus purchases made by the appellant. The appellant failed to conclusively prove the genuineness of purchases from a party identified as a hawala operator. The Tribunal held that the re-opening was valid as there was tangible material available post-original assessment, justifying the belief of income escapement. The Tribunal dismissed the appellant's challenge on this ground.

Issue 2: Addition of Rs. 37,20,244/- on account of bogus purchases:
The appellant contested the addition of Rs. 37,20,244/- on the grounds of producing evidence such as purchase invoices, delivery challans, and payment details. However, the Assessing Officer found discrepancies in the evidence provided, including lack of proof of transportation and delivery of goods. The Tribunal noted that the appellant failed to provide conclusive evidence of the purchases' genuineness, and there were indications from the DGIT (Inv) and Sales Tax Department regarding the party's dubious nature. The Tribunal allowed a relief of 12.5% of the disputed amount, considering the profit element in the bogus purchases.

Issue 3: Violation of rules of natural justice:
The appellant raised the issue of violation of natural justice rules, alleging inadequate opportunity to prove the genuineness of purchases. The Tribunal found that the appellant had sufficient opportunity to substantiate the purchases but failed to do so effectively. Notices and summons to the concerned party remained unserved, and the appellant could not establish the purchases' authenticity. Therefore, the Tribunal dismissed the appellant's claim of a violation of natural justice.

In conclusion, the Tribunal partly allowed the appeal, granting relief on the addition of bogus purchases while dismissing challenges to the validity of re-opening assessment and violation of natural justice. The decision was pronounced on 12th September 2018 by the Appellate Tribunal ITAT Mumbai, with detailed analysis provided for each issue raised in the appeal.