2023 (1) TMI 11 - AT - Income Tax

Reopening of assessment u/s 147 - reasons were recorded by the AO based on the information received from the investigation wing - HELD THAT - As considering the aforesaid facts and circumstances of the case we are of the considered view that it cannot be said that there is no reason to believe that the income chargeable to tax has escaped assessment because such exercise of reopening has been made only after due inquiries. From the above judgment of the Hon ble Gujarat High Court in the case of Peass Industrial Engineers (P.) Ltd 2016 (8) TMI 280 - GUJARAT HIGH COURT it is vivid that function of the assessing authority at the stage of recording reasons is to administer the statute and what is required is a reason to believe and not to establish fact of escapement of income and therefore looking to the scope of section 147 as also sections 148 to 152 of the Act even if scrutiny assessment has been undertaken if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the assessee has escaped assessment it is always open for the assessing authority to reopen the assessment. Therefore based on these facts and circumstances we do not find any infirmity in the reasons recorded by Assessing Officer hence the Cross Objection No.1 raised by the assessee is dismissed. Estimation of income - Bogus purchases - HELD THAT - As the issue is squarely covered by the judgment of Co-ordinate Bench in the case of Pankaj K. Chaudhary ( 2021 (10) TMI 653 - ITAT SURAT and there is no change in facts and law and the Ld. DR for the Revenue has failed to controvert the findings of the Co-ordinate Bench. We note that Co-ordinate Bench has sustained the addition @ 6% of bogus purchases therefore respectfully following the binding precedent we partly allow the appeal of the Revenue.

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act.
2. Confirmation of addition based on estimation of suppressed profit.
3. Consideration of documentary evidence and procedural fairness.
4. Application of the concept of real income and the rate of addition for alleged non-genuine purchases.

Detailed Analysis:

1. Validity of Notice under Section 148:
The assessee challenged the validity of the notice issued under Section 148, arguing that it was issued without fresh tangible material, independent application of mind, and valid approval under Section 151 of the Act. The Tribunal noted that the Assessing Officer (AO) reopened the case based on information from the VAT Department regarding bogus purchases. The AO's reasons for reopening were based on information received from the Investigation Wing, which suggested that the assessee's income had escaped assessment. The Tribunal cited the Gujarat High Court's judgment in Peass Industrial Engineers (P.) Ltd., which upheld the validity of reopening assessments when supported by tangible material. Consequently, the Tribunal dismissed the assessee's objection, finding no infirmity in the AO's reasons for reopening the assessment.

2. Confirmation of Addition Based on Estimation of Suppressed Profit:
The assessee contested the addition of Rs. 77,13,105/- based on an estimated 5% profit suppression on purchases from two suppliers. The Tribunal referred to the Co-ordinate Bench's decision in Pankaj K. Chaudhary, which dealt with similar issues of bogus purchases and determined that a 6% addition was reasonable. The Tribunal upheld the CIT(A)'s decision to restrict the addition to 5% of the impugned purchases, noting that the facts were consistent with other cases where similar additions were made.

3. Consideration of Documentary Evidence and Procedural Fairness:
The assessee argued that the addition was based solely on information from the Sales Tax Department without considering extensive documentary evidence, such as purchase bills, confirmations, stock registers, and bank statements. The Tribunal acknowledged the evidence provided by the assessee but emphasized that the AO's decision was supported by substantial information from the Investigation Wing. The Tribunal also noted that the AO's decision was made after due inquiries, and the procedural fairness was maintained as per the statutory provisions.

4. Application of the Concept of Real Income and Rate of Addition:
The assessee requested that the addition be restricted to 1% of the alleged non-genuine purchases, arguing that normal profits corresponding to the disputed purchases had already been offered to tax. The Tribunal referred to the Co-ordinate Bench's decision in Pankaj K. Chaudhary, which found that a 6% addition was appropriate to prevent revenue leakage. The Tribunal decided to follow this precedent, thereby partly allowing the Revenue's appeal and sustaining the addition at 6% of the bogus purchases.

Conclusion:
The Tribunal dismissed the assessee's appeal regarding the validity of the notice under Section 148 and the procedural fairness of the assessment. It upheld the CIT(A)'s decision to restrict the addition to 5% of the bogus purchases but modified it to 6% in line with the Co-ordinate Bench's decision in Pankaj K. Chaudhary. The Tribunal's decision emphasizes the importance of tangible material and substantial evidence in reopening assessments and determining additions for bogus purchases.

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