2017 (10) TMI 1557 - AT - Income Tax

Reopening of assessment u/s 147 - bogus purchases - Estimation of income - addition of peak credit in respect of purchases made through suppliers as per information of Sales Tax Department - HELD THAT - AO has accepted the corresponding sales made by the assessee. Books of Accounts were not rejected. However he has added the peak credit in respect of such purchases in assessee s income. By observing that only profit element embedded in bogus purchase which the assessee would have made should be added in the assessee s income the CIT(A) has restricted the addition to 12.5% of such purchases. So far as reopening is concerned we found that sufficient reasons were recorded by AO and he was justified in reopening the assessment. We found that during the year under consideration the assessee had offered higher GP. GP of last two years of the assessee was at 8.39% and 8.36%. During the year under consideration GP shown by the assessee was 8.83%. Thus the GP ratio of assessee is not only consistent as compared to the earlier years but even higher. As found that during the course of assessment proceedings the assessee had submitted the ledger account tax invoice bank statements and utilization of goods supplied. Statement of reconciliation of purchases and sales was also filed before the lower authorities. Keeping in view the nature of trade assessee was carrying on vis- -vis higher G.P. declared during the year and also totality of facts and circumstances of the case we modify the order of both the lower authorities and upheld the addition to the extent of 2% of the bogus purchases. Decided partly in favour of assessee.

Summary

Issues:
1. Justifiability of reopening u/s 147
2. Addition of alleged bogus purchases
3. Restriction of addition by CIT(A) to 12.5%

Analysis:

Issue 1: Justifiability of reopening u/s 147
The appellant contended that the reopening u/s 147 was unjustified, unwarranted, and illegitimate. The argument was based on the assertion that all details of purchases were furnished during the original assessment u/s 143(3), and the AO was satisfied with their genuineness. However, the Tribunal found that sufficient reasons were recorded by the AO for reopening the assessment. Therefore, it was held that the AO was justified in initiating the reassessment proceedings.

Issue 2: Addition of alleged bogus purchases
The AO added the amount of peak credit in respect of alleged bogus purchases to the appellant's income during reassessment. The CIT(A) restricted the addition to 12.5% of such purchases. The Tribunal observed that the AO did not dispute the quantitative details and day-to-day stock register maintained by the appellant. Since the genuineness of sales was not doubted, the Tribunal concluded that only the profit element embedded in the bogus purchases should be added to the appellant's income. Thus, the addition was limited to 12.5% of the purchases, considering the entirety of facts and circumstances.

Issue 3: Restriction of addition by CIT(A) to 12.5%
The Tribunal noted that the appellant had offered a higher Gross Profit (GP) during the year under consideration compared to the previous years. The GP ratio was consistent and even higher. Additionally, the appellant had submitted various documents and statements during the assessment proceedings to support the genuineness of purchases. Considering these factors and the nature of the appellant's trade, the Tribunal modified the order of the lower authorities and upheld the addition to the extent of 2% of the bogus purchases, contrary to the CIT(A)'s restriction to 12.5%.

In conclusion, the Tribunal dismissed the Revenue's appeal and partially allowed the appellant's appeal, directing the addition to be restricted to 2% of the alleged bogus purchases.