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2023 (12) TMI 25 - ITAT AHMEDABADReopening of assessment u/s 147 - Addition of non-genuine and merely accommodation entries - assessment was reopened within 4 years from the end of the assessment year - assessee was named as beneficiary of the accommodation entries towards bogus purchases from said company namely Sampada Chemicals Limited - HELD THAT:- We do not find any merit in the contention of the assessee that reopening of the assessment was not validly made nor it could be said that there is no application of mind by the AO before reopening of the concluded assessment in the case of the assessee, as the AO after receipt of information from DDIT, Inv. , Mumbai made its own enquiries before reopening of the assessment u/s 147 in the case of the assessee . There was a live nexus between the incriminating material available with the AO and reasons to believe that income of the assessee has escaped assessment, as at the time of reopening , the sufficiency of material to conclusively prove that income has escaped assessment is not required but a prima-facie view is required based on material on record having live nexus with formation of reasons to believe that income has escaped assessment. Thus, it is not a case of borrowed satisfaction , but there was application of mind by the AO also as he made enquiries after receipt of material from DDIT, Inv., Mumbai , and then arrived at the decision that income of the assessee has escaped assessment based on incriminating material available with the AO and it is a fit case which warrant invocation of Section 147. Denial of natural justice - There is a breach of principles of natural justice as copies of statements as well other relied upon incriminating material ought to have been provided by AO to the assessee, before condemning assessee and saddling with tax liabilities. Further, before prejudicing assessee and saddling with tax liability , the said Mr. Vipul Vidur Bhatt ought to have been offered by Revenue for cross examination by the assessee. If the AO did not do so, it was incumbent on ld. CIT(A) to have provided the copies of relied upon documents including statement of Mr. Vipul Vidur Bhatt as well offered said Mr. Vipul Vidur Bhatt for cross examination by the assessee. Right of cross examination is a valuable right but at the same time the said right is not absolute. It will depends upon the factual matrix of the case. Fair hearing as well adherence to principles of natural justice are the two important pillars in robust judicial delivery system. The Revenue has also not brought on record as to the manner in which assessments were framed in the case of Mr. Vipul Vidur Bhatt as well in the case of M/s Sampada Chemicals Limited, and whether finality was achieved in the tax-proceedings against them under the 1961 Act. The fresh confirmation letters post search, affidavits from the said company, production of the responsible functionaries of the said company Sampada Chemicals Limited before authorities, the Audited Accounts of Sampada Chemicals Limited for the relevant period etc. could have been produced by the assessee to prove that purchases were genuine, as discovery of the incriminating material during search and post search enquiries have cast serious doubt on the purchases made by the assessee from said company. There could be several reasons for arranging bogus accommodation entries towards bogus purchases, which could be to suppress profits and evade taxes, or to arrange for the invoices at higher value to reflect purchases in the books of accounts etc. so on and so forth. Estimation of income on bogus purchases - It will be fair that profit element embedded in the aforesaid purchase @12.5% be brought to tax instead of bringing to tax the entire purchase price as the assessee had produced purchase register, consumption register but no defect per-se in consumption of Sodium Alginate(Textile Grade) was pointed out by the AO or by ld. CIT(A), which lead to the conclusion that the purchases of Sodium Alginate(Textile Grade) were made by the assessee from some other suppliers but the bogus invoices were taken from Sampada Chemicals Limited to suppress the profits , and end of justice will be met if profit embedded in these purchases are estimated @12.5% which shall be brought to tax. Thus, the assessee gets part relief, wherein additions to the tune of Rs. 5,21,347/- are sustained. The estimation requires some guess work, but the same has to be reasonable, fair and honest, which we hold that 12.5% estimated profit embedded in purchases as held by us to be added to the income of the assessee is fair, reasonable and honest. The reference is drawn to the decision of Hon’ble Supreme Court in the case of Kachwala Gems v. JCIT, Jaipur [2006 (12) TMI 83 - SUPREME COURT] Decided partly in favour of assessee.
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