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Facts
The assessee's return for AY 2009-10 was processed, and the case was later reopened based on information from the Sales Tax Department regarding alleged bogus purchases amounting to Rs. 20,47,232/-. The Assessing Officer (AO) added 12.5% of these purchases, totaling Rs. 2,55,904/-, as unexplained expenditure under Section 69C. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal noted that the reassessment proceedings were challenged on grounds of lack of tangible material and violation of the first proviso to Section 147, but these grounds were dismissed. However, regarding the addition, the Tribunal observed that the assessee's gross profit margin was around 7-8%, which was already offered to tax. Therefore, the addition was restricted.
Key Issues
Whether the reassessment proceedings were validly initiated and whether the addition made on account of alleged bogus purchases was justified, or if it should be restricted.
Sections Cited
147, 250, 69C
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI AMARJIT SINGH
आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the assessee is directed against the order passed by the ld. CIT(A) NFAC, Delhi, dated 12.06.2023 for A.Y. 2009- 10. The assessee has raised the following grounds before us: “1. The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as "the Ld. CIT(A)" erred in passing order dated 12.06.2023 under section 250 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"] without considering the factual and legal matrix of the case.
2. The Ld. CIT(A) erred in confirming the addition made by the Ld. Assessing Officer without appreciating the fact that the impugned reassessment proceedings under section 147 was initiated in violation of the first proviso to section 147.
P a g e | Megahertz Systems Pvt. Ltd. Vs. ACIT, Circle 5(2)(2) 3. The CIT(A) failed to consider the fact that the impugned reassessment proceedings under section 147 was initiated merely relying on the information received from the Sales Tax Department without any independent application of mind on the information received, thus the assessment was reopened on the basis of borrowed satisfaction 4. The CIT(A) failed to consider the fact that the impugned reassessment proceedings under section 147 was initiated merely on surmises and conjectures without being in possession of any tangible material.
5. The Ld. CIT(A) erred in confirming the order of Ld. Assessing Officer disregarding the fact that the reopening of assessment was on the basis of vague, unclear and ambiguous reasons.
The Ld. CIT(A) erred in confirming the addition made by the Ld. Assessing Officer without considering the fact that the impugned reassessment proceeding was completed by the Ld. Assessing Officer without providing the material or information in his possession and without providing any opportunity of cross examination of the witnesses relied upon by him and thus violating the law laid down by Honorable Supreme Court in the case of Kishanchand Chellaram v. CIT (1980) 125 ITR 713 and Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006.) 7. The Ld. CIT(A) erred in sustaining the addition made by the Ld. Assessing Officer under section 69C of the Act amounting to Rs.2,55,904/- being 12.5% of alleged bogus purchases without appreciating the fact that expenditure being alleged bogus purchase was duly accounted in the books, the source was explained, the provision of section 69C are not applicable as there was no unaccounted expenditure.
The Ld. CIT(A) erred passing the order under section 250 dated 12.06.2023 without appreciating the fact that the reassessment proceeding was completed on the incorrect premises that the Appellant had not provided any substantial evidence in respect of the alleged bogus purchase transaction whereas, the Appellant had brought out enough evidence on record to substantiate the transaction yet the Assessing Officer proceeded with the reassessment proceedings without disproving any of the evidences provided by the Appellant and without bringing out any new evidence contrary to those provided by the Appellant merely on the basis of surmises and conjectures.
Without prejudice to above, the Ld. CIT(A) erred in passing an order dated 12.06.2023 holding the impugned addition @ 12.5% of alleged bogus purchase without appreciating the fact that even if the alleged purchases are considered to be bogus, the impugned addition should be restricted to the extent of difference between the gross profit rate on purchases alleged to be bogus and gross profit rate on normally accepted purchases.
All the above grounds are without prejudice to each other. The appellant craves leave to add, delete, alter or modify delete any grounds of appeal, if required.”
P a g e | Megahertz Systems Pvt. Ltd. Vs. ACIT, Circle 5(2)(2) 2. Fact in brief is that return of income declaring total income of Rs.41,72,250/- was filed on 30.09.2009. The return was processed u/s 143(1) of the Act and subsequently the case was reopened by issuing of notice u/s 148 dated 03.03.2015 on the basis of information received from the sale tax department that assessee had made bogus purchases to the amount of Rs.20,47,232/- from the parties which were involved in providing accommodation bills to various entities. The assessee company was engaged in the business of dealing in computers and related parts. After perusal of the detail filed by the assessee the assessing officer observed that assessee had made purchases from the following parties which was listed by the sale tax department as accommodation entries providing entities. Sr. No. Name of the party Amount of PAN purchase 1. R.K. Traders 17,04,730 BHWPS6408N 2. Savita International 2,24,280 AAJPS7341H 3. Aryen Sales Corporation 1,18,222 AAQPS2518D On query, the assessee filed copies of ledger account of these parties and submitted that payment for purchases were made to these parties through account payee cheque only. However, AO had not agreed with the submission of the assessee and stated that aforesaid parties were not existed at the address provided by the assessee and the assessee had not furnished any information to establish the change of address of these parties. Therefore the AO observed that assessee failed to furnish the sufficient details to prove the genuineness of purchases made from the parties. However, the AO had agreed with the submission of the assessee that the assessee had received the goods against the corresponding sales made by the assessee. The AO also stated that there cannot be any sale without the purchases. The assessing officer observed that assessee has inflated its purchases as goods might have been purchased from the undisclosed parties, and there is embedded P a g e | Megahertz Systems Pvt. Ltd. Vs. ACIT, Circle 5(2)(2) undisclosed profit in the transaction of purchases which are made without bills on account of non-payment of sales tax etc. The AO further stated that against such purchases the assessee has obtained bills from the aforesaid Hawala operators. Therefore, the AO has made addition of 12.5 of total purchases of Rs.20,47,232/- to the amount of Rs.2,55,904/- being the profit elements embedded in such transactions to the total income of the assessee as unexplained expenditure u/s 69C of the Act.
The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.
Heard the ld. D.R and perused the material on record. In this case neither the assessee has attended nor filed any written submission. In spite of the fact that notice for the hearing was issued to the assessee on the following address as provided in Form No. 36 filed by the assessee before the ITAT:- “251/253, Tardeo Court, Opp. Swati Snacks, Tardeo Road, Near Bhatia Hospital, Grant Road West, Mumbai” However, the notice of hearing issued to the assessee on the aforesaid address given for communication by the assessee could not be served since the assessee was not existed at there as per the acknowledgment received from the Postal Authority with the remark “that the assessee has left from the aforesaid place.” The assessee has also not updated the address given for communication as per Form No. 36 of the appeal form filed before the ITAT. Under such circumstances the appeal filed by the assessee is adjudicated after hearing the ld. D.R and after perusal of material placed on record.
The assessee has raised ground no.2 to 4 on the issue of reassessment that reassessment proceedings initiated in the case of the P a g e | Megahertz Systems Pvt. Ltd. Vs. ACIT, Circle 5(2)(2) assessee were not based on any tangible material and the same was initiated in violation of the first proviso to Sec. 147 of the Act. The assessee has not furnished any evidences/detail to demonstrate that reassessment proceeding initiated u/s 147 of the Act was not valid. In the case of the assessee no assessment u/s 143(3) of the act was made and the return filed was processed u/s 143(1) of the Act. It appears from the assessment order that assessing officer has analysed the information provided by the Sale Tax Department and found that assessee has made purchases from the parties who were found by the Sale Tax Department indulged in providing accommodation entries. At the stage of initiation of reassessment proceedings it is not required to be conclusively proven that income had actually escaped assessment. Considering the aforesaid facts and circumstances we don’t find any merit in this ground of appeal
of the assessee, therefore, ground no. 2 to 6 regarding reopening of assessment are dismissed. Ground No. 1:
6. Being a general grounds of appeal it does not require any adjudication since we have dealt with the specific grounds of appeal filed by the assessee. Ground No. 7 to 9: Pertaining to merit of the addition of Rs.2,55,904/- being 12.5% of the bogus purchases made by the assessing officer:
7. During the course of assessment the AO stated that assessee could not file sufficient details to establish the genuineness of transactions made with aforesaid three parties, however, interalia the AO concluded that assessee has received the goods against the corresponding sales made by the assessee. The AO has also agreed with