In a recent ruling, the Surat Bench of the Income Tax Appellate Tribunal ( ITAT ) held that reassessment under section 147 of the Income Tax Act was valid on reopening already closed assessment. The Tribunal upheld that both Sections 147 and 153C can be used interchangeably based on the situation.
In this case, the assessee, proprietor of Kumawat Export and engaged in the diamond business, filed a return for AY 2009-10 on 28.07.2009. The case was reopened under Section 147 based on a search conducted by the Deputy Director of Income Tax on 03.10.2013 on the Bhanwarlal Jain Group, which revealed the group provided accommodation entries through non-genuine entities.
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During the investigation, numerous documents were found on the assessee that proved that he availed bogus purchase entries worth ₹80.98 crores from 11 entities managed by the Bhanwarlal Jain Group. In response to the show cause notice, the assessee claimed to act only as a commission agent, with transactions recorded in principal parties’ accounts and denied involvement in the Bhanwarlal Jain case.
The assessee availed such accommodation entries as bogus purchases aggregating Rs.80.98 crores from 11 non-genuine entities managed by the Bhanwarlal Jain Group. The Assessing Officer recorded the names of such entities and the corresponding accommodation entries provided by such entities. Based on this information, the assessee’s case was reopened, and a show cause notice was issued.
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The AO submitted that various pieces of evidence were collected, proving that Banwarlal Jain Group was engaged in providing accommodation entries to various parties regarding bogus sales and purchases. The assessee has availed accommodation entries to the extent of Rs 80.98 crores and utilised such bogus purchases to suppress his profit to that extent. The AO ordered a disallowance of Rs. 20.24 crores in the assessment order passed under Section 143(3) of the Act.
Dissatisfied by the order, the assessee filed for an appeal to the Commissioner of Income Tax (Appeals)[CIT(A)]. The CIT(A) granted partial relief to the assessee in sustaining the disallowance at 12.5% of the total purchase shown from various parties managed by Bhanwarlal Jain and his associates.
In the appeal moved by the revenue against the order of the CIT(A), the departmental representative (DR) for the revenue argued that the purchases were adequate and the the CIT(A) has made an error in reducing the disallowance. The DR asserted that the assessee had availed accommodation entries of 80 crores, and the addition made by the AO should be allowed at 25% of the purchase as it was held in the case of Vijay Proteins Ltd.
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The assessee’s authorised representative argued that the sale transactions were not disputed and that the book of accounts was not rejected. The AR asserted that the AO carried out no independent investigation to verify the facts of the investigation and that none of the non-genuine entities were examined. The AR asserted that only 6% disallowance was held of disputed purchases in cases involving the Bhanwarlal Jain Group in previous rulings.
The tribunal after considering both sides held that the CIT(A)’s reduction of the disallowance was fair as neither th book result of the assessee was rejected nor the sales of assessee was disputed. The assessee claimed to be commisiion agent but no specific findins wa given by the AO on such facts. The CIT(A) had estimated the suppressed profit at 12.5% and it was upheld by the court and the Revenue’s appeal was dismissed on that matter
In the case of reopening the assessemnt under Section 147, the assessee argued that the AO proceeding with the reassessment and notice under section 147 and 148 were bad in law and that provisions of Section 153C is what shoukd be applied in the present case.
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The Tribunal held that while section 153C enables the AO to assess or reassess income where incriminating material, assets or documents are found during search under section 132 against someone. The jurisdictional requirement to begin proceedings under Section 153C was not met in this instance since the searched person’s assessing officer failed to take a satisfaction note and forward the necessary details to the assessee’s assessing officer.
The two member bench of the ITAT consisting of Pawan Singh ( Judicial member ) and Bijayananda Pruseth ( Accountant Member ) relied on the case of Anderson Biomet (P.) Ltd. vs. ACIT and the case of Silverdale Inn (P.) Ltd. vs. ITO on which the respective courts upheld the validity of reassessment under 147 and issuance of notice under 148 was valid even when there is a search and seizure being conducted on the assessee. As a result the reassessment was held valid.
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