2017 (9) TMI 1761 - AT - Income Tax

Validity of the reassessment proceedings - reasons to believe - period of four years from the end of the relevant assessment year expired - bogus purchases - Held that - Find substantial force in the contention of the Ld. A.R that now when a period of four years from the end of the relevant assessment year, viz. A.Y. 2007-08 had already expired on 31.03.2012, therefore, the A.O while issuing the notice u/s 148, dated 21.03.2014 remained under a statutory obligation to have obtained the sanction of either of the authorities contemplated under the proviso of Sec. 151(1). We find that a perusal of the Reasons to believe clearly reveals that the A.O had obtained the approval of the Additional CIT, Range-9(3), Mumbai u/s 151(2), which had been granted by the latter authority, vide letter. That on deliberation on the aforesaid facts as stands gathered from the copy of the Reasons to believe (footnote), reveals that the A.O was absolutely aware that it was a case of reopening and not as that of a fresh assessment u/s 147. The approval as contemplated per the mandate of proviso of Sec. 151(1) had not been obtained from the appropriate authority, failing which the very issuance of the notice u/s 148 and the framing of the reassessment u/s 147 r.w.s. 143(3) cannot be sustained and is liable to be quashed. Now when the assessee had substantially discharged the Onus as was cast upon it to prove the genuineness and veracity of the purchases made from the aforesaid supplier parties, therefore, no part of such purchases were liable to be disallowed in the hands of the assessee. We thus not being persuaded to accept the scaling down of the addition by the CIT(A) from 12.5% to 5% of the aggregate value of such purchases, which to our considered view is not supported by any rhyme or reason, thus, set aside the order of the CIT(A) and hold that no addition/disallowance of any part of the purchases claimed by the assessee to have been made from the aforementioned supplier parties was called for in the hands of the assessee. The Ground of Appeal No. 2 wherein the additions made by the A.O had been assailed before us by the assessee on merits, is allowed in terms of our aforesaid observations

Issues Involved:
1. Validity of Reassessment Proceedings under Section 147/148 of the Income Tax Act.
2. Disallowance of Purchases as Unexplained Expenditure.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148 of the Income Tax Act:

The primary issue was whether the reassessment proceedings initiated under Section 147/148 were valid. The assessee contended that the Assessing Officer (A.O.) had initiated reassessment based on borrowed satisfaction from the Investigation Wing without independent application of mind. The Tribunal noted that the A.O. had merely referred to information from the Investigation Wing, which did not suffice the requirement of recording a bonafide belief that income had escaped assessment. The Tribunal emphasized that the satisfaction for reassessment must be the A.O.'s own and not borrowed from another authority. Citing the case of Signature Hotels P. Ltd. Vs. ITO, the Tribunal held that the reassessment proceedings were invalid due to the lack of independent application of mind by the A.O.

Further, the Tribunal found that the approval for reassessment was obtained from the Additional Commissioner of Income Tax, which was not the appropriate authority as per the proviso to Section 151(1). The Tribunal, referencing the case of Ghanshyam K. Khabrani Vs. ACIT, concluded that the reassessment proceedings were invalid due to the improper sanction from an unauthorized authority.

2. Disallowance of Purchases as Unexplained Expenditure:

The second issue concerned the disallowance of purchases treated as unexplained expenditure. The A.O. had disallowed 12.5% of the purchases, concluding they were bogus based on statements from third parties and lack of evidence. The CIT(A) reduced the disallowance to 5% of the net purchases, considering the retraction of statements and lack of cross-examination opportunity.

The Tribunal observed that the assessee had established a one-to-one correlation between purchases and sales and provided affidavits from suppliers confirming the transactions. The Tribunal noted that the CIT(A) had erred in not admitting additional evidence that supported the genuineness of the purchases. The Tribunal found that the lower authorities had not sufficiently considered the evidence provided by the assessee and had relied on retracted statements without allowing cross-examination.

The Tribunal held that the assessee had substantially discharged the onus of proving the genuineness of the purchases and that no part of such purchases was liable to be disallowed. Consequently, the Tribunal set aside the CIT(A)'s order and deleted the entire disallowance of purchases.

Separate Judgments:

The Tribunal delivered a consolidated order addressing the appeals of M/s Vaman International Pvt. Ltd. for A.Y. 2007-08 and A.Y. 2008-09, and M/s Tangent Furniture Pvt. Ltd. for A.Y. 2007-08. The Tribunal allowed the appeals of the assessees on both the validity of reassessment proceedings and on merits, while dismissing the revenue's appeal.

Conclusion:

The Tribunal quashed the reassessment proceedings due to lack of independent application of mind and improper sanction. On merits, the Tribunal deleted the disallowance of purchases, holding that the assessee had sufficiently proved the genuineness of the transactions. The appeals of the assessees were allowed, and the revenue's appeal was dismissed.

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