2019 (2) TMI 1663 - HC - Income Tax

Reopening of assessment u/s 147 - validity of notice as beyond the period of four years from the end of relevant assessment year - original assessment u/s 143(3) - suspicious sales - two reasons for reassessment, first non production of supporting documents relating to sales and second non disclosure of material facts as alleged transactions were not genuine - HELD THAT - We do not find any provision under which without being called to do so, the assessee along with return or even during the assessment, was required to produce such documents before the AO. If during the assessment proceedings, the AO desired to verify such sales, he could have called upon the assessee to produce the same. There was no unilateral duty of the assessee to produce such documents uncalled for. The very foundation, therefore, for the AO to record that the transactions were suspicious, thus, fails. We find that the very foundation for the AO to make such a suggestion is bereft of any material logic, thus, the later suggestion on his part, would automatically not survive. In plain terms, thus, the AO wishes to carry out fishing inquiry through reopening of assessment which as per settled law is impermissible. We also find that the the suggestion of the AO that income chargeable to tax had escaped assessment is itself questionable. Even if we accept the stand of the Revenue, according to the AO, the assessee had inflated its sale. Once these sales were duly reflected in the assessee's accounts, we do not understand how the Revenue can contend that the assessee's income had escaped assessment. This is not a case where the Revenue contends that the purchases made by the assessee were inflated and therefore, the assessee had tried to suppress the profit. The assessee had also questioned the quantification of the escaped income of ₹ 33.34 crore. In reply to the petition, the Assessing Officer stated that the same emerges from the information received by him from the investigation wing. This clearly reflects non application of mind on the part of the AO recording the reasons. - the impugned notice is quashed and set aside - Decided in favour of assessee.

Summary

Issues:
Challenging a notice of reopening of assessment beyond the statutory period, failure to disclose material facts, mechanical action by the Assessing Officer, live link with escapement of income chargeable to tax, maintaining bank account with suspicious transactions, lack of supporting documents for transactions, inflated sales, non-genuine transactions, impermissible fishing inquiry, escaped income quantification, non-application of mind by the Assessing Officer.

Detailed Analysis:

1. Reopening of Assessment Beyond Statutory Period:
The petitioner challenged a notice of reopening of assessment dated 29.3.2018, beyond the four-year period from the end of the relevant assessment year. The original assessment was completed after scrutiny, requiring a failure on the part of the assessee to disclose all material facts. The reasons recorded by the Assessing Officer suggested suspicions based on lack of supporting documents for sales transactions with specific parties. However, the court found no unilateral duty for the assessee to produce such documents without being called upon during assessment proceedings, rendering the reopening unsustainable.

2. Failure to Disclose Material Facts:
The Assessing Officer alleged that the assessee had not fully disclosed material facts, specifically regarding inflated sales and suspicious transactions with certain parties. The court noted that the foundation for these allegations lacked material logic, leading to the conclusion that the Assessing Officer was attempting a fishing inquiry, which is impermissible under settled law. The lack of genuine basis for the suspicions raised by the Assessing Officer undermined the validity of the notice of reopening.

3. Escapement of Income Chargeable to Tax:
The Assessing Officer contended that the income chargeable to tax had escaped assessment due to inflated sales by the assessee. However, the court found this argument questionable since the sales were duly reflected in the assessee's accounts. There was no indication that the assessee had suppressed profits by inflating purchases. The court highlighted the lack of a coherent basis for asserting that the income had escaped assessment, further weakening the grounds for the notice of reopening.

4. Quantification of Escaped Income:
The assessee questioned the quantification of the escaped income amounting to ?33.34 crores. The Assessing Officer justified this figure based on information from the investigation wing, indicating a lack of proper application of mind while recording the reasons for reopening the assessment. This lack of detailed reasoning and reliance on external information without thorough examination contributed to the court's decision to quash and set aside the impugned notice.

In conclusion, the High Court of Bombay held that the notice of reopening of assessment was unsustainable due to procedural irregularities, lack of genuine grounds, and insufficient justification for the allegations made by the Assessing Officer. The court emphasized the importance of adherence to statutory requirements and the need for a valid basis supported by concrete evidence before initiating reassessment proceedings.