2017 (6) TMI 1305 - AT - Income Tax

Reopening of assessment - whether AO has rightly reopened the assessment by issuing notice under Section 148? - bogus purchase of diamonds - HELD THAT - After processing u/s 143(1) of the Act, the Assessing Officer received a report from the Deputy Director of Income Tax (Investigation)-II, Mumbai regarding bogus purchase of diamonds from M/s Daksh Diamonds, Mumbai. Therefore, the report received from Deputy Director of Income Tax (Investigation)- II, Mumbai was the basis for reopening of assessment. Hence, it cannot be said that the reopening was made on the basis of the material already existed on record. This Tribunal is of the considered opinion that when the Assessing Officer received information with regard to bogus purchase of diamonds from M/s Daksh Diamonds, she rightly reopened the assessment by issuing notice under Section 148 therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Bogus purchase of diamonds - information provided by the Deputy Director of Income Tax (Investigation)-II, Mumbai was proved beyond doubt. When the assessee claims that the diamonds were purchased and produced the ledger and the details of payment made to M/s Daksh Diamonds, it is obligation on the part of the AO to examine the necessity of the assessee to make payment through banking channel. Merely because M/s Daksh Diamonds has not responded to the letters issued by the Assessing Officer under Section 133(6) of the Act, that would not create any doubt in the mind of the Assessing Officer that the information received from Deputy Director of Income Tax (Investigation)-II, Mumbai would be proved. The Income-tax Act confers ample power and authority on the AO to enforce the attendance of M/s Daksh Diamonds and call for records from them to verify the transaction made by the assessee. The Assessing Officer is not expected to leave the matter as such merely because M/s Daksh Diamonds has not responded to her letters issued under Section 133(6) of the Act. If the Assessing Officer did not want to proceed after issuing letters under Section 133(6) of the Act, the assessee cannot be penalized on presumption. The matter would stand differently in case the Assessing Officer proceeds further after issuing notice under Section 133(6) of the Act, and establish that the assessee has not purchased any diamond from M/s Daksh Diamonds. In this case, the Assessing Officer has not taken any further step after issuing the notice under Section 133(6) - This Tribunal is of the considered opinion that there cannot be any disallowance / addition on the basis of presumption that the information received by the AO was established beyond reasonable doubt. Therefore, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of both the authorities below are set aside and the addition is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment under Section 147 of the Income-tax Act, 1961.
2. Justification of reopening based on material received after processing return.
3. Merit of addition made by the Assessing Officer regarding bogus purchase of diamonds.

Analysis:

Issue 1: Reopening of assessment under Section 147
The appellant challenged the reopening of assessment under Section 147, arguing that once the assessment proceeding is terminated by law, it cannot be reopened without material disclosing income escapement. The appellant relied on the Madras High Court judgment in TANMAC India v. DCIT, emphasizing the need for specific reasons to believe in income escapement. The respondent, however, justified the reopening based on a report disclosing bogus entries of purchase. The tribunal noted that the Madras High Court required a valid reason for reopening, which was absent in the present case. However, the tribunal found the reopening justified due to new information received post-processing of the return, distinguishing it from the precedent relied upon.

Issue 2: Justification of reopening based on new material
The tribunal examined the Madras High Court's stance on the sufficiency of reasons for reassessment and the need for verification of reasons recorded prior to issuing a notice under Section 148. In this case, the new information received from the Deputy Director of Income Tax (Investigation)-II, Mumbai, regarding bogus purchases formed the basis for reopening. The tribunal upheld the reopening, emphasizing the necessity of valid grounds for reassessment, which were present in the form of the report received post-initial processing.

Issue 3: Merit of addition regarding bogus purchase of diamonds
The appellant contended that genuine purchases were made from M/s Daksh Diamonds, supported by banking transactions. However, the Assessing Officer deemed the entry as bogus due to lack of purchase bills and non-response from M/s Daksh Diamonds to verification requests. The tribunal noted that the burden of proof lies with the Assessing Officer to establish the lack of genuine transactions. Without further steps taken post-verification notice under Section 133(6), the tribunal held that the addition was not justified, emphasizing the need for concrete evidence before making such additions.

In conclusion, the tribunal allowed the appeal, setting aside the addition of ?9,70,515, highlighting the importance of valid reasons for reopening assessments and the necessity of concrete evidence to support additions in income tax proceedings.