2018 (9) TMI 2035 - AT - Income Tax

Reopening of assessment u/s 147 - assessment was reopened which is based on new facts and information came to the knowledge of the Assessing Officer on the basis of the report of DIT(Inv.) as well as statement recorded by the Investigation Wing of one Shri Vijay -bogus share application money/ bogus unsecured loan/ bogus sale and purchase - HELD THAT - In the case in hand, AO has duly examined the purchases made by the assessee and also observed that some of the purchases are not verifiable and accordingly made the addition being trading addition while passing the order U/s 143(3) of the Act - reopening after four years is not permitted just to review the earlier order passed by the Assessing Officer U/s 143(3) of the Act based on the information received from the Investigation Wing on the same issue, which was subject matter of enquiry and investigation by the Assessing Officer while passing the order U/s 143(3) of the Act. Even otherwise the reasons recorded by the Assessing Officer are very vague which suggests that the Assessing Officer has not applied his mind and just recorded the reasons as borrowed from the report of the Investigation Wing without specifying the nature of transaction whereas the assessee had only one transaction of purchase from the said party namely M/s Kothari Impex - we hold that the reopening is not valid and the same is liable to be quashed. Accordingly, the Assessing Officer has framed reassessment without jurisdiction and therefore, the reassessment order is not valid and the same is set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of proceedings under Sections 147/148 of the Income Tax Act, 1961.
2. Legitimacy of trading additions based on Gross Profit (G.P.) rates applied by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

Issue-wise Detailed Analysis:

1. Validity of Initiation of Proceedings under Sections 147/148 of the Income Tax Act, 1961:

The assessee challenged the reopening of assessments for the years 2009-10 and 2010-11. The primary contention was that the original assessments were completed under Section 143(3) of the Act, and the books of accounts were already scrutinized and certain purchases were deemed unverifiable, leading to trading additions. The reopening was initiated after four years, invoking the proviso to Section 147, which restricts reopening unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

The assessee argued that the Assessing Officer (A.O.) had already examined the purchases and made additions in the original assessment. Thus, reopening on the same grounds, especially after four years, was not sustainable. The reasons recorded by the A.O. were based on the report from the DIT (Investigation) and were deemed vague and borrowed, indicating a lack of application of mind. The Tribunal cited several decisions, including M/s Dwarka Gems Ltd. Vs DCIT, to support the view that reopening based on subsequent information without new material facts is not valid.

The Tribunal found that the A.O. had not specified the nature of transactions clearly in the reasons recorded for reopening and had relied on vague information. This was seen as an attempt to conduct a roving inquiry, which is not permissible. The Tribunal held that the reopening was not valid as it was essentially a review of the original assessment, which is not allowed under the law. Consequently, the reassessment orders were quashed.

2. Legitimacy of Trading Additions Based on G.P. Rates:

For the assessment year 2009-10, the CIT(A) confirmed a trading addition by applying a G.P. rate of 9% against the declared G.P. rate of 5.68%. The assessee contended that the A.O. had already made a trading addition of ?2,50,000 in the original assessment after rejecting the books of accounts. The reassessment leading to a trading addition of ?62,44,358 was deemed arbitrary and based on conjectures.

Since the Tribunal quashed the reopening of the assessment, it did not delve into the merits of the trading addition for the year 2009-10, rendering the issue infructuous.

For the assessment year 2010-11, the CIT(A) upheld the A.O.'s action of treating purchases from Kothari Impex as bogus and made an addition by applying a G.P. rate of 9% on the turnover, enhancing the addition significantly. The assessee argued that the Tribunal had previously disapproved the application of G.P. rate by the A.O. and had restricted the addition to 15% of the alleged unverifiable purchases.

The Tribunal noted that the facts and circumstances for the year 2010-11 were identical to those of 2009-10. Given that the reopening was quashed for being invalid, the Tribunal did not need to address the merits of the trading addition for 2010-11 either.

Conclusion:

The Tribunal concluded that the reopening of assessments for both years was not valid due to non-compliance with the proviso to Section 147 and the vague nature of the reasons recorded. Consequently, the reassessment orders were quashed, and the appeals of the assessee were allowed. The Tribunal did not address the merits of the trading additions due to the quashing of the reassessment orders.