2018 (12) TMI 1910 - AT - Income Tax

Reopening of assessment u/s 147 - Addition of bogus purchases - CIT(A) restricted profit element involved in its modus operandi at 12.50% of the alleged bogus purchases - HELD THAT - According to the formation of belief, the assessee has availed unsecured loans from concerns of Shri Bhanwarlal Jain. However, while passing assessment order, it revealed to the AO that loans were not availed by the assessee. The assessee in its objection has been contended that he has no concern with Shri Bhanwarlal Jain. He is a commission agent who purchased and sold goods on behalf of principal on commission basis and account only commission in the profit loss account. AO has neither transmitted the information received by him to the assessee nor considered while disposing of the objection filed by the assessee. As before the ld.CIT(A), the assessee has raised specific objection about formation of belief vis- -vis information available to the AO. CIT(A) has also not dealt those objection of the assessee. CIT(A) observed that AO got information from the investigation wing, Mumbai indicating that the assessee was beneficiary of accommodation entry from entry operators. In our opinion, this is a general statement instead of considering exact nature of issue contested by the assessee. The assessee has contended that reopening was made on account of availing unsecured/unexplained loans, whereas the addition was made on account of bogus purchases. There is a vast difference in-between both these aspects. CIT(A) has not dealt with this aspect. Therefore, we are of the view meaning of expression and also employed in section 147 of the Act, reopening of the assessment in the present case is not sustainable. We allow this ground of appeal and quash the reassessment order - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under section 148 of the Income Tax Act, 1961.
2. Addition on account of bogus purchases claimed by the assessee.

Detailed Analysis:

1. Reopening of Assessment under Section 148:
The assessee contended that the CIT(A) erred in upholding the reopening of the assessment by issuing a notice under section 148. The AO reopened the assessment based on information from the DGIT(Inv.), Mumbai, which indicated that the assessee had received unsecured loans aggregating to ?10,13,41,508/- from certain parties, which were deemed to be accommodation entries and not genuine transactions. The assessee argued that the AO did not make any addition under section 68 for unexplained loans in the assessment order but instead treated the transactions as bogus purchases. Citing judgments from the Hon’ble Bombay High Court, Delhi High Court, and Gujarat High Court, the assessee argued that if no addition is made on the issue for which the assessment was reopened, no addition on other issues can be made. The Tribunal agreed with the assessee, stating that the AO failed to establish a live-link between the information available and the formation of belief that income had escaped assessment. Consequently, the reopening of the assessment was deemed unsustainable.

2. Addition on Account of Bogus Purchases:
The AO made an addition of ?10,15,84,690/- on account of bogus purchases claimed by the assessee. On appeal, the CIT(A) restricted the profit element involved in the modus operandi to 12.50% of the alleged bogus purchases. The Revenue challenged the deletion of the addition over and above 12.50%, whereas the assessee challenged the retention of the addition by 12.5%. The Tribunal noted that the AO initially reopened the assessment for unexplained loans but later treated the transactions as bogus purchases, which was inconsistent with the initial reason for reopening. The Tribunal held that the AO could not change the reason for reopening after the assessment had been reopened, and since no addition was made on the basis of the initial issue (unexplained loans), the addition on account of bogus purchases could not be sustained. Consequently, the reassessment order was quashed.

Conclusion:
The Tribunal allowed the appeal of the assessee and quashed the reassessment order, while dismissing the appeal of the Revenue. The decision was based on the failure of the AO to establish a live-link between the information available and the formation of belief that income had escaped assessment, as well as the inconsistency in the reasons for reopening the assessment and the actual additions made.