2018 (3) TMI 1211 - HC - Income Tax

Reopening of assessment - bogus payment - Held that - AO considered the expenditure of payments made to suppliers and a dis-allowance was made to the extent of 20%, wherein money transaction was made other than by way of cheque or draft. Explanation of the assessee that the suppliers did not have access to banking facility was specifically declined noting the address of the suppliers furnished by the assessee. No further enquiry made, which is evident from the assessment order. The re-assessment was on the basis of the report of the I.T.O., Tirupur pointing out that six dealers to whom payments were said to have been made are bogus. The opinion formed for the purpose of dis-allowance to the extent of 20% was on incorrect facts and, hence, there is no infirmity in the re-assessment proceedings. There is definitely acquisition of fresh information, specific in nature and reliable in character relating to the concluded assessment in the present case. The Income Tax Officer having jurisdiction over the area in which certain dealers to whom the assessee had made payments, were situated, had made enquiries and found that they were non-existent. This information of bogus dealers as supplied by the ITO having jurisdiction over the disclosed address of the dealers, was relied on by the AO of the assessee to initiate reassessment. Non-disclosure of fully and truly of material facts required for assessment, it has to be noticed that the dealer had supplied the details of persons who were non-existent, in the returns filed. The dealer had claimed purchases from the said non-existent persons as also entered in the books of accounts payments made to them, which were also cash payments. Non-disclosure in the return, as also in the books of accounts, is insofar as the dealers having been shown as existing registered dealers to whom payments were made by the assessee in the course of their business. The non-disclosure germane to the facts herein was that the six dealers were bogus and there was in the regular assessment, no such question raised or enquiry conducted. - Decided in favour of the Revenue

Issues Involved:
1. Whether the Tribunal was correct in holding that the reassessment was without jurisdiction, illegal, and time-barred.
2. Whether the Tribunal was right in law and facts in interfering with the reassessment given that the credits were bogus and known to the Revenue only after the original assessment.
3. Whether the Tribunal's finding that the assessee produced all material before the Assessing Officer, who concluded that the alleged bogus parties were registered dealers, indicates ignorance and lack of knowledge on the part of the Assessing Officer.
4. Whether the Tribunal was correct in interfering with the reassessment.

Issue-wise Detailed Analysis:

1. Jurisdiction, Legality, and Timeliness of Reassessment:
The appellant-Revenue contended that the reassessment proceedings were initiated within the permissible six-year period but beyond four years. As per Section 147(1) of the Income Tax Act, 1956, reassessment can be initiated if there is a failure to file a return, respond to notices, or fully and truly disclose material facts necessary for assessment. The Tribunal had held the reassessment as without jurisdiction, illegal, and time-barred. However, the court found that the reassessment was based on new information from the Income Tax Officer (ITO) Tirupur, who reported that the six dealers were non-existent. This justified the reassessment despite the delay, as it was within the six-year limit and based on new, reliable information.

2. Tribunal's Interference with Reassessment:
The Revenue argued that the credits were bogus and discovered only after the original assessment. The court found that the reassessment was initiated based on a report from the ITO Tirupur, which indicated that the six dealers were non-existent. The original assessment did not involve an enquiry into the existence of these dealers, focusing instead on disallowances under Section 40A(3) for cash payments exceeding ?20,000. The Tribunal's interference was deemed incorrect as the reassessment was based on new, specific, and reliable information about the non-existence of the dealers.

3. Tribunal's Finding on Assessing Officer's Knowledge:
The Tribunal had found that the Assessing Officer had concluded that the six alleged bogus parties were registered dealers based on the material produced by the assessee. However, the court noted that the original assessment did not involve an enquiry into the existence of the dealers, only the nature of the payments. The reassessment was justified as it was based on new information that the dealers were bogus, which was not available during the original assessment. The court rejected the Tribunal's finding that the Assessing Officer's original conclusion indicated ignorance or lack of knowledge.

4. Tribunal's Interference with Reassessment:
The court held that the Tribunal was incorrect in interfering with the reassessment. The reassessment was based on new information from the ITO Tirupur, which indicated that the dealers were non-existent. The original assessment did not involve an enquiry into the existence of the dealers, focusing instead on the nature of the payments. The court found that the reassessment was justified as it was based on new, specific, and reliable information about the non-existence of the dealers.

Conclusion:
The court concluded that the reassessment was justified based on new information about the non-existence of the dealers. The Tribunal's interference was deemed incorrect. The court answered all questions of law in favor of the Revenue and against the assessee, allowing the appeal without costs.

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