2018 (11) TMI 434 - AT - Income Tax

Reopening of assessment - addition towards bogus purchases - reopening on the basis of the same material which was before the Investigating Officer at the time of original Assessment Proceedings - borrowed knowledge - Held that - Assessing Officer has acted merely on the basis of the statements/affidavits of the thirteen parties without carrying on any further verification or independent enquiry before issuing notice u/s. 148 of the Act and thus has completely failed on the duty casted upon him to independently apply his mind on the material received from the DGIT (Inv), Mumbai. Also found merit in the second limb of the submissions of the assessee that reopening on the basis of the same material which was before the Investigating Officer at the time of original Assessment Proceedings is nothing but a change of opinion which is not permissible under the law and the concept of change of opinion is a built in test to check the abuse of power to reassess but no power to review under the garb of reopening the Assessment Proceedings is available. Reopening of assessment on the basis of change of opinion is not permissible - COMMISSIONER OF INCOME TAX, DELHI VERSUS M/S. KELVINATOR OF INDIA LIMITED 2010 (1) TMI 11 - SUPREME COURT OF INDIA The Hon ble Supreme Court in LAKHMANI MEWAL DAS 1976 (3) TMI 1 - SUPREME COURT has held that the power of Income Tax Officer to reopen assessment though wide, are not plenary and absolute and the words of statute are reason to believe and not reason to suspect . But in this case only the AO has reason to suspect and not reason to believe . We, therefore after taking into account the ratio laid down by the various decisions and facts of the case before us, are inclined to hold that reopening of assessment not initiated validly and is void ab-initio. Accordingly we quash the reopening of assessment. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act.
2. Confirmation and reduction of disallowance towards bogus purchases.

Detailed Analysis:

Issue 1: Validity of Reopening of Assessment under Section 147

Background:
The assessee challenged the reopening of the assessment under section 147, arguing it was based on a change of opinion and lacked independent application of mind by the Assessing Officer (AO). The original assessment was completed under section 143(3) with minor disallowances. Subsequently, the AO received information from the Sales Tax Department via DGIT (Inv.) that the assessee had made bogus purchases from thirteen parties.

Arguments by Assessee:
The assessee contended that the reopening was invalid because:
- The AO did not independently apply his mind to the information received.
- The reopening was based on statements from the Sales Tax Department's website without further verification.
- The AO relied on information from other authorities without conducting an independent inquiry.
- The reopening was based on a mere change of opinion, as the purchases were already scrutinized in the original assessment.

Case Law Cited:
- National Thermal Power Co. Ltd. v. CIT
- PCIT v. G & G Pharma India Ltd.
- JCIT v. George Williamson (Assam) Ltd.
- CIT v. Kelvinator India
- ITO v. Lakhmani Mewaql Das

Tribunal's Observations:
The tribunal observed that:
- The AO acted on information from the Sales Tax Department without independent verification.
- The AO did not establish a live link between the material received and the assessee's income escaping assessment.
- The reopening was based on the same material available during the original assessment, amounting to a change of opinion.

Judgment:
The tribunal quashed the reopening of the assessment, declaring it void ab-initio due to the lack of independent application of mind and the reopening being based on a change of opinion.

Issue 2: Confirmation and Reduction of Disallowance Towards Bogus Purchases

Background:
The assessee contested the confirmation of disallowance of ?90,52,125 towards bogus purchases, while the Revenue challenged the reduction of the total addition from ?11,31,51,580 to ?90,52,125.

Arguments by Assessee:
The assessee argued that:
- The purchases were genuine and supported by proper documentation.
- The AO's reliance on statements from the Sales Tax Department was insufficient to prove the purchases were bogus.

Arguments by Revenue:
The Revenue argued that:
- The disallowance should be based on the entire amount of ?11,31,51,580 as the purchases were proven to be bogus by the Sales Tax Department's investigation.

Tribunal's Observations:
Since the tribunal quashed the reopening of the assessment, it did not delve into the merits of the disallowance towards bogus purchases.

Judgment:
The tribunal allowed the assessee's appeal and dismissed the Revenue's appeal as infructuous due to the quashing of the reopening of the assessment.

Conclusion:
The tribunal concluded that the reopening of the assessment was invalid due to the lack of independent application of mind by the AO and the reopening being based on a change of opinion. Consequently, the tribunal quashed the reopening of the assessment, rendering the Revenue's appeal on the disallowance of bogus purchases infructuous. The assessee's appeal was allowed, and the Revenue's appeal was dismissed.