2019 (8) TMI 444 - AT - Income Tax

Validity of reopening of the assessment - original assessment u/s 143(3) - non independent application of mind by AO - Bogus purchases - CIT (A) applying 12.50% of the Purchases as alleged bogus purchase - HELD THAT - On perusal of reasons recorded by the AO ,we find that there is no iota of observations from the AO regarding failure, on the part of assessee to fully and truly disclose all material facts necessary for assessment. On the other hand, the assessee has filed various details to prove that the information regarding purchase from certain parties was already disclosed to the AO in original assessment proceedings u/s 143 (3), where in response to query, the assesee has filed complete details about purchase. Therefore, we are of the considered view that reopening of assessment after four years from the end of relevant assessment year without any allegation in the reasons recorded or in the notice issued u/s 148, that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, is bad in law and liable to be quashed. Borrowed satisfaction by AO - The reopening of assessment cannot be held to be valid, even on this ground ,because if you go through reasons recorded by the AO, it is very clear that the AO has not applied his mind to the information received by him from the DGIT(Inv.). AO has merely issued reopening notice, on the basis of information received from the DGIT(Inv.). This is clearly breach of the settled position of law that reopening notice has to be issued by the AO on his own satisfaction and not on borrowed satisfaction. Case followed M/S. SHODIMAN INVESTMENTS PVT. LTD., 2018 (4) TMI 1287 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of reopening of the assessment.
2. Addition towards alleged bogus purchases.
3. Estimation of profit on alleged bogus purchases.

Detailed Analysis:

1. Validity of Reopening of the Assessment:

The primary issue was whether the reopening of the assessment after four years from the end of the relevant financial year was valid. The assessee argued that the Assessing Officer (AO) did not allege any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, which is a prerequisite under Section 147 of the Income Tax Act, 1961, for reopening an assessment after four years. The Tribunal noted that the reasons recorded by the AO for reopening did not contain any such allegation. Citing various judicial precedents, including decisions from the Bombay High Court in cases like *Sound Casting Pvt. Ltd. vs. JCIT* and *Tao Publishing Pvt. Ltd. vs. DCIT*, the Tribunal held that the reopening was invalid as it did not meet the jurisdictional requirements. Additionally, the Tribunal observed that the AO had not applied his mind independently and had issued the reopening notice based on information from the DGIT (Inv.), which constitutes "borrowed satisfaction." Consequently, the Tribunal quashed the reopening of the assessment.

2. Addition Towards Alleged Bogus Purchases:

The AO had made additions under Section 69C of the Income Tax Act, 1961, treating purchases amounting to ?1,81,69,414/- from certain parties as bogus, based on information from the Sales Tax Department and statements from Rajendra S. Jain and Surendra Jain. The assessee provided purchase bills, stock details, and payment proofs to substantiate the purchases. The Commissioner of Income Tax (Appeals) [CIT(A)] observed that although the search and seizure operations indicated accommodation entries, the statement from Rajendra S. Jain was retracted, and the assessee had provided necessary documentation. The CIT(A) noted that the AO did not find any discrepancies in the books of accounts or sales records and thus scaled down the additions to 12.5% of the alleged bogus purchases, following the Gujarat High Court's decision in *CIT vs. Simit P. Seth*.

3. Estimation of Profit on Alleged Bogus Purchases:

Both the assessee and the revenue challenged the CIT(A)'s decision to estimate a 12.5% profit on the alleged bogus purchases. However, since the Tribunal had already quashed the reassessment order, the additions made in the reassessment proceedings and the grounds of appeal regarding the estimation of profit became academic and were dismissed as infructuous.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the reopening of the assessment, and dismissed the appeal filed by the revenue. Consequently, the issues regarding the addition towards alleged bogus purchases and the estimation of profit on such purchases were rendered moot. The order was pronounced in the open court on 31/07/2019.