2019 (11) TMI 266 - AT - Income Tax

Validity u/s 147/143(3) - addition u/s 68 - bogus purchases - HELD THAT - Payments against the said purchases were made by the assessee by account payee cheques and there were corresponding sales made by the assessee out of the said purchases. He, however, doubted the corresponding sales claimed to have been made by the assessee since the same, according to him, were unverifiable in the absence of details furnished by the assessee regarding names and addresses of the parties to whom the same were made. He accordingly treated the proceeds of such sales made by the assessee in cash as unexplained cash credits and made addition u/s 68. No addition was made by the AO to the total income of the assessee in the assessments made under section 147/143(3) for both the years under consideration on account of the alleged bogus purchases, which formed the basis of reopening and the addition was made on account of different issue by treating the proceeds of the corresponding sales made out of such purchases as unexplained cash credit under section 68 Addition made by the AO to the total income of the assessee in the assessments completed under section 147/143(3) for both the years under consideration on a different issue, which did not form the basis of belief entertained by the AO as per the reasons recorded, is not sustainable and the ld. CIT(Appeals) is not justified in sustaining the same. Delete the addition made by the AO and confirmed by the CIT(Appeals) u/s 68 in both the years under consideration and allow these appeals of the assessee. - Decided in favour of assessee.

Summary

Issues:
Challenging additions made under section 68 in assessments under section 147/143(3).

Detailed Analysis:

Issue: Challenging additions under section 68
The assessee, an individual, filed returns of income for two assessment years, which were later reopened by the Assessing Officer based on information regarding alleged bogus purchases. The Assessing Officer accepted the purchases as genuine but disputed the corresponding sales made by the assessee, treating them as unverifiable. Consequently, the sales proceeds were added to the total income under section 68. The assessee appealed to the CIT(Appeals), contesting the additions and the validity of the assessments. The CIT(Appeals) upheld the Assessing Officer's decision. The assessee then appealed to the Tribunal.

Argument by Assessee:
The assessee argued that since no addition was made on account of the alleged bogus purchases, the addition under section 68 was not related to the reason for reopening the assessments. Citing legal precedents, the assessee contended that a fresh notice under section 148 was necessary for any new income assessment not connected to the original reason for reopening.

Argument by Department Representative:
The Department Representative argued that the addition under section 68 was directly linked to the alleged bogus purchases, justifying its inclusion in the reassessment. The Department Representative emphasized the logical conclusion drawn by the Assessing Officer and relied on a court decision to support the position.

Tribunal's Decision:
The Tribunal reviewed the reasons recorded by the Assessing Officer for reopening the assessments, which were based on the alleged bogus purchases. It noted that the Assessing Officer accepted the purchases as genuine but questioned the sales made by the assessee. The Tribunal agreed with the assessee's argument, citing legal precedents that required a fresh notice for any new income assessment unrelated to the original reason for reopening. Consequently, the Tribunal found the addition under section 68 not sustainable and ruled in favor of the assessee, deleting the additions made by the Assessing Officer and upheld by the CIT(Appeals).

Conclusion:
The Tribunal allowed both appeals of the assessee, emphasizing the need for a direct connection between the reason for reopening assessments and any subsequent income additions. The decision highlighted the importance of legal precedents in determining the validity of income additions in reassessments.

This detailed analysis provides a comprehensive overview of the judgment, outlining the key issues, arguments presented by both parties, the Tribunal's decision, and the legal principles applied in reaching the final conclusion.