2020 (8) TMI 146 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - Validity of reasons to believe - HELD THAT - AO in the reasons recorded has not even alleged that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In the absence of such an allegation or failure on the part of the assessee, the reopening after 4 years from the end of the assessment year when the original assessment was completed under section 143(3) is not permitted. D/R has relied upon the Explanation-1 to section 147, however, said explanation has a limited application only to consider the plea of the assessee that he has produced the books of accounts before the AO and thereby all the facts and details were disclosed during the course of scrutiny assessment. In the case in hand, when finally the accommodation entries were found to be on account of sales made by the assessee which is the primary record as part of the Profit Loss account as well as computation of income and, therefore, in the absence of any allegation by the AO, the Explanation-1 to section 147 cannot be pressed into service. All the sales including the sales in dispute are duly accounted in the books of account which were audited and subject to scrutiny of the Commercial Taxes Department, therefore, the assessee cannot be held guilty for not furnishing all the information necessary for assessment. If the AO proposed to treat some of the sale transactions as bogus, then the assessee is not expected to disclose any other fact than the transaction itself which is duly recorded in the books of account and part of the primary record of the assessee. Therefore, the primary facts disclosed by the assessee at the time of original assessment and in the absence of any allegation on the part of the AO in the reasons recorded for reopening that there is a failure on the part of the assessee to disclose fully and truly all the relevant facts necessary for assessment, the reopening is hit by the provisions of section 147. Appeal of the revenue is dismissed.

Summary

Issues Involved:

1. Deletion of addition under Section 68 for accommodation entry.
2. Deletion of disallowance of commission payment.
3. Deletion of disallowance of freight payment.
4. Validity of reopening of assessment under Section 147/148.

Detailed Analysis:

1. Deletion of Addition under Section 68 for Accommodation Entry:

The revenue challenged the deletion of ?12,74,04,995/- added by the AO under Section 68 on account of accommodation entry. The AO made this addition based on information from the DIT Investigation, alleging that the assessee received accommodation entries from M/s. Shree Ram Trading Co. The CIT (A) deleted this addition, and the Tribunal upheld this deletion, noting that the AO's reasons for reopening were vague and lacked specific details about the transactions. The Tribunal emphasized that the AO did not conduct any independent verification and relied solely on the information received, which was insufficient to justify the addition under Section 68.

2. Deletion of Disallowance of Commission Payment:

The revenue also contested the deletion of ?2,98,795/- disallowed by the AO as commission payment. The CIT (A) deleted this disallowance, and the Tribunal upheld this decision. The Tribunal found that the AO did not provide sufficient evidence to support the disallowance and merely relied on the information received from the Investigation Wing. The Tribunal emphasized the need for concrete evidence and independent verification, which was lacking in this case.

3. Deletion of Disallowance of Freight Payment:

The revenue's appeal included the deletion of ?6,48,000/- disallowed by the AO as freight payment. The CIT (A) deleted this disallowance, and the Tribunal upheld this deletion. The Tribunal noted that the AO did not conduct any independent verification and relied solely on the information received, which was insufficient to justify the disallowance. The Tribunal stressed the importance of concrete evidence and independent verification in such cases.

4. Validity of Reopening of Assessment under Section 147/148:

The assessee challenged the validity of reopening the assessment under Section 147/148, arguing it was bad in law and void ab initio. The Tribunal first addressed this issue, as it could render the revenue's appeal infructuous if decided in favor of the assessee. The Tribunal found that the original assessment was completed under Section 143(3) and the reopening was after four years from the end of the assessment year. The AO's reasons for reopening were based on vague and general information received from the Investigation Wing, without any independent verification or specific details about the transactions. The Tribunal emphasized that the AO did not allege any failure on the part of the assessee to disclose fully and truly all relevant facts necessary for assessment, which is a precondition for reopening after four years. Therefore, the Tribunal concluded that the reopening was invalid and quashed the reassessment order.

Conclusion:

The Tribunal upheld the CIT (A)'s deletion of the additions and disallowances made by the AO, finding that the AO's actions were based on vague and unverified information. The Tribunal also quashed the reassessment order, concluding that the reopening of the assessment was invalid due to the lack of specific allegations and independent verification by the AO. The revenue's appeal was dismissed as a result.