2021 (3) TMI 821 - AT - Income Tax

Reopening of assessment u/s 147 - receipt of certain information from the Investigation Wing of the Department that the assessee was beneficiary of certain accommodation entries pertaining to bogus purchases - HELD THAT - only reason for rejecting the contention of the assessee was that the assessee could not produce the books of account before the Lower Authorities. In our considered opinion this approach of the Lower Authorities is not correct in as much as it remains undisputed that the assessee had duly filed copies of audited accounts at the time of filing of the return of income and so it cannot be inferred that the assessee did not maintain any books of account. Further the evidentiary value of the VAT returns cannot be simply be brushed aside specially when the same were brought to the notice of the Assessing Officer in the very first instance when the assessee was raising objections against the initiation of reassessment proceedings. Even the table produced by the Assessing Officer in his assessment order depicts only payments made to M/s Maa Durga Trading Company and there is no entry depicting purchases from the said company. In such a situation, on the factual matrix of the case, it is our considered opinion that the reopening in the instant case was bad in law specially, when the error in the approach of the Assessing Officer in recording of reasons on account of alleged bogus purchases was brought to the notice of the Assessing Officer in the objections raised by the assessee against initiation of re-assessment proceeddings. In the instant case, although, the assessee has filed return of income, the Assessing Officer proceeding to reopen the assessment by mentioning that no voluntary return had been filed by the assessee and, thereafter, proceeded to reopen the assessment on wrong appreciation facts on record, in such a situation, we have no option but to quash the reassessment proceedings itself. Accordingly, relying on the above mentioned judicial precedents, we quash the re-assessment proceedings. Even on merits, the addition has no feet to stand on as the impugned addition has been made on account of alleged bogus purchases and the assessee has demonstrated with an ample evidences that there were no purchases from M/s Maa Durga Trading company during the year under consideration. The Assessing Officer has made a disallowance on account of those purchases which were not even debited to the Profit Loss Account during the year under consideration. Therefore, on merits also this addition cannot be sustained. Appeal of the assessee stands allowed.

Summary

Issues Involved:
1. Legality of the reopening of assessment under Section 147 of the Income Tax Act.
2. Validity of the addition made on account of alleged bogus purchases.

Detailed Analysis:

1. Legality of the Reopening of Assessment under Section 147 of the Income Tax Act:

The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) erroneously assumed jurisdiction by stating that the assessee had not filed the return of income for the year, whereas the return was indeed filed. The Tribunal noted that the AO had received information from the Investigation Wing regarding alleged bogus purchases. However, the AO failed to apply his independent mind and verify the primary material before initiating the reassessment proceedings. The assessee had filed objections against the reopening, asserting that no purchases were made from M/s Maa Durga Trading Company during the assessment year and provided VAT returns as evidence. The Tribunal observed that the AO's failure to acknowledge the filed return indicated a non-application of mind, making the reopening bad in law. The Tribunal emphasized that the "reason to believe" must be based on tangible material with a live nexus to the income escaping assessment, which was not established in this case. Consequently, the reassessment proceedings were quashed.

2. Validity of the Addition Made on Account of Alleged Bogus Purchases:

The assessee contended that the addition of ?2,52,18,773/- on account of alleged bogus purchases was erroneous. The assessee provided evidence, including VAT returns and ledger accounts, demonstrating that no purchases were made from M/s Maa Durga Trading Company during the relevant year. The Tribunal noted that the AO's table only depicted payments made to M/s Maa Durga Trading Company against the opening balance and not actual purchases. The Lower Authorities' rejection of the VAT returns as evidence was deemed incorrect, as the returns were filed with the AO during the objections to the reassessment proceedings. The Tribunal highlighted that the AO made the disallowance based on purchases not debited to the Profit & Loss Account during the year under consideration. Therefore, the addition on merits was also unsustainable. The Tribunal concluded that both the reopening and the addition lacked a proper legal and factual basis, leading to the appeal being allowed in favor of the assessee.

Conclusion:

The Tribunal quashed the reassessment proceedings due to the AO's non-application of mind and misappreciation of facts. Additionally, the addition on account of alleged bogus purchases was invalidated due to a lack of evidence and improper legal grounding. The appeal of the assessee was allowed, and the reassessment proceedings were quashed.