2021 (9) TMI 338 - AT - Income Tax

Validity of reopening of the case u/s.147/148 - Bogus/paper transactions - reopening pursuant to the report received from the ADIT(Investigation), Ludhiyana information was received from the investigation wing, Ludhiana mentioning that Madan Lal Pahuja had issued bogus purchase bills - HELD THAT - From the reasons to reopen, it is clear that the whole allegation was based upon the statement of Madan Lal Pahujarecorded by the Investigation wing on 7.1.2015. To our surprise, the statements of Jatinder kumar prop. Shree Nath Ispatudhyog and proprietor of M/S Lovy Steel Allied Industries were never recorded by the AO or the investigation wing. The allegation of bogus purchases from the said two parties were based upon the statement of Madan Lal Pahuja who had made the transactions with them. Assessee not provided the copy of the statement of Shri Madan Lal Pahuja recorded on 07.01.2015 - It is essential for the Assessing Officer to provide the copy of the foundation fact ,namely the statement of Shri Madan Lal Pahuja,to the Assessee at the time of providing reasons for reopen the assessment. The same has not been done by the Assessing Officer, which is contrary to the law laid down by Delhi High Court in the matter of Sabh Infrastructure 2017 (9) TMI 1589 - DELHI HIGH COURT . From the reading of the answer given by Shri Madan Lal Pahuja in response to question no. 6 and 8 it is clear that the name of the Assessee have not been mentioned by the said Shri Madan Lal Pahuja, as beneficiary party to whom the alleged bogus bills were given by him. He had merely mentioned the name of Brokers with whom, he was carrying the transactions. However there is no evidence to link, the brokers, assessee and MrPhauja on record. Further there is no evidence brought to record , that the assessee had recerived bogus bills from the entities of Phauja. Once the information was available in the assessment record of the Assessee company for the assessment year 2010-11, which was subject matter of scrutiny assessment and on the basis of this information, the assessment was completed and the additions were made. In our opinion, the same information was admitted to be correct by the Assessing Officer in the reasons to reopen as it is matching with the information received from the Investigation wing. In our considered opinion, once the Assessing Officer formed an opinion on the information available on record and framed the assessment, then the Assessing Officer cannot be permitted to change his opinion based on same information. Assessing Officer at one point is saying that the purchases were made for ₹ 4.26 Crores and other point as against the figure given for ₹ 3.28 Crores. The abovesaid, clearly shows there was total non-application of mind by the Assessing Officer at the time of reopening the assessment. In view of thecontradictory facts on the matter of quantum of purchases, we quashed the reopening made by the Assessing Officer on this ground also. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening the case under Section 147/148.
2. Allegation of bogus purchases amounting to ?4,26,93,470.
3. Failure to produce the supplier, Mr. Madan Lal Pahuja, for cross-examination.
4. Contradictory stand by the revenue in reassessment proceedings.
5. Acceptance of stock tally and sales by the department.
6. Non-application of mind by the Assessing Officer (AO).
7. Legal and factual issues raised by the assessee.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Case under Section 147/148:
The assessee challenged the reopening of the case under Section 147/148, arguing that the AO relied mechanically on the information from the Investigation Wing without independent verification. The AO's reasons for reopening were based on the statement of Mr. Madan Lal Pahuja, which did not specifically name the assessee. The court found that the AO did not apply his mind independently and relied on borrowed satisfaction, which is not permissible. The reopening was quashed due to lack of tangible material and independent satisfaction by the AO.

2. Allegation of Bogus Purchases Amounting to ?4,26,93,470:
The AO alleged that the purchases from certain suppliers were bogus based on Mr. Pahuja's statement. The assessee provided VAT returns, bills, stock tally, and other documents to substantiate the purchases. The AO pointed out discrepancies in some transport bills, but the total amount in question was only ?0.53 crore out of the alleged ?4.26 crore. The court noted that the sales were not disputed, and the purchases were accepted in subsequent years. The court held that the entire purchases could not be treated as bogus.

3. Failure to Produce the Supplier, Mr. Madan Lal Pahuja, for Cross-examination:
The assessee argued that Mr. Pahuja should have been allowed for cross-examination as his statement was the sole basis for the addition. The AO did not provide this opportunity, violating principles of natural justice. The court emphasized that the onus to produce the witness lies with the revenue, not the assessee. The failure to allow cross-examination rendered the assessment invalid.

4. Contradictory Stand by the Revenue in Reassessment Proceedings:
The assessee pointed out that the revenue had accepted the sales made by Mr. Pahuja in his assessment for AY 2010-11, contradicting the stand taken in the assessee's case. The court observed that once the sales were accepted in Mr. Pahuja's case, the purchases by the assessee could not be disputed. This inconsistency further weakened the revenue's case.

5. Acceptance of Stock Tally and Sales by the Department:
The assessee provided a stock tally and bifurcated trading results, which were accepted by the department. The court noted that the sales were not disputed, and the purchases were accepted in subsequent years. The court held that the purchases could not be treated as bogus when the sales were accepted.

6. Non-application of Mind by the Assessing Officer (AO):
The court found that the AO did not apply his mind independently and relied on the Investigation Wing's report. The AO failed to verify the information and did not consider the VAT assessments that accepted the sales and purchases. The court emphasized that the AO must apply his mind and not act on borrowed satisfaction.

7. Legal and Factual Issues Raised by the Assessee:
The assessee raised several legal and factual issues, including the lack of evidence at the time of recording reasons, borrowed satisfaction, no reference to material, reasons to suspect, and non-provision of adverse material. The court addressed these issues, highlighting the importance of independent satisfaction by the AO and the necessity of providing the assessee with an opportunity for cross-examination.

Conclusion:
The court quashed the reopening of the assessment under Section 147/148 due to the AO's failure to apply his mind independently and the reliance on borrowed satisfaction. The court also held that the purchases could not be treated as bogus when the sales were accepted, and the failure to allow cross-examination violated principles of natural justice. The appeal of the assessee was allowed both on legal grounds and on merits.

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