2021 (12) TMI 797 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe and reasons to suspect - violation of mandatory jurisdictional conditions stipulated under the Act - bogus purchases - HELD THAT - AO had only an information that the assessee M/s. Dove Consultants Pvt. Ltd. has made a transaction with M/s. Bhola Trading Company. However, there was no reliable information that the said transaction was a sham transaction. The assessee admittedly is engaged in the business of Electric Contractor. The assessee purchased electric cables from the said M/s. Bhola Trading Company - AO however, doubted the said transaction - as been noted by the AO himself that during the investigation, ledger account of M/s. Bhola Trading Company in the books of assessee company was reflecting the aforesaid transaction. The purchase invoices were also produced before the investigation wing. Assessing Officer further mentioned about the gross turnover of the assessee and observed that the income of the assessee company has considerably increased from AY 2008-09 to AY 2009-10. The Ld. Counsel, in this respect has submitted that the assessment year under consideration is AY 2009-10 and the assessee s income as per the reasons recorded has considerably increased. The sales / consumption of the material by the assessee has also not been doubted by the Assessing Officer. There is no mention of any evidence available before the AO to show that the aforesaid transaction was a bogus transaction. Merely on the basis of suspicion observed that the aforesaid entry might be a bogus entry and that the assessee might have purchased the material from outside. A perusal of the reasons recorded by the Assessing Officer does not show that the Assessing Officer had any credible information or evidence to believe that the aforesaid transaction made by the assessee was bogus, rather, a reading of the whole of the contents of the document containing reasons for reopening of the assessment would reveal that the reopening of the assessment has been made merely on the basis of suspicion. Reopening of the assessment cannot be made on mere suspicion in the absence of any reliable information or evidence to form the belief that the income has escaped assessment. In this case, there is no mention of any such reliable document / evidence which may be sufficient to form the belief that the transaction in question was a bogus transaction or that the income of the assessee had escaped assessment. - Decided in favour of assessee.

Summary

Issues:
1. Validity of jurisdictional notice u/s 148
2. Addition made u/s 69 on alleged unexplained expenditure
3. Burden of proof on the assessee
4. Restoration of returned income
5. Deletion of addition made by AO
6. Violation of principles of natural justice

Analysis:

Issue 1: Validity of jurisdictional notice u/s 148
The appellant challenged the jurisdiction of the Assessing Officer (AO) to reopen the assessment, citing violations of mandatory jurisdictional conditions. The appellant argued that the AO did not validly issue and serve the jurisdictional notice u/s 148, which rendered the entire proceedings void ab initio. The Tribunal noted that the reasons recorded for reopening the assessment lacked reliable information or evidence to establish that the income had escaped assessment. The AO's decision to reopen the assessment was solely based on suspicion, without credible grounds, leading to the quashing of the assessment.

Issue 2: Addition made u/s 69 on alleged unexplained expenditure
The AO made an addition u/s 69 for alleged unexplained expenditure, which the appellant contested, stating that all purchases were duly recorded in the books of accounts and, therefore, section 69 could not apply. The Tribunal found that the burden of proof lay with the assessee, and based on the evidence presented, the addition was unjustified. The Tribunal held that the addition of &8377; 59,19,233 should be deleted in its entirety.

Issue 3: Burden of proof on the assessee
The appellant argued that the burden of proof had been met through various evidences such as bills, ledger accounts, and bank statements, demonstrating that the purchases were legitimate. The Tribunal agreed with the appellant, stating that the burden had been discharged satisfactorily, and the addition made by the AO deserved to be deleted.

Issue 4: Restoration of returned income
The appellant sought the restoration of the returned income declared in its initial filing. However, the Tribunal's decision did not specifically address this issue in the provided summary.

Issue 5: Deletion of addition made by AO
The appellant contested the addition made by the AO, claiming it was unlawful and violated principles of natural justice as no supporting material was provided or cross-examined during the proceedings. The Tribunal acknowledged the lack of credible evidence supporting the addition and ruled in favor of the appellant, stating that the assessment was unjust and should be struck down.

Issue 6: Violation of principles of natural justice
The appellant raised concerns about the violation of principles of natural justice due to the lack of supporting material being confronted and cross-examined during the assessment and appeal proceedings. The Tribunal found merit in this argument and concluded that the assessment was unlawful and should be quashed.