2022 (2) TMI 1192 - AT - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - independent application of mind by AO - Scope of borrowed satisfaction - information received from CIB that the assessee had during the year under consideration booked bogus purchases - HELD THAT - Though there was material/information with the AO on the basis of which he could have arrived at a bonafide belief that the income of the assessee chargeable to tax has escaped assessment, however, we find that he had failed to apply his mind to the material/information before him and had reopened the case of the assessee by merely referring to the information that was received by him from CIB. As per the settled position of law, the reopening of a concluded assessment presupposes application of mind by the Assessing Officer to the material/information before him, on the basis of which he arrives at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. In the case before us, the Assessing Officer had merely acted in a mechanical manner on the information that was received by him from the CIB, and without applying his mind to the said information/material had reopened the case of the assessee u/s.147 of the Act. In our considered view, the Assessing Officer by reopening the case of the assessee on the basis of a borrowed satisfaction, had thus, wrongly assumed jurisdiction u/s.147 of the Act, which, thus, on the said count itself on the said count itself cannot be upheld and is liable to be quashed - Addition made by the Assessing Officer has no plausible nexus with the reasons on the basis of which the case of the assessee was reopened. On the one hand, the Assessing Officer had alleged that the assessee had booked bogus purchases to suppress his real income, however, on the contrary, he had made the addition in his hands on the ground that the purchases in question were in the nature of unexplained investment. In our considered view, as the very addition made in the hands of the assessee militates against the very reason on the basis of which the case of the assessee was reopened, therefore, the addition on the said count also is liable to be struck down. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of invoking Section 148 for reopening the assessment.
2. Legitimacy of the addition of ?9,53,492/- for alleged bogus purchases.
3. Compliance with procedural requirements during the assessment process.

Detailed Analysis:

1. Validity of Invoking Section 148:
The primary issue revolves around whether the Assessing Officer (AO) validly invoked Section 148 to reopen the assessment. The AO reopened the case based on information from the Central Information Branch (CIB) that the assessee had made bogus purchases totaling ?9,53,492/-. The tribunal scrutinized the "reasons to believe" and found that the AO had not independently applied his mind to the information provided by the CIB. Instead, he acted mechanically on the information received, without forming an independent belief that income had escaped assessment. The tribunal emphasized that reopening a concluded assessment requires the AO to apply his mind to the material before him. The tribunal cited the Supreme Court’s judgment in Anirudh Sinhji Karan Sinhji Jadeja Vs. State of Gujarat, which mandates that statutory authorities must exercise their jurisdiction independently and not merely act on instructions from other authorities. Consequently, the tribunal quashed the reopening of the assessment for lack of valid jurisdiction.

2. Legitimacy of the Addition of ?9,53,492/-:
The second issue pertains to whether the addition of ?9,53,492/- for alleged bogus purchases was justified. The tribunal noted that the AO neither provided details of the allegedly bogus purchases nor identified the specific purchases in question. Despite the assessee’s repeated requests for details, the AO failed to furnish the requisite information. The tribunal found that the assessee was deprived of the opportunity to defend against the allegations. Furthermore, the tribunal observed that the AO initially reopened the case on the grounds of bogus purchases to suppress income but later made the addition on the basis of unexplained investment. This inconsistency indicated a lack of plausible nexus between the reasons for reopening the case and the subsequent addition made by the AO. Therefore, the tribunal concluded that the addition was not sustainable.

3. Compliance with Procedural Requirements:
The procedural aspect of the assessment process was also scrutinized. The tribunal found that the AO failed to adhere to procedural requirements by not confronting the assessee with the details of the alleged bogus purchases. This procedural lapse deprived the assessee of a fair opportunity to contest the addition. The tribunal reiterated that procedural fairness is crucial in tax assessments, and any deviation from established procedures undermines the validity of the assessment.

Conclusion:
The tribunal quashed the assessment framed by the AO under Section 143(3) read with Section 147 for the assessment year 2009-10, citing the invalid assumption of jurisdiction and procedural lapses. The appeal of the assessee was allowed, and the addition of ?9,53,492/- was struck down. The order was pronounced on the 21st day of February, 2022.