2022 (5) TMI 678 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus purchases - HELD THAT - Information as received by Ld. AO consequent to search action would lead to formation of reasonable belief that the income had escaped in the hands of the assessee. This would be so because the assessee had carried out certain purchase transactions with M/s Sun Diam and that entity was said to be mere accommodation-entry providing entity of that group. At the stage of formation of belief, only prima-facie opinion is required. The sufficiency or correctness of the material is not to be considered at this stage as held in the case of Raymond Woollen Mills Limited Vs ITO 1997 (12) TMI 12 - SUPREME COURT . The factual matrix would reveal that Ld. AO had, prima-facie, this material to reach a reasonable belief that income had escaped assessment. We do not concur with the argument of Ld. AR that there is no live link between the information received by Ld. AO and consequent belief formed by Ld. AO on the basis of that information. Another argument of Ld. AR is that the assessee had produced books of account and other information during the course of regular assessment proceedings and there was no allegation by Ld. AO that income escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment Explanation-1 to Sec.147 makes it very clear that production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of foregoing proviso. The same squarely applies to the fact of the present case since the information received by Ld. AO was a subsequent event which was not available at the time of regular assessment proceedings. At the time of original assessment proceedings, no such information was available with Ld. AO and there was no question of formation of any belief on the issue. Therefore, this plea is also to be rejected. We would confirm the impugned order upholding the validity of reassessment proceedings. Bogus purchases - The purchases were taken in the inventory and accounted for in the books of accounts for which the assessee filed copies of extracts from ERP system. The assessee also filed ledger extracts of M/s Sun Diam, copies of purchase orders, copies of invoices, bank statements evidencing payment through banking channels etc. Upon perusal of all these documents, it could be well said that the assessee had discharged the onus of establishing the genuineness of the purchase transactions. As against this, the sole basis to make additions by Ld. AO is the findings of investigation wing which are based on third party statements. It could be gathered that no independent investigation, whatsoever, has been carried out by Ld. AO to verify the genuineness of the purchase transactions. No notice or summons etc. is shown to have been issued to the supplier to confirm the transaction. It is trite law that no addition could be made on mere presumptions, conjectures or surmises. Accordingly, the action of Ld. AO in making the addition, in aforesaid manner, could not be upheld in the eyes of law. Therefore, in the light of the aforesaid observations, the impugned addition is not sustainable as per settled legal position. By deleting the same, we allow the grounds on merits - Assessee appeal partly allowed.

Summary

Issues Involved:
1. Validity of the re-opening of assessment under section 147 of the Act.
2. Disallowance of purchases from M/s Sun Diam by treating it as an accommodation entry.

Detailed Analysis:

1. Validity of the re-opening of assessment under section 147 of the Act:

The assessee challenged the re-opening of the assessment under section 147, arguing that all material facts were available during the original assessment, and no new tangible material was presented for re-opening. The assessee contended that the AO did not establish a failure to disclose material facts, which is mandatory for re-opening beyond four years from the end of the relevant assessment year. The AO relied on third-party sworn statements, which the assessee argued were insufficient for reassessment.

The Tribunal analyzed that the original return was scrutinized under section 143(3), and the case was reopened beyond four years based on information from a search action on the Rajendra Sohanlal Jain group. The AO formed a belief of income escapement due to transactions with M/s Sun Diam, a group entity providing accommodation entries. The Tribunal upheld the re-opening, citing that the AO had prima facie material from the search to form a reasonable belief. The Tribunal referenced the Supreme Court's ruling in Raymond Woollen Mills Limited Vs ITO, stating that sufficiency or correctness of the material is not considered at the re-opening stage. The Tribunal rejected the assessee's argument of no live link between the information and the belief of income escapement, emphasizing that subsequent information justified the re-opening.

2. Disallowance of purchases from M/s Sun Diam by treating it as an accommodation entry:

The AO disallowed purchases amounting to Rs.46,26,890/- from M/s Sun Diam, treating them as bogus based on third-party statements from the search. The assessee provided purchase orders, invoices, bank statements, and an affidavit from the agent who received the goods, arguing the transactions were genuine. The AO, however, noted the absence of delivery challans and questioned the utilization of the purchased material.

The Tribunal observed that the assessee provided substantial evidence, including ledger extracts, bank statements, and an affidavit confirming delivery. The Tribunal criticized the AO for relying solely on third-party statements without independent verification. The Tribunal highlighted that no notices or summons were issued to the supplier to confirm the transactions. The Tribunal emphasized that additions cannot be made on presumptions or conjectures and found the AO's action unsustainable. Consequently, the Tribunal deleted the disallowance, affirming the genuineness of the transactions.

Conclusion:

The appeal was partly allowed, with the Tribunal upholding the validity of the reassessment proceedings but deleting the disallowance of purchases from M/s Sun Diam. The order was pronounced on 05th May, 2022.