2018 (4) TMI 1989 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe - notice being issued beyond a period of four years - unexplained cash purchases of cotton from farmers - additional requirement of lack of true and full disclosure on the part of the assessee leading to income chargeable to tax escaping assessment As per AO during survey, the assessee could not produce documentary evidence to prove that the sellers were the cultivators, assessee could not produce a single farmer before the authority, land records showed many discrepancies, assessee could not produce PAN or returns of the sellers, election card details of the farmers did not match with the Government's official record in some cases,net profit ratio of the assessee was very low and in large number of cases, the records were not verifiable. HELD THAT - In the present case, the return filed by the assessee was originally taken in scrutiny and during which scrutiny assessment, the AO had examined this issue pointedly. This therefore was a scrutinized issue. We may also remember that the impugned notice has been issued beyond the period of four years from the relevant assessment year. We may approach the different grounds which weighed with the AO which are summarized above, with this background in mind. The combined effect of these ground pressed in service by the AO seems to be that during the post survey inquiries, he put the entire burden of reestablishing the genuineness of the purchasers on the assessee. These purchases were made several years before from thousands of individual agriculturists who were the growers of the crop. The fact that the assessee could not produce documentary evidence to prove that the sellers were the cultivators during the survey can therefore hardly be a factor which could weigh while judging that income chargeable to tax has escaped assessment. The agriculturists who had sold the crop to the assessee at the relevant time, would be reluctant to come before the Revenue authorities and this therefore, by itself, may also not be a relevant factor. In any case, we are informed that in the present year, the assessee had produced every person who the AO required for the purpose of ascertaining the factum of sale. Such persons had also backed the assessee. The fact that some of the land records did not show the names of the agriculturists concerned was also explained by the assessee by pointing out that in most of the cases, the land was in the name of the near relative of the producer. In some cases, it may happen that the producer may not own the land. However, merely not owing the land does not mean that he is not cultivating the land. Being enrolled in some other village as a voter also would not be conclusive since it is not uncommon that in case of migrating population, the name may be shown as a voter in the native place whereas the person may have settled for work or occupation at a different place. The income from agriculture being exempt, the petitioner cannot be blamed if PAN or returns of sellers were not produced. Thus, AO has referred to some bids and pieces of material to form a belief that the purchases were not genuine. During the course of original assessment, the Assessing Officer may be well within its rights to carry out minute possible detailed inquiry with respect to all such sales and purchases. However, one such inquiry was over. Scrutiny assessment framed, during which, these transactions came up for pointed consideration, reopening of assessment cannot be permitted on mere surmises, conjectures, suspicion or for further inquiry. The added element of the notice being issued beyond the period of four years from the end of relevant assessment year is also relevant. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Examination of the genuineness of cash purchases of cotton from farmers.
4. The relevance of discrepancies found during post-survey inquiries.
5. The application of Rule 6DD and Section 40A(3) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of Reopening the Assessment:
The petitioner challenged the notice dated 30.03.2017 issued by the Assessing Officer to reopen the assessment for the assessment year 2010-11. The original assessment was completed after scrutiny, during which the Assessing Officer had examined the petitioner's purchases of cotton directly from farmers. The court noted that reopening the assessment on the same material would amount to a change of opinion, which is not permissible, especially since the notice was issued beyond four years from the end of the relevant assessment year.

2. Alleged Failure to Disclose Fully and Truly All Material Facts:
The court emphasized that for reopening an assessment beyond four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts. The Assessing Officer cited discrepancies found during post-survey inquiries as the basis for reopening. However, the court found that these discrepancies did not conclusively prove that the assessee failed to disclose material facts during the original assessment.

3. Examination of Genuineness of Cash Purchases:
The Assessing Officer noted that the assessee made large cash purchases of cotton, issuing self-made cash vouchers, and failed to produce documentary evidence that the sellers were cultivators. The court observed that the petitioner had provided full material during the original assessment, and the failure to produce farmers several years later could not be a valid ground for reopening the assessment.

4. Relevance of Discrepancies Found During Post-Survey Inquiries:
The Assessing Officer found discrepancies in land records, electoral rolls, and other documents during post-survey inquiries. The court noted that these discrepancies, such as land not being in the name of the person from whom purchases were made or the crop mentioned being other than cotton, were explained by the assessee. The court held that these discrepancies did not justify reopening the assessment, especially since the original assessment had scrutinized these issues.

5. Application of Rule 6DD and Section 40A(3):
The Assessing Officer argued that the assessee's cash purchases exceeding Rs. 20,000 were not exempt under Rule 6DD as the sellers were not proven to be cultivators. The court found that the assessee had made efforts to justify the purchases and that the post-survey inquiries did not provide sufficient grounds to doubt the genuineness of the transactions. The court held that reopening the assessment based on these grounds was not justified.

Conclusion:
The court quashed the impugned notice for reopening the assessment and allowed the petition. The court emphasized that reopening an assessment several years after its completion requires substantial new material, which was not present in this case. The discrepancies cited by the Assessing Officer were not sufficient to prove that income chargeable to tax had escaped assessment due to the assessee's failure to disclose material facts.