2024 (10) TMI 544 - HC - Income Tax

Reopening of assessment u/s 147 - information received from the investigation wing of tax department regarding two of the entities from whom the petitioner had availed the supplies - HELD THAT - The principal allegation is that the petitioner had availed the accommodation entries from two above-named suppliers who were found to be non-existent by the investigation wing of the tax department. Clearly, the said information leads to the suggestion that the petitioner s income for the relevant Assessment Year escaped assessment. Although, the petitioner had produced documents in support of its claim that the purchases were genuine, however, it had not produced any other material to establish that the said two named entities were creditworthy or were of any substance. It is neither necessary nor apposite for this Court to proceed on an adjudicatory exercise regarding the allegations made in the notice as that is the matter which is to be considered by the AO in the reassessment proceedings. Suffice to say that the AO had sufficient grounds that suggest that assessee s income for the AY 2020-2021 has escaped assessment. The present petition is dismissed.

Summary

Issues:
Challenge to order under Section 148A of the Income Tax Act for AY 2020-2021 based on alleged bogus purchases from non-existent entities.

Analysis:

1. The petitioner challenged an order dated 12.04.2024 under Section 148A(d) of the Income Tax Act for AY 2020-2021. The Assessing Officer (AO) issued a notice proposing reassessment based on alleged bogus purchases of &8377;22,12,474/- from M/s S.P. Trading and &8377;87,37,811/- from M/s N.B. Agency. The investigation wing reported these entities as non-existent. The petitioner responded with supporting documents but failed to establish the creditworthiness or existence of the suppliers.

2. The AO, after considering the petitioner's response, issued the impugned order under Section 148 of the Act, alleging the purchases were sham transactions. The AO found the entities to be paper entities providing accommodation entries. The AO concluded that the income of &8377;1,09,50,285/- had escaped assessment, justifying the reopening of the assessment for AY 2020-2021.

3. The Court cited the case law of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) emphasizing that at the stage of issuing a notice under Section 148, the AO only needs to have grounds to believe income has escaped assessment, not conclusively establish it. The Court noted the principle applies post-amendment of the Act.

4. Despite the petitioner's submission of documents supporting genuine purchases, the lack of evidence regarding the creditworthiness or substance of the suppliers was a crucial factor. The Court held that the AO had sufficient grounds to suggest the petitioner's income had escaped assessment for AY 2020-2021, leading to the dismissal of the petition.

5. The Court clarified that the decision did not delve into the merits of the allegations, as that falls within the AO's jurisdiction during reassessment. The dismissal of the petition implied the AO had reasonable grounds to proceed with the reassessment, highlighting the importance of substantiating transactions and entities' credibility in tax matters.