2024 (12) TMI 259 - HC - Income Tax

Reopening of assessment u/s 147 - genuineness of purchases made by the petitioner for export of garments questioned - Investigation Wing had found that one of the entities (Balaji Enterprises) had purportedly supplied the goods to the petitioner, was found to be non-existing at the principal place of business - HELD THAT - As considered the petitioner s contention that the transactions were through banking channel. Plainly, if the entries are accommodation entries as suspected then at least one limb of the transaction would necessarily be through banking channel. The petitioner had not produced any material to establish the credibility of Balaji Enterprises or Dev Sales Corporation. Petitioner submits that since the goods have been exported, it was also necessary to make the Customs department a party as the petitioner had availed duty drawback. This contention is also insubstantial. At the stage of issuance of notice under Section 148 of the Act, the AO is required to have reasons to assume that the income of the assessee has escaped assessment. Section 148A of the Act sets out a mechanism for ensuring that the AO s decisions are not based on any unfounded suspicion. The scheme thus, entails a preliminary enquiry, which in this case was done by the department. It is then followed by a notice under Section 148A (b) of the Act to enable the assessee to respond to the information that is available. AO is required to consider the assessee s response under Section 148A (c) of the Act in taking an informed decision whether it is a fit case to reopen the assessment by passing an order under Section 148A (d) of the Act. This exercise is for a limited scope of merely determining whether the assessment is required to be reopened. It does not foreclose the assessee s contention regarding the genuineness of the ITRs. All rights and contentions of an assessee to support its declaration of ITR is available to the assessee. At the stage of Section 148A of the Act, the AO is merely required to form a view whether he has reasons which indicate that the assessee s income has escaped assessment. In the present case, there is material on record the sufficiency of which, this court is not required to examine which bears a live nexus to the opinion that the petitioner s income has escaped assessment. The material indicates that there is evidence that two of the entities from whom the petitioner had procured materials are not genuine. The bank accounts indicate matching of inflows and outflows coupled with the high turnover in a short span of time. This provides the reasons for the AO to question the purchases that are declared by the petitioner. No grounds to interfere with the impugned order, the impugned notice and the notice issued under Section 148 - Decided against assessee.

Issues:
1. Validity of notice issued under Section 148A (b) of the Income Tax Act, 1961.
2. Legitimacy of order passed under Section 148A (d) of the Act.
3. Reopening of assessment for the assessment year 2018-19.
4. Allegations of income escaping assessment.
5. Examination of genuineness of purchases made by the petitioner.
6. Compliance with court directions from previous proceedings.
7. Assessment of material and evidence presented by the petitioner.
8. Consideration of GST returns and related documentation.
9. Allegations of involvement in accommodation entries.
10. Nexus between bank account activities and assessment of income.

Analysis:

The petitioner challenged a notice and order issued under the Income Tax Act, 1961, regarding the reopening of assessment for the assessment year 2018-19. The petitioner contended that its purchases were genuine and provided documentation to support this claim. The Assessing Officer (AO) had information suggesting that income had escaped assessment due to transactions with entities found to be non-genuine. The High Court noted that the AO had not adequately addressed the genuineness of the purchases and directed a reevaluation. Subsequently, a new notice was issued based on further investigations into the entities involved in the transactions.

The court observed discrepancies in the activities of the entities supplying goods to the petitioner, indicating potential accommodation entries. The petitioner's submissions regarding the authenticity of purchases were considered, including matching GST returns and vendor activities. The court noted that the AO had extensively reviewed reports from the Investigation Wing and made efforts to contact the entities in question, which yielded unsatisfactory responses. The petitioner's argument that transactions were conducted through banking channels was countered by the suspicion of accommodation entries.

The court emphasized the AO's obligation to have valid reasons to assume income escapement before issuing a notice under Section 148 of the Act. The court upheld the AO's decision to reopen the assessment, citing evidence of non-genuine entities and suspicious banking activities. The petitioner's plea regarding the involvement of the Customs department due to duty drawback claims was deemed unsubstantial. Ultimately, the court dismissed the petition, stating that sufficient grounds existed to support the reopening of the assessment based on the material available, despite the petitioner's assertions of genuine purchases.

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