2017 (8) TMI 21 - AT - Income Tax

Validity of reopening of assessment - receipt of accommodation entries by assessee - Held that - In the present case assessment has been reopened on the basis of search and seizure action at the premises of SK Gupta Group Companies. At this juncture, we agree with submissions made by Ld. Counsel that on receipt of information received on the basis of search and seizure operation, assessing officer should have followed procedure under section 153C, instead of reopening the assessment u/s 147. Further it is observed that the reopening has been done on the basis of reasons recorded on incorrect facts. That being so the reasons are in fact no reasons at all. Assessing officer could have confirmed purchase of software provided by M/s BT Technet Ltd., from Ministry of Home Affairs who was buyer. Ld. Counsel placed his reliance upon a chart reproduced at page 27 of order of Ld. CIT(A) wherein all the purchases from M/s BT Technet Ltd., has been listed. It is submitted that except for alleged PGSM Software Module, rest of purchases has not been disputed by the authorities below. Further at para 2.1 of assessment order assessing officer himself mentions that purported transaction for purchase of PGSM Software module from M/s BT Technet Ltd., was provided vide bill dated 25.05.2004. In our considered opinion, this cannot be correct as actual invoice is dated 28.12.2003 a copy of which is placed in paper book. If we go by bill dated 25.05.2004 as observed by Ld.AO, alleged transaction would fall in the previous year relevant to assessment year 2005-06 and not in the year under consideration. Also assessing officer has proceeded with preconceived notion by blindly accepting statement of Sh. SK Gupta and entire finding is based on mere surmises and conjunctures without any application of mind. At this juncture it is pertinent to observe that reasons recorded are based on inferences of Ld. AO without there being any materials on record to support such inferences. In view of above discussions addition made by Ld.AO stands deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under sections 147/148.
2. Confirmation of the disallowance of ?52,50,000/- on account of purchases of PGSM Software Module.
3. Procedural lapses and principles of natural justice.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:
The appellant challenged the reassessment proceedings on the grounds that they were initiated without proper jurisdiction and valid reasons as per sections 147 to 151 of the Income Tax Act, 1961. The original assessment was completed under section 143(3) and later reopened based on information obtained from a search and seizure operation at the premises of a third party (S.K. Gupta Group). The appellant argued that the reopening was based on borrowed satisfaction without any independent application of mind by the Assessing Officer (AO). The Tribunal noted that the reopening should have followed the procedure under section 153C instead of section 147. Furthermore, the reasons recorded for reopening were based on incorrect facts, making them invalid. Thus, the notice issued under section 147 was deemed not to stand the test of law.

2. Confirmation of Disallowance of ?52,50,000/-:
The AO disallowed the expenditure claimed by the appellant for purchasing the PGSM Software Module from M/s BT Technet Ltd., treating it as non-genuine. This disallowance was based on the statement of Sh. S.K. Gupta, which indicated that M/s BT Technet Ltd. was involved in accommodation entries rather than genuine business activities. The appellant contended that the software was genuinely purchased and used for their business, specifically for supplying a “Complete laptop-based 16 channels PGSM interceptor system” to the Ministry of Home Affairs, Government of India. The Tribunal found that the AO did not confront the appellant with the statement of Sh. S.K. Gupta or verify the purchase from the Ministry of Home Affairs. The Tribunal also observed that the AO's reliance on incorrect invoice dates and amounts further weakened the case for disallowance. Consequently, the Tribunal deleted the addition made by the AO.

3. Procedural Lapses and Principles of Natural Justice:
The appellant argued that the reassessment proceedings were conducted without serving a notice under section 143(2), violating the principles of natural justice. The Tribunal noted that the AO did not provide the appellant with an opportunity to cross-examine Sh. S.K. Gupta or any other relevant party. The AO's failure to independently verify the transaction and the procedural lapses in issuing and serving notices further supported the appellant's case. The Tribunal emphasized that the AO's findings were based on mere surmises and conjectures without proper application of mind, leading to a violation of the principles of natural justice.

Conclusion:
The Tribunal allowed the appeal filed by the appellant, setting aside the reassessment proceedings and deleting the disallowance of ?52,50,000/-. The Tribunal pronounced the order in the open court on 24th March 2017.