2018 (4) TMI 513 - AT - Income Tax

Reopening of assessment - bonafide or definite reason to believe that certain income has escaped assessment - non genuine purchases - Held that - AO made the addition only on relying the statement of one Shri Rajendra S. Jain. The assessee to prove the genuineness of the transactions, furnished the copies of purchase bills, sales bills, stock register and bank statements. In the instant case, the AO also issued the notice u/s 133(6) of the Act, in response the proprietors of the aforesaid firms furnished the confirmations alongwith copies of their ITR, bank statements. The assessee furnished copies of returns of the said parties, their PAN numbers, relevant bank accounts, copy of invoices, sales tax registration number etc. This fact has been admitted by the A0 - assessee made the entry of the purchases in the stock register and also furnished the copies of sales bills to the AO. The amount was received against the sales through banking channels and the payments for the purchases were also made through banking channels - when the AO had accepted the sales of the same items purchased by the assessee than there was no occasion to doubt the purchases -AO only doubted 90% of the purchases and made the addition to that extent but if the purchases were not genuine, the addition ought to have been made of the whole amount and not only of 90% and when the sales of the same items were accepted as genuine than the addition could not have been made for the purchases - additions deleted - decided in favour of assessee.

Summary

Issues:
1. Validity of reopening u/s 147 of the Income Tax Act, 1961
2. Sustenance of addition of ?27,06,075/-

Issue 1: Validity of reopening u/s 147:
The case involved a challenge to the validity of reopening under section 147 of the Income Tax Act. The Assessing Officer (AO) initiated proceedings based on information from the Investigation Wing regarding the assessee's involvement in accommodation entries. The AO issued a notice u/s 148 after recording reasons and obtaining necessary approvals. The assessee objected to the reopening, but the AO proceeded with the assessment. During the assessment, the assessee provided various documents to prove the genuineness of purchases, including bills, bank statements, and confirmations. The AO, however, was not satisfied and made an addition of ?27,06,075/-, considering 90% of the purchases as non-genuine. The CIT(A) upheld the addition, relying on statements from individuals involved in the bogus transactions. The ITAT held that the AO's reliance on statements alone was insufficient, especially when the assessee provided substantial evidence to support the transactions. The ITAT found no justification for doubting the purchases when sales from the same items were accepted as genuine. Consequently, the ITAT deleted the addition, emphasizing that if purchases were not genuine, the entire amount should have been questioned.

Issue 2: Sustenance of addition of ?27,06,075/-:
The second issue pertained to the sustenance of the addition of ?27,06,075/- made by the AO. The CIT(A) confirmed the addition based on statements from individuals involved in the bogus transactions, despite the assessee's submissions of supporting documents. The ITAT, however, found the CIT(A)'s decision unreasonable, as the assessee had provided extensive evidence, including purchase bills, sales bills, and bank statements, to establish the genuineness of the transactions. The ITAT noted that the AO had accepted the sales from the same items purchased by the assessee, indicating the transactions' legitimacy. Consequently, the ITAT concluded that the addition was unjustified and deleted the same in favor of the assessee.

In conclusion, the ITAT allowed the assessee's appeal, emphasizing the importance of considering all evidence presented by the assessee and ensuring a fair assessment process based on substantial facts rather than relying solely on statements from involved parties.