2019 (11) TMI 345 - AT - Income Tax

Validity of reopening of assessment u/s 147 - Bogus purchases - HELD THAT - The reasons for non-verifiable of the purchases made by the assessee due to non filing of the return of income as stated by the AO is absolutely incorrect and wrong and contrary to the record when the assessee has filed the return of income electronically on 29.10.2007. This fact was also subsequently accepted by the AO that the assessee filed the return of income under section 139(1). The second aspect of the reasons that the assessee has made bogus purchases is also not based on any enquiry or verification of record by the AO but this is simply reproduction of information received from the Investigation Wing. The said information is also incomplete as regards the details of the purchases and the parties from whom such purchases were made by the assessee. Thus the reasons recorded by the AO manifest that there is no application of mind and the averments as recorded in the reasons are very vague and general and rather inconsistent with the facts available on record so far as the filing of return of income by the assessee. The formation of belief on such incorrect and vague reasons would lead the reopening of the assessment as invalid. Making the wrong statement in the reasons recorded and ignoring the relevant and correct facts available on record established that the AO has not applied his independent mind while forming the opinion. The Chandigarh Bench of the Tribunal in case of Baba Kartar Singh Dukki Educational Trust vs. ITO . 2015 (5) TMI 1200 - ITAT CHANDIGARH has also considered an identical issue and held that the AO proceeded for reopening of the assessment for non-existent and factually incorrect reasons and has not applied his mind. When the AO has initiated the proceedings on the basis of non-existent and factually incorrect facts and reasons without application of mind and without verification of the facts available on record, then the proceedings initiated under section 147/148 are not sustainable in law. The same are set aside and consequential reassessment order is quashed.

Summary

Issues:
1. Validity of reopening of assessment
2. Merits of the trading addition and rejection of books of account

Issue 1: Validity of reopening of assessment
The appellant challenged the validity of the reassessment proceedings initiated by the Assessing Officer (AO) based on the notice issued under section 148 of the Income-tax Act, 1961. The AO alleged that the appellant made bogus purchases from a specific party, leading to income escaping assessment. The appellant contended that the reasons recorded by the AO were factually incorrect and without proper application of mind. The appellant highlighted that the AO's belief was based on wrong information as the appellant had filed the return of income electronically. The appellant also raised objections against the notice issued under section 148, emphasizing the incorrect information in the reasons recorded by the AO. The Tribunal found that the reasons for reopening the assessment were based on incorrect and vague grounds, lacking proper verification and application of mind by the AO. Citing relevant case laws, the Tribunal concluded that the reopening of the assessment was invalid and quashed the reassessment order.

Issue 2: Merits of the trading addition and rejection of books of account
The AO had made additions to the appellant's income concerning alleged bogus purchases from a particular party. The appellant challenged the trading addition and the rejection of books of account before the ld. CIT (Appeals). However, since the Tribunal set aside the reopening of the assessment in Issue 1, the merits of the trading addition and the rejection of books of account became infructuous. The Tribunal allowed the appeal of the assessee based on the invalidity of the reassessment proceedings, rendering further discussion on the trading addition and rejection of books unnecessary.

In conclusion, the Tribunal ruled in favor of the assessee, setting aside the reassessment order due to the invalidity of the reopening of the assessment. The Tribunal emphasized the importance of proper application of mind and correct factual grounds for initiating reassessment proceedings, highlighting the need for adherence to legal requirements in such cases.