2019 (11) TMI 870 - AT - Income Tax

Reopening of assessment u/s 147 - AO received information from the Sales Tax Department, Govt. of Maharashtra that the assessee had obtained accommodation entries by availing bogus purchase bills to inflate purchases - HELD THAT - As mentioned earlier, the AO has reopened the assessment which was processed u/s. 143(1) of the Act. The Hon ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. 2007 (5) TMI 197 - SUPREME COURT analyzed the distinction between the acceptance of a return u/s 143(1) and an assessment which is framed u/s 143(3) of the Act. In the former case, the AO would have much wider latitude to reopen the assessment. Thus in the instant case, the AO has rightly issued notice u/s 148 for reopening the return of income processed u/s 143(1) of the Act. No irregularity has been committed by the AO in recording the reasons and then issuing the notice u/s.148. As mention earlier, the AO had issued notice u/s. 142(1) calling for details to be filed by the assessee and also the books of accounts to be reproduced. In response to it, the assessee failed to file the complete details. Also the assessee failed to produce before the AO the books of accounts for verification - As relying on N.K. Industries Ltd. 2016 (6) TMI 1139 - GUJARAT HIGH COURT we set aside the order of the Ld. CIT(A) and direct the AO to restrict the additions limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases. We direct the assessee to file the relevant documents/evidence before the AO. Needless to say, the AO would give reasonable opportunity of being heard to the assessee before finalizing the order. Assessee's appeal is partly allowed.

Issues Involved:
1. Validity of reassessment proceedings and notice issued under Section 148.
2. Availability and examination of evidence for reopening the case and making additions.
3. Alleged violation of natural justice principles.
4. Justification of additions made based on suspicion and without independent inquiries.
5. Consideration of judicial precedents cited by the appellant.
6. Levy of penal interest on additional tax demand.

Detailed Analysis:

1. Validity of Reassessment Proceedings and Notice Issued Under Section 148:
The assessee argued that the reassessment proceedings were not initiated as per law, claiming that no materials were available on record to justify the AO's "reason to believe." The AO reopened the assessment based on information from the Sales Tax Department indicating that the assessee had obtained bogus purchase bills to reduce tax liabilities. The Tribunal upheld the AO's action, citing the Supreme Court's judgment in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd., which allows wider latitude for reopening assessments processed under Section 143(1). The Tribunal found no irregularity in the issuance of the notice under Section 148.

2. Availability and Examination of Evidence for Reopening the Case and Making Additions:
The assessee contended that no concrete evidence was provided to substantiate the reopening of the case and the subsequent additions. The AO had requested detailed information about the purchases, which the assessee partially provided but failed to link with corresponding sales or produce books of accounts. The Tribunal noted that the AO estimated the profit at 12.5% on the disputed purchases, amounting to ?6,96,528/-, based on the lack of complete details and non-production of books of accounts.

3. Alleged Violation of Natural Justice Principles:
The assessee claimed a violation of natural justice, arguing that materials used against them were not furnished for rebuttal. The Tribunal did not find merit in this argument, emphasizing that the AO had issued notices under Section 142(1) and provided opportunities to the assessee to submit the required details and books of accounts, which the assessee failed to do.

4. Justification of Additions Made Based on Suspicion and Without Independent Inquiries:
The assessee argued that the additions were made arbitrarily based on suspicion and without independent inquiries. The Tribunal referred to the Bombay High Court's decision in Pr. CIT v. M/s Mohommad Haji Adam & Co., which held that when sales are accepted, purchases cannot be rejected without disturbing the sales. The Tribunal directed the AO to restrict the additions to the extent of bringing the Gross Profit (G.P.) rate on disputed purchases in line with other genuine purchases.

5. Consideration of Judicial Precedents Cited by the Appellant:
The assessee argued that the lower authorities ignored judicial precedents cited by them. The Tribunal acknowledged the relevance of judicial precedents and directed the AO to consider them while finalizing the order, ensuring that the principles laid down in similar cases are followed.

6. Levy of Penal Interest on Additional Tax Demand:
The assessee requested that penal interest levied on the additional tax demand due to the additions be waived. The Tribunal did not specifically address this issue in the judgment, focusing instead on the main issues related to the validity of the reassessment and the justification of the additions.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to restrict the additions to the extent of bringing the G.P. rate on disputed purchases at the same rate as other genuine purchases. The assessee was instructed to file relevant documents/evidence before the AO, who must provide a reasonable opportunity of being heard before finalizing the order. The judgment emphasized adherence to legal principles and judicial precedents while ensuring a fair reassessment process.

← Previous Next →