2020 (7) TMI 372 - AT - Income Tax

Reopening of assessment - information received from INV Wing - bogus sales and commission paid on the alleged accommodation entries - application of mind of the Assessing Officer before issuing such notice or not? - HELD THAT - Entire assessment based upon the information received is devoid of any application of mind. At this juncture, it is pertinent to mention that neither Shri Kishore Sharan Goyal nor Sai Kripa Enterprises and Balaji Enterprises are related to the assessee. Transaction is not of unsecured loan/cash credits where the assessee has introduced its own unaccounted cash in the form of sales. Sales are supported by C Forms, VAT Nos and Sales Tax numbers of the parties, further supported by the certificates from the forest department. All these have not been examined by the Assessing Officer and had he examined these documents/evidences or made necessary enquiries, he may not have issued notice u/s 148 of the Act but for non-application of mind, the assessment was reopened. In the case of RMG Polyvinyl Ltd 2017 (7) TMI 371 - DELHI HIGH COURT had the occasion to consider the issue whether notice issued by the Assessing Officer to reopen assessment on the basis of information received from INV Wing could be said to be tangible material, the Hon'ble High Court held that information received from INV Wing could not be said to be tangible material per se without a further enquiry being undertaken by the Assessing Officer to establish link between tangible material and formation of reason to believe that income has escaped assessment. Thus the assessee succeeds on both the counts - reopening is devoid of any application of mind and additions are solely based upon assumptions, conjectures and surmises. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order framed u/s 143(3) r.w.s 147 of the Income Tax Act, 1961.
2. Addition of ?93,34,926/- as bogus sales.
3. Addition of ?93,349/- as commission paid on alleged accommodation entries.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The assessee challenged the validity of the assessment order framed under section 143(3) read with section 147 of the Income Tax Act, 1961. The original return of income was e-filed on 26.09.2011, declaring an income of ?46,11,710/-, which was revised on 23.08.2012. The turnover returned was ?37.58 crores. The assessment was reopened based on information from the Deputy Director of Income Tax (Inv.)-III, Gurgaon, indicating that the Spaze Group was involved in providing purchase accommodation entries through various non-genuine concerns. The Assessing Officer (AO) recorded reasons for reopening the assessment, citing statements from Shri Kishori Sharan Goyal admitting to managing firms that provided accommodation entries for bogus purchases and sales.

The Tribunal found that the AO did not apply his mind while recording reasons for reassessment. The AO relied solely on information from the Investigation Wing without examining the bank statements or the nature of the assessee's business, which required permissions from the Forest Department for selling log woods. The AO's failure to examine relevant documents and the denial of the opportunity for the assessee to cross-examine Shri Kishori Sharan Goyal were significant lapses.

2. Addition of ?93,34,926/- as Bogus Sales:
The AO added ?93,34,926/- as bogus sales based on the information that the assessee sold goods to Sai Kripa Enterprises and Balaji Enterprises, with transactions amounting to ?10 lakhs each. However, the Tribunal noted that the actual transactions with these entities were ?27,41,837/- and ?65,93,089/-, respectively. The AO did not examine the certificates from the Forest Department or the transport documents, which supported the sales. The Tribunal found that the AO's reliance on the Investigation Wing's information without proper verification led to an erroneous addition.

3. Addition of ?93,349/- as Commission on Alleged Accommodation Entries:
The AO added ?93,349/- as commission paid on alleged accommodation entries. The Tribunal observed that the AO's entire assessment was based on assumptions and conjectures without concrete evidence. The AO's failure to provide the assessee an opportunity to cross-examine Shri Kishori Sharan Goyal, whose statements were crucial to the AO's conclusions, further weakened the case. The Tribunal emphasized that the denial of natural justice rendered the assessment void.

Conclusion:
The Tribunal concluded that the reopening of the assessment was devoid of any application of mind and that the additions were based on assumptions, conjectures, and surmises. The Tribunal allowed the appeal of the assessee, setting aside the assessment order and deleting the additions. The order was pronounced in the open court on 10.07.2020.