2020 (11) TMI 410 - AT - Income Tax

Reopening of assessment u/s 147 - HELD THAT - Re-opening is bad in law as the AO has not independently applied his mind to the material and has recorded reasons which are vague and based on borrowed satisfaction. Hence this ground of the assessee for both the AY are allowed.- See PROFICIENT COMMODITIES PVT. LTD. VERSUS D.C.I.T., CIRCLE-5 (1) , KOLKATA 2019 (2) TMI 1408 - ITAT KOLKATA - Applying the propositions of law to the facts of this case we have no other alternative but to hold that the re-opening of assessment is bad in law. Addition made of bogus purchases - The assessee has provided all evidences in the form of invoices, bank statements, bills etc. and whereas the AO has not brought on record any evidence to controvert the same, except for relying on some information furnished by the Investigation Wing, Kolkata. CIT(A) accepts that they were genuine purchases. He directed that a percentage of these purchases may be added by way of gross profit percentage. When the purchases are held as not bogus by the ld. CIT(A), the question of part addition does not arise. Hence these additions as sustained by the ld. CIT(A) to the extent of ₹69,527/- is hereby deleted. Addition u/s 68 - when an addition made based on the reasons recorded for re-opening of assessment does not survive the question of making another addition on some other ground does not arise, as held in Jet Airways India Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY and Ranbaxi Laboratories 2011 (6) TMI 4 - DELHI HIGH COURT Addition under Section 68 of the Act cannot survive, when the addition based on reasons recorded for re-opening does not survive - Borrowing in question was from a sister concern. The partners of the assessee firm and the director of the sister concern which is a company. The bank statement wherein the alleged bogus purchases were recorded, was the same bank statement in which the loans taken from the sister concern were credited. The auditor has mentioned the details of this loan in the Tax audit report. The balance sheet of the creditor company shows that it had the capacity to lend. The creditor company confirmed the loan. The directors of the creditor company, who were also the partners of the assessee firm, have appeared before the AO during the assessment proceedings. Assessee has proved the genuineness of the transaction, the identity and the capacity of the creditor company. Hence the addition made under Section 68 of the Act cannot be sustained on merits. Thus we delete the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Re-opening of Assessment
2. Addition of ?59,00,000 under Section 68 of the Income Tax Act, 1961

Issue-wise Detailed Analysis:

1. Validity of Re-opening of Assessment:

The assessee challenged the re-opening of the assessment on legal grounds, arguing that the reasons furnished for re-opening were different from those recorded in the assessment order. The assessee contended that the re-opening was based on incorrect figures and facts, demonstrating non-application of mind by the Assessing Officer (AO). The AO did not dispose of the objections raised by the assessee through a speaking order, which is a procedural requirement as laid down by the Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO [2003] 259 ITR 19 (SC).

The Tribunal observed that the reasons recorded for re-opening were not provided to the assessee in the manner they were recorded. There were discrepancies in the figures mentioned in the reasons for re-opening and the assessment order. The Tribunal noted that the actual purchases were only ?5,98,336, contrary to the figures mentioned in the reasons for re-opening. The Tribunal held that the re-opening was bad in law due to:
- Non-furnishing of reasons recorded in the manner they were recorded.
- Non-disposal of objections by a speaking order.
- Total non-application of mind by the AO to the information received from the Investigation Wing.

The Tribunal cited several judgments, including Pr. CIT vs. SNG Developers Ltd. [2018] 404 ITR 312 (Delhi) (HC) and Ankita A. Choksey vs. ITO (2019) 411 ITR 207 (Bom)(HC), to support its conclusion that the re-opening was based on incorrect facts and lacked independent application of mind.

2. Addition of ?59,00,000 under Section 68 of the Income Tax Act, 1961:

The assessee argued that the addition of ?59,00,000 under Section 68 was arbitrary and without basis. The loan was taken from a sister concern, and the directors of the sister concern were also partners of the assessee firm. The assessee provided all necessary evidence, including bank statements, tax audit reports, and confirmation letters, to prove the genuineness of the transaction.

The Tribunal held that when an addition made based on the reasons recorded for re-opening does not survive, making another addition on some other ground is not permissible, as held by the Bombay High Court in CIT vs. Jet Airways India Ltd. 331 ITR 236 and Ranbaxi Laboratories vs. CIT, IT APPEAL NO. 148 OF 2008 (Delhi High Court) dated 03.06.2011. The Tribunal found that the assessee had proved the genuineness of the transaction, the identity, and the capacity of the creditor company. Therefore, the addition under Section 68 could not be sustained on merits and was deleted.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the re-opening of the assessment was bad in law and the addition under Section 68 was not sustainable on merits.