2021 (1) TMI 882 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus purchases - HELD THAT - Issue decided in favour of assessee as relying on case 2015 (12) TMI 1538 - ITAT DELHI herein the Tribunal has quashed the reassessment proceedings initiated by the Assessing Officer and has also deleted the addition made by the Assessing Officer and sustained by Ld.CIT(A) on merit - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the re-assessment proceedings.
2. Addition on account of bogus purchases.
3. Enhancement of income by the CIT(A).

Detailed Analysis:

1. Validity of the Re-assessment Proceedings:

The assessee challenged the validity of the re-assessment proceedings on the grounds that the notice under section 148 was issued to a non-existing entity, as the erstwhile partnership firm had dissolved on 31.03.2004, and the assessee had taken over the business from 01.04.2004. The assessee argued that the reassessment proceedings initiated on a non-existing entity are void ab initio and that the statutory conditions and procedures prescribed under the statute were not complied with. The assessee relied on various judicial decisions to support this contention.

The Tribunal found that the issue regarding the validity of the reassessment is covered by the decision of the Tribunal in the assessee’s own case for Assessment Year 2006-07, where the reassessment proceedings were quashed. The Tribunal observed that the reasons recorded for the belief that income had escaped assessment were similar to those in the earlier year, and the parties from whom the assessee had made purchases were also the same. Therefore, the Tribunal quashed the reassessment proceedings for the current year as well.

2. Addition on Account of Bogus Purchases:

The Assessing Officer made an addition of ?19,74,026/- on account of bogus purchases from M/s Bankey Bihari Trading Company and M/s Vishu Trading Company, based on statements from individuals involved in providing accommodation entries. The assessee contended that there was no material evidence other than the statements, and that the purchases and sales were fully tallied with quantitative details provided. The assessee argued that if the sales were accepted, the purchases could not be treated as bogus, as there cannot be any sales without purchases.

The Tribunal noted that in the assessee’s own case for Assessment Year 2006-07, similar additions were deleted by the Tribunal. The Tribunal observed that under identical circumstances, the Co-ordinate Benches of the Tribunal had deleted such additions where sales were accepted. Consequently, the Tribunal directed the deletion of the addition made by the Assessing Officer on account of bogus purchases.

3. Enhancement of Income by the CIT(A):

The CIT(A) not only upheld the re-opening of the assessment but also enhanced the addition to ?21,30,030/-. The CIT(A) held that the assessee must have earned profit from the transactions and added 20% of the purchase amount as profit, along with a commission paid for accommodation entries. The assessee challenged this enhancement, arguing that the CIT(A) ignored the fact that the purchases and sales were completely tallied, and that the addition was made without providing an opportunity to cross-examine the persons whose statements were relied upon.

The Tribunal found that the enhancement by the CIT(A) was not justified, as the purchases were not bogus, and the addition of 20% was too high. The Tribunal referred to its previous decision in the assessee’s own case and similar cases, where such additions were deleted. Consequently, the Tribunal directed the deletion of the enhanced addition made by the CIT(A).

Conclusion:

The Tribunal quashed the re-assessment proceedings and directed the deletion of the additions made by the Assessing Officer and enhanced by the CIT(A). The appeal filed by the assessee was allowed.