2021 (2) TMI 781 - AT - Income Tax

Reopening of assessment u/s 147 - primary argument of the assessee challenging the assumption of jurisdiction by the AO u/s 147 on the premise that the reasons recorded by the AO for assuming jurisdiction to reopen the case were bad in law being based on incorrect facts which showed no application of mind by the AO on the information in his possession and also that the satisfaction for escapement of income was not his own but borrowed - HELD THAT - Reassessment proceedings undertaken by the AO in the present case were invalid since the reasons recording his satisfaction of escapement of income were based on incorrect facts and there was no application of mind at all by the AO. The fallacies in the facts pointed out by the ld. counsel for the assessee regarding the quantum of bogus purchases noted by the AO in his reasons as also name of one of the parties has not been disputed or controverted by the Revenue. Even the fact recorded by the AO in the reasons that the bogus bills had been debited to the Profit Loss Account was incorrect which is evident from the fact that the ld. CIT(A) in his order passed on merits has found these bills to be relating to purchase of fixed assets and has accordingly made the disallowance of only depreciation relating to the same which has not been challenged by the Revenue before us. It is clearly evident that on receiving information from the Commercial Tax Department the ld. AO did not even care to verify the same from his records from where all these factual inaccuracies would have been brought out. Non application of mind by the AO and the belief of escapement of income is definitely not his own but borrowed from that of the commercial tax officer who had forwarded the information. The basic requirement of law for reopening an assessment is application of mind by the AO to the material or information in his possession to conclude and arrive at a satisfaction therefrom that income has escaped assessment. Both application of mind and satisfaction/belief of the AO are lacking in the present case. The reassessment therefore we hold is invalid. The case laws relied upon by the Ld.Counsel for the assessee support the case of the assessee. The order passed by the AO is therefore set aside.

Summary

Issues Involved:
1. Validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act.
2. Merits of the additions made by the Assessing Officer (AO) based on alleged bogus purchase bills.

Issue-wise Detailed Analysis:

1. Validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act:

The primary contention of the assessee was that the reasons recorded by the AO for reopening the case were based on incorrect facts, demonstrating no application of mind and constituting borrowed satisfaction. The AO's reasons for reopening the assessment included incorrect figures of bogus purchases from M/s Sheetal Trading Company and M/s Raj Dealers, and an incorrect assertion that these purchases were debited to the Profit & Loss Account, while they actually related to fixed assets.

The assessee argued that such inaccuracies invalidated the AO's satisfaction of income escapement, citing several case laws supporting the stance that reassessment based on incorrect facts or non-application of mind by the AO is invalid. The CIT(A) had dismissed this legal ground, but the Tribunal found merit in the assessee's contention, noting that the AO did not verify the information from his records, leading to factual inaccuracies. The Tribunal emphasized that the basic requirement for reopening an assessment is the AO's application of mind and independent satisfaction, both of which were lacking in this case. Consequently, the reassessment proceedings were deemed invalid, and the order passed by the AO was set aside.

2. Merits of the additions made by the Assessing Officer (AO) based on alleged bogus purchase bills:

Given the Tribunal's decision to invalidate the reassessment proceedings, it did not find it necessary to adjudicate the grounds raised on merits, as it would be a mere academic exercise. The Tribunal's focus remained on the procedural validity of the reassessment, leading to the appeal being allowed in favor of the assessee on the legal ground itself.

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the reassessment order due to the AO's reliance on incorrect facts and lack of independent application of mind, rendering the reassessment proceedings invalid. The merits of the case were not adjudicated, as the invalidation of the reassessment proceedings rendered such an exercise unnecessary.