2021 (10) TMI 9 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 on account of bogus purchases - HELD THAT - As decided in the case of Nihal Chand Rakyan 2017 (12) TMI 1813 - ITAT DELHI reassessment proceedings initiated by the Assessing Officer is invalid. Therefore, subsequent assessment framed is void ab initio. In the result, the appeal filed by the assessee is allowed on the issue of validity of the reassessment proceedings. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Addition of ?19,64,235/- under Section 68 of the Income Tax Act on account of alleged bogus purchases.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act, 1961:

The assessee challenged the validity of the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961, arguing that the AO did not have valid material to assume jurisdiction. The reassessment was based on information received from the Investigation Wing, alleging that the assessee had accepted accommodation entries. The AO issued a notice under Section 148 and recorded reasons for reopening the assessment, which the assessee contested as being arbitrary and without independent application of mind.

The Tribunal found that the AO had reopened the assessment solely based on information from the Investigation Wing without independent verification or application of mind. Citing the decision in the case of Nihal Chand Rakyan vs. ACIT, where similar reassessment proceedings were deemed invalid, the Tribunal held that the reassessment proceedings in the present case were also invalid. The Tribunal emphasized that reopening based solely on external information without the AO's independent application of mind does not satisfy the jurisdictional requirement under Section 147.

2. Addition of ?19,64,235/- under Section 68 of the Income Tax Act on Account of Alleged Bogus Purchases:

The AO added ?19,64,235/- to the assessee's total income under Section 68, labeling it as bogus purchases from M/s. Mayank Impex. The assessee provided purchase invoices, payment details through account payee cheques, and bank statements to substantiate the genuineness of the transactions. The assessee argued that the diamonds purchased were part of the stock-in-trade and were utilized in regular business activities, with sales not disputed by the AO.

The Tribunal noted that the AO had not brought any other material or evidence on record to substantiate the claim of bogus purchases. The reassessment was based on general information from the Investigation Wing without specific evidence against the assessee. The Tribunal referenced several decisions, including those of the coordinate Bench and the Hon'ble Jurisdictional High Court, which held that reopening based on such information without independent application of mind is invalid.

Given the invalidity of the reassessment proceedings, the Tribunal did not adjudicate the merits of the addition under Section 68. The appeal was allowed on the issue of the validity of the reassessment proceedings, rendering the subsequent assessment void ab initio.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, holding that the reassessment proceedings initiated by the AO were invalid due to the lack of independent application of mind and reliance solely on information from the Investigation Wing. Consequently, the subsequent assessment framed was void ab initio, and the Tribunal refrained from adjudicating the merits of the addition under Section 68. The decision was pronounced in the open court on 16.09.2021.