2021 (11) TMI 853 - AT - Income Tax

Validity of reopening of assessment u/s 147 - as argued notice u/s 143(2) was not properly served to the assessee - bogus purchases - HELD THAT - As in the assessee's case, under the guise of reopening of the assessment, the AO wants to have a roving inquiry ; as observed hereinabove. Even as per the AO in the reasons recorded, has specially mentioned that for the purpose of verification of the claim, it is necessary to reopen the assessment. Under the circumstances, it cannot be said that the AO had any tangible material to form an opinion that the income chargeable to tax has escaped the assessment. Under the circumstances, the impugned action of reopening of the assessment in exercise of power under section 148 of the Income-tax Act for the reasons recorded hereinabove cannot be sustained. As in the assessee's case, the Assessing Officer has initiated proceeding of reopening on the facts that the assessee had not filed return of income and provision of section 147(b) is also not applicable for reopening of assessment proceeding - However, these details are factually incorrect. The assessee had filed his return of income on September 18, 2007 and duly acknowledged by the Assessing Officer in para No. 2 of the assessment order. As the return is originally filed by the assessee and no assessment was made earlier therefore, the assessee's case falls in section 147(b) of the Act. Thus, the case was reopened on incorrect fact which shows non-application of mind by the learned Assessing Officer. Hence, the proceeding is itself bad in law. See RMG POLYVINYL (I) LTD. 2017 (7) TMI 371 - DELHI HIGH COURT . Thus reasons recorded by the Assessing Officer suffer from an infirmity of being misconceived in law and, therefore, initiation of proceeding thereupon is bad in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of issuing notice under section 148 of the Income-tax Act.
2. Validity of reassessment proceedings under section 147 of the Act.
3. Partial confirmation of addition of alleged bogus purchases by the Commissioner of Income-tax (Appeals).

Issue-wise Detailed Analysis:

1. Validity of Issuing Notice under Section 148 of the Income-tax Act:
The assessee contested the validity of the notice issued under section 148, arguing that the Assessing Officer did not have any tangible material to justify reopening the assessment. The court noted that the Assessing Officer had based the reopening on information from the Investigation Wing, Mumbai, which indicated that the assessee was a beneficiary of non-genuine transactions. However, the court found that the reasons recorded for reopening were primarily for verification purposes, which is not a valid ground for reopening an assessment. The court cited the case of Pr. CIT v. Manzil Dineshkumar Shah, where it was held that reopening an assessment merely for verification is not permissible. Consequently, the court concluded that the notice issued under section 148 was invalid.

2. Validity of Reassessment Proceedings under Section 147 of the Act:
The reassessment proceedings were challenged on the grounds that they were initiated based on incorrect facts and without proper application of mind by the Assessing Officer. The court observed that the Assessing Officer had incorrectly stated that the assessee had not filed a return of income, whereas the return had indeed been filed. This demonstrated a lack of application of mind. The court referenced the case of Pr. CIT v. RMG Polyvinyl (I) Ltd., where it was held that reopening based on incorrect facts is invalid. The court also noted that the Assessing Officer's reasons for reopening were based on borrowed satisfaction from the Investigation Wing's report without independent verification. Thus, the reassessment proceedings were deemed invalid and bad in law.

3. Partial Confirmation of Addition of Alleged Bogus Purchases:
The assessee challenged the partial confirmation of the addition of alleged bogus purchases by the Commissioner of Income-tax (Appeals). The Assessing Officer had initially disallowed 25% of the purchases, which the Commissioner of Income-tax (Appeals) reduced to 15%. However, since the court found the reassessment proceedings themselves to be invalid, the issue of the merits of the additions became academic and infructuous. The court did not delve into the specifics of the addition, as the reassessment was quashed.

Conclusion:
The court quashed the reassessment proceedings initiated under section 147/148 of the Income-tax Act, holding them to be invalid and bad in law due to the lack of tangible material and incorrect facts. Consequently, all other issues on the merits of the additions were rendered academic and infructuous. The appeal of the assessee was allowed.