2022 (2) TMI 525 - AT - Income Tax

Validity of the reassessment proceedings - assessee is a beneficiary of accommodation entries - HELD THAT - It is an admitted fact that the original assessment was completed u/s 143(3) of the Act on 23.07.2008 and the assessment year involved is AY 2006-07. AO, during the course of assessment proceedings, had raised various queries and the assessee, vide letter dated 3rd July, 2008 has given the details of monthwise purchase and sales and the details of purchases of more than one lakh as per query No.4 and 5 raised by the AO in the original assessment proceedings. Further, in the reasons recorded, there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Under these circumstances, the notice issued by the AO beyond a period of four years from the end of the relevant assessment year in a case where the original assessment was completed u/s 143(3) will not be in accordance with law. Therefore, such reassessment proceedings has to be treated as invalid. As in the instant case, the original assessment was completed u/s 143(3) of the IT Act, the issue of purchases was examined by the AO during the course of assessment proceedings, therefore, in absence of any allegation by the AO in the reasons that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment, the reassessment proceedings, in our opinion, are not in accordance with the law. We, therefore, quash the reassessment proceedings. The grounds of appeal No.2 to 4 raised by the assessee are accordingly allowed.

Summary

Issues Involved:
1. Validity of the reassessment proceedings under section 147 of the Income-tax Act.
2. Allegation of income escaping assessment due to accommodation entries.
3. Addition of ?26,77,663 to the total income based on alleged bogus purchases.
4. Charging of interest under section 234B of the Income-tax Act.

Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The primary issue raised by the assessee was the validity of the reassessment proceedings initiated under section 147 of the Income-tax Act. The original assessment was completed under section 143(3) on 23rd July 2008. The notice for reassessment was issued on 28th March 2013, which is beyond the four-year period stipulated by the Act. The assessee argued that there was no failure on their part to disclose fully and truly all material facts necessary for the completion of the assessment. The Tribunal found merit in this argument, noting that the original assessment had scrutinized all relevant details, including purchases exceeding ?1 lakh. The Tribunal referenced the Full Bench decision of the Delhi High Court in CIT vs. Usha International Ltd., which held that reassessment proceedings are invalid if they are based on a mere change of opinion without new factual information. Consequently, the Tribunal quashed the reassessment proceedings as they were not in accordance with the law.

2. Allegation of Income Escaping Assessment:
The Assessing Officer (AO) reopened the assessment based on information that the assessee had received accommodation entries amounting to ?32,16,435 from entities involved in providing bogus purchases. The Tribunal noted that the reasons recorded by the AO did not align with the actual purchases made by the assessee, which amounted to ?26,77,663 from two specific entities. This discrepancy indicated a lack of application of mind by the AO. The Tribunal emphasized that for reopening an assessment beyond four years, there must be a clear allegation of failure by the assessee to disclose material facts, which was absent in this case.

3. Addition of ?26,77,663 to the Total Income:
The AO added ?26,77,663 to the total income of the assessee, citing bogus purchases from two entities. The assessee countered that all transactions were genuine, supported by account payee cheques, and scrutinized during the original assessment. Given that the Tribunal quashed the reassessment proceedings, the issue of the addition became academic. Therefore, the Tribunal did not adjudicate on the merits of this addition.

4. Charging of Interest under Section 234B:
The assessee also contested the charging of interest under section 234B of the Income-tax Act. Since the Tribunal quashed the reassessment proceedings, the issue of charging interest became consequential and was dismissed.

Conclusion:
The appeal filed by the assessee was allowed. The Tribunal quashed the reassessment proceedings as they were initiated beyond the permissible period without any failure on the part of the assessee to disclose material facts. Consequently, the grounds challenging the addition on merit and the charging of interest were rendered academic and dismissed. The order was pronounced in February 2022.