2023 (9) TMI 1165 - HC - Income Tax

Reopening of assessment - information received by the AO from the investigation wing in the form of statement recorded in the case of Sh. Madan Lal Pahuja - as alleged assessee had made bogus purchases by inflating the expenses and thereby suppressed the profits - HELD THAT - An FIR had been registered against Madan Lal Pahuja on 13.09.2009. On 13.02.2023, learned counsel for the appellant sought time to get instructions whether any steps were taken with respect to the business transaction with bogus bills of Madan Lal Pahuja, who had been acquitted in the criminal trial. Today, as appellant informed that no steps were taken with respect to business transaction with bogus bills against Madan Lal Pahuja. In the present case, initiation of reassessment proceedings on the basis of the statement given by Madan Lal Pahuja and without giving assessee any opportunity of cross-examination were good grounds to allow the appeal of the assessee and does not require any interference as no substantial question of law arises for consideration in the present appeal. Hence, the instant appeal is dismissed.

Summary

Issues:
The issues involved in the judgment are the validity of reassessment proceedings under Sections 147/148 of the Income Tax Act, 1961 based on alleged bogus purchases, and the necessity of corroborating information received from the investigating wing before making additions to the income of the assessee.

Issue 1: Reassessment Proceedings and Alleged Bogus Purchases
The respondent-company, engaged in manufacturing and trading activities, had its assessment for the year 2010-11 reopened under Sections 147/148 due to alleged bogus purchases amounting to Rs. 4.26 crores. The Assessing Officer disallowed the entire purchase amount after objections from the assessee. The CIT(A) upheld the additions, leading to an appeal before the Tribunal. The Tribunal found that the AO had not independently verified the information received and merely relied on it. The Tribunal highlighted inconsistencies in the AO's approach and noted that the reassessment was based on unverified statements. The Tribunal also emphasized that the AO's reliance on the statement of a witness who did not appear for cross-examination was unjustified. Ultimately, the Tribunal dismissed the appeal, citing lack of substantial legal questions.

Issue 2: Cross-Examination and Legal Precedents
The Tribunal pointed out that the AO's reliance on a witness statement without allowing cross-examination was a procedural flaw. The Tribunal referred to legal precedents, including the decision in Commissioner of Income Tax, Delhi vs. Kelvinator of India Limited, to emphasize the importance of not changing opinions based on the same information. The Tribunal also highlighted discrepancies in the AO's treatment of purchase amounts and the need for proper verification before making additions to the assessee's income. Additionally, the Tribunal noted that the department had accepted sales from the same parties in subsequent assessment years, which raised questions about the validity of reassessment based on minor discrepancies in invoices. The Tribunal concluded that the initiation of reassessment proceedings without providing the assessee an opportunity for cross-examination was unjustified.

Separate Judgment:
The judgment was delivered by Hon'ble Ms. Justice Ritu Bahri and Hon'ble Mrs. Justice Manisha Batra. The appeal by the revenue against the Tribunal's decision to accept the respondent's appeal was dismissed, emphasizing the need for proper verification and adherence to legal procedures in reassessment proceedings involving alleged bogus purchases.