2024 (2) TMI 639 - AT - Income Tax

Validity of Reopening of assessment - additions with respect to other items surfaced in the course of the re-assessment proceedings - information so provided by the DDIT (Inv.-I) Faridabad goes to show that certain transactions through banking channel has been carried out by the assessee with R.K. Trading Company and Netwest Trade Link - HELD THAT - Noticeably, the information supplied by the DDIT is merely advisory in nature whereby the AO was advised to check the copy of the account of the assessee with both these firms and examine them from an angle as to whether entries are in the nature of accommodation entries with such parties and carry necessary action as a consequence of any adverse observation. In essence, the AO was advised to make proper inquiries into such hugely suspicious entries. AO appears to have straightaway took recourse to reopen the assessment without any intermittent inquiry to ascertain the propriety of comments emerging from such information to make prima facie opinion of escapement of chargeable income on such purportedly suspicious transaction. No transaction claimed to have been carried out by the assessee from R.K. Trading Company at all as appearing in the reasons recorded. No addition has been made by the AO on this score either. The transaction was carried out with Netwest Trade Link but such transaction is wholly different. Thus, both the transactions forming part of the reasons have not been carried out by the assessee at all. The very basis for reopening the assessment is thus vitiated at the threshold. Addition qua high sea sale transactions executed with Netwest Tradelink Pvt. Ltd. supra which has no similarity with the transaction alleging escapement in the reasons recorded. The Assessing Officer has not bothered to link these transactions with the existing transaction in the course of re-assessment proceedings. The re-assessment made is thus totally divorced from the basis for which the case was reopened. This course is not permissible in law. In the absence of any addition/disallowance made qua the reasons recorded, the Assessing Officer is not entitled to make additions with respect to other items surfaced in the course of the re-assessment proceedings as held in Jet Airways 2010 (4) TMI 431 - HIGH COURT OF BOMBAY and Ranbaxy Laboratories 2011 (6) TMI 4 - DELHI HIGH COURT Addition u/s 68 - As the transactions with Netwest Trade Link Pvt. Ltd. were offered as turnover / sales whereas the additions has been made under Section 68 of the Act without reducing the corresponding sales. Such an act of the AO tantamount to double additions (i) under the head turnover and (ii) under Section 68 of the Act. Such course of action is manifestly unsustainable and cannot be countenanced in law even while testing the merits of additions. Reopening of assessment - Bogus purchases - accommodation entries receipts - Assessment Year 2010-11 - HELD THAT - As regards purchases from R.K. Trading Company the assessee demonstrated before the AO that corresponding sales have been recorded in the books of account against such purchases and the assessee has factually earned an income of Rs. 3,13,688/- on sale of goods which were purchased from R.K. Trading Company. Consequently, there is no escapement of income per se. Purchases made from Global Trade Corporation alleged to be in the nature of accommodation entries - transactions were shown to be duly accounted for and corresponding sales made to two parties namely Silver Tulip Impex Pvt. Ltd. and Tanish International. The consequent profits arising on sale of goods have been duly recorded in the books of account. A part of the payment against the sale of goods to these two parties were received from Global Trade Corporation alleged to be entry provider but however the assessee has not entered into any purchase transaction with such party alleged in the reasons recorded. The transactions are backed by purchase bill as well as the corresponding sale bill, the stock register and the bank statement. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of jurisdiction assumed under Section 148 of the Income Tax Act, 1961.
2. Merits of additions made in the reassessment proceedings.

Summary:

Validity of Jurisdiction Assumed Under Section 148:

The assessee challenged the re-assessment proceedings on the grounds of invalid jurisdiction under Section 148 of the Income Tax Act, 1961. It was contended that the Assessing Officer (AO) wrongly assumed jurisdiction without fulfilling the vital ingredients of Sections 147/148. The AO recorded reasons based on incorrect factual premises, alleging escapement of income due to accommodation entries from R.K. Trading Company and Netwest Trade Link Pvt. Ltd. However, the assessee did not have transactions with these entities as claimed. The Tribunal found that the reasons recorded by the AO were without factual basis, rendering the re-assessment proceedings unsustainable in law. The AO's action was based on suspicious transaction reports without any supporting documentary evidence or statements, leading to the conclusion that the jurisdiction assumed under Section 148 was invalid.

Merits of Additions Made in the Reassessment Proceedings:

The assessee also challenged the merits of the additions made by the AO. The AO made additions of Rs. 1,13,74,623/- under Section 68 of the Act, attributing them to unexplained cash credits. The assessee argued that these amounts were already credited in the Profit & Loss account as sales and commission income, leading to double addition. The Tribunal agreed, noting that the transactions represented high sea sales duly recorded in the books. The AO's addition under Section 68, without reducing the corresponding sales, was found to be unsustainable. The Tribunal referred to the judgment in CIT vs. Kailash Jewellery House and other relevant cases, concluding that additions under Section 68 could not be made where sales were duly recorded.

Combined Result:

The Tribunal allowed the appeals of the assessee for both Assessment Years 2009-10 and 2010-11, setting aside the orders of the CIT(A) and restoring the position taken by the assessee. The appeals were allowed on both the points of lack of jurisdiction under Section 147 and the merits of the additions.

Order Pronounced:

Order pronounced in the open Court on 09/02/2024.