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2006 (10) TMI 172 - AT - Income TaxReopening of assessment u/s 147/148 - addition on bogus purchases - Income Escaping Assessment - Whether the Assessing Officer had adequate material to form belief to initiate reassessment proceedings - assumption of jurisdiction - deemed to have been corrected or taken care of section 292B - Validity of notice issued u/s 148 - HELD THAT - We find that a survey was carried out by the Assessing Officer and large amount of material like bank pass book etc. were found and impounded. The assessee had not filed the return of income for this assessment year. Therefore, one could say that the Assessing Officer had enough material to justify the initiating action u/s 148(1). In the present case, if we take out the fact of account with Central Bank of India from the reasons recorded, then what survives in those reasons is that there is a deposit of Rs. 1,02,047 in the bank account and assessee has not filed return of income. Then this fact alone would be sufficient to justify the reopening of assessment, because mere inadequacy of material for formation of belief would not make reopening of assessment invalid provided facts recorded in the reasons justify the inference that income chargeable to tax has escaped assessment. Thus, we hold that reference to a wrong bank account number alone in the reasons so recorded will not make assumption of jurisdiction to reopen the assessment as invalid. Other references can also lead to formation of belief that the income has escaped assessment. Merely not filing of return of income will not result into an inference that any deposit in the bank account . was chargeable to tax and therefore, had escaped assessment, even if that amount exceeded minimum amount chargeable to tax, i.e., exceeded the exemption limit. We derive support for this conclusion from the decision of M.P High Court in Biaora Constructions (P.) Ltd. v. DIT 2005 (9) TMI 37 - MADHYA PRADESH HIGH COURT for the proposition that if an amount as recorded in the regular books then it cannot be said to be concealed. Thus, where an amount is recorded in the regular books, it will not be automatically inferred that it was chargeable to tax and it has escaped assessment. Thus, we hold that formation of belief by the Assessing Officer for reopening the assessment was not legally proper as on the basis of facts recorded in the reasons he could not have come to the inference that sum of Rs. 1,02,047 has escaped assessment. We, thus, hold that Assessing Officer has not formed a proper belief on the basis of material brought in the reasons so recorded and therefore, reopening of the assessment was without jurisdiction and invalid. The assessment on that basis is required to be annulled. Any mandatory requirement for assumption of jurisdiction cannot be said to be covered by section 292B which comes into operation only when valid proceedings are initiated. Any invalid proceedings for assumption of jurisdiction cannot be corrected by section 292B. For this proposition, we rely on the decision in Sri Nath Suresh Chand Ram Naresh v. CIT 2004 (12) TMI 24 - ALLAHABAD HIGH COURT . In that case, the notice was issued in the name of wrong person. Assessment proceedings were held not valid. This shows that act of assumption of jurisdiction u/s 148(1) extends up to the issuance of correct notice, in the name of correct person. Such mistakes could not be taken care by section 292B. Only inference from this is that any mistake in the process of assumption of jurisdiction could not be deemed to be corrected by section 292B. In the decision of Sun rolling Mills (P.) Ltd. v. ITO 1985 (5) TMI 9 - CALCUTTA HIGH COURT , the assessment was reopened u/s 147(b). The reasons recorded therefore were not considered as reasons for proceedings u/s 147(a). Thus, we reject the contention of the revenue that mentioning of wrong bank account number in the reasons could be deemed to be corrected by section 292B. Bogus purchase - We are of the view that entire addition of Rs. 6,00,000 cannot be sustained. It is because the declared sales of the assessee are of Rs. 4,52,819 and closing stock is of Rs. 15,50,000. The closing stock is valued at cost. The Gross Profit rate declared by the assessee on sales of Rs. 4,52,819 is Rs. 2,26,786, which is about 50 per cent. If the purchases of Rs. 6,00,000 are added then profit will jump to Rs. 8,26,786 which would be about 182.50 per cent. This is unreasonable and cannot be sustained in law. Further, we notice that the Assessing Officer in the assessment order mentions that the assessee had made purchases from various persons, but purchase of Rs. 6,00,000 has been shown from Saraf Medicinal and Botanical Garden. In other words, it was not a case of bogus purchases, but was a case of unverifiable purchases. For unverifiable purchases books can be rejected and profit can be estimated. Since the profit declared by the assessee is about 50 per cent and there is no material to show that the assessee would have earned more profit, then addition made by the Assessing Officer and confirmed by the CIT(A) cannot be sustained. As a result, on merits also the addition of Rs. 6,00,000 cannot survive. As a result, we allow the appeal filed by the assessee.
Issues Involved:
1. Reopening of assessment under sections 147/148. 2. Addition of Rs. 6,00,000 towards bogus purchases. 3. Initiation of penalty proceedings under section 271(1)(c). 4. Charging of interest under sections 234A and 234B. 5. Deletion of addition of Rs. 2,85,000 under section 69C. 6. Validity of reassessment proceedings for the assessment year 1999-2000. Detailed Analysis: 1. Reopening of Assessment under Sections 147/148: The assessee challenged the reopening of the assessment on the grounds that it was initiated on suspicion and without application of mind, and that the proceedings were without jurisdiction. The Assessing Officer (AO) had issued notice under section 148 based on a survey conducted at the premises of M/s. Saraf Gramodyog Sansthan, which revealed various documents and bank statements. The AO noted a deposit of Rs. 1,02,047 in a bank account, which he believed indicated income that had escaped assessment. However, the bank account number mentioned was incorrect, and the correct account was later clarified. The Tribunal found that the AO did not form a proper belief based on the material available, as the deposit was explained in the regular books. The Tribunal held that the reopening of the assessment was without jurisdiction and invalid, and annulled the assessment. 2. Addition of Rs. 6,00,000 towards Bogus Purchases: The AO added Rs. 6,00,000 to the assessee's income, treating the purchases from M/s. Saraf Medicinal and Botanical Garden as bogus. The assessee argued that the purchases were not bogus but unverifiable. The Tribunal observed that the declared sales and closing stock indicated a gross profit rate of about 50%, and the addition would result in an unreasonable profit rate of 182.50%. The Tribunal concluded that the purchases were unverifiable, not bogus, and that the profit declared by the assessee was reasonable. Therefore, the addition of Rs. 6,00,000 was not sustained. 3. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal declined to interfere with the initiation of penalty proceedings, noting that it would depend on the facts of each case. However, since the assessment itself was annulled, the penalty proceedings would not survive. 4. Charging of Interest under Sections 234A and 234B: The Tribunal similarly declined to interfere with the charging of interest, as it would depend on the specific circumstances. However, with the annulment of the assessment, the interest charges would also not survive. 5. Deletion of Addition of Rs. 2,85,000 under Section 69C: The Revenue's appeal challenged the deletion of an addition of Rs. 2,85,000 made under section 69C for unexplained payments. The Tribunal held that since the reopening of the assessment was invalid and the assessment was annulled, the question of considering the Revenue's grounds did not arise. Therefore, the appeal of the Revenue was dismissed. 6. Validity of Reassessment Proceedings for the Assessment Year 1999-2000: For the assessment year 1999-2000, the AO had reopened the assessment based on deposits in a bank account. The Tribunal found that the reasons recorded for reopening were similar to those for the previous year and suffered from the same defects. Additionally, the return of income was filed before the notice under section 148 was issued, making the reassessment proceedings invalid. The Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) annulling the assessment. Conclusion: The Tribunal allowed the appeal filed by the assessee, annulled the assessments for both years, and dismissed the appeals filed by the Revenue. The reopening of the assessments was found to be without proper jurisdiction, and the additions made by the AO were not sustained.
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