2024 (12) TMI 903 - AT - Income Tax

Reopening of assessment u/s 147 - Addition of bogus purchases - reasons to believe or suspect - HELD THAT - It is settled position of law that the reopening of an assessment can be made by the AO only after recording reasons for reopening of assessment. The reasons so recorded are sacrosanct and hence, it cannot be changed later. In the instant case, the AO has recorded reasons mentioning alleged bogus purchases, but the fact would remain that the assessee has not made any such purchases. AO has used the expressions source of investment and very basis of investment therein remained unexplained , which shows that he AO was under the impression that the assessee has given some money. On the contrary, AR submitted that the assessee has taken loans from the companies belonging to Shri Pravin Kumar Jain, which again proves that the AO has reopened the assessment without knowledge of exact nature of income alleged to have escaped the assessment at the time of recording reasons as well as at the time of completion of assessment. As noticed earlier, the provisions of sec. 147 of the Act makes it mandatory that the AO should be clear about the alleged escapement of income while recording reasons for reopening of assessment. Hence, the reopening has to be invalid on these reasons. AO shall be entitled to make addition on any other issues not mentioned in the reasons for reopening of assessment, only if he makes addition on any one of the issues mentioned in the reasons for reopening. We notice the above said contention of the assessee is supported by the decision rendered in the case of CIT vs. Jet Airways (I) Ltd 2010 (4) TMI 431 - BOMBAY HIGH COURT AO had reopened the assessment on the reasoning that the assessee has availed accommodation entries in the form of bogus purchases. However, while completing the assessment, the AO assessed the income u/s. 68 r.w.s 56 - AO did not make any addition in respect of the issue for which the reopening was done. Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Addition under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening of Assessment:

The primary issue in this case revolves around the validity of the reopening of the assessment under Section 147 of the Income Tax Act, 1961. The Revenue challenged the order of the CIT(A) which deleted the addition made by the Assessing Officer (AO) under Section 68 of the Act. The AO had reopened the assessment based on information from the Investigation Wing indicating that the assessee was a beneficiary of bogus transactions involving hawala entities. The AO believed that Rs. 2,05,00,000/- had escaped assessment due to the assessee's failure to disclose material facts. The assessee contended that the reopening was based on incorrect premises since the alleged bogus purchases were actually loans obtained from the concerned entities. The assessee argued that the AO's reasons for reopening were baseless and lacked clarity about the nature of income that had escaped assessment. The Tribunal noted that the reasons recorded by the AO are sacrosanct and cannot be amended or supplemented later. The Tribunal observed that the AO's reasons for reopening did not establish a clear link between the alleged escapement of income and the evidence, as required by law. The Tribunal relied on the precedent set by the Bombay High Court in Hindustan Lever Ltd vs. R B Wadkar, emphasizing that the reasons must be clear, unambiguous, and based on evidence. Consequently, the Tribunal held that the reopening of the assessment was invalid due to the lack of clarity and proper reasoning by the AO.

2. Addition under Section 68:

The second issue pertains to the addition made by the AO under Section 68 of the Income Tax Act, 1961. The AO, while completing the assessment, made additions under Section 68, treating the loans as unexplained cash credits. The Tribunal noted that the AO did not make any additions related to the alleged bogus purchases, which was the basis for reopening the assessment. The Tribunal referred to the decision of the Bombay High Court in CIT vs. Jet Airways (I) Ltd, which held that if the AO does not assess or reassess the income for which the assessment was reopened, he cannot make additions on other issues. The Tribunal found that the AO's failure to make additions related to the reasons for reopening invalidated the addition under Section 68. The Tribunal emphasized that the AO must be clear about the nature of income that has escaped assessment both at the time of recording reasons and at the completion of the assessment. Since the AO was not clear about the nature of the alleged accommodation entry, the addition under Section 68 was deemed unsustainable.

In conclusion, the Tribunal upheld the decision of the CIT(A) to delete the addition, finding the reopening of the assessment invalid and the subsequent addition under Section 68 unsustainable. The appeal of the Revenue was dismissed.