2018 (3) TMI 1606 - AT - Income Tax

Tribunal quashes reassessment order, citing invalid assessment reopening. Unjustified additions deleted.

M/s. Dwarka Gems Ltd., Versus The DCIT, Circle-7

M/s. Dwarka Gems Ltd., Versus The DCIT, Circle-7 - TMI Issues:1. Validity of reopening of the assessment2. Confirmation of application of provisions of section 145(3) by Ld. AO3. Trading addition of Rs. 4,71,123/- confirmed by Ld. CIT(A)Issue 1: Validity of reopening of the assessmentThe appeal challenged the reopening of the assessment under section 147 by the Assessing Officer (AO) for the Assessment Year 2008-09. The AO proposed to reassess the income based on alleged unverifiable purchases made by the assessee from specific parties. The appellant contended that the reopening lacked valid grounds as it was solely based on information received from the Investigation Wing, Mumbai, without independent examination. The appellant argued that the AO did not have sufficient material to believe that income had escaped assessment. The appellant cited legal precedents to support the argument that the AO's reliance on conclusions drawn by another person was not valid. The Tribunal observed that the original assessment had already addressed the issue of unverifiable purchases, and the subsequent information did not indicate non-disclosure by the assessee. The Tribunal concluded that the reopening was without jurisdiction, as the AO failed to conduct a proper enquiry and the subsequent information did not meet the conditions for reopening. Consequently, the reassessment order was deemed invalid and quashed.Issue 2: Confirmation of application of provisions of section 145(3) by Ld. AOThe second issue pertained to the Ld. CIT(A) confirming the application of section 145(3) by the AO regarding alleged unverifiable purchases made by the assessee from specific parties. The appellant argued that the confirmation of unverifiable purchases was arbitrary, as one of the parties had acknowledged the transactions with the assessee. The appellant further contended that the reliance on a third party's statement, who was unrelated to the assessee and not allowed to be cross-examined, was unjustified. The Tribunal noted that the AO's decision was solely based on the third party's statement without concrete evidence of the sales being bogus. The Tribunal held that the confirmation of the purchases as unverifiable was unjust and should be excluded, as the statements from the third party did not explicitly mention the sales to the assessee as bogus.Issue 3: Trading addition of Rs. 4,71,123/- confirmed by Ld. CIT(A)The final issue concerned the Ld. CIT(A) confirming a trading addition of Rs. 4,71,123/-, being 15% of the alleged unverifiable purchases. The appellant argued that this addition was made arbitrarily without proper consideration of facts and submissions. The Tribunal observed that the Ld. CIT(A) had upheld a trading addition in a previous appeal, and therefore, the further addition on the same account was deemed unnecessary. The Tribunal concluded that the addition of Rs. 4,71,123/- should be deleted based on the previous decision and the lack of proper assessment by the authorities.In conclusion, the Tribunal allowed the appeal of the assessee, quashing the reassessment order due to the invalidity of the reopening of the assessment. The Tribunal also highlighted issues with the confirmation of unverifiable purchases and the trading addition, ultimately ruling in favor of the appellant.