2022 (2) TMI 501 - HC - Income Tax

High Court overturns ITAT decision on income addition, orders fresh review under Income Tax Act

Mithalal B. Jain Versus Income Tax Officer, Ward 19 (2) (3), Mumbai and Others

The High Court set aside the ITAT's decision to uphold the addition to the petitioner's income under sections 147 and 148 of the Income Tax Act for the ... Validity of reopening of assessment u/s 147 - information received by Revenue from Maharashtra Sales Tax Authority that Assessee was beneficiary of Hawala accommodation entries from entry provider by way of bogus purchase - HELD THAT:- Remand the matter de novo and direct the ITAT to give its findings on the grounds raised in the Misc. Application including consider the judgment of the Bombay High Court in PCIT vs. Mohommad Haji Adam & Co. [2019 (2) TMI 1632 - BOMBAY HIGH COURT] - In this order the ITAT has to also give a finding on the effect of not providing the documents/ affidavits/ declarations by the accommodation entry provider to Petitioner and explain how it meets with the principles of natural justice if they do not find anything wrong in not providing these information/ affidavit/ declarations. Issues:1. Addition to petitioner's income based on re-opening under section 147 read with 148 of the Income Tax Act, 1961 for A.Y. 2010-2011.2. Challenge of the order before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT).3. Allegations of 12.5% disallowance on account of bogus purchases and validity of re-opening.4. Non-provision of information from accommodation entry provider to the petitioner.5. Dismissal of the Misc. Application pointing out a mistake apparent from the record.6. Interpretation of the judgment of the Bombay High Court in PCIT vs. Mohommad Haji Adam & Co. ITA No. 1004 of 2016 dated 11/02/2019.7. Principles of natural justice regarding the non-provision of documents/affidavits/declarations by the accommodation entry provider to the petitioner.Analysis:1. The petitioner challenged the addition to their income due to re-opening under sections 147 and 148 of the Income Tax Act, 1961 for the assessment year 2010-2011. The Commissioner of Income Tax (Appeals) ruled in favor of the department, leading to an appeal before the Income Tax Appellate Tribunal (ITAT) where the challenge was dismissed on various grounds.2. The petitioner raised concerns regarding the disallowance on account of bogus purchases and the validity of the re-opening. The petitioner alleged that crucial information implicating them, received from the Maharashtra Sales Tax Authority, was not provided despite repeated requests. The ITAT's order did not address why this information was withheld, hindering the petitioner's ability to effectively respond.3. Subsequently, the petitioner filed a Misc. Application pointing out a mistake apparent from the record, which was dismissed by the ITAT. The petitioner also referred to a judgment of the Bombay High Court restricting additions to differences between gross profit rates on alleged bogus purchases and undisputed purchases.4. The ITAT failed to address the petitioner's grievance regarding the non-provision of evidence/statements from the accommodation entry provider. Additionally, the ITAT dismissed the relevance of the Bombay High Court's judgment, citing it as a subsequent order without acknowledging any error apparent from the record.5. Citing legal principles, the High Court set aside the ITAT's order and remanded the matter for fresh consideration. The ITAT was directed to evaluate the grounds raised in the Misc. Application, including the Bombay High Court's judgment. The ITAT was also instructed to assess the impact of not providing crucial documents to the petitioner and ensure compliance with principles of natural justice.6. The High Court clarified that no observations were made on the merits of the case and allowed the petitioner to withdraw the Income Tax Appeal with liberty to file a fresh appeal if necessary. The appeal was dismissed as withdrawn, and related interim applications were disposed of accordingly.