Tribunal validates reassessment, rejects disallowance, emphasizes independent verification

The Tribunal upheld the validity of the reassessment proceedings under section 147, citing prima facie material from a search action to establish income escapement. The Tribunal rejected the disallowance of purchases from M/s Sun Diam, criticizing the AO's reliance on third-party statements without independent verification. The reassessment was deemed valid, but the disallowance was deleted, affirming the genuineness of the transactions. The appeal was partly allowed, with the Tribunal's order issued on 05th May, 2022.

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Issues Involved:
1. Validity of the re-opening of assessment under section 147 of the Act.
2. Disallowance of purchases from M/s Sun Diam by treating it as an accommodation entry.

Detailed Analysis:

1. Validity of the re-opening of assessment under section 147 of the Act:

The assessee challenged the re-opening of the assessment under section 147, arguing that all material facts were available during the original assessment, and no new tangible material was presented for re-opening. The assessee contended that the AO did not establish a failure to disclose material facts, which is mandatory for re-opening beyond four years from the end of the relevant assessment year. The AO relied on third-party sworn statements, which the assessee argued were insufficient for reassessment.

The Tribunal analyzed that the original return was scrutinized under section 143(3), and the case was reopened beyond four years based on information from a search action on the Rajendra Sohanlal Jain group. The AO formed a belief of income escapement due to transactions with M/s Sun Diam, a group entity providing accommodation entries. The Tribunal upheld the re-opening, citing that the AO had prima facie material from the search to form a reasonable belief. The Tribunal referenced the Supreme Court's ruling in Raymond Woollen Mills Limited Vs ITO, stating that sufficiency or correctness of the material is not considered at the re-opening stage. The Tribunal rejected the assessee's argument of no live link between the information and the belief of income escapement, emphasizing that subsequent information justified the re-opening.

2. Disallowance of purchases from M/s Sun Diam by treating it as an accommodation entry:

The AO disallowed purchases amounting to Rs.46,26,890/- from M/s Sun Diam, treating them as bogus based on third-party statements from the search. The assessee provided purchase orders, invoices, bank statements, and an affidavit from the agent who received the goods, arguing the transactions were genuine. The AO, however, noted the absence of delivery challans and questioned the utilization of the purchased material.

The Tribunal observed that the assessee provided substantial evidence, including ledger extracts, bank statements, and an affidavit confirming delivery. The Tribunal criticized the AO for relying solely on third-party statements without independent verification. The Tribunal highlighted that no notices or summons were issued to the supplier to confirm the transactions. The Tribunal emphasized that additions cannot be made on presumptions or conjectures and found the AO's action unsustainable. Consequently, the Tribunal deleted the disallowance, affirming the genuineness of the transactions.

Conclusion:

The appeal was partly allowed, with the Tribunal upholding the validity of the reassessment proceedings but deleting the disallowance of purchases from M/s Sun Diam. The order was pronounced on 05th May, 2022.

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