2022 (8) TMI 447 - AT - Income Tax

Tribunal affirms assessment reopening, stresses independent verification

DCIT – 15 (2) (2) Mumbai Versus M/s. Premier Supplies & Services Pvt. Ltd.

The tribunal upheld the decision to delete the addition made under Section 68 of the Income-tax Act, finding the transactions genuine and related to ... Reopening of assessment u/s 147 - Addition u/s 68 - investigation wing has identified the penultimate bank accounts maintained in the Central Bank of India through which it reached the beneficiary account. One such account with the Central Bank of India belongs to MCPL and the beneficiary being the assessee company - HELD THAT:- We observe from the record that assessee has placed purchase order with MCPL for purchase of Automation PLC and the quoted price of ₹.10.80 crores. As per the terms of the purchase order assessee has to make an advance payment of ₹.10.8 crores which was made promptly. It is brought to our notice the party was not able to deliver the material within the stipulated time and accordingly, assessee has cancelled the purchase order and demanded back the advance money paid in Financial Year 2007-08. MCPL had returned ₹.8.54 crores out of the advance payment and out of balance assessee had received ₹.1.6 crores from them and assessee is still to recover ₹.2.26 crores which is still pending. These facts were brought to notice of the Assessing Officer and Assessing Officer rejected the same and proceeded to make the additions merely relying on the investigation report without any independent application of mind and further, he applied suspicion and preponderance of probability and proceeded to make additions invoking provisions of section 68 - Since the facts are very clear that assessee has received its own money from the defaulted supplier and may be the supplier having an account with Central Bank of India it does not mean that the transactions can become doubtful. We are in agreement with the findings of the Ld.CIT(A) and accordingly, we deem it fit and proper not to interfere with the findings of the CIT(A). Accordingly, grounds raised by the revenue are dismissed. Issues Involved:1. Legality of reopening the assessment under Section 148 of the Income-tax Act, 1961.2. Validity of the addition made under Section 68 of the Income-tax Act, 1961.Detailed Analysis:1. Legality of Reopening the Assessment under Section 148:The case was reopened based on information received from the investigation wing, and a notice under Section 148 was issued after obtaining approval from the Pr.CIT -15, Mumbai. The assessee objected to the reassessment proceedings, arguing that the reopening was solely based on external information without independent application of mind by the Assessing Officer (AO). The objections were rejected, and the reasons for reopening were subsequently provided to the assessee.The assessee contended that the reopening was bad in law, relying on several judicial precedents which emphasized that the AO must have an independent reason to believe that income has escaped assessment. The assessee cited cases such as Akshar Builders & Developers, CIT vs. SFIL Stock Broking Ltd., and CIT vs. Smt. Vinita Jain, where courts held that reopening based solely on external information without independent verification by the AO is not justified.The Ld.CIT(A) dismissed the jurisdictional issue on reopening, indicating that the reopening was legally valid.2. Validity of Addition under Section 68:The AO made additions under Section 68, suspecting the genuineness of transactions between the assessee and M/s. Manorath Commercial Pvt. Ltd. (MCPL). The AO relied on information from the investigation wing, which suggested that the transactions were part of a larger scheme involving bogus entries and cash deposits.The assessee argued that the transactions were genuine business activities, where an advance of Rs. 10.80 crores was made to MCPL for purchasing Automation PLC machines. Due to non-delivery, the order was canceled, and a partial refund of Rs. 8.54 crores was received, with Rs. 1.6 crores refunded during the Financial Year 2010-11. The assessee provided documentary evidence, including ledger accounts, bank statements, and confirmations from MCPL, to substantiate the transactions.The Ld.CIT(A) found that the assessee had received its own money back due to the cancellation of a purchase order, and the AO had not provided any contrary evidence to disprove this fact. The Ld.CIT(A) concluded that the addition under Section 68 was not justified as the transactions were genuine and related to the ordinary course of business.The appellate tribunal agreed with the Ld.CIT(A)'s findings, noting that the AO had made additions based on suspicion and external reports without independent verification. The tribunal emphasized that receiving one's own money back from a defaulted supplier does not constitute unexplained cash credit under Section 68.Conclusion:The tribunal dismissed the appeal filed by the Revenue, upholding the Ld.CIT(A)'s decision to delete the addition made under Section 68. The tribunal found that the reopening of the assessment was legally valid, but the addition under Section 68 was unjustified as the assessee had substantiated the genuineness of the transactions. The tribunal emphasized the necessity of independent application of mind by the AO and the insufficiency of relying solely on external information for making additions.