2024 (1) TMI 58 - AT - Income Tax

Revenue authority can reopen tax assessment after four years under section 148 with proper sanction under section 151

ITAT Mumbai upheld validity of reassessment notice issued under section 148 after four years with PCIT sanction under section 151. Tribunal held that ... Reopening of assessment u/s 147 - Sanction for issue of notice u/s 151 - notice issued after four years - HELD THAT:- From the perusal of the provisions of section 151 of the Act, as existed during the assessment year 2011-12, we find that in cases where an assessment has not been made u/s 143(3) or section 147, no notice under section 148 of the Act can be issued by an AO below the rank of Joint Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Joint Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issue of such notice under section 148 of the Act. We find that section 151, as it stood during the relevant assessment year, continues in the Act till its amendment vide Finance Act, 2015, with effect from 01/06/2015, except small amendment vide Finance (No.2) Act, 2014 whereby Principal Chief Commissioner and Chief Commissioner of Income Tax were included in provisos to sub-section (1) and (2) of section 151. Sanctioning authority for issuance of notice under section 151(2) of the Act continues to be the Joint Commissioner of Income Tax. Vide Finance Act, 2015, with effect from 01/06/2015, section 151 of the Act was amended and Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner of Income Tax was empowered to grant the sanction for issuance of notice under section 148 of the Act after the expiry of four years from the end of the relevant assessment year. As per Circular No. 19 of 2015 issued by the CBDT on 27/11/2015, the said amendment was made in order to provide simplicity, as prior to the amendment section 151 of the Act specified different sanctioning authorities based on various scenarios. Whether the manner of granting sanction under section 151 of the Act is in the nature of procedural law? - We find that similar issue came up for consideration in Navketan Enterprises v/s CIT, [2001 (5) TMI 46 - JHARKHAND HIGH COURT] wherein as held that section 151 of the Act is in the nature of procedural law and therefore for the purpose of obtaining the approval, the Assessing Officer has to apply the law as it stands on the day when he decides, by recording his reasons, to invoke section 147 and thus, decides to issue notice under section 148 of the Act. Therefore, respectfully following the aforesaid decision provisions of section 151 of the Act, as it stood during the assessment year 2017-18, i.e. the year in which reasons were recorded by the AO for reopening the assessment and notice under section 148 of the Act was issued, will be applicable and thus, we find no infirmity in the sanction granted by PCIT under section 151 of the Act in the present case. Before concluding, we may note that from the perusal of the decisions relied upon by the learned AR, we find that the sanction granted under section 151 of the Act was found to be improper as the sanction was not granted by the appropriate authority under the provisions of the Act, which is not so in the present case since PCIT had the authority under section 151 to grant the sanction for issuance of notice under section 148 of the Act after the expiry of four years from the end of the relevant assessment year. Hence, the decisions relied upon by the learned AR are factually distinguishable. Accordingly, revised ground no. 1 raised by the assessee is dismissed. No independent application of mind by the AO while recording the reasons for reopening the assessment and the same is formed based on the information received from the office of DGIT (Investigation), Mumbai - In the present case, it is pertinent to note that no scrutiny assessment was conducted in the case of the assessee and therefore the only data available with the AO was the data provided along with the income tax return and the information received subsequently from the office of DGIT (Investigation), Mumbai. The said information constitutes new and tangible material for initiating the reassessment proceedings in the case of the assessee. It is also to be noted that the AO in the reasons recorded has categorically mentioned that the assessee has obtained bogus purchase bills amounting to Rs. 10,29,788 from International Trade Agency during the financial year. Though this information was received from DGIT (Investigation), Mumbai but the AO applying his mind extracted the relevant details pertaining to the assessee. In the second paragraph of the reasons, information of bogus transaction was noted. Based on this in second paragraph, relevant details about the alleged bogus transaction of the assessee were identified. In the last paragraph, the AO has clearly identified the escapement of income, and the satisfaction of the AO is recorded. Thus, there was a “tangible material” on the basis of which the AO applied his mind independently. Hence, it is not correct to state that reopening has been made without independent application of mind by the AO. Thus, when new and tangible material in the form of a report from the DGIT (Investigation), Mumbai was received, we are of the view that the reassessment proceedings were validly initiated. Accordingly, revised ground no. 2 raised by the assessee is dismissed. Addition u/s 69C - bogus purchases made - From the material available on record it is evident that the assessee has failed to prove the genuineness of the purchases made from the supplier. However, at the same time, the Revenue has not doubted the sales declared by the assessee. Further, it cannot be doubted that without the purchase of material, the assessee cannot carry out the sales. Therefore, it appears to be a case of bogus bills arranged from the aforesaid entity and material purchased from somewhere else at a lower cost. Thus, we are of the considered view that entire bogus purchases cannot be added in such a case. We are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. Therefore, in view of the above findings, we deem it appropriate to restrict the disallowance to 10% of the disputed purchases. Ground is partly allowed. Issues Involved:1. Legality of Notice Issued Under Section 148.2. Independent Application of Mind by the Assessing Officer.3. Addition Under Section 69C on Account of Purchases.Summary:Issue 1: Legality of Notice Issued Under Section 148The assessee contended that the notice issued under section 148 was invalid as it lacked proper sanction under section 151 of the Income Tax Act. The assessee argued that the sanction should have been obtained from the Joint Commissioner of Income Tax, not the Principal Commissioner of Income Tax (PCIT). The Tribunal examined the provisions of section 151 as they stood during the relevant assessment year (2011-12) and at the time of issuance of the notice (2017-18). It was found that the amendment in 2015 empowered the PCIT to grant such sanctions. The Tribunal held that section 151 is procedural, and the law at the time of issuing the notice applies. Therefore, the sanction by the PCIT was valid, and the revised ground no. 1 was dismissed.Issue 2: Independent Application of Mind by the Assessing OfficerThe assessee argued that the Assessing Officer (AO) did not independently apply his mind while recording reasons for reopening the assessment, relying solely on information from the DGIT (Investigation), Mumbai. The Tribunal reviewed the reasons recorded by the AO, noting that the AO identified the specific bogus purchase transaction involving the assessee. The Tribunal concluded that there was tangible material and independent application of mind by the AO. Thus, the reassessment proceedings were validly initiated, and revised ground no. 2 was dismissed.Issue 3: Addition Under Section 69C on Account of PurchasesThe AO added Rs. 10,29,788 under section 69C, treating the purchases from M/s International Trade Agency as bogus. The assessee provided bills, delivery challans, and proof of payments by account payee cheque but failed to produce the supplier for verification. The Tribunal noted that while the purchases appeared bogus, the sales were not doubted. It concluded that the entire purchase amount should not be added; instead, a reasonable disallowance would address potential revenue leakage. The Tribunal restricted the disallowance to 10% of the disputed purchases, partly allowing revised grounds no. 3 and 4.Conclusion:The appeal by the assessee was partly allowed, with the Tribunal upholding the validity of the notice under section 148 and the independent application of mind by the AO, but modifying the addition under section 69C to 10% of the disputed purchases. Order pronounced in the open Court on 29/12/2023.