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 section 151 is procedural law, applicable as per year when reasons were recorded, not assessment year. AO's independent application of mind was found valid based on DGIT investigation report regarding bogus purchases. However, addition under section 69C was restricted to 10% of disputed purchases worth Rs. 10,29,788 from International Trade Agency, as revenue did not doubt sales and complete disallowance was deemed excessive.

---

---

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 148

The 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 Officer

The 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 Purchases

The 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.

---