2024 (9) TMI 1371 - AT - Income Tax

Assessment reopening under Section 147 invalid when based solely on investigation report without independent inquiry

ITAT Mumbai held that reopening of assessment under Section 147 based solely on investigation department information without independent inquiry was ... Validity of Reopening of Assessment U/Sec 147 - Assessment on the basis of information received from the Investigation department of the Income Tax based on the Statement recorded of accommodation entry provider - main contention of the assessee is that the second reopening was done merely based on the information received for DDIT(Inv) and that the AO has not done any independent enquiry more so when the assessment is reopened beyond four years. HELD THAT:- From the perusal of the assessment order we notice that the AO has acknowledged the fact that the assessee has submitted the bills, delivery challan, stock register etc., pertaining to the alleged bogus transaction - AO also acknowledges the fact that the assessee has submitted the ledger copy of M/s. Giriraj Enterprises, Bank statements, party confirmation etc. - We also notice that the AO is not disputing the fact that the goods bought through alleged bogus transactions have been sold as reflected in audited financial statements. We further notice that the AO has not recorded any adverse findings with regard to the documents submitted by the assessee with regard to the alleged bogus transactions. We further notice that the AO has recorded in the assessment order that the input credit on the alleged bogus purchases has not been denied and that the supplier has not been named as the hawala party. AO is making the addition for the reason that the party has admitted having entered into bogus transaction and that the assessee has not produced the parties. During the course of hearing the ld AR drew our attention to the statement of oath recorded from Mr. Harish Chandak, to submit that he has not mentioned having entered into any bogus transactions with the assessee - We notice that during cross examination by the assessee's partne has categorically denied having given hawala bills to the assessee . From the perusal of the entire facts in assessee's case as explained herein above, it is clear that the AO has completed the reassessment without proper appreciation of the facts and evidences submitted by the assessee in support of the alleged bogus purchases and merely based on the information from DDIT(Inv). Therefore in our considered view the entire reopening is carried out only on the basis of report of investigation wing without any independent enquiry and without any tangible material in the hands of the AO to show that the assessee was involved in taking accommodation entry towards bogus purchases. Accordingly the addition made by the AO is not sustainable and liable to be deleted. Decided in favour of assessee. Issues:1. Validity of Reopening of Completed Assessment under Section 1472. Addition of Estimated Profit Element in Purchase3. Misinterpretation of ITAT Order4. Erroneous Levy of InterestIssue 1: Validity of Reopening of Completed Assessment under Section 147:The appellant challenged the validity of the reassessment under Section 147, contending that it was unjust, unfair, and bad-in-law. The Income Tax Officer reopened the assessment based on information from the Investigation department without providing adequate opportunity for cross-examination. The appellant argued that the statement relied upon did not indicate the provision of accommodation bills and that the party in question was not declared a Hawala Dealer. The Tribunal held that the reassessment was carried out solely on the investigation report without independent inquiry, rendering it invalid. The AO failed to appreciate the evidence submitted by the appellant, making the reopening unsustainable. Consequently, the addition made by the AO was deemed not sustainable and was deleted.Issue 2: Addition of Estimated Profit Element in Purchase:The appellant contested the addition of Rs. 15,32,997 as an estimated profit element in purchases, arguing that it was unjustified and without basis. The appellant highlighted the limited margin in their trading business, the documentary evidence provided, and the absence of any declaration of the supplier as a Hawala Dealer. The Tribunal noted that the AO did not dispute the sale of goods from the alleged bogus transactions, and the input credit was not denied. The reassessment was deemed invalid due to lack of independent inquiry and tangible material, leading to the deletion of the addition.Issue 3: Misinterpretation of ITAT Order:The appellant raised concerns regarding the misinterpretation of an ITAT order by the Income Tax Officer, resulting in an erroneous calculation of business income. The Tribunal observed that the AO had misunderstood the benefit provided by the ITAT in a previous order, leading to an incorrect levy. However, since the addition was deleted based on the first issue, this ground became academic and did not require further adjudication.Issue 4: Erroneous Levy of Interest:The appellant challenged the erroneous calculation of interest under various sections by the Income Tax Officer. Although this issue was raised, it was deemed consequential and did not warrant separate adjudication given the deletion of the addition based on the first issue.In conclusion, the Tribunal allowed the appeal of the assessee, finding the reassessment invalid and deleting the addition made by the AO. The misinterpretation of the ITAT order and the erroneous levy of interest were considered academic and consequential, respectively, in light of the deletion of the addition.