Assessment reopening upheld after finding non-genuine suppliers despite banking transactions and customs drawback claims under Section 147

The Delhi HC upheld the AO's decision to reopen assessment under Section 147 after finding that two entities supplying goods to the petitioner for garment exports were non-genuine. Despite petitioner's arguments about banking channel transactions and customs duty drawback, the court held that the AO had sufficient material indicating escaped income assessment. The investigation revealed non-existing suppliers at their registered addresses, with bank accounts showing matching inflows/outflows and high turnover in short periods. The court emphasized that at Section 148A stage, the AO only needs reasonable grounds to suspect income escapement, not conclusive proof. The petition was dismissed.

---

---

Issues:
1. Validity of notice issued under Section 148A (b) of the Income Tax Act, 1961.
2. Legitimacy of order passed under Section 148A (d) of the Act.
3. Reopening of assessment for the assessment year 2018-19.
4. Allegations of income escaping assessment.
5. Examination of genuineness of purchases made by the petitioner.
6. Compliance with court directions from previous proceedings.
7. Assessment of material and evidence presented by the petitioner.
8. Consideration of GST returns and related documentation.
9. Allegations of involvement in accommodation entries.
10. Nexus between bank account activities and assessment of income.

Analysis:

The petitioner challenged a notice and order issued under the Income Tax Act, 1961, regarding the reopening of assessment for the assessment year 2018-19. The petitioner contended that its purchases were genuine and provided documentation to support this claim. The Assessing Officer (AO) had information suggesting that income had escaped assessment due to transactions with entities found to be non-genuine. The High Court noted that the AO had not adequately addressed the genuineness of the purchases and directed a reevaluation. Subsequently, a new notice was issued based on further investigations into the entities involved in the transactions.

The court observed discrepancies in the activities of the entities supplying goods to the petitioner, indicating potential accommodation entries. The petitioner's submissions regarding the authenticity of purchases were considered, including matching GST returns and vendor activities. The court noted that the AO had extensively reviewed reports from the Investigation Wing and made efforts to contact the entities in question, which yielded unsatisfactory responses. The petitioner's argument that transactions were conducted through banking channels was countered by the suspicion of accommodation entries.

The court emphasized the AO's obligation to have valid reasons to assume income escapement before issuing a notice under Section 148 of the Act. The court upheld the AO's decision to reopen the assessment, citing evidence of non-genuine entities and suspicious banking activities. The petitioner's plea regarding the involvement of the Customs department due to duty drawback claims was deemed unsubstantial. Ultimately, the court dismissed the petition, stating that sufficient grounds existed to support the reopening of the assessment based on the material available, despite the petitioner's assertions of genuine purchases.

---