2026 (2) TMI 698 - AT - Income Tax

Escaped Income measured net of taxes invalidates reassessment if below statutory threshold; gross profit addback deleted.

Reassessment under section 148 was found invalid because escaped income must be measured as real income chargeable to tax (excluding IGST) and, at the ... Reassessment order passed u/s 147 r.w.s. 144B - Addition being 13.8% as the GP on the bogus purchases - income threshold under section 149(1)(b) - HELD THAT:- Applying the GP rate of 13.85% as adopted by the Assessing Officer himself, the alleged escaped income works out to Rs. 48,09,503/-, which is admittedly below the monetary threshold of Rs. 50,00,000/- prescribed u/s 149(1)(b) of the Act. In our considered view, the expression “income chargeable to tax which has escaped assessment” used in section 149 refers to the real income sought to be brought to tax and not the gross value of transactions. Since the alleged escaped income in the present case does not satisfy the statutory threshold, the very assumption of jurisdiction under section 148 is invalid and the consequential reassessment proceedings are liable to be quashed. Even on merits of the case the assessee was issued with summon u/s. 131[1A] by the Investigation Wing from Panipat asking for the details of transaction with M/s. Gensis Health Care on account of bogus purchases. The assessee replied vide its letter dated 08-02-2023 enclosing the Purchase orders, Invoice copies, E-Way Bill and goods received note for the purchases made during the financial year 2018-19. Further ledger accounts of M/s. Gensis Health Care for the present year and subsequent year also placed on record which clearly states that every payment made through RTGS banking channel. The assessee also placed on record wherein Purchase orders with date, time and Lorry number are clearly matching with the Invoice copies and E-way bills. Despite the availability of such primary evidences, the Assessing Officer has not conducted any independent enquiry to disprove the genuineness of the transactions and has proceeded to make the addition solely on the basis of the Investigation Wing report. It is further noted that the books of account of the assessee have not been rejected u/s 145(3) of the Act. The gross profit embedded in the purchases already stands reflected in the returned income and therefore, making a separate addition of the same results in double taxation, which is impermissible in law. Assessee appeal allowed. Issues: (i) Whether reassessment proceedings initiated under section 148 read with section 144B are valid where the alleged escaped income, calculated by excluding IGST and applying GP rate, is below the monetary threshold of Rs. 50,00,000 under section 149(1)(b); (ii) Whether the addition of gross profit element on purchases treated as bogus is sustainable on merits when primary transactional evidence exists and books of account have not been rejected under section 145(3).Issue (i): Whether the reassessment under section 148 is valid given the alleged escaped income falls below the statutory threshold.Analysis: The reassessment was based on information alleging bogus purchases of Rs. 4,09,76,267/-. The assessee's audited books show IGST of Rs. 62,50,617/- separately accounted and purchases debited at Rs. 3,47,25,650/-. Applying the adopted GP rate of 13.85% to Rs. 3,47,25,650/- yields escaped income of Rs. 48,09,503/-, which is below Rs. 50,00,000/-. The statutory threshold in section 149(1)(b) refers to income chargeable to tax which has escaped assessment, not the gross value of transactions. Jurisdiction under section 148 depends on the existence of escaped income meeting the statutory criterion; if the real escaped income does not meet the threshold, the assumption of jurisdiction is invalid.Conclusion: The reassessment proceedings under section 148 are invalid as the alleged escaped income, computed on the real value of purchases (excluding IGST) at the accepted GP rate, is below Rs. 50,00,000/-, and therefore jurisdiction under section 148 is lacking in favour of the assessee.Issue (ii): Whether the addition of the gross profit element on the purchases should be sustained on merits.Analysis: The assessee placed primary transactional evidence on record including purchase orders, invoices, e-way bills, bank RTGS/NEFT payments and goods received notes. The books of account were not rejected under section 145(3). The Assessing Officer relied primarily on an investigation report without conducting independent verification to disprove the transactional evidence. The gross profit component on the purchases was already reflected in the returned income; adding the same amount separately without rejecting books and without independent disproof results in double taxation.Conclusion: The addition of the gross profit element is unsustainable on merits and is deleted in favour of the assessee.Final Conclusion: The appeal is allowed on both jurisdictional and merit grounds, resulting in quashing of the reassessment and deletion of the addition; the reassessment proceedings do not survive and the impugned addition is not sustained.Ratio Decidendi: For the purpose of jurisdiction under section 148, escaped income must be measured by the real income chargeable to tax (net of taxes like IGST where not part of purchases); if such escaped income is below the statutory monetary threshold in section 149(1)(b), reassessment proceedings under section 148 cannot be validly initiated.