2026 (2) TMI 1312 - AT - Income Tax

Reopening of assessment beyond the statutory period is barred absent demonstrable failure to disclose; addition for alleged bogus purchases deleted.

Reopening an assessment beyond the four year period is barred where prior scrutiny under assessment provisions had examined and accepted the assessee's ... Validity of the reopening of the assessment - addition made on account of bogus purchases - Notice beyond 04 years from the end of the assessment year - Reopening based on information from search/seizure and statements of third parties HELD THAT:- When the assessee produced all the relevant facts and supporting evidence including the invoice, audit reports, payment made through banking channel and the confirmation/sales recorded by the supplier at the time of passing the first re-assessment order u/sec.143(3) r.w.s 147 then, the reopening of the assessment after 04 years is not valid when there is no failure on the part of the assessee to disclose fully and truly all the relevant material facts necessary for assessment. Claim of the assessee as purchases made from KIPL is based on the documentary evidence including the payment made through banking channel, then, even if the said claim is found to be suspicious, the reopening of the assessment would be hit by the proviso to sec.147 of the Act as existed at the relevant point of time. Hence, when the addition made by the AO is otherwise not sustainable on merits, then, the reopening of the assessment as well as the addition on merit is not sustainable. Assessee appeal allowed. Issues: (i) Whether the reassessment notice issued under Section 148 read with Section 147 of the Income-tax Act, 1961 beyond four years from the end of the relevant assessment year is valid where earlier reassessment under Section 143(3) r.w.s.147 was completed and the assessee had furnished and the AO had verified books, invoices and payments; (ii) Whether the addition of Rs.58,15,000/- on account of alleged bogus purchases/accommodation entries can be sustained where the assessee produced invoices, bank payments and the purchases were recorded in closing stock and earlier assessment had accepted turnover.Issue (i): Whether the reopening of assessment beyond four years was valid in the absence of failure by the assessee to disclose fully and truly all material facts.Analysis: The record shows an earlier reassessment under Section 143(3) r.w.s.147 was completed and the assessee had filed audited returns, invoices, stock records and bank payments which were available to the assessing authority at that stage. The reopening was based on information from another office and statements recorded under Section 132(4) alleging inflated transactions, without independent material demonstrating failure to disclose by the assessee. The proviso to Section 147 applies where there is a failure to disclose material facts; such failure is not established on the record before issuing the Section 148 notice.Conclusion: Reopening under Section 148/147 beyond four years is invalid in the absence of failure by the assessee to disclose fully and truly all material facts. This issue is decided in favour of the assessee and against the revenue.Issue (ii): Whether the addition for alleged bogus purchases/accommodation entries of Rs.58,15,000/- is sustainable on merits.Analysis: The assessee had produced purchase invoices, stock registers, bank payment evidence and supplier records showing the transactions formed part of closing inventory and corresponding sales were offered to tax. The proposed addition rested primarily on third-party statements and information from an external inquiry without independent verification and without allowing the assessee an opportunity to cross-examine the adverse third-party witness. Prior Tribunal decisions on identical facts have found such additions unsustainable and directed verification or deletion where initial onus is discharged.Conclusion: The addition of Rs.58,15,000/- on account of alleged bogus purchases is deleted. This issue is decided in favour of the assessee and against the revenue.Final Conclusion: Both the validity of the reopening and the substantive addition are set aside; the appeal is allowed and the reassessment notice dated 28.03.2017 and the impugned additions are quashed.Ratio Decidendi: Where an earlier assessment or reassessment under Section 143(3) r.w.s.147 has examined and accepted the assessee's books, invoices and bank payments, reopening after four years under Section 147/148 is barred by the proviso to Section 147 unless there is a demonstrable failure by the assessee to disclose fully and truly all material facts; reliance solely on third-party statements or external information without independent verification and without affording an opportunity to cross-examine such witnesses cannot sustain additions for bogus purchases.