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2021 (11) TMI 528 - ITAT SURATReopening of assessment u/s 147 - bogus purchases - HELD THAT:- To initiate reopening of the assessment, the Ld. AO must have 'reason to believe’ that income chargeable to tax has escaped assessment. Such reason to believe must be based on some material coming to the possession of the Ld. Assessing Officer which may trigger reason to suspect. It must be kept in mind that the “reason to believe” must have a rational connection with or relevant bearing on the formation of the belief, i.e, there must be direct nexus or link between the material and the formation of such belief. Since in the instant case, the issues/items for which the AO has reopened the assessment are ambiguous and vague, as the amount mentioned in the reasons recorded is uncertain and the assessing officer does not know that how much income of the assessee has escaped assessment. AO having not carried out the scrutiny assessment within the prescribed statutory limit, cannot be given another innings for no fault of the assessee and therefore in the facts and circumstances of the case, we are of the considered opinion that ‘reason to believe’ which is the jurisdictional precondition to reopen the assessment as required by the law has not met in the reasons recorded in the instant case and therefore the action of the AO to reopen the assessment is null in the eyes of law and hence we are inclined to quash the initiation of reassessment proceedings being ab-initio void. Addition of non-charging of interest on business advances made to suppliers - Proof of sufficiency of own funds - HELD THAT:- As own interest free funds of the assessee is to the tune of ₹ 2,18,18,572/- whereas the assessee has advanced the interest free loan to the tune of ₹ 63,22,457/-, which is less than the own free funds, therefore, based on this factual position, no disallowance on account of interest free advance should be made and hence we delete the addition. Ad-hoc addition on account of office expenses - Estimation only after rejecting the books of accounts of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 - HELD THAT:- Here in this case, the AO has not passed any order u/s 144 of the Act. The AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. While scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most, expenses to the extent that are not supported by the vouchers can be held to be non-genuine and can be disallowed by the AO; and item-wise the AO could have disallowed the expenditure rather than going for ad hoc disallowance of percentage basis of the expenses claimed by the assessee which action of the AO is arbitrary in nature and cannot be sustained. Hence we delete the ad-hoc addition
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