2016 (3) TMI 1274 - AT - Income Tax

Validity of the reassessment - Held that - In the present case it is very much evident from the assessment order itself that the assessing officer was having nothing except the list provided by the CIT Central-II New Delhi. He was not having the copies of the statement assessment orders and other details which could enable him to apply his mind and form a belief that income has escaped assessment. In fact these information was not there with the assessing officer till 27.12.2013. Thus in our view this is a clear case of total non-application of mind by the assessing officer.

Issues Involved:
1. Validity of the reassessment proceedings.
2. Rejection of books of accounts.
3. Addition on account of bogus purchases.
4. Confirmation of 20% of such purchases.
5. Actual business engagement of the firms.
6. Tally of quantity purchased and sold.
7. Addition based on material collected without opportunity for cross-examination.

Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The assessee contested the reassessment proceedings initiated by the Assessing Officer (AO) as invalid, arguing that the statutory conditions and procedures were not followed. The AO reopened the assessment based on information from the CIT, Central-II, New Delhi, alleging bogus purchases. The Tribunal noted that the AO did not have sufficient information or evidence at the time of recording reasons for reopening the assessment. The AO merely had a list of alleged accommodation entries without the necessary supporting documents or statements. The Tribunal emphasized that there must be material evidence and application of mind by the AO to form a belief that income had escaped assessment. Since the AO lacked such evidence and had not applied his mind properly, the reassessment proceedings were quashed as invalid.

2. Rejection of Books of Accounts:
The CIT(A) upheld the AO's decision to reject the books of accounts maintained by the assessee. The assessee argued that it had maintained proper books of accounts as per law. However, the Tribunal did not specifically address this issue separately in its decision, focusing instead on the broader issues of reassessment validity and the additions made.

3. Addition on Account of Bogus Purchases:
The AO made an addition of Rs. 43,52,304, treating the entire purchases from certain firms as bogus. The CIT(A) reduced this addition to 20% of the purchases, amounting to Rs. 8,70,461. The Tribunal found that the AO had not provided sufficient evidence to support the claim that the purchases were bogus. The AO relied on a list of alleged accommodation entries without verifying the details or providing the assessee an opportunity to cross-examine the persons who made the statements against it. The Tribunal noted that similar additions in other cases with identical facts had been quashed due to lack of proper evidence and application of mind by the AO.

4. Confirmation of 20% of Such Purchases:
The CIT(A) confirmed the addition of 20% of the purchases made by the assessee. The Tribunal referred to its previous decisions in similar cases where it had deleted such additions. The Tribunal held that since the purchases were not proven to be bogus, the addition could not be sustained. It emphasized that the correct approach would be to estimate the profit rate in the nature of trade rather than making an arbitrary addition.

5. Actual Business Engagement of the Firms:
The assessee argued that the firms from which it made purchases were engaged in actual business, supported by substantial inventory found during the search. The AO, however, inferred that these firms were not in actual business based on statements made by certain individuals. The Tribunal found that the AO had not provided sufficient evidence to support this inference and had not allowed the assessee to cross-examine the individuals who made the statements.

6. Tally of Quantity Purchased and Sold:
The assessee contended that there was a complete tally of the quantity purchased and sold, contradicting the allegation of bogus purchases. The Tribunal did not specifically address this issue separately but its decision to quash the reassessment proceedings and delete the additions implied acceptance of the assessee's argument.

7. Addition Based on Material Collected Without Opportunity for Cross-Examination:
The assessee argued that the addition was made based on material collected at its back without providing an opportunity to cross-examine the persons whose statements were used against it. The Tribunal agreed, noting that the AO had not provided the necessary documents or allowed cross-examination, violating the principles of natural justice. This further supported the Tribunal's decision to quash the reassessment proceedings and delete the additions.

Conclusion:
The Tribunal quashed the reassessment proceedings due to lack of proper evidence and application of mind by the AO. It also deleted the addition of Rs. 8,70,461 sustained by the CIT(A), following its previous decisions in similar cases. The appeal filed by the assessee was allowed.

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