2022 (8) TMI 524 - AT - Income Tax

Reopening of assessment u/s 147 - assessment was reopened beyond four years from the end of the relevant assessment year - Eligibility of reasons to believe - HELD THAT - As the assessment order passed under section 143(3) r.w.s. 153B(1)(b) r.w.s. 147 of the Act which was solely based on third party information and not subjected to any further scrutiny respectfully following the decision in the case of CIT v. Odeon Builders Pvt. Ltd. 2014 (9) TMI 100 - ITAT DELHI the reassessment order passed by the Assessing Officer is quashed. Moreover on the second count in the reasons recorded since there was no finding of the AO that there was a failure on the part of the assessee in disclosing fully and truly the material facts for assessment the reassessment order passed by the AO is also bad in law and the same is quashed. On identical facts similar assessment order passed under section 143(3) r.w.s. 147 for the assessment year 2012-13 is also quashed. Since we have quashed the reassessment order for both the assessment years no separate findings are being given on another ground raised by the assessee on merits. Appeal of assessee allowed.

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Disallowance of purchases on merits.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act, 1961:

The assessee, a manufacturer and dealer of gold and silver jewellery, challenged the reopening of assessments for the assessment years 2011-12 and 2012-13. The original assessments were completed under section 143(3) of the Act. A search and seizure action was conducted on the assessee's premises on 02.11.2010, leading to the selection of the return for compulsory scrutiny. The assessment was completed on 28.03.2013, and the total income was assessed at Rs. 14,35,83,005/-. Subsequently, the CIT(A) revised the total income to Rs. 14,12,92,075/-.

The assessment was reopened under section 147 by issuing a notice under section 148 on 29.03.2018, based on information that the assessee had taken accommodation entries for bogus purchases traced during the search and seizure proceedings in the case of Bhanwarlal Jain & Others. The notice was served after the expiry of four years from the end of the relevant assessment year. The assessee contended that there was no failure on their part to fully and truly disclose all material facts during the original assessment proceedings, and relied on the Supreme Court's decisions in CIT v. Foramer France and CIT v. Kelvinator of India Ltd.

The Tribunal observed that the reopening was based solely on third-party information from the Bhanwarlal Jain Group's case, without any independent verification by the Assessing Officer. The Tribunal emphasized that for reopening an assessment after four years, the Assessing Officer must establish the assessee's failure to disclose material facts fully and truly. The Tribunal cited several judgments, including CIT v. Odeon Builders Pvt. Ltd., which held that reassessment based solely on third-party information without further scrutiny is invalid. The Tribunal concluded that the reassessment orders were bad in law and quashed them.

2. Disallowance of Purchases on Merits:

The Assessing Officer disallowed purchases to the extent of Rs. 1,09,07,660/- for the assessment year 2011-12 and Rs. 45,25,383/- for the assessment year 2012-13, based on information received from the Investigation Wing regarding bogus purchases from M/s. Millennium Stars and M/s. Pankaj Exports. The assessee provided complete details of transactions with these entities, including ledger accounts and payment details. However, the Assessing Officer ignored these details and made disallowances based on third-party information.

The Tribunal noted that the assessee had furnished all necessary documentation to substantiate the purchases, including purchase bills, transportation bills, confirmed copy of accounts, and payment through cheques. The Tribunal referred to the Supreme Court's decision in CIT v. Odeon Builders Pvt. Ltd., which held that disallowance based solely on third-party information without independent verification is not justified. Consequently, the Tribunal quashed the reassessment orders for both assessment years, rendering the disallowances invalid.

Conclusion:

The Tribunal allowed the appeals filed by the assessee, quashing the reassessment orders for the assessment years 2011-12 and 2012-13. The Tribunal held that the reopening of assessments was invalid as it was based solely on third-party information without establishing the assessee's failure to disclose material facts fully and truly. Additionally, the disallowances of purchases were also invalid as they were based on unverified third-party information. The Tribunal's decision was pronounced on 3rd August 2022 at Chennai.

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