Case Law Details
PCIT Vs Purple Suppliers Pvt. Ltd. (Supreme Court of India)
The Supreme Court of India dismissed the Revenue’s Special Leave Petition filed against the judgment of the Calcutta High Court in the matter concerning reassessment proceedings under Sections 147 and 148 of the Income Tax Act, 1961. The Supreme Court condoned the delay, heard the Revenue, and held that there was no ground to interfere with the order passed by the High Court. Consequently, the Special Leave Petition and pending applications were dismissed.
Read Calcutta HC judgment in this case: Calcutta HC Quashes Reassessment Due to Mere Suspicion Without Independent Inquiry
The Calcutta High Court judgment arose from three appeals filed by the Revenue challenging a common order of the Income Tax Appellate Tribunal relating to assessment years 2011-12, 2012-13, and 2013-14. The assessee, engaged in wholesale business of jewellery and diamonds, had filed returns for all three years. For AY 2011-12, the return was processed under Section 143(1), while AYs 2012-13 and 2013-14 were completed under scrutiny assessments under Section 143(3).
The reassessment proceedings were initiated after the Assessing Officer received information from the Investigation Wing, Mumbai, regarding suspicious business activities of Sancheti Diamonds Pvt. Ltd. The Investigation Wing alleged that Sancheti had huge turnover, meagre profits, inadequate business premises, and that its key person had admitted to providing bogus purchase entries. Based on this information, notices under Section 148 were issued alleging bogus purchases by the assessee from Sancheti, and additions under Section 69C were made during reassessment proceedings.
The assessee challenged the reassessment before the Tribunal after the Commissioner of Income Tax (Appeals) upheld the reassessment and additions. The Tribunal allowed the appeals and quashed the reassessment proceedings. The High Court examined whether the Assessing Officer had valid “reason to believe” that income had escaped assessment due to failure of the assessee to fully and truly disclose material facts.
The High Court noted that the reasons recorded for reopening repeatedly referred to “suspicion” regarding large non-cash transactions, turnover patterns, and outstanding credits and debits. Referring to the Supreme Court decision in Lakhmani Mewal Das, the Court held that the law requires “reason to believe” and not “reason to suspect.” Suspicion alone could not justify reopening of completed assessments.
The High Court further held that the Tribunal correctly concluded that the reassessment was based on borrowed satisfaction from the Investigation Wing without independent application of mind by the Assessing Officer. The Court noted that while the Assessing Officer disputed purchases from Sancheti, he simultaneously accepted substantial sales transactions with the same entity and other business transactions of the assessee. For AY 2011-12, purchases from Sancheti were approximately Rs.2.69 crore while sales to Sancheti exceeded Rs.254 crore. Similar accepted transactions existed in AY 2012-13.
The Court referred to the Supreme Court judgment in Ganga Saran and Sons Pvt. Ltd., which held that “reason to believe” must be founded on relevant and material information having a rational nexus with the belief regarding escapement of income. The Court held that the Assessing Officer’s conclusions lacked such rational nexus and were based merely on suspicion.
The High Court also considered the statement of the key person of Sancheti, which formed the primary basis for reopening. The statement had been retracted within less than a month through an affidavit alleging stress, fatigue, lack of sleep, and dictation by officers. The Court held that although a retracted statement is not automatically rejected, the authorities relying upon it must examine the validity of the retraction and determine whether the original statement can still be relied upon. Since neither the Assessing Officer nor the CIT(A) dealt with the retraction, the reassessment proceedings were held invalid.
Accordingly, the High Court dismissed the Revenue’s appeals and answered all substantial questions of law against the Revenue. The Supreme Court thereafter declined to interfere with the High Court judgment and dismissed the Revenue’s Special Leave Petition.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. Heard Mr. N Venkataraman, the learned A.S.G. appearing for the Revenue.
3. We find no good ground to interfere with the impugned order passed by the High Court.
4. The Special Leave Petition is, accordingly, dismissed.
5. Pending application(s), if any, shall stand disposed of.
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