Urvish B. Mehta Vs ITO (ITAT Mumbai)
“reason to believe”and not “reason to suspect”
The undisputed facts are that, the Assessing Officer received information from the DGIT (Inv.) Mumbai who in turn has got the same from the Sales Tax Department. The information was in the form of statements/affidavits which stated that the suppliers admitted before the sales tax authorities that they were engaged in supplying of bogus bills on commission basis. In the said statements, it is nowhere mentioned that the said suppliers have actually supplied bogus bills to the assessee nor the name of the assessee appeared in the said statements/affidavits. After perusal of the reasons recorded, we observed that Assessing Officer has acted merely on the basis of the statements/affidavits of the thirteen parties without carrying on any further verification or independent enquiry before issuing notice u/s. 148 of the Act and thus has completely failed on the duty casted upon him to independently apply his mind on the material received from the DGIT (Inv), Mumbai.
We have also found merit in the second limb of the submissions of the assessee that reopening on the basis of the same material which was before the Investigating Officer at the time of original Assessment Proceedings is nothing but a change of opinion which is not permissible under the law and the concept of change of opinion is a built in test to check the abuse of power to reassess but no power to review under the garb of reopening the Assessment Proceedings is available. The case of the assessee is squarely covered by the ratio laid down by the Hon’ble Supreme Court in the case of CIT v. Kelvinator India(supra) wherein it has been held that the reopening of assessment on the basis of change of opinion is not permissible. Likewise, the case of the assessee is also supported by the various other decision as cited above by the Id.AR.
On the third limb of the submissions of the Ld.AR that there was complete failure on the part of the Assessing Officer to establish a live link between the materials which came to the AO and escaped assessment. In this case we find that that the material was in the form of statements /affidavits etc., which were downloaded from the Sales Tax Department website and Assessing Officer has not established any link as to how the income of the assessee has escaped, as in those statements/ affidavits nowhere the name of the assessee appeared or the suppliers admitted that they supplied bogus bills only to the assessee. But the case of the assessee is supported by the decision of the Apex Court in the case of ITO v. Lakmani Mewal Das (supra) in which the Hon’ble Apex Court has held that on the basis of confession the notice u/s. 148 cannot be issued. The Hon’ble Supreme Court has held that the power of Income Tax Officer to reopen assessment though wide, are not plenary and absolute and the words of statute are “reason to believe”and not “reason to suspect”. But in this case only the AO has “reason to suspect”and not “reason to believe”. We, therefore after taking into account the ratio laid down by the various decisions and facts of the case before us, are inclined to hold that reopening of assessment not initiated validly and is void ab-initio. Accordingly we quash the reopening of assessment.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
(1) These cross appeals are filed by the assessee and the Revenue are arising out of the order passed by the Learned Commissioner of Income Tax (Appeals) [hereinafter referred as Ld.CIT(A)] dated 30.12.2005 which in turn is arising out of the order of the Assessing Officer [hereinafter called as Ld.AO] passed u/s. 143 r.w.s. 147 of the Act.
(2) The grievances of the assessee is qua illegal and invalid reopening of assessment and wrong confirmation of disallowance to the tune of Rs. 90,52,125/- towards bogus purchases, whereas the grievance of the Revenue is qua the reduction of addition to Rs. 90,52,125/- out of total addition of Rs. 11,31,51,580/- on account of bogus purchases.
(3) First we take up the appeal of the assessee. The assessee has filed additional grounds of appeals. The first three additional grounds raised by the assessee are against the jurisdiction of the AO to reopen the assessment u/s. 147 of the Act without any independent application of mind, merely based upon the change of opinion and without any live link between the materials relied by the AO and escapement of income.
(4) Facts in brief are that the assessment was framed u/s. 143(3) of the Act on 24.11.2011 assessing the income of Rs. 12.69,050/- against the returned the income of ₹.11,94,930/- and the only addition was made of Rs. 74,120/- towards disallowance of certain expenses. Thereafter, the Assessing Officer received information that assessee has received some bogus purchase entries from thirteen parties aggregating to Rs.11,31,51,580/- the details whereof were given in Para No.2 of the Assessment Order and the said information was supplied by the Sales Tax Department to DGIT (inv) who in turn supplied the same to the assessee. The Assessing Officer observed from the Sales Tax Department website of Mumbai, Government of Maharashtra that Sales Tax Department has carried detailed enquiries in respect of the said 13 parties and also recorded their statements/depositions or affidavits. The Assessing Officer extracted the copies of the statements/depositions/ affidavits from the website of the Sales Tax Department and came to the conclusion that assessee has not purchased any actual goods or services from the above parties as they were only engaged in issuing bogus bills on commission basis. Accordingly, the case of the assessee was reopened u/s. 147 of the Act by issuing notice u/s. 148 of the Act dated 25.03.2013 which was complied by the assessee vide letter dated 03.04.2013 submitting that original return filed may be treated as return filed in compliance to the notice u/s. 148 of the Act.
(5) Assessee has challenged the issue of notice and contested the reopening of assessment before the Assessing Officer. However, the Assessing Officer brushed aside the contentions of the assessee on the ground that the bogus purchases were amply proved by the documents downloaded from the Sales Tax Department website which proved that all the thirteen parties were engaged in the supplying of bogus bills on the commission basis and accordingly issued show cause notice to the assessee as to why the purchases to the tune of Rs..11,31,51,580/- should not be treated as unexplained expenditure. Assessing Officer finally after considering the various contentions of the assessee framed assessment u/s. 143(3) r.w.s. 147 of the Act vide order dated 21.03.2014 assessing income of Rs.11,44,20,630/- by making addition u/s. 69C of the Act on entire purchases to the tune of Rs..11,31,51,580/-.
(6) In the Appellate proceedings assessee did not challenge the reopening of assessment which is being challenged for the first time by filing additional grounds of appeal before this tribunal. The Ld.AR vehemently submitted before the Bench that the reopening of assessment u/s.147 r.w.s. 148 of the Act which already completed u/s.143(3) of the Act is a legal issue arising out of the assessment records which were before the Authorities below and does not require any verification of facts and therefore this ground is purely legal and deserved to be admitted. Ld.AR has relied upon the decision of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [299 ITR 382 (SC)]. Where the question of law arising from the facts which are on record in the Assessment Proceedings, there is no reason on the such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. Thus, the Learned Counsel for the assessee submitted that in view of the Hon’ble Apex Court decision where all the facts of the case are on record and Tribunal is only required to consider a question of law arising from the facts, the Tribunal has jurisdiction to examine the same which arising from the facts before the authorities below and decide the case on merits, although the grounds were not raised before. Finally, the Ld. Counsel for the assessee prayed that the same should be admitted and adjudicated as per provisions of law.
(7) Ld.DR on the other hand opposed the additional ground filed by the assessee, on the ground that the same was not raised before the Ld.CIT(A) and was raised for the first time before the Tribunal.
(8) Hearing both the parties and perusing the material on record, we observe that the legal issue challenged by the assessee for the reopening of assessment is raised out of the facts on record which were not raised before the Authorities below and therefore we are inclined to admit the same pursuant the ratio laid down by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. CIT (supra).
(9) The reasons recorded by the ld.AO for reopening of assessment are reproduced as under: –
The assessee filed his return of Income electronically on 30.09.2009 declaring total income of Rs.11,94,930/-. Thereafter, assessment in the case of the assessee was completed u/s 143(3) of the I.T.Act-1961 on 24.11.2011 whereby total income of the assessee was assessed at Rs. 12,69,050/- after making disallowance on account of certain expenses being personal in nature and for want of verification.
From the assessment records, it was revealed that the assessee had shown purchases of Rs. 38,05,48,216 in his profit &loss account. In this case, information is received from the Office of the D.G.I.T. (Inv.), Mumbai that the assessee made purchases from the following parties who indulge in issuing only bills without any goods or materials for a commission, as per the official website of the Sales Tax Department, Government of Maharashtra. www.mariavat.gov.in.
