Rajnish C. Bharti Vs ITO (ITAT Mumbai)
ITAT Mumbai held that re-opening of assessment without ‘reason to believe’ simply based on the information from DGIT(Inv.) is untenable in law.
Facts- The assessee had filed ROI on 28.07.2009 declaring total income of Rs.2,49,860/-. Later AO received an information from the office of the DGIT(Inv.) regarding assessee’s bogus claim of expenses to the tune of Rs.6,16,79,235/- from various parties. Therefore, he reopened the assessment by issuing notice u/s 148 of the Act on 27.11.2012. And then, he issued statutory notice u/s 143(3) and 142(1) of the Act.
Thereafter, the AO took note of the additional information he received from the DGIT (Inv.), Mumbai dated 26.12.2013 wherein it was stated that assessee was involved in bogus claim of expenses to the tune of Rs.15,42,20,343/-. And then the AO after taking notice that the AR of the assessee attended before him on 24.03.2014, records in the assessment order that assessee/AR was furnished with the “reason for reopening” along with transaction regarding data of Hawala Purchases received from DGIT (Inv.), Mumbai, viz Copy of AIR (ITS) data; and the AO notes that he confronted the assessee with the adverse material and asked him to explain about the adverse information with supporting evidence if any. However, according to AO, the assessee failed to satisfactorily explain reply to his query/adverse material. Thereafter, the AO taking note of the fact that the assessee had purchased material from twelve (12) parties and has taken bogus purchase bills to the tune of Rs.15,42,20,343/- added the entire amount of Rs.15,42,20,343/-.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to sustain only 30% of the addition i.e. Rs.4,62,66,103/-; and balance Rs.10,79,54,240/- was deleted. Still not satisfied, the assessee is before us.
Conclusion- We note that the AO only had foundation based on information which was not sufficient to invoke jurisdiction for re-opening the assessment.
Having received such an information from the DGIT(Inv.), it should have at best triggered “reason to suspect”, then AO should have made reasonable inquiry and collected material which would make him form a belief that there was in fact escapement of income; but in this case, we note that the reason recorded (supra) by the AO before re-opening the assessment does not satisfy the requisite requirement as necessary u/s 147 of the Act to validly reopen the assessment. Therefore, we are inclined to quash the reopening based on the reasons recorded by the AO (supra). And therefore we quash the notice u/s 148 of the Act on 27.11.2012. Therefore, further proceedings stand void in eyes of law. Therefore, the assessee succeeds on the legal issue.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax-41, Mumbai dated 03.08.2016 for assessment year 2009-10.
2. The grounds of appeal raised by the assessee are as under: –
“1. On the facts, in the circumstances of the case and in law, the learned Commissioner of Income Tax Appeals Ld CIT (A)] has erred in upholding the impugned assessment order passed by the learned assessing officer (Ld. A.0) without having any lawful jurisdiction as-
a. there were no cogent reasons to believe that the Income had escaped assessment and accordingly the provisions of section 147 & 148 were not applicable to the case,
b. the objections raised by & on behalf of the appellant were not at all considered by the ld A.O before assuming the jurisdiction u/s 147 and
c. no notices u/s 143(2) or 142(1) were issued or served on the appellant
d. The impugned assessment order has been upheld by the Ld. CIT(A) on the basis of perverse and arbitrary finding of facts
2. Without prejudice to above the learned CIT (A) has further erred in sustaining part i.e., 30% disallowance of purchases made from alleged bogus parties without considering the fact that learned A.O had made the disallowance without giving the appellant any opportunity of being heard and without bringing on record any adverse evidence. The Ld. CIT (A) has grossly erred in upholding the disallowance of Rs 4,62,66,103/- being 30% of Purchases considered to be bogus by the Ld. A.O arbitrarily, without any authority of law and without any basis.”
3. Since the ground no. 1 is a legal ground, we take up first the ground no. 1(a) which is against the action of the Ld. CIT(A) in not accepting the contention of the assessee that the AO without fulfilling the condition precedents (“reason to believe escapement of Income”) has resorted to reopen the assessment u/s 147 of the Income Tax Act, 1961 (hereinafter “the Act”). Therefore, according to Ld. AR, the AO did not had the requisite jurisdiction to reopen the assessment.
4. Brief facts as noted by the AO is that the assessee had filed return of income on 28.07.2009 declaring total income of Rs.2,49,860/-. Later he received an information from the office of the DGIT(Inv.) regarding assessee’s bogus claim of expenses to the tune of Rs.6,16,79,235/- from various parties. Therefore, he reopened the assessment by issuing notice u/s 148 of the Act on 27.11.2012. And then, he issued statutory notice u/s 143(3) and 142(1) of the Act. Thereafter, the AO took note of the additional information he received from the DGIT (Inv.), Mumbai dated 26.12.2013 wherein it was stated that assessee was involved in bogus claim of expenses to the tune of Rs.15,42,20,343/-. And then the AO after taking notice that the AR of the assessee attended before him on 24.03.2014, records in the assessment order that assessee/AR was furnished with the “reason for reopening” along with transaction regarding data of Hawala Purchases received from DGIT (Inv.), Mumbai, viz Copy of AIR (ITS) data; and the AO notes that he confronted the assessee with the adverse material and asked him to explain about the adverse information with supporting evidence if any. However, according to AO, the assessee failed to satisfactorily explain reply to his query/adverse material. Thereafter, the AO taking note of the fact that the assessee had purchased material from twelve (12) parties and has taken bogus purchase bills to the tune of Rs.15,42,20,343/- added the entire amount of Rs.15,42,20,343/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to sustain only 30% of the addition i.e. Rs.4,62,66,103/-; and balance Rs.10,79,54,240/- was deleted. Still not satisfied, the assessee is before us.
5. Before the Ld. CIT(A) the assessee has raised the legal issue challenging the AO’s action of reopening the assessment u/s 147 of the Act (i.e. without satisfying the essential condition precedents i.e. “reason to believe escapement of income”). For assailing the same (legal issue against re-opening/jurisdiction), the Ld. AR drew our attention to the page no. 29 of the PB wherein the reasons recorded for reopening of the assessee is found placed which reads as under: –
