PCIT Vs Purple Suppliers Pvt. Ltd. (Calcutta High Court)
The Calcutta High Court dismissed 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 dispute concerned reassessment proceedings initiated under Sections 147 and 148 of the Income Tax Act, 1961 on allegations that purchases made by the assessee from Sancheti Diamonds Pvt. Ltd. were bogus in nature. The Assessing Officer reopened the assessments based on information received from the Investigation Wing, Mumbai, alleging suspicious business activities by Sancheti and statements made by its key person regarding accommodation entries.
Read SC judgment in this case: SC Upholds Reassessment Quash Order Due to Mere Suspicion Without ‘Reason to Believe’
The assessee, engaged in wholesale jewellery and diamond business, 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 subjected to scrutiny assessment under Section 143(3). Following reopening, additions were made under Section 69C on account of alleged bogus purchases. The Commissioner of Income Tax (Appeals) upheld the reassessment and additions, but the Tribunal allowed the assessee’s appeals and quashed the reopening 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 Court noted that the reasons recorded by the Assessing Officer referred repeatedly to “suspicion” arising from unusual transactions, huge turnover, and outstanding credits and debits. Relying on the Supreme Court decision in Lakhmani Mewal Das, the Court held that the statutory requirement is “reason to believe” and not “reason to suspect.” Suspicion alone could not justify reopening of completed assessments.
