Non-Filing of GST Return by Supplier – Assessment Reopening Validity- ITAT Mumbai Order

Karrm Infrastructure Private Limited Vs CIT (ITAT Mumbai)

In the case of Karrm Infrastructure Private Limited vs. CIT (ITAT Mumbai), the appeal was filed by the assessee against an assessment order dated 12th February 2024 by NFAC, Delhi under section 147 for the Assessment Year 2013-14. Key points from the case are as follows:

Background: Karrm Infrastructure Private Limited, engaged in the business of construction of affordable houses, had initially declared a total income of Rs. 3,59,09,800/-. The assessment for the year was originally completed under section 143(3) on 20th March 2016, accepting the trading results and the declared purchases and sales.

Reopening of Assessment: The assessment was reopened under section 148 with a notice issued on 30th January 2021. This was based on allegations that certain payments amounting to Rs. 2,66,23,428/- made to various parties, including M/s. Shah Steel Corporation and M/s. Swarn Rerolling Mill Pvt. Ltd., were based on fake bills. It was discovered that these parties were non-filers of GST, leading the assessing officer to conclude that the purchases were unexplained.

Assessment Proceedings: The assessing officer (AO) rejected the assessee’s objections to the reopening without discussion and added the entire amount of Rs. 2,66,23,428/- to the income of the assessee.

Legal Issues: The appeal before the ITAT Mumbai centered on the validity of reopening the assessment under section 147. The ITAT noted that the original assessment had been completed under section 143(3) and that the reopening was based solely on information from ITBA (Income Tax Business Application) database regarding GST non-filers.

Decision:

The ITAT Mumbai found that the assessment for the year 2013-14 was originally completed under section 143(3) on 20th March 2016. Later, the case was reopened under section 148 based on information from the ITBA database, which indicated that some of the parties from whom the assessee had made purchases were not filing GST returns. This led the assessing officer to reopen the assessment under section 148 to add these purchases back to the income, despite these transactions being previously examined and accepted during the original assessment.

The ITAT observed that the assessing officer did not provide any evidence or document showing when this information about the GST non-filing parties came to their notice. Moreover, the reopening of the assessment occurred almost nine years after the end of the relevant assessment year, which did not comply with the time limits specified in section 149 of the Income Tax Act. According to this section, assessments can generally be reopened within three years from the end of the relevant assessment year, or up to ten years if there is evidence of income over Rs. 50,00,000 that has escaped assessment due to failure by the assessee to disclose material facts.

Since there was no new evidence suggesting any such failure on the part of the assessee, and because the purchases in question were already accounted for in the books and accepted in the original assessment order under section 143(3), the ITAT concluded that the reopening of the assessment was legally unjustified. Therefore, they quashed the entire assessment order, ruling in favor of the assessee.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The aforesaid appeal has been filed by the assessee against order dated 12/02/2024 passed by NFAC, Delhi for the quantum of assessment passed u/s.147 for the A.Y.2013-14.

2. None appeared on behalf of the assessee. Accordingly, appeal is being decided on the basis of material on record and the orders of the authorities below.

3. The ld. CIT(A) has dismissed the appeal on the ground that there is no compliance of notices sent by NFAC module and accordingly, he has dismissed the appeal for want of prosecution.

4. The brief facts are that assessee is a company engaged in the business of builder and developer constructing affordable houses for the public. It has declared total income of Rs. 3,59,09,800/-. In this case the assessment was completed u/s. 143(3) vide order dated 20/03/20 16 accepting the trading result and purchases and sales. Now the case has been reopened u/s. 148 vide notice dated on 30/01/2021 on the ground that there were certain payment amounting to Rs.2,66,23,428/- to various parties on account of some fake bills. One such purchase was made from M/s. Shah Steel Corporation and another was from M/s. Swarn Rerolling Mill Pvt. Ltd. From the information in the public domain, it was found that these entities were not filer and therefore, purchases made from two parties is unexplained.

5. The ld. AO has disposed off assessee’s objection for reopening without even discussing it in the assessment order and held that assessee had not furnished any substantial material evidence to prove the genuineness of the transaction and accordingly he added the entire purchases of Rs.2,66,23,428/-.

6. After considering the relevant material on record, we find that already assessment was completed u/s. 143(3) vide order dated 20/03/2016 and it appears that the case has been reopened on some ITBA data base where the parties from whom assessee had made purchases were found to be non-filer of GST and simply based on this information, assessment has been reopened u/s. 148 to make the addition on account of purchases which already stood examined earlier as it is part of the trading amount. Nowhere, it has been brought on record that when this information came to the notice of the ld. AO, if the transaction relates to F.Y.2012-13 and reopening has been done almost after nine years from the end of the relevant assessment year. Now, the case is reopened u/s. 147 by issuance of notice u/s. 148 on 30/01/2021 to reopen the case for the A.Y.20 13-14. The time limit for reopening and the assessment as provided u/s. 149 as was applicable at the time of issuance of notice u/s. 148 is three years from the end of the relevant assessment year and the time limit for 10 years have been provided unless the ld. AO has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to Rs.50,00,000 or more for that year. Here in this case there is no document or evidence revealing income chargeable to tax, represent in the form of an asset. In fact, what id. AO has sought to reopen is to disallow the purchases made by the assessee which is an item of a trading account duly reflected in the books and also the quantity of sale of purchases have been accepted alongwith gross profit in the original assessment order u/s. 143(3) dated 20/03/2016. Thus, even under the terms of first proviso to Section 147 as was then applicable, no reopening can be done after expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for the reasons of the failure on the part of the assessee to disclose truly and wholly all material facts necessary for the assessment. Here, there is no such failure on the part of the assessee. Accordingly, in terms of time limit provided in Section 149 and first proviso to Section 147, the reopening itself is bad in law and same is quashed. Accordingly, the entire assessment order is quashed.

7. In the result, appeal of the assessee is allowed.