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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: Shri Sanjay Garg & Shri Sanjay Awasthi
Per Sanjay Garg, Judicial Member :
The captioned appeal by the revenue and the corresponding Cross Objection by the assessee have been preferred against the order dated 15.09.2023 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [hereinafter referred to as the “Ld. CIT(A)”] for Assessment Year 2018-19.
Brief facts of the case are that the assessment in the case of the assessee was reopened u/s. 147 of the Income Tax Act, 1961 CO No. 02/Kol/2024 Shyamasree Ghosh, AY. 2018-19 (hereinafter referred to as the “Act”) by the Assessing Officer (in short “the AO”) on the basis of some information received from CGST, Kolkata, that one entity M/s. Kushal Ltd. was found indulging in issuance of fake GST invoices for passing irregular input tax credit to other business entities and for doing this, they had also availed and utilized input tax credit against fake invoices issued by others. As per the information, the assessee company had made bogus business transactions with said M/s. Kushal Ltd. of the amount of Rs.15,96,513/-. The AO, therefore, show caused the assessee by issuing notice u/s. 148A(b) of the Act dated 21.03.2022 calling upon the assessee to explain in detail with supporting documents in respect of the bogus business transaction of the assessee with the said M/s. Kushal Ltd. to the extent of Rs.15,96,513/-. Assessee was directed to file the reply within seven days from the date of receipt of the communication. The assessee, thereafter, filed reply to the said show cause notice on 28.03.2022 and denied about the carrying out of any bogus transaction with M/s. Kushal Ltd. It was stated in the reply that the allegation was factually incorrect as the assessee did not have any business transaction with M/s. Kushal Ltd. and, therefore, there was no question of understating the income to the extent of Rs.15,96,513/-. However, the AO without considering the aforesaid reply of the assessee passed the order u/s.148A(d) of the Act on 31.03.2022 stating therein that since the assessee had not filed any reply to the notice issue issued u/s. 148A(b) of the Act and that there was information that the assessee had entered into bogus transaction with M/s. Kushal Ltd. amounting to Rs.15,96,513/- and since the assessee had failed to include the said amount into his income, therefore, the income of the assessee has escaped to that extent. He accordingly, issued notice u/s. 148 of the Act to the assessee. The assessee, in response to the notice issued u/s.148 of the Act, filed a reply dated 08.12.2022, wherein, it was explained that the assessee had filed the reply in response to the CO No. 02/Kol/2024 Shyamasree Ghosh, AY. 2018-19 notice issued u/s. 148(b) of the Act on 28.03.2022 and whereas the AO had failed to take note of the same. It was further explained that the assessee did not enter into any alleged transaction with M/s. Kushal Ltd. It was also explained that the assessee was not required to register under GST and, therefore, has never applied for GST registration. That the assessee had never issued/received any invoice for passing/utilising input tax credit to/from other business entities that the aforesaid allegation was factually incorrect.
However, the AO, without taking note of the said reply of the assessee, proceeded with the reopening of the assessment and passed the assessment order dated 15.03.2023 u/s.147 r.w.s. 143(3) of the Act. However, the AO in the said assessment order did not make any addition in respect of the alleged bogus transaction with M/s. Kushal Ltd. in respect of any bogus tax input credit etc. He, however, made the addition of Rs.15,96,512/- on account of bogus long term capital gains in share transactions.
In first appeal, the assessee contested the assessment order not only on the ground of validity of reopening of the assessment but also on merits. The Ld. CIT(A) dismissed the legal grounds taken by the assessee relating to the validity of the reopening of the assessment, however, allowed the appeal of the assessee on merits and held that the AO was not justified in holding the long term capital gains as bogus. He held that the assessee had duly discharged his onus of proving the genuineness of the share transaction. He, therefore, deleted the addition so made by the AO.
Now the revenue, being aggrieved by the order of the Ld. CIT(A), has come in appeal contesting the action of the Ld. CIT(A) in deleting the addition on merits, whereas, the assessee has filed the captioned CO No. 02/Kol/2024 Shyamasree Ghosh, AY. 2018-19 Cross Objection contesting the validity of the reopening of the assessment.
At the request of the parties, the legal issue relating to the validity of the reopening of the assessment is taken first for adjudication. In the case in hand, as observed above, the AO noted the reasons for reopening of the assessment that the assessee had entered into a bogus transaction with M/s. Kushal Ltd. relating to fake GST invoices. The said information was false as there was no mention as to what transaction the assessee had entered with M/s. Kushal Ltd. and what type of bogus entry has been ontained, whether the input tax credit was given or taken? The information alleged by the AO was silent about the nature of the transaction etc. As per the provisions of sec. 148A(a) of the Act as were in operation for the relevant year under consideration, the AO before issuing any notice u/s. 148 of the Act, may conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment. In the case in hand, the information received by the AO was not specific, rather a vague information. Therefore, under the circumstances, the AO was supposed to conduct enquiry to ascertain not only the correctness of the information but also about the nature of the transaction carried out by the assessee, the income relating thereto it allegedly had escaped assessment. However, the AO, instead of carrying out any enquiry, straightway issued notice to the assessee u/s. 148A(b) of the Act as to why the income of Rs.15,96,513/- may not be added to the income of the assessee on account of bogus transaction with M/s. Kushal Ltd.? The assessee was given seven days’ time to file the reply and the assessee accordingly, filed his reply within the stipulated time period and explained that assessee did not carry out any such transaction with M/s. Kushal Ltd. However, the AO ignored the said reply and passed order u/s. 148A(d)
CO No. 02/Kol/2024 Shyamasree Ghosh, AY. 2018-19 of the Act holding that it was a fit case to issue notice u/s. 148 of the Act. A perusal of the order passed u/s. 148A(d) of the Act by the AO would reveal that the AO just reiterated the allegations without any specific information as to the nature of transaction allegedly carried out by the assessee. Thereafter, the AO issued notice u/s. 148 of the Act. Even in response to the said notice/s. 148 of the Act, the assessee reiterated that the assessee did not carryout any transaction, whatsoever, with M/s. Kushal Ltd. and that even the allegation that the assessee was indulged in bogus input tax credit was totally wrong as the assessee even did not get any GST number and did not obtain any invoice etc. for bogus input tax credit as alleged. Ld. AO totally ignored the said reply also and proceeded to reopen the assessment. Even in the assessment proceedings, the AO did not refer to any such evidence and did not make any addition on this account. The facts and circumstances on the file reveal that there was no valid reason for the AO to form the belief that the income of the assessee has escaped assessment. Though, the AO had given opportunity to the assessee to explain as to why the assessment be not reopened in his case, but the AO totally ignored the submissions made by the assessee to the effect that the assessee had not entered into any such transaction as alleged by the AO. Under the circumstances, the AO in this case did not have any reason to believe that the income of the assessee has escaped assessment. The AO even did not bother to correlate the information received by him from the GST Department with the accounts of the assessee. He even did not bother to consider the reply of the assessee and find out whether the submission made by the assessee was correct or not by way of correlating the same with the accounts/income tax return of the assessee. Under the circumstances, the AO has totally failed to adhere to the procedure prescribed under the statute for the reopening of the assessment. The reopening of assessment in this case is thus, bad in law and, therefore, the consequential additions are not CO No. 02/Kol/2024 Shyamasree Ghosh, AY. 2018-19 sustainable. The Cross Objection of the assessee to this extent is allowed.
It is pertinent to mention here that apart from the legal issue relating to the validity of the reopening of the assessment, the assessee has also raised another legal issue relating to the validity of the assessment framed on the ground that a notice u/s. 148 of the Act was issued by ITO, Ward-25(1), whereas, as per the relevant provisions, as were in operation in the AY under consideration, the notice could have been issued only in a faceless manner through automated allocation as per the notification issued by CBDT dated 29.03.20223 r.w.s. 151 of the Act. However, since we have already held that the reopening was bad in law on account of our finding given above that the AO did not have valid reasons to reopen the assessment and he had also failed to adhere to the relevant provisions of section 148A and 148 of the Act, therefore, at this stage, the aforesaid issue raised by the assessee is rendered academic in nature, to be adjudicated in any appropriate case. Even at this stage, in view of our finding given above allowing the Cross Objection and holding the reopening of the assessment bad in law, the appeal of the revenue relating to the issue of deletion of addition of Ld. CIT(A) on merits has also become infructuous and the same is accordingly dismissed.