M/S FLORA EXPORTS , KOLKATA vs. ITO, WARD 31(1), KOLKATA

The assessee in this appeal has taken the following revised grounds of appeal:

For that the re-assessment order dated 29.12.2018 is vitiated in law inasmuch as there was absolutely no independent application of mind and no independent enquiry on the part of the A.0. in respect of the purported information allegedly received by him.

For that there was no sanction or the purported sanction u/s 151 was not in accordance with law, thus, vitiating the re-opening process.

We have heard the rival contentions and gone through the record. The ld. counsel for the assessee, firstly, has submitted that the reopening in this case was bad in law. He, inviting our attention to the copy of the reasons recorded, has submitted that the only information available with the department was that one Shri Sanjiw Kumar Singh was engaged in providing accommodation entries of bogus purchases etc. through paper entities controlled by him and further that name of the assessee appeared in the list of beneficiaries. The ld. counsel has submitted that the said information was vague. That the Assessing Officer did not correlate the said information with the records of the assessee to form the belief that the income of the assessee has escaped assessment. The ld. counsel has further invited our attention to page 3 of the paper-book to submit that the assessee had filed an application under RTI to the Assessing Officer to supply the copy of the approval given by the Addl. CIT u/s 151 of the Act for reopening of the assessment but no copy of the said approval has been provided to the assessee till date and therefore, reasonable presumption was that there was no approval taken by the Assessing Officer from the competent authority u/s 151 of the Act to reopen the assessment.

The ld. DR, on the other hand, has submitted that there was a convincing information available with the Assessing Officer that the assessee had obtained bogus purchase entries from one Shri Sanjiw Kumar Singh. That The information was received from the Investigation Wing and therefore, the Assessing Officer had reasons to believe that the income of the assessee had escaped assessment.

We have considered the rival contentions and gone through the record. We note that under the relevant provisions of section 147 & section 148 of the Income Tax Act, for assuming jurisdiction to reopen an assessment by the Assessing Officer, there is a condition precedent that the Assessing Officer must have reasons to believe that the income of the assessee for that year has escaped assessment. It has been held time and again that the reasons to believe regarding the escapement of the income should be based on certain tangible material. The reasons to believe does not mean reason to suspect. Reopening of the assessment is not permitted for making fishing and roving enquiries. The Assessing Officer, after receipt of alleged information received from the Investigation Wing was supposed to corelate the same with the records and other facts of the case and thereafter should have satisfied himself of escapement of income. Reopening is not permissible on the basis of borrowed satisfaction of the Assessing Officer. It does not mean a purely subjective satisfaction of the assessing authority. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The Income-tax Officer would be acting without jurisdiction, if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. Such an action of the Assessing Officer regarding formation of belief of escapement of assessment and thereby in starting proceedings u/s 147 is open to challenge in a court of law. The entire law as to what would constitute "reason to believe" has been summed up by the hon’ble Supreme Court in the case of “Income Tax Officer v Lakhmani Mewaldas” (1976) 103 ITR 437. Since in the case in hand, the Assessing Officer, without consulting the assessment records and correlating the information with the accounts of the assessee, simply proceeded to reopen the assessment on the basis of borrowed satisfaction from the information of Investigation Wing, hence, such an action of Assessing Officer would fall short of the reasons to believe of escapement of income of the assessee. In view of the above discussion, in our view, the reasons pointed out by the Assessing Officer cannot be said to be the reasons "to form the belief" that income of the assessee had escaped assessment. Therefore, reopening of the assessment was bad in law and the consequential assessment is not sustainable and the same is accordingly quashed. The assessee, therefore, succeeds on legal ground.

Even on merits, there is no allegation that the alleged purchases were made by the assessee from undisclosed source of income. Therefore, there is no question of making addition of the entire purchases. In this case, the sales have been admitted. Even, copy of the tax audit report was also furnished before the lower authorities reflecting that the stock register was also maintained. Ledger account, copies of bills, bank statement and extract of VAT return reflecting the purchase transactions were also filed. The ld. counsel has further invited our attention to page 60 of the paper-book to show that the assessee had shown gross profit @ 20% for A.Y 2012-13, @ 25% for A.Y 2013-14 and @24% for A.Y 2014-15. The ld. counsel, therefore, has submitted that the purchase transactions were duly proved on the file and the assessee has also shown sufficient profits on sales which were at par with the other entities engaged in the same business.

The ld. DR, on the other hand, however has submitted that since there was a report of investigation wing that the purchases made from two entities were bogus and therefore, the assessee might have made the purchases from grey market and thereby might have suppressed the profit element in the sales. Therefore, the said suppressed profit element is required to be added into the income of the assessee.

After considering the rival submissions, we note that the sales have been admitted and the assessee has also shown sufficient gross profit matching with other entities engaged in the same business, therefore, there was no question of doubting the purchase. However, so far as the question of suppressing the profit element on account of 5 purchase at lower rate from grey market is concerned, the same is mere suspicion of the revenue authorities and no evidences were available in this respect on record. However, there is a report of Investigation Wing that one Shri Sanjiw Kumar Sing was engaged in providing accommodation entries and from the said record, the Assessing Officer gathered that the assessee was a beneficiary of the accommodation entries. Hence, considering the overall facts and circumstances and in the light of the alternative submissions of the assessee, at the most, the profit element @1.16% can be added to the income of the assessee, it will be just and proper to restrict the addition to the extent of the 2% of the alleged bogus purchases.

However, in view of our findings on the legal ground, since we have held the reopening as bad in law, therefore, the impugned additions have no legs to stand and the same are accordingly ordered to be deleted.