M/S FANCY ENTERPRISES,KOLKATA vs. A.O. CIR. 32, , KOLKATA

The assessee has raised following grounds of appeal:-

For that the reopening of the assessment was bad in law having been imitated on the basis of incorrect information.

For that the proceedings-initiated u/s 147 after expiry of four years from end of assessment year on change of opinion were bad in law.

For that the Ld. CIT(A) erred in confirming the action of the Ld AO making the addition of Rs. 70,70,117/- when full details of purchase were filed, the total purchase from the party Ridhi Siddhi named in the information were only to the extent of Rs. 9,37,427/- which was duly explained and the Ld AO failed to bring on record any evidence to show that the purchase was to the extent of Rs. 70,70,117/-.

Facts in brief are that the assessee is a partnership firm engaged in manufacturing business. Income of ₹42,26,460/-, declared in the return for A.Y. 2013-14, furnished on 28th September, 2013. Case picked up for regular scrutiny and after making certain additions, assessment was completed under Section 143(3) on 26th March, 2016, assessing income at ₹45,46,997/-. Subsequently, the learned Assessing Officer based on the information from the investigation wing about the alleged bogus purchase made by the assessee from various concerns, recorded the reasons for the alleged bogus purchase of ₹70,70,117/-, from three private limited companies alleged to be shell companies and initiated the reassessment proceedings by issuance of notice under Section 148 of the Act dated 18th May, 2018. In the reasons recorded placed at page no.5 to 7 of the paper book, the alleged transactions of bogus purchase of Date of Transaction Name of the Shell Company Amount of Receipt (Rs.) 05.02.2013 Ankshika Clothing Pvt. Ltd. 9,37,427/- 05.02.2013 Ridhisidhi clothing Pvt. Ltd. 9,37,427/- 04.06.2012 Shelja Fashions Pvt. Ltd. 5,04,695/- 10.12.2012 Shelja Fashions Pvt. Ltd. 7,87,984 22.12.2012 Shelja Fashions Pvt. Ltd. 7,77,443 17.01.2013 Shelja Fashions Pvt. Ltd. 5,10,068/- 01.02.2013 Shelja Fashions Pvt. Ltd. 16,00,073/- 22.02.2013 Shelja Fashions Pvt. Ltd. 10,15,000/- 05. Before us, the learned counsel for the assessee has challenged the validity of the reopening on the ground that the reopening has been carried out after the completion of 4 years from the end of relevant assessment year and that the assessee had already passed through regular assessment proceedings and all the details of purchases were furnished before the learned Assessing Officer and the same were examined and found to be correct. It is also submitted that the learned Assessing Officer has merely acted on borrowed satisfaction and has not applied his mind which is evident from the fact that out of 8 transactions mentioned in the above table, the assessee has only dealt with one party. The learned Counsel for the assessee refereeing to the judgment of the Hon'ble Apex Court in case of ACIT Vs. CEAT Limited dated 10th October, 2022, and also the decision of this Tribunal in case of Samridhi Stocks Pvt. Ltd. Vs. ITO in dated 13th July, 2023, submitted that the reassessment proceedings are illegal and bad in law and thus deserves to be quashed.

We have heard the rival contentions and perused the records placed before us. Reopening proceedings are challenged by the assessee to be bad in law and illegal. We observe that the assessee which is a partnership firm has passed through the complete scrutiny proceedings under Section 143(3) of the Act vide order dated 26th March, 2016, and certain additions have also been made. On perusal of the assessment order under Section 143(3) of the Act placed at page no. 123 of the Paper Book reveals that all the information relating to business transactions carried out during the year were called for by the learned Assessing Officer to which necessary reply was filed along with supporting evidence and the same have been examined by the learned Assessing Officer along with the books of account. The transactions of purchases were also part of the questionnaire issued by the learned Assessing Officer to which necessary reply was filed. Now the reopening has been carried out after the completion of four years from the end of the assessment year in question.

Section 147 of the Act is meant for the reassessment proceedings and proviso to Section 147 of the Act provides that where an assessment under Section 143(3) of the Act Date of Transaction Name of the Shell Company Amount of Receipt (Rs.) 05.02.2013 Ankshika Clothing Pvt. Ltd. 9,37,427/- 05.02.2013 Ridhisidhi clothing Pvt. Ltd. 9,37,427/- 04.06.2012 Shelja Fashions Pvt. Ltd. 5,04,695/- 10.12.2012 Shelja Fashions Pvt. Ltd. 7,87,984 22.12.2012 Shelja Fashions Pvt. Ltd. 7,77,443 17.01.2013 Shelja Fashions Pvt. Ltd. 5,10,068/- 01.02.2013 Shelja Fashions Pvt. Ltd. 16,00,073/- 22.02.2013 Shelja Fashions Pvt. Ltd. 10,15,000/- 09. It has been argued before us that out of the total amount of ₹70,70,117/-, the transaction of ₹61,32,690/- never took place with the appellant and only one transaction of purchase of ₹9,37,427/- took place on 5th February, 2013, for the transactions with Ridhisidhhi Clothing Pvt. Ltd. Thus, out of 8 transactions referred above only one has taken place in the books of the “It is not in dispute that the assessment was sought to be re-opened beyond four years. Therefore, all the conditions under section 148 of the Income Tax Act for re-opening the assessment beyond four years are required to be satisfied. Having gone through the reasons recorded for re-opening, we are of the opinion that the conditions precedent for re-opening of the assessment beyond four years are not satisfied. The re-assessment was on change of opinion. There are no allegations of suppression of material fact. Under the circumstances, no error has been committed by the High Court in setting aside the re-opening notice under section 148 of the Income Tax Act. We are in complete agreement with

Also, in the recent decision of this Tribunal in case of Samridhi Stocks Pvt. Ltd. (supra), the findings of this Tribunal supports our view that reopening are bad if have been carried out based on borrowed satisfaction and without co-relating the same with the facts of the case, and the relevant finding of this Tribunal reads as under: - “6. We find force in the contention raised by the ld. counsel for the assessee. We find that the Assessing Officer has reopened the assessment merely based on the information received from investigation wing without verifying the veracity and truthfulness of such information. The information was wrong and the Assessing Officer reopened the assessment on the basis of borrowed satisfaction without correlating the same with the facts of the case. Even there is no allegation that the income of the assessee has escaped assessment due to non-disclosure of the facts necessary for the assessment and since the assessment has been reopened after four years of the end of relevant assessment year, hence, the exception provided under 1st Proviso to section 147 is attracted. In view of this, the reopening of the assessment is held as bad in law.”

Respectfully following the above decision and considering the facts of the case, we are inclined to hold that the reopening proceedings are illegal and bad in law as the learned Assessing Officer has issued the notices under Section 148 of the Act merely on reason to suspect

In the result, the appeal of the assessee is allowed as per terms indicated above.