Third party statement taken after recording reasons cannot form basis of Assessing Officer’s “reasons to believe” to reopen the assessment – ITAT
In a recent judgment, ITAT Delhi has held that third party statement recorded subsequent to the reasons recorded, cannot form basis of Assessing Officer’s “reasons to believe” to reopen the assessment
ABCAUS Case Law Citation:
4319 (2024) (11) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) of National Faceless Appeal Centre (NFAC) in upholding the action of Assessing Officer (AO) to reopen the case u/s 147 of the Income Tax Act, 1961 (the Act) and consequently upholding addition made on account of alleged inflation of the purchase.
As a result of interception of cash after announcement of election, a search action u/s 132 of the Act was carried out on a group During the course of search statement of one person was recorded. In his statement he allegedly admitted to have engaged in providing bogus purchase entries through bogus concerns.
The notice u/s 148A(b) of the Act was issued to the assessee, along with the notice reasons recorded for reopening assessment were also supplied to the assessee. The Assessing Officer alleged that the assessee is one of the beneficiaries of bogus purchase entries from the aforesaid concerns.
The assessee vide letter replied to the notice stating that the assessee had not made any purchases from the parties mentioned in the reasons for reopening during the year under consideration. The AO passed order u/s. 148A(d) of the Act rejected the objections raised by the assessee against reopening.
The AO proceeded with the reassessment proceedings and vide assessment order passed u/s. 147 r.w.s 144B of the Act made addition on account of alleged bogus purchases made. The said addition was based on the statement of one person alleged to have been recorded by the Investigation Wing.
Before the Tribunal the assessee pointed that the statement relied upon by the AO was recorded four months after the reasons for reopening were recorded i.e. much prior to recording of the statement which was the basis for making addition. He further pointed that, the statement provided to the assessee was not signed by the officer before whom, the said statement was recorded under oath. Such a statement was not admissible and hence, no addition can be made on the basis of such statement.
On merits of the addition the assessee submitted that the payments against purchases had been made through banking channels and the sales made by the assessee had been accepted by the AO, the AO had also accepted books of accounts of assessee. The assessee had furnished all these documents before the AO. However, without examining the documents furnished by the assessee, the AO has passed the assessment order.
The assessee pointed that the CIT(A) in the impugned order had raised doubt over the transaction of purchases on the ground that the assessee failed to provide the address and where abouts of supplier and no details evidencing transportation of scrap to the assessee was available. The said observations of the CIT(A) were contrary to the documents on record. The invoices clearly indicated the address and contact number supplier. The invoices also mentioned vehicle numbers used for transportation of consignment. Thus, the assessee had discharged its onus in proving genuineness of transaction of purchases.
The Tribunal noted that in response to the notice 148A(b), the assessee had denied to have made any purchases from the concerned firms during the period relevant to the assessment year under appeal. However, after reply of assessee, a fresh statement of the third party was recorded wherein he confirmed to have provided accommodation entries for bogus purchases to the assessee by its paper concerns.
The Tribunal observed that apparently the Assessing Officer made addition based on statement of of third party, recorded after the notice u/s 148A of the Act and reasons for reopening conveyed to the assessee. In the reasons recorded for reopening there was no mention of the said paper concern. In the reasons for reopening the Assessing Officer had alleged that the third party had provided accommodation entries through two bogus concerns and the assessee was beneficiary of accommodation entries from such bogus concerns.
The Tribunal noted that in assessment order there was no specific allegation that the assessee had taken any bogus accommodation entries from the bogus concerns of the said third party named in the reasons for reopening the assessment.
The Tribunal opined that it is a well settled law that if no addition is made on the basis of reasons recorded for reopening, no other addition can be made. The reasons for reopening should coincide with the addition made in the reassessment proceedings.
The Tribunal further held that third party statement recorded subsequent to the reasons recorded, cannot form basis of Assessing Officer’s “reasons to believe” to reopen the assessment.
The Tribunal held that reopening of assessment lacked Assessing Officer’s, “reasons to believe” for reopening of assessment.
Accordingly, the reassessment proceedings were held invalid and quashed.
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