By TIOL News Service

AHMEDABAD, SEPT 21, 2017: THE issue before the Bench is - Whether if assessee reports some bogus purchases in its return but the same goes unexamined, and later on re-assessment is initiated based on certain tangible materials received from Investigation wing, such action is to be construed as change of opinion. NO is the verdict.

Facts of the case

The assessee company is engaged in trading activities of agro processing, maize processing, cotton spinning power plant and windmill. For the AY 2008-09, the assessee declared income of Rs.54.44 crores. After scrutiny, the AO passed an order under section 143(3) by making several additions. During the assessment, purchases made by the assessee from certain traders including one M/s. Vishal Traders came to be scrutinized. The Assessing Officer having held that such purchases were bogus made the additions. Upon further appeals by the assessee before the Appellate Commissioner and the Tribunal, the disallowances were limited to 5% of the purchases.

The AO issued notice for re-opening of assessment and made several additions and determined the total income at Rs.88.69 crores. Besides, the AO deemed certain purchases made by the assessee from certin traders, to be bogus.

On hearing the petition, the High Court held that,

++ a close examination of the reasons recorded for re-opening the assessment, there was sufficient material available with the AO to reopen the assessment, based on a belief that taxable income had escaped assessment. Serious infirmities were pointed out in the transactions of the assessee with a certain trader. Substantial amounts were received from various sources in the bank accounts which were withdrawn in cash shortly after receipt. Summons issued by the department were not responded. Even the entity was not found existing at the given address. The proprietor of the concern could not be served since he was not found at the address supplied and the rest of the members present refused to accept the summons. Genuine and repeated efforts were made by the department to serve the summons to the said entity to produce documents and information. No response was received from the trader. Independently of the non-service or non-response to the summons by the trader, there were other transactions which were prima facie dubious. The assessee had paid a sum of Rs.4.48 crores to the trader by way of purchases;

++ these transactions were not examined by the AO in the original assessment proceedings, though sufficient evidence was found, suggesting that not all purchases made by the assessee were genuine. In fact though the appellate authority and the Tribunal reduced the addition made by the AO on this count, in theory, the non-genuineness of some of the purchases was approved by the Tribunal also. So far as the assessee's purchases from the trader are concerned, they were not subject matter of the assessment proceedings and in that view of the matter the question of change of opinion would not arise. In any event, when fresh material was unearthed by the department through the investigation wing who had inquired into the transactions of trader, neither the question of change of opinion nor the concept of full disclosure may have a bearing. If the purchases of the assessee from the trader were bogus, sales and the entries were in the nature of accommodation entries, merely because the assessee disclosed such entries in the return filed and also showed such purchases in the books of accounts would hardly be sufficient to advance the arguments of full and true disclosure;

++ the question of sufficiency of material available with the AO to form a belief that income chargeable to tax had escaped assessment must be seen in light of limited jurisdiction, review and the self restraint imposed by the courts at the threshold stage. In a writ petition, the court would be primarily concerned with the question whether the AO had information enabling the forming of a bona fide belief that income chargeable to tax had escaped assessment. The court would not evaluate the evidence at that stage, nor is the AO expected to demonstrate with certainty that the addition will certainly be sustained in the reassessment proceedings. What is required at this stage to enable the AO to issue the notice for reopening the assessment is the tangible material on record upon consideration of which he can form a reasonable belief that income chargeable to tax had escaped assessment. Such belief has to be one which is formed bona fide upon perusal of the materials at his command and unless it can be stated that the formation of the belief is perverse in the sense no reasonable person could on the available material on record form such a belief, the court would not interfere with the notice for reopening.

(See 2017-TIOL-1981-HC-AHM-IT)