The Delhi High Court has held that reopening of assessment under section 147 of the Income Tax Act, 1961 is not valid in the absence of an allegation of failure to disclose a material fact.
The appellant/revenue seeks to assail the order dated 31.10.2018 passed by the Income Tax Appellate Tribunal [Tribunal]. The Tribunal, via the impugned order, has reversed the decision dated 10.11.2014 delivered by the Commissioner of Income Tax (Appeals) [CIT(A)].
The question was whether the assessment could be reopened under Section 147 of the Income Tax Act, 1961, in the absence of an allegation that DSC Ltd, the respondent/assessee had failed to disclose, fully and truly, all material facts necessary for carrying out the assessment, given the fact that the reassessment was triggered after the expiry of four (4) years from the end of relevant AY, i.e., AY 2006-07.
The respondent/assessee had electronically filed its Return of Income (ROI) on 02.02.2007. In the ROI, the respondent/assessee declared an income amounting to Rs.54,14,79,842/-. The respondent/assessee was subjected to scrutiny, and an assessment order under Section 143(3) of the Act was passed on 15.10.2008, pegging the income at Rs.54,16,13,061/-.
The record shows that on 28.08.2012, a search was carried out concerning the DSC Group of Companies by the Assistant Director of Income Tax (ADIT), i.e., the Investigation Wing. The search revealed that bogus purchases had been made by the respondent/assessee, via unexplained sources.
The Assessing Officer (AO) issued a notice under Section 148 of the Act, calling upon the respondent/assessee to file a return within a defined period.
It appeared that thereafter, a notice was issued to the respondent/assessee under Section 143(2) of the Act, whereby, the respondent/assessee, inter alia, was called upon, to have its authorized representative attend the reassessment proceeding scheduled to take place on 06.01.2014.
The AO, in the reasons recorded by him, adverted to the fact that in the post-search proceedings, the respondent/assessee had failed to produce supporting documents, i.e., bills and vouchers as well as “khaki” amounting to Rs.3,94,03,687/-.
The AO was also not satisfied with the claim for purchases made from an entity going by the name, Aggarwal Iron & Steel Co. to the tune of Rs.8,79,55,368/-. These were also categorized by the AO as bogus purchases.
The AO was of the view that cash payments made through one H.S. Buildtech, a sub-contractor, to the tune of Rs.36,54,533/-, remained unexplained. According to the AO, the unexplained cash payments contravened the provisions of Section 40A(iii) of the Act.
The CIT(A) confirmed this addition, which was reversed by the Tribunal. The Tribunal attributed the purported failure on the part of the respondent/assessee to produce evidence/material concerning the remaining purchases worth Rs.3,01,69,142/-, to the records of JMD being seized by the DGCEI. Significantly, the argument of prejudice raised by Mr Kumar, i.e., that two (2) employees of the respondent/assessee were partners of JMD, did not come in the way of AO accepting part of the purchase worth Rs.92,34,545/- as being genuine.
“Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four years indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material the facts, fully and truly.”, Justice Rajiv Shakdher and Justice Tara Vitasta Ganju held. The Court dismissed the appeal of the revenue and upheld the order of the Tribunal
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