By TIOL News Service

AHMEDABAD, MAY 23, 2018: THE ISSUE IS - Whether, on receipt of information from the VAT Department about bogus purchases if the AO observes that 'deep verification' is required, reassessment proceeding can still be initiated at this stage. NO IS THE VERDICT.

Facts of the case:

The assessee, an individual is a proprietor of one trading firm. The assessee had filed return for relevant AY, which was accepted without scrutiny. Later on information was received from the VAT Department, Mumbai relating to bogus purchases. On verification of information it was found that the assessee had also made purchases from Hawala Dealer. The AO believed that the income chargeable to tax had escaped assessment. The AO decided to reopen the assessment and issued notice u/s 148 of Act. The assessee objected to reopening of assessment. Matter on dispute, reached before Tribunal, which held that the notice was invalid. Aggrieved Revenue filed appeal before the High Court.

High Court held that,

++ it is well settled that even in case where the original assessment is made without scrutiny, the requirement of the AO forming the belief that income chargeable to tax has escaped assessment, would apply. It is equally well settled that the notice of reopening can be supported on the basis of reasons recorded by the AO. He cannot supplement such reasons. The third principle of law which is equally well settled and which would apply in the present case is that reopening of the assessment would not be permitted for a fishing or a roving inquiry. This can as well be seen as part of the first requirement of the AO having reason to believe that income chargeable to tax has escaped assessment. In other words, notice of reopening which is issued barely for making fishing inquiry, would not satisfy this requirement;

++ information from the VAT Department of Mumbai was placed for consideration of AO. This information contained list of allegedly bogus purchases made by various beneficiaries from Hawala dealers. Assessee was one of them. As per this information, he had made purchases worth Rs.3.21 crores (rounded off) from such Hawala dealers during the financial year 2010-11. According to the AO, this information 'needed deep verification'. If on the basis of information made available to him and upon applying his mind to such information, the AO had formed a belief that income chargeable to tax has escaped assessment, the Court would have readily allow him to reassess the income. In the present case however, he recorded that the information required deep verification. In plain terms therefore, the notice was being issued for such verification. His later recitation of the mandatory words that he believed that income chargeable to tax has escaped assessment, would not cure this fundamental defect. Tax Appeals are dismissed.

(See 2018-TIOL-948-HC-AHM-IT)