AO did not apply his mind to arrive at an independent satisfaction that there was escapement of income. Para 20

We are of the considered view that the Assessing Officer was duty bound to record his independent satisfaction to arrive at prima facie satisfaction that there is escapement of income during the assessment year under consideration. The reasons to reopen reproduced at page 5 above clearly show that the Assessing Officer has merely relied upon the report of the investigating wing whereas, it is necessary for the Assessing Officer to apply his mind on the information received from the investigating wing. But, the AO did not apply his mind to arrive at an independent satisfaction that there was escapement of income.

Non-applicability of mind by the Assessing Officer before issuing the reasons to reopen. Para 20
Firstly, that the statement of Shri Madan Lal Pahuja is silent about giving any benefit to the Assessee and Secondly, the Assessing Officer, before initiation the proceedings of reopening, was required to examine the record like VAT Assessment completed in the case of Shri Madan Lal Pahuja on 01.03.2012, whereby the VAT Department accepted the sales made by Shri Madan Lal Pahuja to the Assessee therein. Further, in the assessment under VAT for the Assessee, the VAT Department has accepted the purchases made by the Assessee from Shri Madan Lal Pahuja. Once the sale by Shri Madan Lal Pahuja made to the Assessee and purchases made by the Assessee from Shri Madan Lal Pahuja were accepted, even after registration of FIR on 13.09.2009 against Shri Madan Lal Pahuja, then the non-examination of the Assessment Orders passed by VAT clearly shows the non-applicability of mind by the Assessing Officer before issuing the reasons to reopen.

Purchases from same parties accepted in subsequent Assessment Year by department by framing assessment U/s 143(3) Para 20

Further, the Assessee has also placed on record the Assessment Order passed in the case of the Assessee for the assessment year 2010-11 which was passed on 18.06.2012 and thereafter the assessment year for 2011-12 which was passed on 04.06.2013. The consistent stand of the Assessee in the reply submitted by him in response to the reasons to reopen to AO, was that the Assessee has been receiving the goods from the parties described above and purchases accepted by the Assessing Officer in the subsequent assessment year i.e. 2011-12.In view of the judgment of the Hon’ble High Court of Punjab & Haryana in the matter of Leader Valves (P.) Ltd [2006] 285 ITR 435 (PUNJ. & HAR.), the additions based on the alleged bogus purchase bill for the assessment year 2010-11 are not sustainable.

Para 21 Reason to suspicion, how so ever strong cannot be part take the character of reason to believe

The aforesaid information was available in the record of the Assessing Officer before issuing the reasons to reopen. However, the Assessing Officer has not applied his mind and had merely relied upon the information received by him from the investigating wing. We may safely rely upon the decision in [2018] 93 taxmann.com 153 HIGH COURT OF BOMBAY PCIT-5 v. Shodiman Investments (P.) Ltd] for this preposition.

Further, if we look into the reasons to reopen the assessment, then it is clear that the Assessing Officer had merely relied upon the report of investigating wing and the statement of Shri Madan Lal Pahuja. The abovesaid information was required to be corroborated and verified by the Assessing Officer as, the information at best can be the reasons to give rise to mere suspicion.

However, the reason to suspicion, how so ever strong cannot be part take the character of reason to believe. For the reason to believe it is essential that there should be convincing evidence in possession of the Assessing Officer, which give rise to the prima facie conclusion that there is escapement of income. Admittedly, in the present case, the Assessing Officer completed the regular assessment under scrutiny on 18.06.2012 after examining the books of accounts of the Assessee etc.

Assessing Officer cannot be permitted to change his opinion Para 22

In our opinion, once the information was available in the assessment record of the Assessee company for the assessment year 2010-11, which was subject matter of scrutiny assessment and on the basis of this information, the assessment was completed and the additions were made. In our opinion, the same information was admitted to be correct by the Assessing Officer in the reasons to reopen as it is matching with the information received from the Investigation wing.

In our considered opinion, once the Assessing Officer formed an opinion on the information available on record and framed the assessment, then the Assessing Officer cannot be permitted to change his opinion based on same information. This is not allowed in view of the decision of the Hon’ble Supreme Court in the matter [2010] 187 Taxman 312 SUPREME COURT OF INDIA Commissioner of Income-tax, Delhi v. Kelvinator of India Ltd.]. Therefore, the reopening made by the Assessing Officer cannot be sustained.

On Merits Para 25 and 27

Even the GP on the amount of sale cannot be added in the hands of the Assessee as the sales made by Shri Madan Lal Pahuja and others were accepted by the department in the Assessment Order passed under Section 143(3) of the Act. Once the sales have been accepted in the hands of the seller, the same cannot be doubted in the hands of the purchaser. In the light of the factual matrix of the case and judicial precedents, we are of the considered opinion that no addition can be sustained against the Assessee, on merits.