Reassessment Quashed and Protective Addition U/s 69C Deleted: ITAT Guwahati in ACIT Vs DS Systems Private Limited

Background of the Dispute

The matter before the ITAT Guwahati in ACIT Vs DS Systems Private Limited arose from a reassessment framed under Section 147 read with Section 148 of the Income Tax Act 1961, followed by a protective addition under Section 69C for Assessment Year 2016-17.

The Assessing Officer (AO) had sought to tax an amount of ₹3,25,93,500 on a protective basis in the hands of M/s DS Systems Private Limited, alleging unexplained cash payments to M/s BMG Informatics Pvt. Ltd., said to be supported by loose sheets impounded during survey proceedings.

The Commissioner of Income Tax (Appeals), Central NER, Guwahati [CIT(A)] deleted the protective addition both on:

  1. Legal grounds – invalidity of the reassessment notice issued under Section 148 after the amendment by Finance Act, 2021, and
  2. Merits – holding that the loose sheets were mere “dumb documents” with no corroborative evidentiary support, especially when the substantive addition in the hands of M/s BMG Informatics Pvt. Ltd. had already been deleted by the ITAT.

The Revenue carried the matter to the ITAT. The Tribunal ultimately dismissed the Revenue’s appeal as infructuous and upheld the relief granted by the CIT(A).

Facts of the Case

Return Filing and Original Processing

  • The assessee, M/s DS Systems Private Limited, engaged in the business of trading/supplying computer laptops, UPS, batteries, power banks, laptop bags, etc., filed its return of income on 23.02.2017, declaring total income of ₹54,90,070.
  • This return was processed under Section 143(1)(a) without scrutiny initially.

Initiation of Reassessment Proceedings

  • After obtaining sanction under Section 151, the AO initiated reassessment proceedings under Section 147.
  • A notice under Section 148 was issued through the ITBA system on 29.06.2021 and was served electronically.
  • Subsequently, notice under Section 143(2) was issued on 15.02.2022.
  • Reasons for reopening were supplied to the assessee electronically upon request, and the assessee filed objections to the reopening.
  • The AO disposed of these objections by a speaking order and conducted reassessment proceedings by issuing detailed questionnaires and seeking various details, to which the assessee responded from time to time.

Survey and Impounding of Loose Sheets

A survey under Section 133A was carried out on 02.11.2017 at the factory and office premises of the assessee at Odalbakra, Near Sabitri Bharali School, Guwahati.

During the survey, a set of loose sheets:

  • Bundle marked “DSS-05”, pages 1 to 15,
  • Was impounded and found to contain handwritten details allegedly recording:
    • Transactions between M/s D S Systems Pvt. Ltd. (supplier) and M/s BMG Informatics Pvt. Ltd. (purchaser),
    • Details of supply contracts relating to IT accessories,
    • Corresponding billing particulars and payment details.

On examination of these loose sheets, the AO identified:

  • Entries of payments by cheque from M/s BMG Informatics Pvt. Ltd. to M/s D S Systems Pvt. Ltd.
  • Alleged cash-back entries indicating return of cash from M/s D S Systems Pvt. Ltd. to M/s BMG Informatics Pvt. Ltd.

For the relevant previous year:

  • M/s BMG Informatics Pvt. Ltd. was stated to have paid ₹7,30,95,000 by cheque to M/s D S Systems Pvt. Ltd. for purchase of goods.
  • Out of this, it was alleged that ₹3,25,93,500 was returned in cash to M/s BMG Informatics Pvt. Ltd., purportedly received through its Director, Mr. Bhaskar Kalita.

The AO concluded that:

  • While the cheque transactions were duly reflected in the regular books of both entities,
  • The impugned cash-back entries were not recorded in the books of either the assessee or M/s BMG Informatics Pvt. Ltd.

On this basis, the AO: