2006 (8) TMI 445 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment under section 147.
2. Confirmation of addition of Rs. 47 lakhs.

Detailed Analysis:

Issue 1: Reopening of Assessment under Section 147

The assessee challenged the reopening of the assessment by arguing that there was no material available with the Assessing Officer (AO) to form a belief that income had escaped assessment. The AO issued a notice under section 148 based on the claim that the brokerage expenses of Rs. 47 lakhs were excessive and unsupported by evidence. The assessee contended that no information suggested the expenses were bogus or that the money was received back from the payee. The Tribunal emphasized that for reopening an assessment, there must be some material or information that provides a reason to believe that income has escaped assessment. The Tribunal cited decisions from various High Courts and Tribunals, including *Manish Ajmera v. Asstt. CIT [2005] 95 ITD 111 (Chd.)* and *Bhubaneswar Stock Exchange v. Asstt. CIT [2005] 96 ITD 480 (Ctk.)*, which held that without definite material, reopening for making fishing inquiries is impermissible. The Tribunal concluded that the AO had no material to form an opinion that income had escaped assessment, rendering the reopening of the assessment under section 147/148 bad in law.

Issue 2: Confirmation of Addition of Rs. 47 Lakhs

On the merits, the assessee provided comprehensive details, including the Memorandum of Understanding (MoU) with the payee, M/s. Lahiri Laminates Pvt. Ltd. (LLPL), and evidence of payment through account payee cheques. The Director of LLPL, Shri Pradeep Agarwal, confirmed the receipt of Rs. 47 lakhs through an affidavit and a letter to the AO. The assessee argued that the onus of proving the genuineness of the brokerage expenses was discharged by providing all necessary documentation and confirmation from the payee. The Tribunal found that the assessee had indeed discharged its onus and there was no evidence suggesting that the amount was received back by the assessee. The Tribunal held that the deduction claimed by the assessee was allowable as it had a direct nexus with the commission received. Consequently, the addition of Rs. 47 lakhs was deleted.

Conclusion:

The Tribunal quashed the reopening of the assessment under section 147 as it was found to be legally unsustainable. On the merits, the Tribunal allowed the deduction of Rs. 47 lakhs claimed by the assessee, deleting the addition made by the AO. The appeal of the assessee was allowed in full.