2015 (7) TMI 1076 - AT - Income Tax

Disallowance at rate of 20% of the distribution expenses - Held that - The adhoc disallowance having been based on no seized material, The Tribunal in assessee s own case having deleted the disallowance under similar facts and circumstances of the case, following the decision in the case of CIT V/s Ashim Krishna Mondal (2004 (7) TMI 80 - CALCUTTA High Court ), no contrary decision having been placed before us grievance of the department is rejected. - Decided in favour of assessee Reopening of assessment - Held that - Where there is no tangible material before the AO to come to the conclusion that the income has escaped assessment, even in a case where the return of income filed by the assessee has only been processed under section 143(1) of the Act, the completed assessment cannot be reopened. In the present casevidently, the reasons recorded for reopening the completed assessment of the assessee did not point out any material, tangible, or otherwise, as having come to the possession of the AO, so as to enable him to form the opinion that income had escaped assessment. Thus, it is only a case of recording the reasons for re-assessment sans any material for the formation of such a belief. Therefore, such reopening of the completed assessment is void abintio and unsustainable in law. The very initiation of the reopening process, therefore, cannot stand. It is cancelled. As a consequence, thereof, nothing more survives for adjudication - Decided in favour of assessee

Summary

Issues:
1. Disallowance of distribution expenses.
2. Disallowance of depreciation claim.
3. Validity of notice issued under section 148.

Issue 1: Disallowance of Distribution Expenses:
The case involved the department's appeal for the assessment year 2001-02, challenging the deletion of the addition of Rs. 16,11,931 as 20% distribution expenses. The AO had made an adhoc disallowance of 20% of distribution expenses due to lack of verifiable support. However, the CIT(A) deleted the disallowance. The department argued that the entire amount of distribution expenses was not allowable under section 37(1) of the Income Tax Act, as they were not fully verifiable. On the contrary, the assessee's counsel cited a Tribunal order from the succeeding assessment year in favor of the assessee. The Tribunal had previously deleted a similar disallowance in the assessee's case for AY 2002-03, stating that adhoc disallowance without seized material was unjustified. Citing the decision in 'CIT V/s Ashim Krishna Mondal', the Tribunal upheld the deletion, rejecting the department's grievance.

Issue 2: Disallowance of Depreciation Claim:
The assessee's appeal for the assessment year 2001-02 raised grounds related to the disallowance of a depreciation claim of Rs. 73,37,491. The counsel contended that the land used for treating toxic effluent had eroded and become useless during business operations, justifying the depreciation claim under section 37(1) of the Act. The jurisdictional issue regarding the notice issued under section 148 was addressed first. The counsel argued that the reassessment was illegal as there was no tangible material to indicate income escapement. Citing relevant case laws, it was argued that reopening a completed assessment without concrete evidence was unsustainable. The reasons recorded for reopening did not provide substantial grounds for income escapement, rendering the reassessment void ab initio. Consequently, the reassessment process was canceled, and the appeal filed by the assessee was allowed.

Issue 3: Validity of Notice under Section 148:
The notice issued under section 148 for reassessment was challenged on the grounds of lacking substantial evidence for income escapement. The AO's reasoning for reopening the assessment was deemed insufficient, as it did not present any tangible material to support the belief of income escapement. Citing precedents, it was argued that reopening an assessment without concrete evidence was legally unsustainable. The Tribunal concluded that the reassessment process was void ab initio and canceled it, resulting in the dismissal of the revenue's appeal and the allowance of the assessee's appeal.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, and the Tribunal's decisions on each matter, providing a comprehensive overview of the case.