2009 (9) TMI 613 - AT - Income Tax

Change of Opinion - reassessment Whether CIT(A) erred in deleting the addition on account of investment ill purchase of stock and credit entry arrived at during the course of survey proceedings and post - survey proceedings ignoring the fact that the assessee failed to get it verified by holding that the addition was made solely and exclusively on the basis of loose papers - Books of account and other documents including loose papers pertaining to the year under consideration were found and impounded - impounded books contain cash book, ledger, journal, Gadda nook, debit and credit vouchers, loose papers, gate register, press register, stock register, purchase and sale bills which were test checked - It was, held in CIT vs. Eicher Ltd. (2007 -TMI - 2063 - HIGH COURT , DELHI) that if the AO while passing original assessment order, chose not to give any finding in this regard that could not give him or his successor in office a reason to reopen the assessment of the assessee or to contend that because the facts were not considered in the assessment order a full and true disclosure was not made - reassessment was not permissible Revenue s appeal dismissed

Summary

Issues:
1. Validity of reassessment proceedings under section 147 of the IT Act.
2. Deletion of additions made based on loose papers found during survey proceedings.

Issue 1: Validity of reassessment proceedings under section 147 of the IT Act:
The case involved cross-appeals against the order of the learned CIT(A), Bikaner, regarding the validity of reassessment proceedings initiated under section 147 of the IT Act. The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 33,66,533 and Rs. 6,050 made on account of investment in purchase of stock and credit entry, based on loose papers found during survey proceedings. The AO initiated reassessment proceedings after recording reasons that income chargeable to tax had escaped assessment. The reassessment was completed by making additions as income from undisclosed sources. The CIT(A) upheld the validity of the reassessment proceedings but deleted the aforementioned additions.

Issue 1 Analysis:
The AO had conducted a survey under section 133A of the IT Act at the business premises of the assessee, and impounded various documents, including loose papers. The AO initiated reassessment proceedings based on the discovery of discrepancies in the stock position and credit entries found in the loose papers. The Revenue argued that the AO acted within the scope of powers under section 147, as income had escaped assessment due to the failure of the assessee to disclose all material facts. The AO issued a notice under section 148 after recording reasons and obtaining necessary approval. However, the assessee contended that the original assessment had duly considered the materials found during the survey, and there was no justification for reassessment. The Tribunal noted that the original assessment had already considered the impounded documents, and reassessment based on the same material without any new information was not permissible.

Issue 2: Deletion of additions made based on loose papers found during survey proceedings:
The CIT(A) deleted the additions made on the basis of loose papers found during the survey, amounting to Rs. 33,66,533 and Rs. 6,050. The Revenue contended that the additions were justified as the income chargeable to tax had escaped assessment due to discrepancies in the documents discovered during the survey. However, the CIT(A) held that while the reassessment proceedings were valid, the additions based on loose papers were not sustainable.

Issue 2 Analysis:
The CIT(A) upheld the validity of the reassessment proceedings but found that the additions made solely on the basis of loose papers were not justified. The Tribunal agreed with the CIT(A) and quashed the notice issued under section 148 of the IT Act, thereby allowing the appeal raised by the assessee and dismissing the appeal raised by the Revenue. The Tribunal emphasized that reassessment based on the same material already considered in the original assessment, without any new information, was not permissible under the law.

In conclusion, the Tribunal held that while the reassessment proceedings were valid, the additions made solely on the basis of loose papers found during the survey were not sustainable. The Tribunal quashed the notice issued under section 148 of the IT Act, allowing the appeal raised by the assessee and dismissing the appeal raised by the Revenue.