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2011 (8) TMI 867 - AT - Income TaxAddition - Reopening - AO in the original assessment order dated 31-03-2003 noted that the case was reopened on the information received from the DDIT (Investigation) Baroda regarding demand draft purchased by the assessee from Baroda Traders Co-operative Bank Ltd. amounting to 70, 000/- during the previous year relevant to the assessment year in question - assessee in the first round proceedings took up the matter before the Tribunal and filed confirmation from the bank that no such draft was purchased by the assessee - In the set aside proceedings the assessee again reiterated the same facts before the AO and explained that no such draft is purchased from Baroda Traders Co-operative Bank Ltd. therefore belief of the AO for escapement of income was based on non-existent reasons - it would not be effected by the provisions of section 292B of the IT Act. - Decided in favor of the assessee
Issues Involved:
1. Addition of Rs. 70,000/- under section 69 of the IT Act, 1961. 2. Legality of reopening the original assessment under section 148 of the IT Act, 1961. 3. Non-production of books of accounts due to a time lag of 15 years. Issue-wise Detailed Analysis: 1. Addition of Rs. 70,000/- under section 69 of the IT Act, 1961: The assessee, a kirana merchant, was subject to reassessment proceedings initiated by a notice under section 148 of the IT Act, resulting in an addition of Rs. 70,000/- under section 69. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this addition, noting that the assessee could not produce proper details of the purchase of the demand draft (DD) for Rs. 70,000/-. The AO had verified the register of Bharat Co-op Bank Ltd., which showed the issuance of the DD in question. The CIT(A) concluded that the assessee failed to explain the sources of the cash used for purchasing the DD, thus confirming the addition under section 69. 2. Legality of reopening the original assessment under section 148 of the IT Act, 1961: The reopening of the assessment was based on information received from the DDIT (Investigation) about the purchase of a DD by the assessee. The assessee argued that the reopening was based on incorrect information, as the initial reference was to Baroda Traders Co-operative Bank Ltd., which was later corrected to Bharat Co-operative Bank Ltd. The Tribunal found that the AO did not apply an independent mind and relied on incorrect information, making the reopening invalid. The Tribunal cited several precedents, including the Hon'ble Delhi High Court's decision in Sarthak Securities Co. (P.) Ltd. v. ITO and the Hon'ble Gujarat High Court's decisions in Sagar Enterprises v. Asstt. CIT and Adani Exports v. Dy. CIT, emphasizing that the AO must independently verify information before reopening an assessment. 3. Non-production of books of accounts due to a time lag of 15 years: The assessee contended that the significant time lag of about 15 years made it impossible to produce the books of accounts for verification. The CIT(A) did not accept this argument, noting that the onus was on the assessee to explain the sources of the cash used for purchasing the DD. The Tribunal, however, focused more on the procedural lapses in the reopening process rather than the merits of the non-production of books due to the time lag. Conclusion: The Tribunal concluded that the AO's reasons for reopening the assessment were factually incorrect and based on non-existent reasons. The AO failed to apply an independent mind and verify the information received from the DDIT (Investigation) before recording the reasons for reopening. Consequently, the reopening of the assessment was deemed invalid and unjustified. The Tribunal quashed the reassessment proceedings, rendering the addition of Rs. 70,000/- under section 69 moot. The appeal of the assessee was allowed, and the reassessment proceedings were set aside.
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