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2013 (11) TMI 162 - AT - Income TaxValidity of reopening of assessment u/s 147 - Held that - The dispute raised in this ground is regarding legal validity of re-opening of the assessment under section 147 of the Act. Under the provisions of section 147 as amended w.e.f. assessment year 1989-90, an assessment can be re-opened by AO if he has reason to believe that any income chargeable to tax has escaped assessment. It is settled legal position that for re-opening of an assessment there should be a direct nexus between material available before AO and formation of reasonable belief for escapement of income. The material available should be relevant to the formation of belief for escapement of income and it is not necessary that the material should be sufficient for making the addition in the re-assessment. The assessee in this case has challenged the re-opening of the assessment on technical grounds as well as on the merit of formation of belief - The reasons as recorded by AO before re-opening of the assessment have been reproduced in para-2 earlier. We find that reasons conveyed by the AO were the same as recorded by him in the file except the last line which related to formation of belief which had not been given. The assessee had asked for reasons for re-opening of the assessment and the AO had given reasons as recorded by him without any change and, therefore, it can not be said that the AO had given the gist of reasons recorded - Thus re-opening of the assessment under section 147 of the Act was legally in order - Decided against assessee. Disallowance of expenditure - Onus of proving transaction - Held that - The claim of rendering of services by the companies therefore can not be accepted only on the basis of an affidavit. The transaction can also not be taken as genuine only on the basis of bills or on the ground that service tax and sales tax had been paid when actual rending of the services has not been established. The AO has given a clear finding that no evidence had been produced regarding actual rendering of any services. The assessee had filed only bills which only gave the broad nature of promotional activities such as van campaign. There was no evidence produced with regard to actual carrying on of such activities. The AO had specifically asked for identification of personnel involved in rendering of services which has not been given. The burden is on the assessee to prove the actual rendering of the services for which payments have been made which has not been discharged by producing any relevant material. The photographs do not establish as to who had actually conducted activities and, therefore photographs can not be considered as reliable and proper evidence. Full details of employees had not been given - Disallowance of expenses on the facts of the case is justified. The order of CIT(A) is accordingly upheld - Decided against assessee.
Issues Involved:
1. Legal validity of reopening the assessment under section 147 of the Income Tax Act, 1961. 2. Merit of addition made by the Assessing Officer (AO) on disallowance of expenditure. 3. Levy of interest under sections 234B and 234C. Issue-wise Detailed Analysis: 1. Legal Validity of Reopening the Assessment under Section 147: The assessee challenged the reopening of the assessment for the assessment year 2007-08, arguing that the AO did not convey the actual reasons recorded for reopening and that the reopening was based on insufficient material and without application of mind. The Tribunal examined whether the reasons conveyed by the AO were the same as recorded, except for the last line regarding the formation of belief, which was not given. The Tribunal found that the reasons conveyed were the same as recorded, thus rejecting the assessee's argument that only the gist of reasons was provided. The Tribunal also addressed the technical objection that the AO passed the reassessment order soon after rejecting the objections against reopening. It was noted that the Hon'ble High Court of Bombay in the case of Asian Paints Ltd. (296 ITR 90) directed the AO to wait for four weeks after rejecting objections, but it did not mandate quashing the reassessment order if the AO did not wait for four weeks. The Tribunal found that the assessee did not raise this specific ground before CIT(A) and rejected this argument. The Tribunal further examined the merit of reopening, considering whether there was sufficient material for forming a belief of income escapement. The AO reopened the assessment based on information from the DDIT(Inv.) that the assessee took hawala entries from M/s. Inorbit and M/s. Nupur. The Tribunal found that the material from the DDIT(Inv.) was relevant and sufficient for forming a reasonable belief of income escapement. The Tribunal also addressed the argument that there was no failure on the part of the assessee to disclose all material facts. Since the return was processed under section 143(1) and not under section 143(3), and the reopening was within four years, the argument was deemed irrelevant. In conclusion, the Tribunal upheld the reopening of the assessment under section 147, finding it legally valid based on tangible material and reasonable belief of income escapement. 2. Merit of Addition Made by AO on Disallowance of Expenditure:The AO disallowed the expenditure claimed by the assessee on payments made to M/s. Inorbit and M/s. Nupur, based on the material gathered during the search in the case of Shri Sandeep Sitani. The AO found that these companies were engaged in providing accommodation entries and not rendering actual services. The assessee failed to produce agreements, evidence of services, or confirmations from the parties. The CIT(A) upheld the AO's decision, noting that the companies did not have the infrastructure to render services, and the assessee could not establish the genuineness of the expenditure. Before the Tribunal, the assessee argued that payments were made for services rendered, supported by invoices, service tax, and TDS deductions. The assessee also submitted affidavits and confirmations. The Tribunal found that the assessee could not produce any agreement or proper confirmations verifying the services rendered. The Tribunal noted that the companies did not have the necessary infrastructure, and the assessee failed to provide evidence of actual services rendered. The Tribunal rejected the argument that the disallowance was based only on third-party statements, finding that the AO's decision was supported by material evidence. The Tribunal upheld the disallowance of expenditure, limiting it to the actual claim of expenditure. 3. Levy of Interest under Sections 234B and 234C:The assessee argued that the levy of interest under sections 234B and 234C was consequential. The Tribunal directed the AO to re-compute the interest at the time of giving effect to the order. Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the legal validity of reopening the assessment, the disallowance of expenditure, and directing the re-computation of interest under sections 234B and 234C.
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