2014 (2) TMI 86 - AT - Income Tax

Validity of Re-Assessment order Addition made on labour charges - Held that - From the contents of letter filed by the assessee disputing the initiation of re-assessment proceedings that the assessee at the time of making original assessment filed requisite details of labour charges claimed by the assessee in the profit and loss account - Assessee also filed confirmation letters to whom labour charges were paid during the financial year relevant to the assessment year under consideration - Thus assessee made full disclosure of the labour charges paid at the time of original assessment made by AO - assessee also deducted TDS on the job-work charges carried out by Shri Dhirubhai Sambhubhai Diyora and assessee filed TDS return with the department thereby disclosing relevant information - The decision in Gujarat Power Corpn. Ltd. V/s ACIT 2012 (9) TMI 69 - Gujarat High Court followed - where the Assessing Officer during scrutiny assessment notices a claim of exemption deduction or such like made by the assessee having some prima facie doubt raises queries asking the assessee to satisfy him with respect to such a claim and thereafter does not make any addition in the final order of assessment he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition. Initiation of re- assessment proceedings cannot be said to be valid - the assessment made by AO cannot be said to be valid Since the assessment order is not valid the grounds of appeal taken by the department disputing deletion of the addition made by the AO do not require adjudication as the addition do not survive - Decided in favour of Assessee.

Summary

Issues:
Appeal against deletion of addition towards labor charges paid, dispute over re-assessment proceedings validity.

Analysis:
1. The Department appealed against the deletion of an addition of Rs.31,73,329 towards labor charges paid to an individual. The CIT(A) had deleted this addition, prompting the appeal. The Department argued that the individual in question lacked the necessary experience and infrastructure for the job work claimed.

2. The Assessee also filed Cross-objections challenging the validity of the re-assessment proceedings initiated by the Assessing Officer. The dispute arose from the initiation of re-assessment proceedings based on an intimation received regarding another entity, leading to the re-opening of the assessment for the relevant year.

3. The core issue revolved around the initiation of re-assessment proceedings by the Assessing Officer. The Assessee contended that all necessary details regarding labor charges had been disclosed during the original assessment. The Assessee maintained books of accounts, filed audit reports, and provided relevant information, including TDS details. The Department failed to establish any tangible material indicating income escapement, as required for re-assessment.

4. The Tribunal analyzed legal precedents, emphasizing the importance of recorded reasons for initiating re-assessment. Citing cases such as CIT v. Kelvinator of India Ltd. and Gujarat Power Corpn. Ltd. v. ACIT, it was established that the Assessing Officer must have valid reasons, and mere doubts or lack of rejection during original assessment do not warrant re-opening assessments.

5. The Tribunal concluded that the initiation of re-assessment proceedings lacked a valid basis as the recorded reasons did not establish income escapement. The Tribunal referred to various judicial decisions to support its stance, highlighting the necessity of specific, evident material for re-assessment. Consequently, the assessment order was deemed invalid, leading to the allowance of the Assessee's Cross-objections.

6. As a result of the invalid assessment order, the grounds of appeal by the Department disputing the deletion of the labor charges addition were dismissed. The Tribunal pronounced the order in favor of the Assessee, allowing the Cross-objections and dismissing the Department's appeal.