2015 (2) TMI 719 - HC - Income Tax

Re-opening of assessment u/s 147/148 - issue of commission paid having not been covered by the reasons recorded within the meaning of Section 148(2) as such the reopening is not valid under the law - Held that - In the instant case, it is not the case of the assessing authority that during the course of proceedings under Section 147 it came across any material relating to the payment of commission suggesting escapement of income under any of the heads. On the other hand, the Ist Appellate Authority has given a categorical finding that the assessee had claimed as expenditure the commission of ₹ 58,59,913/- in his Trading and Profit and Loss Account and the same was available on the record. Consequently, in the absence of any information having been received by the assessing officer regarding escapement of commission income during the course of proceedings under Section 147 of the Act, he could not have formed an opinion on this issue that it has escaped assessment. Further, the reasons to believe does not record the factum of escapement of commission. See CIT vs. M/s Sun Engineering Works (P.) Ltd. 1992 (9) TMI 1 - SUPREME Court and Vipin Khanna vs. Commissioner of Income-Tax 2000 (7) TMI 2 - PUNJAB AND HARYANA High Court . Ist Appellate Authority was justified in deleting the addition of commission, on the ground, that it was not covered by the reasons recorded under Section 148(2) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment under Section 147/148 of the Income Tax Act based on commission paid.
2. Justification of the assessing officer in making additions during reassessment.

Analysis:
1. The appeal filed by the Department was based on the validity of the reassessment under Section 147/148 of the Income Tax Act for the assessment year 1999-2000. The assessing officer had reopened the assessment due to the assessee showing less value of raw material in the closing stock. The Department contested the Tribunal's decision upholding the order of the CIT (A) regarding the commission paid, arguing that the reassessment was valid for the entire income. However, the Supreme Court's decision in V. Jaganmohan Rao clarified that reassessment under Section 34 of the Income Tax Act, 1922, differs from Sections 147 and 148 of the Income Tax Act, 1961. The Court emphasized that reassessment proceedings under the latter Act are limited to items of under-assessment, not the entire income.

2. The assessing officer had made additions during reassessment, including on the commission paid by the petitioner to a specific entity. The CIT (A) partly allowed the appeal, stating that while the reassessment was valid for certain aspects, the addition concerning the commission was not justified. The appellate authority found that the commission expenditure was already claimed in the Trading and Profit and Loss Account, and the assessing officer lacked recorded reasons for reopening this issue. The Supreme Court's decision in Commissioner of Income Tax vs. M/s Sun Engineering Works (P.) Ltd. emphasized that in reassessment proceedings, the assessing officer can only assess or reassess escaped income that was the subject of the initiation under Section 147. Since no new information regarding the commission payment surfaced during the proceedings, the assessing officer's addition was deemed unjustified.

In conclusion, the High Court upheld the decision of the CIT (A) and the Tribunal, ruling in favor of the assessee and dismissing the Department's appeal. The Court found that the addition concerning the commission paid was not covered by the reasons recorded under Section 148(2) of the Act, thus justifying the deletion of this addition. The judgment highlighted the importance of adhering to legal procedures and recording valid reasons for reassessment actions under the Income Tax Act.