2021 (9) TMI 1466 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe on the basis of AIR information - Cash Deposits of the appellant bank accounts - addition was made on the basis of G.P. ratio - HELD THAT - Addition has been made on the basis of net profit ratio to the turnover. The Hon'ble Bombay High Court in the case of Black Veatch Prichard Inc. 2016 (4) TMI 1365 - BOMBAY HIGH COURT following the judgment of Jet Airways 2010 (4) TMI 431 - HIGH COURT OF BOMBAY has decided the issue against the Revenue wherein held as agreeable with the submissions which has been urged on behalf of the assessee that s. 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the AO may assess or reassess such income and also any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words and also are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Expln. 3 to s. 147. Parliament must be regarded as being aware of the interpretation that was placed on the words and also by the Rajasthan High Court in Shri Ram Singh 2008 (5) TMI 200 - RAJASTHAN HIGH COURT Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of s. 147(1) as they stood after the amendment of 1st April, 1989 continue to hold the field. However, Hon'ble Supreme Court has admitted the SLP filed by the Revenue. However, mere admission of SLP by the Hon'ble Supreme Court will not amount to overruling of its earlier judgment in the case of Jet Airways(Supra).Ground No.1 of the appeal of assesseeis allowed

Summary

Issues Involved:
1. Legality of reopening the assessment under Section 147 based on cash deposits.
2. Validity of making additions based on the Gross Profit (G.P.) ratio instead of the cash deposits.
3. Consideration of additional grounds of appeal by CIT(A).

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147 Based on Cash Deposits:
The primary issue revolved around whether the reopening of the assessment under Section 147 of the Income Tax Act, 1961, based on AIR information regarding cash deposits amounting to Rs. 11,00,000/- was justified. The assessee contended that the reopening was invalid as the addition was ultimately made on the basis of the Net Profit (N.P.) ratio rather than the cash deposits. The Tribunal referred to the judgment in CIT vs. Jet Airways (I) Ltd., 331 ITR 236, which clarified that if the reason for reopening the assessment is not substantiated, no other income can be assessed independently. The Tribunal found that the case was indeed reopened based on the cash deposits, but no addition was made on this basis, rendering the reopening invalid. Consequently, the Tribunal allowed Ground No. 1 in favor of the assessee.

2. Validity of Making Additions Based on the Gross Profit (G.P.) Ratio Instead of the Cash Deposits:
The Tribunal noted that the Assessing Officer (AO) had reopened the case based on cash deposits but made additions based on the N.P. ratio, which was not in accordance with the law. The Tribunal relied on the precedent set by the Bombay High Court in the case of Black & Veatch Prichard Inc., which followed the Jet Airways judgment, stating that if the income that prompted the reopening is not assessed, the AO cannot independently assess other income. The Tribunal emphasized that the AO must assess the income that led to the reopening and also any other income that comes to notice during the proceedings. Since the AO did not assess the cash deposits, the addition based on the N.P. ratio was invalid.

3. Consideration of Additional Grounds of Appeal by CIT(A):
The assessee argued that the CIT(A) did not consider additional grounds of appeal despite multiple hearings and remand reports. However, since the Tribunal allowed relief on Ground No. 1, it declared the remaining grounds as infructuous, meaning they were no longer relevant for decision.

Conclusion:
The Tribunal concluded that the reopening of the assessment based on cash deposits was invalid as the addition was made on a different basis (N.P. ratio). Therefore, the appeal was partly allowed, and the assessment order was quashed. The Tribunal did not address the additional grounds of appeal due to the resolution of the primary issue in favor of the assessee.

Final Order:
The appeal of the assessee was partly allowed, and the order was pronounced in the open court on 20/09/2021.