2016 (4) TMI 381 - AT - Income Tax

Reopening of assessment - CBDT on the basis of Volckar committee report sent a memorandum to the AO intimating the list of companies involved in the paying kickbacks to Iraqi Government during supplies made under Oil for Food Programme and the AO recorded reasons u/s 148(2) Held that - We note that the AO had mechanically recorded the reasons on the basis of CBDT information without even verifying the fact whether the assessee charged such expenses in the profit and loss account as stated in the memorandum . The ld AR argued that no ASFF was incurred and charged to the profit and loss account and also no inland transportation of 84100US were incurred and charged to the profit and loss account but ₹ 14,29,604/- were incurred and charged to the profit and loss account as transportation charges overseas paid to ALIA Jordan in Jordan for which proper bills, vouchers and bank advice are available. We are of the considered view that in the light of the facts as stated above the re-opening of assessment cannot be justified by the AO by just mechanically recording the reasons without any application of mind. We therefore annul and quash the re-assessment proceedings and also the consequent order of assessment passed u/s 143(3) /147 of the Act by allowing the appeal of the assessee on technical ground in favour of assessee

Summary

Issues:
1. Validity of reassessment proceedings under section 147 of the Income-tax Act, 1961.
2. Legality of additions/disallowances made by the Assessing Officer.

Issue 1: Validity of reassessment proceedings under section 147:
The appeal challenged the initiation and completion of reassessment by the Assistant Commissioner of Income Tax, Circle - 6 (2), Mumbai, under section 147 of the Income-tax Act, 1961. The appellant contended that the re-opening of the assessment was based on incorrect facts, as the reasons recorded for issuing the notice were erroneous. The appellant argued that no after-sales service fee (ASSF) was paid to the Iraqi government as claimed, and the inland transportation fee was also incorrectly attributed. The appellant asserted that the reassessment proceedings lacked proper application of mind by the Assessing Officer and were initiated without valid grounds. The appellant further highlighted that objections raised by them were not addressed, and the reasons for reassessment were not adequately supported. Ultimately, it was argued that the reassessment was not covered by the proviso to section 147 and should be deemed invalid.

Issue 2: Legality of additions/disallowances made by the Assessing Officer:
The Assessing Officer had made additions to the appellant's income on account of alleged payments for inland transportation fees and after-sales and services fees. The Commissioner of Income Tax (Appeals) upheld these additions, stating that the payments were made to Iraqi authorities for securing contracts in Iraq. However, the appellant contested these additions, asserting that no after-sales service fee was charged to the profit and loss account, and the transportation charges were legitimate business expenses paid in Jordan, not to the government of Iraq. The appellant argued that the additions were based on conjectures and surmises, ignoring relevant considerations. The Tribunal found that the reasons for reassessment were mechanically recorded without proper verification of facts, leading to an unjustified reassessment process. Consequently, the Tribunal annulled and quashed the reassessment proceedings and the resultant assessment order, ruling in favor of the appellant on technical and substantive grounds.

In conclusion, the Appellate Tribunal at Mumbai, comprising Shri C.N. Prasad, JM, and Shri Rajesh Kumar, AM, allowed the appellant's appeal, declaring the reassessment proceedings and subsequent additions as invalid. The judgment emphasized the necessity for proper application of mind in initiating reassessment and the importance of factual verification before making additions to a taxpayer's income.