2018 (3) TMI 75 - AT - Income Tax

Reopening of assessment - validity of reasons to believe - suppression of receipts - unexplained cash deposits - Held that - On perusal of the reasons demonstrate that the assessing officer did form a reasonable belief that income of the assessee which is subject to tax of the assessee, has escaped assessment, as the entire receipts from Godfrey Philips (I) Ltd., may have been suppressed. Though the wording escaped assessment has not been used, the sum and substance of the reasons demonstrate that the assessing officer had reason to believe based on the tangible material that income chargeable to tax has escaped assessment. Thus, this argument of the ld. counsel for the assessee is dismissed as devoid of merit and the re-opening of assessment is upheld. The second argument that, no addition has been made on the issue on which the assessment was reopened and hence the other addition which have no relation or nexus with the reasons recorded are bad in law, the assessment was reopened on the ground that there was cash deposits of ₹ 89,10,640/-, in one savings bank account maintained in Canara bank, Siliguri Branch and that no evidence was produced by the assessee in support of the contentions that these deposits were out of sale proceeds of cigarettes. AO has come to a conclusion that the undisclosed cash receipts was ₹ 48,82,702/-, which he treated as income at Para 6(i) of his order. Thus, irrespective of the fact, whether this addition is ultimately made in the same manner or not, the fact remains that an addition was made on the issue on which the re-opening has been done. Thus, this argument of the assessee fails. On merits we find when the deposits in a Savings Bank Account, are the subject matter of enquiry, we do not understand how there can be a presumption of withdrawal of a huge amount of ₹ 48,82,702/-, in cash from business. M/s. Godfrey Philips India Ltd., issued to the assessee, credit notes, totalling to ₹ 73.56.250/-. Out of this, display and scheme receipts, was a figure of ₹ 55,57,483/-. The surplus from the same was ₹ 22,39,198/-, after meeting the expenses. This was credited to the Profit & Loss Account of the assessee under the head Display & Scheme receipts. Under the head Distribution of Subsidy , the assessee received credit notes of ₹ 17,83,767/-. The surplus from this account was ₹ 2,34,350/-, after expenses. This was credited to the profit and loss account under the head Miscellaneous Income . These facts and figures have not been controverted by the ld. D/R. Whether the Assessing Officer can made separate additions of items of expenditure reflected in the P & L A/c, when he rejects the books of accounts and estimate the profit as a percentage of turnover - Held that - Applying the propositions of law laid down in the case of Income-Tax Officer vs Kenaram Saha And Subhash Saha (2008 (3) TMI 350 - ITAT CALCUTA) we uphold the contention of the assessee that, once the books of account have been rejected and the net profit has been estimated as a percentage of turnover by AO, no further additions on account of unverifiable expenditure and of items claimed in the profit and loss account etc., can be made. Gross receipts from M/s. Godfrey Philips (I) Ltd., cannot be treated as income of the assessee. Such action is against the facts of the case. Hence, this argument of the assessee is upheld and the addition estimated at 2 per cent of the turnover as determined by the Assessing Officer, is sustained. The balance of the additions are hereby deleted. - Decided partly in favour of assessee.

Summary

Issues:
Reopening of assessment without allegation of income escapement, validity of additions made by Assessing Officer, rejection of books of accounts, estimation of profits, nexus between reasons for reopening and additions made, treatment of undisclosed receipts, rejection of books of account and separate additions.

Reopening of Assessment:
The appeal challenged the reopening of assessment under section 147 of the Income Tax Act, 1961. The counsel for the assessee contended that there was no allegation of income escapement in the reasons recorded by the Assessing Officer. He argued that the reasons for reopening should explicitly state that income subject to tax has escaped assessment. However, the tribunal upheld the reopening, stating that the assessing officer had formed a reasonable belief based on tangible material that income chargeable to tax had indeed escaped assessment, even though the exact phrase "escaped assessment" was not used.

Validity of Additions Made:
The Assessing Officer made additions to the total income of the assessee based on discrepancies in the books of accounts. The counsel for the assessee argued that no addition was made on the issues for which the assessment was reopened, and hence, other unrelated additions were invalid. However, the tribunal disagreed, stating that an addition was made on the issue for which the reopening was done, justifying the validity of the additions made by the Assessing Officer.

Rejection of Books of Accounts and Estimation of Profits:
The Assessing Officer rejected the books of accounts and estimated the profits as a percentage of turnover. The tribunal referred to a previous case where it was held that when books of account are rejected and net profit is estimated, all other additions for unverifiable expenditure should be covered by such estimation. Therefore, the tribunal upheld that no further additions on unverifiable expenditures or items claimed in the profit and loss account could be made once the net profit was estimated. The tribunal sustained the addition estimated by the Assessing Officer at 2% of the turnover and deleted the remaining additions.

Nexus Between Reasons for Reopening and Additions Made:
The tribunal emphasized the importance of a nexus between the reasons for reopening and the additions made. It was held that the Assessing Officer's actions were justified as there was a clear connection between the reasons for reopening, such as undisclosed receipts, and the subsequent additions to the total income of the assessee.

Treatment of Undisclosed Receipts:
The tribunal analyzed the treatment of undisclosed receipts and concluded that the Assessing Officer's actions were based on tangible material, justifying the additions made to the total income of the assessee. The tribunal dismissed the argument that no addition was made on the issue for which the assessment was reopened, supporting the Assessing Officer's decision.

In conclusion, the tribunal partially allowed the appeal of the assessee and dismissed the appeal of the revenue. The judgment provided detailed reasoning for upholding the reopening of assessment, the validity of additions made by the Assessing Officer, the rejection of books of accounts, the estimation of profits, and the nexus between reasons for reopening and additions made. The tribunal's decision was based on legal precedents and interpretations of the Income Tax Act, ensuring a comprehensive analysis of the issues involved in the case.