2018 (3) TMI 734 - AT - Income Tax

Validity of reopening of the assessment - non specification of charge - detailed examination by AO - Held that - DR was unable to place before us the order sheet copy of the Assessing Officer and the reasons recorded therein to indicate that some new material was found by the Assessing Officer to enable him to reopen the assessment and the notice was issued essentially on account of the fact that the return filed by the assessee does not contain true and correct particulars of income Upon going through the assessment order passed u/s 143(3) AO had the benefit of examining the books of accounts in detail and examined the nature of business for the purpose of making additions towards handling charges and commission income, impliedly reflecting that the A.O admitted that the assessee was mainly carrying on the business as a commission agent for and on behalf of the consigners. Such being the case, the notice issued u/s 148 itself is bad in law. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening the assessment.
2. Justification in confirming the addition of ?12,35,384/- to the income of the assessee.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment:

At the outset, the first appellate authority failed to adjudicate the ground concerning the reopening of the assessment, leading the assessee to contest the order's validity. The assessee's challenge was based on the argument that the reopening was not justified both factually and legally.

The assessee-firm, engaged in the purchase and sale of maize, had its assessment originally processed under section 143(1) and later scrutinized under section 143(3). The Assessing Officer (A.O.) noted discrepancies in handling charges and commission income, and a subsequent survey under section 133A supported these findings. However, the A.O. sought to reopen the assessment on the grounds that the closing stock of maize consignment was not included in the trading account, leading to an alleged escapement of income.

The reopening proceedings, initiated after more than four years, required necessary approval and were contested by the assessee. The assessee argued that the consignment stock belonged to the principal/consignor and was correctly shown in the balance sheet, without affecting the firm's profitability. The method of accounting followed by the assessee had been consistent and previously verified by tax authorities.

The A.O.'s justification for reopening, based on an alleged accounting mistake, was challenged on the grounds that there was no new material or omission by the assessee to warrant such action. The Ld. CIT(A) failed to address the technical aspect of the reopening's validity, leading to a lack of application of mind.

The tribunal observed that the A.O. had already examined the books and the method of accounting during the original assessment, and no new material was presented to justify the reopening. The absence of failure on the part of the assessee to disclose material facts was crucial, as reassessment after four years requires such a failure.

Citing precedents, including the Andhra Pradesh High Court's decision in Tecumseh Products India Pvt Ltd vs. ACIT, the tribunal concluded that the reopening was not justified due to the lack of new material and the mechanical nature of the reassessment notice.

2. Justification in Confirming the Addition of ?12,35,384/-:

The A.O. added ?12,35,384/- to the income, treating the consignment stock as assessee's own stock, arguing that the stock should have been included in the trading account. The assessee contended that the consignment stock, shown in the balance sheet, did not affect its profitability and was correctly accounted for as belonging to the principal/consignor.

The Ld. CIT(A) upheld the A.O.'s addition without adequately addressing the assessee's detailed explanations and the established accounting method. The tribunal noted that the assessee's method of accounting had been consistent and previously accepted by tax authorities.

The tribunal emphasized that any correction in accounting should logically reflect both the stock and the corresponding purchase, resulting in no effect on the trading account's profit. The A.O.'s failure to appreciate this and the Ld. CIT(A)'s lack of proper consideration led to the tribunal's decision to set aside the addition.

Conclusion:

The tribunal quashed the reopening of the assessment and directed the deletion of the ?12,35,384/- addition, allowing the assessee's appeal. The judgment highlighted the importance of consistent accounting practices, proper verification by tax authorities, and the necessity of new material for reopening assessments after four years.

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