2018 (5) TMI 133 - AT - Income Tax

Reopening of assessment - bogus accommodation entries - Held that - Merely because the statement was recorded on 12.12.2008 while making assessment for assessment year 2001-02, the same cannot be presumed that the said party was also issuing bogus accommodation entries for assessment year 2002-03. It has been held in various decisions that for the purpose of issuing notice u/s 148, the facts of one assessment year cannot be imported in another assessment order without due verification. The assessment for assessment year 2002-03 has been reopened on the basis of an undated assessment order for assessment year 2001-02. We find merit in the argument for the assessee that the re-assessment proceedings initiated by the Assessing Officer is not as per law. We, therefore, quash the re-assessment proceedings initiated by the Assessing Officer. Appeal filed by the assessee is allowed.

Issues Involved:
1. Jurisdiction of the Assessing Officer in initiating re-assessment proceedings under sections 147/148 of the Income Tax Act.
2. Addition of ?8,15,000 as unexplained expenditure.
3. Disallowance of ?226,286 under section 14A.
4. Transfer Pricing adjustments amounting to ?5,82,97,950.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer in initiating re-assessment proceedings under sections 147/148 of the Income Tax Act:
The assessee argued that the Assessing Officer (AO) acted without jurisdiction in initiating re-assessment proceedings under sections 147/148. The AO based the reopening on the statement of Shri Gajanand Aggarwal, Director of M/s G.A. Buildcon Pvt. Ltd., recorded for the assessment year (AY) 2001-02. The Tribunal noted that the AO did not provide the assessee an opportunity to cross-examine Shri Aggarwal, nor did the AO record any valid reason or evidence for issuing the notice under section 148 for AY 2002-03. The Tribunal found that the reopening was based on vague information and surmises, lacking tangible material. Consequently, the Tribunal held that the reopening of the assessment was bad in law and quashed the re-assessment proceedings.

2. Addition of ?8,15,000 as unexplained expenditure:
The AO added ?8,15,000 to the assessee's income, treating it as bogus expenditure based on the statement of Shri Gajanand Aggarwal. However, the Tribunal found that the AO did not provide any concrete evidence or corroborative material to substantiate the claim that the expenditure was bogus. The Tribunal also noted that the AO accepted another payment made to M/s G.A. Buildcon Pvt. Ltd. during the same year, which contradicted the AO's stance on the alleged bogus expenditure. Since the re-assessment proceedings were quashed, this issue became academic and was not adjudicated further.

3. Disallowance of ?226,286 under section 14A:
The AO disallowed ?226,286 under section 14A, assuming that the expenditure was incurred in earning tax-free dividends. The assessee contended that the disallowance was based on mere surmise without any actual finding. As the re-assessment proceedings were quashed, this issue also became academic and was not adjudicated further.

4. Transfer Pricing adjustments amounting to ?5,82,97,950:
The AO made a transfer pricing adjustment of ?5,82,97,950 to the assessee's income. The assessee raised multiple grounds challenging the AO's approach, including the rejection of the tested party, inappropriate filters, and lack of adjustments for working capital differences. The Tribunal admitted additional grounds related to transfer pricing raised by the assessee. However, since the re-assessment proceedings were quashed, the Tribunal did not adjudicate these grounds, rendering them academic.

Conclusion:
The Tribunal quashed the re-assessment proceedings initiated by the AO, holding that the reopening was based on vague information and lacked tangible material. Consequently, the other grounds raised by the assessee became academic and were not adjudicated. The appeal filed by the assessee was allowed.

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