2019 (8) TMI 515 - HC - Income Tax

Re-opening of the assessment u/s 147 - level of enquiry at stage of re-opening of assessment and in reopening proceedings - alleged that bribe was paid to the Iraqi officials which required to be added to the income of the Assessee - HELD THAT - The crucial element of explaining how, on the basis of such record, the AO formed the reason to believe that income had escaped assessment is missing. As pointed out by the ITAT in para 17 the entire case is based upon borrowed investigation stated to have been conducted by Enforcement Directorate and no evidence has been brought on record to connect assessee with the amount of US 62,000, rather it is a case of zero investigation. It is one thing to state that the above documents were available but an entirely different thing to state that on examining those documents the AO found the live link for forming the reason to believe that the sum added had escaped assessment. It must be recalled that these were re-assessment proceedings and not at the stage where it was enough to form a prima facie view for re-opening the assessment. In the re-assessment proceedings the AO was expected to undertake a full-fledged inquiry into the documents produced before him to come to the conclusion that the addition sought to be made was justified. As pointed out by the ITAT or that the AO seems to have done is to simply borrow the conclusions drawn by the ED without making any independent inquiry himself into the matter. Even before the ITAT, the Revenue was unable to show the precise documents or material on the basis of which the AO formed the reason to believe that 60,000 US had been paid as bribe to the Iraqi officials and therefore was required to be added to the income of the Assessee. - Decided in favour of assessee.

Summary

Issues:
1. Delay in re-filing the appeal.
2. Validity of re-opening assessment under Section 147 of the Income Tax Act.
3. Addition of undisclosed income based on Enforcement Directorate's findings.
4. Adequacy of independent inquiry by Assessing Officer (AO) in re-assessment proceedings.

Delay in Re-filing the Appeal:
The High Court condoned a delay of 50 days in re-filing the appeal due to reasons stated in the application, ultimately disposing of the application.

Validity of Re-opening Assessment:
The Revenue filed an appeal challenging the ITAT's order regarding the re-opening of assessment under Section 147 of the Act for the Assessment Year 2001-2002. The main issue was whether the re-opening of assessment was legally valid. The Assessee was involved in the UN Oil for Food Programme, with incriminating documents discovered during an ED search. The AO made an addition of undisclosed income in re-assessment, which was upheld by CIT(A). However, the ITAT found that the AO did not conduct an independent inquiry and relied solely on ED's findings, lacking evidence to connect the Assessee with the undisclosed income. The ITAT held that the AO's actions were based on zero investigation, leading to the dismissal of the Revenue's appeal as no substantial question of law arose.

Addition of Undisclosed Income:
The ED found evidence of a payment of US$ 62,000 to the Assessee's account, characterized as a bribe, which was not disclosed in the return of income. The AO made an addition of this amount as undisclosed income in re-assessment. However, the ITAT observed that the AO failed to conduct a thorough inquiry and merely relied on ED's conclusions without establishing a direct link to the Assessee, leading to the dismissal of the Revenue's appeal.

Adequacy of Independent Inquiry:
The Court highlighted the lack of independent inquiry by the AO in the re-assessment proceedings. The AO did not adequately examine the documents available, instead relying on ED's investigation without establishing a clear connection to the Assessee. The Court emphasized that the AO should have conducted a detailed inquiry to justify the addition of undisclosed income. As the Revenue failed to provide substantial evidence, the ITAT's decision to allow the Assessee's appeal was upheld, and no substantial question of law was found, resulting in the dismissal of the appeal.