2019 (10) TMI 132 - AT - Income Tax

Validity of reassessment - enquiry conducted by the DDIT (Inv.)-2, Indore - HELD THAT - From the report, it is found that there are high volume of cash transactions in cash credit account done in the account maintained by the assessee at Khargaon branch. It is further observed by the A.O. that in the statement partner of the assessee firm Shri Nilesh Gandhi stated that the cash was drawn for payment to farmers from whom cotton was to be purchased and when cotton was not available in the market or the payment could not be made to the farmers, the same withdrawn cash was deposited back in the bank account. As further observed that in few cases, assessee firm had neither made payment to farmers on the day of actual purchase of cotton, which is mandatory as per Krish Upaj Mandi Act nor made additional payment @ 1% per day of the agricultural produce payable to the seller between the period of purchase and actual payment. As further observed that Shri Nilesh Gandhi during the statement admitted that cash is paid to the farmers on the same day or within 3 to 4 days but within a maximum time limit of 15 days. He stated that no interest as such was paid to the farmers for delayed payment. A.O. observed that the total turnover reflected in the books of accounts during the year under consideration is ₹ 71,73,13,479/- and in the judgement of ITAT in the case of Shri Amar Agrawal 2013 (7) TMI 1139 - ITAT INDORE , net profit was determined at 5% of total turnover. A.O. was of the view applying the same rate of net profit, excess income of ₹ 1,98,92,774/- has been escaped assessment. Now it is to be determined whether the assessment has been rightly reopened or not. There is no dispute with regard to the fact that there was no other material before the A.O. except the report of the DDIT (Inv.) and observation made therein. Another fact that compelled the A.O. was decision of this Tribunal rendered in the case of Amar Agrawal 2013 (7) TMI 1139 - ITAT INDORE . CIT(A) has decided this issue in favour of the assessee by holding that the A.O. failed to bring any fresh evidence for information regarding escapement of income. We do not find any fault in this finding of the CIT(A) as admittedly, in original proceedings, the A.O. has examined this issue. Moreover, the reopening is after lapse of four years as law is now well settled whether assessment is reopened after a lapse of four years from the end of the relevant assessment year, this can only be done, if it is brought on record that there is failure on the part of the assessee to disclose fully and truly all material facts. There is nothing on record suggesting that the assessee failed to disclose fully and truly material facts. Therefore, we affirm the view of the CIT(A) on this issue. This ground of the revenue s appeal is dismissed.

Issues Involved:
1. Validity of reassessment proceedings.
2. Justification for restricting the addition on account of net profit.
3. Justification for restricting the addition out of total addition.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The revenue's appeal questioned the Ld. CIT(A)'s decision to hold the reassessment proceedings as invalid. The reopening was based solely on the report by the DDIT (Inv.), which doubted the payments made to farmers. The Ld. D.R. argued that the A.O. had the power to reopen the assessment if there was a reason to believe that income had escaped assessment, citing that the books of accounts did not reflect a true and fair picture. However, the Ld. Counsel for the assessee contended that the reopening was contrary to the law and judicial pronouncements, as it was based on a change of opinion without new evidence. The Ld. CIT(A) found that the A.O. did not bring any fresh evidence and that the reopening after four years was not justified as there was no failure on the assessee's part to disclose material facts. The Tribunal upheld the Ld. CIT(A)'s decision, affirming that the reassessment was invalid.

2. Justification for Restricting the Addition on Account of Net Profit:
The revenue's appeal also challenged the Ld. CIT(A)'s decision to restrict the addition on account of net profit to 2.6% on a turnover of ?14,63,08,751/- instead of 5% on sales of ?96,10,44,645/-. The Ld. CIT(DR) supported the A.O.'s application of a 5% net profit rate based on a previous Tribunal decision. However, the Ld. Counsel for the assessee argued that the A.O. mechanically applied the earlier Tribunal decision without considering the specific facts of the present case, such as tax-paid purchases from registered dealers. The Ld. CIT(A) found that the A.O. failed to appreciate these facts and applied a more appropriate net profit rate. The Tribunal found no fault in the Ld. CIT(A)'s findings and rejected the revenue's appeal on this ground.

3. Justification for Restricting the Addition Out of Total Addition:
The revenue's appeal further contested the Ld. CIT(A)'s decision to restrict the addition to ?14,77,718/- out of a total addition of ?3,58,90,976/-. The Ld. CIT(DR) argued that the assessee failed to produce books of accounts and supporting evidence before the A.O., who was justified in making the addition. The Ld. Counsel for the assessee countered that all evidence was provided during the original assessment, and the A.O. had mechanically applied the previous Tribunal decision. The Ld. CIT(A) elaborately discussed the issue and found that the additional net profit was correctly applied only on purchases made through Mandi. The Tribunal upheld the Ld. CIT(A)'s findings, rejecting the revenue's appeal on this ground.

Assessee's Appeal:
The assessee's appeal argued that the Ld. CIT(A) erred in estimating the net profit at 2.6% despite holding the reassessment proceedings invalid. The Ld. Counsel contended that any addition made in an invalid reassessment should not survive. The Tribunal agreed with this contention, directing the A.O. to delete the additions, thereby allowing the assessee's appeal.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal, affirming that the reassessment proceedings were invalid and any additions made therein should be deleted. The order was pronounced in the open court on 27.9.2019.

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