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2019 (12) TMI 967 - AT - Income TaxReopening of assessment u/s 147 - assessment on the AOP and consideration of the members of the AOP - AO had the information from the DRI wherein it was alleged that the group of 8 persons was involved in the defrauding the custom duty - HELD THAT - AO in the income tax assessment proceedings has to form a prima-facie opinion that the income has escaped assessment based on the tangible documentary evidence. As such the AO is not under the obligation to reach to the conclusion that there is actually escapement of income. Thus we are of the view that the AO has derived his satisfaction based on the tangible materials received from the DRI. Reopening u/s 147 of the Act was initiated within the period of 4 years from the end of the assessment year in which notice u/s 148 was issued. Thus in such case, we are of the view that the prima facie opinion was based on the tangible material which is sufficient to initiate the proceedings u/s 147 of the Act. In view of the above, we uphold the initiation of the proceedings u/s 147 of the Act. Accordingly, we do not find any reason to interfere in the finding of the Ld. CIT (A). Whether there exist any AOP as alleged by the authorities below? - It is clear that it is not necessary that there should be anything in writing for referring any group of persons as the AOP. What is required is that there should be common object and profit motive of the persons involved. Whether all the members as alleged by the authorities below constitute the AOP? - CESTAT in its order dated 25/08/2009 acquitted certain persons. The copy of the order is placed on 21 to 24 of the paper book. Therefore, in our considered view, the persons acquitted by the CESTAT cannot be treated as member of the impugned AOP. We are also conscious that the whole basis for initiating the proceedings u/s 147 of the Act against the AOP was the notice issued by the DRI wherein the 8 persons and 2 trust were alleged to be involved. Accordingly, in case of any change subsequently by the custom department, the same should also be incorporated in the proceedings initiated u/s 147 of the Act. Accordingly, we hold that all the 8 persons don t constitute as member of the AOP. Accordingly, we delete the name of these persons from the list of members of such AOP. Whether the value computed by the custom department of the goods diverted in the open market i.e. 15,26,050.00 represents the income of the assessee ? - Admittedly, the assessee has paid the import duty on the value of the goods determined by the custom department. Thus it is presumed that the market value of such goods was the value determined by the custom department. Accordingly, it is inferred that the assessee must have sold the impugned goods in the open market as the same was not seized by the custom department. The AO also noted that that the income from sale of goods was not disclosed in the income tax return. Onus lies on the assessee to justify based on the documentary evidence that it has sold the goods at a value less than the value determined by the custom department. But the assessee failed to discharge its onus. Furthermore, the AO has taken the value based on the valuation determined by the custom department which was not challenged by the assessee. Accordingly, we are of the view that the impugned value cannot be disputed by the assessee in the income tax proceedings. Whether the entire amount of the value represents the income of the assessee? - The assessee is entitled for the deduction of the expenses incurred in connection with such income. There is no information about the purchase cost and the transport expenses incurred by the assessee, therefore in the absence of any information we hold that the assessee cannot be given the benefit of such expenses. It is because the provisions of section 147 of the Act are not for the benefit of the assessee. Thus, the expenses about which there is no information available on record cannot be given any relief to the assessee. There is no dispute to the fact that the assessee against such value of the goods of ₹ 15,26,050.00 has incurred a cost of ₹10 lakhs by way of paying the custom duty, interest etc which has direct nexus with the impugned income. Accordingly we hold that the assessee is entitled for the relief/benefit of such expenses against the impugned undisclosed income determined by the authorities below. Accordingly, we sustain the addition of ₹ 5,26,052.00 ( 15,26,052- 10,00,000.00) as income of the assessee. Hence, the ground of appeal of the assessee is partly allowed.
Issues Involved:
1. Legality of the assessment order under Section 143(3) read with Section 147. 2. Legality of the reopening of the assessment. 3. Status of the assessment as an Association of Persons (AOP). 4. Inclusion of the appellant as a member of the AOP. 5. Assessment of total income of the AOP at ?15,26,050. Issue-wise Detailed Analysis: 1. Legality of the Assessment Order under Section 143(3) read with Section 147: The Tribunal upheld the initiation of proceedings under Section 147, noting that the Assessing Officer (AO) had sufficient information from the Directorate of Revenue Intelligence (DRI) indicating that the group of eight persons was involved in defrauding customs duty. This information was deemed adequate for the AO to form a prima facie opinion of income escapement. The AO's satisfaction was based on tangible materials received from the DRI, and the reopening was initiated within the permissible period of four years from the end of the assessment year. 2. Legality of the Reopening of the Assessment: The Tribunal found that the AO had valid grounds to reopen the assessment based on the DRI's information. The AO's prima facie opinion was supported by tangible documentary evidence, and there was no requirement for the AO to conclusively determine the escapement of income at the reopening stage. Thus, the reopening of the assessment was upheld as valid. 3. Status of the Assessment as an Association of Persons (AOP): The Tribunal examined whether the group of eight persons constituted an AOP. It noted that for an AOP to exist, there must be a common purpose or action aimed at producing income. The Tribunal referred to the Supreme Court's judgment in G. Murugesan & Brothers v/s CIT, which emphasized that an AOP requires voluntary combination for a common purpose to produce income. The Tribunal found that the AO had not established that all eight persons had mutually agreed to import and divert goods for profit. Consequently, not all eight persons could be treated as members of the AOP. 4. Inclusion of the Appellant as a Member of the AOP: The Tribunal noted that certain individuals, such as those acting in the course of employment or providing services in their regular business, could not be deemed to have joined an AOP for a common profit-making purpose. The Tribunal also considered the CESTAT's order, which acquitted certain persons, indicating that they could not be treated as members of the AOP. Therefore, the Tribunal held that not all eight persons, including the appellant, constituted the AOP. 5. Assessment of Total Income of the AOP at ?15,26,050: The Tribunal addressed the determination of the value of goods diverted to the open market. The AO had adopted the customs department's valuation, which was not challenged by the assessee. The Tribunal upheld the valuation but allowed a deduction for the ?10 lakhs paid as customs duty, reducing the assessable income to ?5,26,052. The Tribunal emphasized that the benefit of expenses directly related to the income should be allowed, but in the absence of detailed information on other expenses, no further deductions were granted. Conclusion: The Tribunal upheld the reopening of the assessment and the determination of income but modified the assessed income by allowing a deduction for the customs duty paid. The appeal was partly allowed, reducing the assessed income to ?5,26,052.
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