2020 (12) TMI 7 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 40A(3) - HELD THAT - In the case of Godrej InduStries Limited Vs. B.S. Singh, DCIT Ors. 2015 (8) TMI 668 - BOMBAY HIGH COURT has held that the validity of reopening notice shall be determined with reference to reasons which are recorded in support thereof and nothing else - in the absence of reason to believe that income chargeable had escaped assessment, re-assessment notice shall not be sustainable. We are confronted with a case in which the AO initiated re-assessment proceedings on the premise that the assessee had recorded bogus purchases to the tune of ₹ 8,33,600. Addition was finally made u/s 40A(3) of the Act by impliedly accepting the genuineness of the transactions. That being the position, we are of the considered opinion that the reassessment cannot be held to have been validly initiated. Hon‟ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd 2010 (4) TMI 431 - HIGH COURT OF BOMBAY has held that the AO cannot proceed with re-assessment if the grounds mentioned in re-assessment are non- existent i.e., if no addition is made on that score. When we examine the factual scenario obtaining in the instant case on the touchstone the inescapable conclusion which can be drawn is that the only addition made in the re-assessment on a ground different from the one for which notice u/s 148 of the Act was issued, lacks legality. The same is, therefore, deleted - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition under section 40A(3) of the Income-tax Act, 1961 based on re-assessment proceedings.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune concerned the confirmation of an addition of ?8,34,600 made by the Assessing Officer (AO) under section 40A(3) of the Income-tax Act, 1961. The AO initiated re-assessment proceedings based on information received regarding alleged bogus hawala transactions. The AO recorded reasons for re-assessment, citing the involvement of the assessee in bogus hawala transactions related to the assessment year 2009-10. The AO disallowed the amount of ?8,34,600 under section 40A(3) for allegedly bogus transactions. The CIT(A) upheld the addition. The Tribunal noted that the re-assessment was initiated on the premise of bogus purchases but the addition was made under section 40A(3), presupposing the genuineness of the transaction. Citing legal precedents, the Tribunal emphasized that re-assessment proceedings must be based on the reasons recorded, and if the addition is made on a different ground, the re-assessment lacks validity. Therefore, the Tribunal allowed the appeal, deleting the addition made under section 40A(3).

In conclusion, the Tribunal found that the re-assessment proceedings were not validly initiated as the addition under section 40A(3) implied genuineness of the transactions, contrary to the premise of bogus purchases. Citing legal principles, the Tribunal ruled that re-assessment cannot proceed if the grounds mentioned are non-existent or if no addition is made on that basis. Consequently, the Tribunal allowed the appeal, setting aside the addition made under section 40A(3) in the re-assessment proceedings.