2021 (10) TMI 1007 - AT - Income Tax

Reopening of assessment u/s 147 - Eligibility of reason to believe - reason to believe V/S suspicion - Independent opinion of assessee need to be recorded - Addition u/s 69A on unexplained money - AO has mentioned about section 40A(3) in the reasons of reopening, however, the AO deviated from his aforesaid stand and later on while framing the assessment, he added the said amount u/s 69A- HELD THAT - It is mandatory that the opinion should be that of assessing officer for forming belief whereas in the instant case, he has relied upon the information received from the DCIT-Central for which he himself was not sure on the question of authenticity as perceived from the word it appears noted in the reasons u/s 148(2) wherein in the first line, the AO wrote that it appears that payments to the tune of ₹ 7,12,00,000/- was given to M/s Ferro Concrete Const. (I) Pvt. Ltd. to M/s Keti Constructions Ltd. . Thus, these words show that AO was not having reason to believe , rather he has reopened the case on mere suspicion . As the main component of reasons should be AO having reason to believe. The words has reason to believe are stronger than the words is satisfied . The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. Where reasons recorded by AO lack clarity and it was practically impossible to derive meaning out of it and was incapable of being understood , reassessment notice was liable to be quashed. AO mentioned about section 40A(3) in the reasons of reopening and opined that the said transaction of ₹ 7.12 crores attracts the violation of section 40A(3). However, we find that the AO deviated from his aforesaid stand which he basically took while reopening the case and later on while framing the assessment he added the said amount u/s 69A. Thus, from this action of AO, it is concluded that he was not sure in himself since beginning that the transaction involved is of what nature, which section is attracted here and what kind of violation is there. Therefore, the Ld. AO has absolutely changed his view which was formed initially and which was formed while concluding the assessment. Therefore, the statutory provisions per reasons and contents in assessment order are distinct which shows that the reasons were not on account of application of mind on the part of AO. Thus it is a clear case of lack of basic ingredient of section 147 i.e. reason to believe , as AO himself was not able to decide about the legal provisions which are being attracted in the given case. Reassessment proceedings were initiated under suspicion as narrated above, therefore, the proceedings u/s 147 is bad in law for want of jurisdiction in the light of first proviso to section 147 and in the absence of cogent reasons to form belief that the assessee s income had escaped assessment and also in the light of the fact that the AO deviated from his stand by changing his view which was formed initially and which was formed while concluding the assessment as he was not sure in himself since beginning that the transaction involved is of what nature, which section is attracted here and what kind of violation is there. Thus, the reassessment proceedings are bad in law and accordingly, we quash the present assessment order for the assessment year 2009-10 being void and invalid. As on merits of the case, we find that there is no case of assessing the income as there was no material evidencing movement of cash. Further, principal of natural justice was badly ignored by accepting version of third party without affording opportunity for cross examine. We also find that Section 40A(3) applies for payment otherwise than account payee cheque or bank draft against expenses and in the instant case, we find that no goods or service were provided by M/s Keti Construction Ltd. against which payment warranting action under section 40A(3) would be required. We find that the primary onus as regard to movement of cash, as alleged was on M/s Keti Construction Ltd. Therefore, it had bearing in the assessment in the case of above named person. It has not been brought on record either in the reasons under section 148(2) or during the assessment proceedings at any stage as to what action has been taken in the case of M/s Keti Construction Ltd. Section 69A deals on the question of money etc. found to be in the ownership of the assessee and such money is not recorded in the books of accounts - in the instant case, there is no evidence that the assessee was found to be the owner of any money during the subject year. There is no other tangible material on records which shows that assessee was actually indulged into any such transaction and the authenticity of copy of ledger account of assessee in the books of Keti Construction Ltd. was also doubted by the assessee. AO has discussed about the statement of one Shri Kedarmal Jakhetiya, director of Keti Constructions Ltd. the ld. Assessing Officer placed reliance on the said statement where Mr. Jakhetiya has submitted a list of certain bogus petty contractors in which assessee s name was also included. However, we observe that during the entire assessment proceedings, neither the copy of the statement was provided to the assessee nor the said person was allowed to be confronted by the assessee. Ld. AO was duty bound to provide an opportunity to assessee to confront Mr. Jakhetiya regarding the same. But AO did not follow the principle of natural justice. Thus in such a situation, the discussion made by AO about the statement of director of said company is invalid in view of the violation of principle of natural justice. Assessing Officer applied n.p. rate of 1% higher than disclosed making an addition on account of low net profit. Thus, the addition was already included in regular assessment on account of low n.p.-. Accordingly, we do not find any merit in confirming the addition on estimation basis by the ld. CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reassessment proceedings under Section 147.
2. Validity of the addition of ?7,12,00,000/- under Section 69A.
3. Confirmation of addition of ?71,12,000/- by CIT(A).
4. Withdrawal of appeals for the assessment year 2012-13 under "Vivad Se Vishwas Scheme".

Issue-wise Detailed Analysis:

1. Legality of Reassessment Proceedings under Section 147:
The reassessment was initiated based on information received from the DCIT-Central, Indore, suggesting that the assessee made cash payments to M/s Ketti Construction Ltd. amounting to ?7,12,00,000/-. The assessee argued that all necessary disclosures were made during the original assessment, and the Assessing Officer (AO) did not find any grounds for reassessment. The Tribunal found that the AO relied on external information without forming an independent belief, as required by Section 147. The AO's reasons lacked the necessary phrase "income chargeable to tax," which is crucial for invoking Section 147. The Tribunal cited several judicial precedents, including decisions from the Hon'ble Delhi High Court and the Supreme Court, emphasizing that reassessment requires a clear "reason to believe" based on the AO's own assessment, not mere suspicion or external information. Consequently, the reassessment proceedings were deemed invalid and quashed.

2. Validity of the Addition of ?7,12,00,000/- under Section 69A:
The AO added ?7,12,00,000/- under Section 69A, alleging that the assessee received this amount in cash from M/s Ketti Construction Ltd. The Tribunal noted that the original assessment under Section 143(3) included this amount as part of the assessee's declared income from sub-contract work. The Tribunal found no evidence of unrecorded cash transactions and highlighted that the AO did not provide the assessee an opportunity to cross-examine the directors of M/s Ketti Construction Ltd., violating the principles of natural justice. The Tribunal also observed that the AO initially mentioned Section 40A(3) in the reasons for reopening but later added the amount under Section 69A, indicating a lack of clarity and consistency in the AO's approach. The Tribunal concluded that the addition under Section 69A was unjustified and deleted it.

3. Confirmation of Addition of ?71,12,000/- by CIT(A):
The CIT(A) reduced the addition from ?7,12,00,000/- to ?71,12,000/-, treating it as commission income. The Tribunal found that the CIT(A) acknowledged the ?7,12,00,000/- as part of the assessee's declared income but still confirmed the addition of ?71,12,000/- on an estimated basis. The Tribunal noted that the AO had already made an addition of ?32,98,409/- for low net profit during the original assessment, which included the disputed amount. Therefore, the Tribunal found no merit in the CIT(A)'s decision to confirm the additional ?71,12,000/- and deleted it.

4. Withdrawal of Appeals for the Assessment Year 2012-13 under "Vivad Se Vishwas Scheme":
The assessee opted for the "Vivad Se Vishwas Scheme" for the assessment year 2012-13, and the Revenue issued Form No.5. Consequently, the assessee sought to withdraw the appeals for this period. The Tribunal allowed the withdrawal of these appeals without opposition from the Revenue.

Conclusion:
The Tribunal quashed the reassessment proceedings for the assessment year 2009-10 and deleted the addition of ?7,12,00,000/- under Section 69A. The Tribunal also deleted the additional ?71,12,000/- confirmed by the CIT(A). The appeals for the assessment year 2012-13 were dismissed as withdrawn under the "Vivad Se Vishwas Scheme."