2022 (4) TMI 283 - AT - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - Addition u/s 68 - HELD THAT - The instant case being covered by 1st proviso to Section 147 could be reopened only when twin conditions co-exist namely, (i) the Assessing Officer holds reasons to believe about the escapement of chargeable income (which is not found to be satisfied as deliberated in the preceding paragraph); (ii) the escapement is due to failure on the part of the assessee to disclose fully and truly all material facts. As a logical corollary, the burden is on the Assessing Officer to form a prima facie opinion that the conditions embedded in first proviso is also found scrupulously satisfied when the same is challenged. Allegation of the Assessing Officer on the failure of assessee is therefore a first step to enable to the Assessing Officer to invoke proviso. Noticeably , the reason recorded by the Assessing Officer does not even allege any such failure in express terms. It is not known what fact giving perception of accommodation entries has not been fully disclosed. It is further not known as to which fact has not been truly disclosed which the Assessee was found privy to. AO appears to have drawn adverse inference which is not intelligible in the absence of any basic inquiry on the information in the peculiar facts of the present case. The stringent conditions of 1st proviso to Section 147 is thus not satisfied. Hence seen from any angle, we do not see any error per se in the process of reasoning adopted by the CIT(A) to uphold the plea of the assessee towards lack of jurisdiction. Hence, Ground No. 1 of the appeal of Revenue is dismissed. Addition u/s 68 - CIT(A) has also found total lack of merit in the impugned additions. The CIT(A) has observed that the transactions with Natwest Trade Link were offered as part of the turnover/sale, whereas the addition has been made under Section 68 of the Act without reducing the corresponding sales. Such an act of the Assessing Officer tantamount to double addition; one under the head 'turnover' and other under Section 68 of the Act. Such course of action is manifestly unsustainable and cannot be countenanced in law. Without reiterating each observations of the CIT(A), we find sound rationale in the discourse adopted by the first appeal on merits in favour of the assessee by the CIT(A). We thus decline to interfere. Appeal of revenue dismissed.

Summary

Issues Involved:

1. Validity of jurisdiction assumed under Section 148 of the Income Tax Act.
2. Merits of additions made under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Validity of Jurisdiction Assumed Under Section 148:

The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had allowed the assessee's challenge on the grounds of jurisdiction and merits. The CIT(A) found that the Assessing Officer (AO) had wrongly assumed jurisdiction under Section 148 of the Income Tax Act, 1961, to reopen the completed assessment. The AO had issued a notice under Section 148 based on information received from the Deputy Director of Income Tax (Inv.)-I, Faridabad, suggesting that the assessee had engaged in transactions with entities suspected of issuing bogus billing of steel. However, the AO did not conduct any inquiries to verify this information before reopening the case.

The Tribunal noted that the information received from the DDIT was advisory and required the AO to make proper inquiries, which were not conducted. The AO proceeded to issue the notice under Section 148 without any interim inquiry to ascertain the facts. The Tribunal emphasized that the "reason to believe" is fundamental for jurisdiction under Section 147 and cannot be based on mere suspicion. The information provided by the DDIT was not corroborated, and the AO's action lacked the necessary inquiry to form a prima facie opinion of income escapement. Consequently, the Tribunal upheld the CIT(A)'s decision that the AO had wrongly assumed jurisdiction under Section 147.

Additionally, the Tribunal addressed the requirements of the first proviso to Section 147, applicable since the assessment was reopened after four years from the end of the relevant assessment year. The Tribunal found that the AO did not allege any failure on the part of the assessee to disclose fully and truly all material facts. The reasons recorded by the AO did not meet the conditions stipulated in the first proviso to Section 147. Therefore, the Tribunal concluded that the reopening of the assessment was not justified, and the CIT(A) rightly upheld the plea of the assessee regarding the lack of jurisdiction.

2. Merits of Additions Made Under Section 68:

On the merits of the additions, the CIT(A) observed that the transactions with Natwest Trade Link, amounting to ?3,54,99,691/-, were part of the turnover/sales declared by the assessee. The AO, however, made an addition under Section 68 of the Income Tax Act without reducing the corresponding sales, resulting in a double addition. The Tribunal found this approach unsustainable, as it led to double taxation of the same amount—once as turnover and again under Section 68. The Tribunal agreed with the CIT(A) that the AO had not appreciated the full facts and wrongly made the addition. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order on both counts—invalidating the jurisdiction assumed under Section 148 and deleting the addition made under Section 68. The Tribunal found that the AO had not conducted the necessary inquiries to justify reopening the assessment and had made unsustainable double additions. The order was pronounced in the open Court on 29/03/2022.