2022 (8) TMI 600 - AT - Income Tax

Rectification of mistakes - estimation of Net profit - application of net profit rate @ 8% - Best Judgment assessment - addition being hire charges separately - HELD THAT - We find that the adjustments made in the order passed u/s. 154 are not apparent mistakes on records, because the ld.AO has passed best judgment assessment order based on financial statements placed before him and therefore, the adjustments made by the ld. AO in the order passed u/s. 154 of the Act treating the hire charges as part of the contract receipts and again adding them to the total income and also adding the amount of interest on NSC/FD as part of the gross contract receipts and not allowing the claim of partner s remuneration and interest, which have been allowed in the regular assessment proceedings by no stretch of imagination are mistakes apparent from records. Therefore, in our considered view all the adjustments made in the order(s) u/s. 154 of the Act dt. 11.12.2015 and 15.1.2016 have no legs to stand and therefore, the alleged addition in challenge before us arising out of the said order stands deleted. Accordingly, all the effective grounds raise are allowed. Reopening of assessment u/s 147 - taxing the interest income as income from other sources and not treating it as part of gross contract receipts - HELD THAT - We find that the reason for which the case has been reopened relates to interest income - This interest income has been duly shown in the audited financial statement and tax audit report and it is not a case that the assessee failed to disclose such income in the I.T return. The ld. AO has not received any information from outside source, which the assessee failed to furnish/disclose in the return of income or concealed any particulars. Thus, it is a clear case of change of opinion as the ld. AO passed best judgment assessment order after going through the financial statements and details appearing in the audit report and the audited balance sheet, which included the interest income on FDR/NSC and took a plausible view and estimated the net profit @ 8% of the gross contract receipts as against 0.39% declared by assessee. This action of ld.AO is sufficient to indicate that ld.AO has considered all aspects and took a best judgment to assess the assessee s income at much higher than the income declared in Audited Financial Statements. We find that on the very same issue of taxability of interest income on FDR/NSC the ld.AO wants to change his opinion and also wants to tax it separately as income from other sources . It is judicially well settled that for mere change of opinion, reopening of assessment is not allowed. We, therefore, are of the considered view the re-opening proceedings carried out by the ld.AO are bad in law and liable to be quashed. Accordingly, we quash the re-opening proceedings and delete the addition(s) so made in this assessment. Assessee appeal allowed.

Summary

Issues Involved:
1. Legality of the reassessment proceedings under section 147/148 of the Income-tax Act, 1961.
2. Justification for the separate addition of Rs. 5,37,445/- as income from other sources.
3. Justification for the addition of Rs. 9,43,735/- as hire charges.
4. Application of net profit rate at 8% and disallowance of deductions under section 40(b).
5. Charging of interest under sections 234A, 234B, 234D, and 244A.

Detailed Analysis:

1. Legality of the Reassessment Proceedings under Section 147/148:
The Tribunal observed that the reassessment proceedings initiated under section 147/148 were beyond four years and were based on the interest income of Rs. 5,37,445/-. This interest income was already disclosed in the audited financial statements and tax audit report. The Tribunal noted that the Assessing Officer (AO) did not receive any new information from an external source that the assessee failed to disclose. It was deemed a clear case of change of opinion, which is not permissible for reopening an assessment. Consequently, the Tribunal quashed the reassessment proceedings and the related additions.

2. Justification for the Separate Addition of Rs. 5,37,445/- as Income from Other Sources:
The Tribunal found that the interest income of Rs. 5,37,445/- was already included in the audited financial statements and tax audit report. The AO had initially assessed the income based on these documents and estimated the net profit at 8% of the gross contract receipts. The Tribunal ruled that the separate addition of this amount as income from other sources was not justified, as it was a part of the gross contract receipts considered in the best judgment assessment.

3. Justification for the Addition of Rs. 9,43,735/- as Hire Charges:
The Tribunal noted that the AO had added Rs. 9,43,735/- as hire charges separately in the assessment order. However, the CIT(A) had reduced this addition by estimating the income from hire charges at 60% of the gross receipt. The Tribunal found that the adjustments made in the order under section 154, treating hire charges as part of the contract receipts and again adding them to the total income, were not apparent mistakes on records. Therefore, the Tribunal deleted the addition of Rs. 9,43,735/-.

4. Application of Net Profit Rate at 8% and Disallowance of Deductions under Section 40(b):
The Tribunal observed that the AO had applied a net profit rate of 8% on the gross contract receipts and disallowed the deductions for remuneration and interest paid to partners under section 40(b). The Tribunal found that the AO had made a best judgment assessment based on the financial statements and tax audit report, as the assessee failed to produce books of account and other details. The Tribunal ruled that the disallowance of these deductions was not justified and deleted the related additions.

5. Charging of Interest under Sections 234A, 234B, 234D, and 244A:
The Tribunal did not specifically address the issue of charging interest under sections 234A, 234B, 234D, and 244A in detail. However, given the deletion of the related additions and the quashing of the reassessment proceedings, it can be inferred that the interest charges would also be affected accordingly.

Conclusion:
The Tribunal allowed all the appeals of the assessee, quashing the reassessment proceedings and deleting the related additions. The Tribunal emphasized that the AO's actions were based on a change of opinion, which is not permissible for reopening an assessment. The adjustments made in the orders under section 154 were also found to be unjustified.