2022 (9) TMI 519 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Reopening on the basis of information received from DDIT (Investigation), Kolkata - AO alleged that assessee is a beneficiary in transaction of layering of funds through the bank account and in this regard, the assessee has failed to disclose truly and fully all material facts - HELD THAT - The details pertaining to the amount due from these entities were provided by the assessee during the course of scrutiny assessment proceedings and said details were accepted by the AO under section 143(3) - in view of the details available on record it cannot be said that assessee has failed to provide fully and truly all material facts necessary for his assessment in the present case. As is evident from the record the amount due from these entities pertains to the previous financial year and assessee being an Indian company has already paid the taxes thereon, since it follows the mercantile system of accounting. Therefore, we are of the considered view that conditions laid down in 1st proviso to section 147 of the Act are not satisfied in the present case. Thus, the reassessment proceedings under section 147 of the Act, in the present case, are set aside being bad in law. Accordingly, the impugned order passed by the learned CIT(A), inter-alia, upholding the order passed under section 143(3) r.w.s. 147 of the Act is set aside. As a result, ground No. 1 raised in assessee's appeal is allowed.

Summary

Issues Involved
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Addition of Rs. 49,08,007 under section 68 of the Act based on the gross profit ratio.
3. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Detailed Analysis

1. Reopening of Assessment under Section 147
The core issue is whether the reopening of the assessment under section 147 was justified. The assessee argued that there was no failure on their part to disclose fully and truly all material facts, as all relevant details were provided during the original assessment proceedings. The Assessing Officer (AO) initiated reassessment based on information from the DDIT (Investigation), Kolkata, alleging that the assessee was a beneficiary of transactions involving layering of funds through shell companies, Silverson Logistics Private Ltd and Kalyani Vincom Private Ltd.

The Tribunal noted that the original assessment was completed under section 143(3) and section 153C, and details of sundry debtors, including transactions with Silverson Logistics Private Ltd, were provided during the original assessment. The Tribunal emphasized that the reasons for reopening must be clear and based on evidence, and any failure to disclose must be explicitly recorded. The Tribunal found that the assessee had disclosed all necessary details during the original assessment, and thus, the conditions for reopening under the first proviso to section 147 were not met. Consequently, the reassessment proceedings were deemed invalid and set aside.

2. Addition of Rs. 49,08,007 under Section 68
The AO added Rs. 49,08,007 to the assessee's income by applying a gross profit ratio of 5% on the amount of Rs. 9,81,60,143, alleging that the transactions with Silverson Logistics Private Ltd and Kalyani Vincom Private Ltd were not genuine. The Tribunal noted that the AO had accepted the assessee's submission that there were no transactions with Kalyani Vincom Private Ltd during the year under scrutiny. The Tribunal also found that the details of transactions with Silverson Logistics Private Ltd and other entities were provided during the original assessment, and the amounts due were from previous financial years. Since the reassessment proceedings were invalidated, the addition under section 68 was also set aside.

3. Initiation of Penalty Proceedings under Section 271(1)(c)
The AO initiated penalty proceedings under section 271(1)(c) for concealment of income. However, since the Tribunal invalidated the reassessment proceedings and set aside the addition under section 68, the initiation of penalty proceedings became academic and required no separate adjudication.

Conclusion
The Tribunal allowed the appeal, setting aside the reassessment proceedings under section 147 and the addition under section 68. The initiation of penalty proceedings under section 271(1)(c) was rendered academic and did not require separate adjudication. The order pronounced on 09/09/2022 concluded that the reassessment was bad in law due to the failure to meet the conditions laid down in the first proviso to section 147.