2022 (10) TMI 398 - AT - Income Tax

Reopening of assessment u/s 147 - Reassessment after expiry of four years and just prior to expiry of six years from the end of the relevant assessment year - outstanding sundry creditors - HELD THAT - On perusal of reasons recorded for reopening of assessment, it is observed that the assessing officer had no fresh tangible material in his possession while reopening the assessment under Section 147 - In the reasons recorded, AO has very clearly stated that on perusal of record, he came to know that confirmation of accounts relating to M/s. Goldplus Fabrics is not available on record. In the reasons, though, the assessing officer has alleged that assessee has not disclosed fully and truly all material facts relating to its assessment, however, it is a purely general observation without substantiating how the failure can be attributed to assessee. Only because confirmation of the sundry creditor was not available, it will not lead to believe that the income has escaped assessment. In the aforesaid view of the matter, I hold that reopening of assessment in the instant case is invalid. Even otherwise also, assessee has a strong case on merits. As could be seen, while completing the original assessment, the assessing officer had added back the outstanding sundry creditors - while deciding assessee's appeal, the Tribunal had deleted the entire addition made by the assessing officer having found that the disputed additions represent outstanding balance of creditors and the purchases from the said creditors have been accepted. The Tribunal also took note of the fact that the payment made to creditors in subsequent years was not doubted. Assessee had demonstrated that in case of the present creditor also, repayment has been made. That being the factual position emerging on record, addition made by the assessing officer is unsustainable. - Decided in favour of assessee.

Issues:
1. Validity of notice under section 148 of the Income-Tax Act, 1961
2. Legality of reassessment proceeding under sections 147 to 151 of the Income-Tax Act, 1961
3. Addition of Rs. 35,63,423 under section 68 of the Income-Tax Act, 1961
4. Jurisdiction and scope of addition made by the Assessing Officer

Analysis:

Issue 1: Validity of notice under section 148
The appellant challenged the notice under section 148 of the Income-Tax Act, 1961, arguing it was bad-in-law, without jurisdiction, and illegal. The assessing officer reopened the assessment after four years from the end of the relevant assessment year. The appellant contended that since the original assessment was under Section 143(3) of the Act, the officer could not reopen it without demonstrating the escapement of income due to the assessee's failure to furnish correct information. The reasons recorded for reopening lacked fresh tangible material, merely stating the absence of confirmation of accounts. The Tribunal found the reopening invalid due to the lack of substantiation for attributing the failure to the assessee.

Issue 2: Legality of reassessment proceeding
The reassessment proceeding initiated by the Assessing Officer was challenged as contrary to specific provisions of sections 147 to 151 of the Income-Tax Act, 1961. The appellant argued that the reassessment was improper, leading to the quashing of the proceedings and assessment order. The Tribunal held that the reassessment was invalid due to the lack of new tangible material and failure to demonstrate the escapement of income attributable to the assessee.

Issue 3: Addition under section 68 of the Income-Tax Act
The CIT(A) confirmed the addition of Rs. 35,63,423 made by the Assessing Officer under section 68 of the Income-Tax Act, 1961 in respect of sundry creditors. The appellant contended that the addition was beyond the scope of jurisdiction and provisions of sections 147/148 of the Act. The Tribunal found that the addition made by the assessing officer was unsustainable on merits, as similar additions in respect of other creditors were deleted by the Tribunal in the original assessment proceedings. The Tribunal noted that the purchases from the creditors were accepted, and payments to creditors in subsequent years were not doubted, leading to the deletion of the addition.

Issue 4: Jurisdiction and scope of addition
The addition of Rs. 35,63,423 made by the Assessing Officer was challenged as beyond the scope of jurisdiction and provisions of sections 147/148 of the Income-Tax Act, 1961. The Tribunal found that the addition was unsustainable on merits, as the appellant had a strong case supported by the Tribunal's previous decisions regarding similar additions. The Tribunal deleted the addition based on the factual position that repayments to creditors had been made, rendering the addition invalid.

In conclusion, the Tribunal allowed the appeal, holding the reopening of assessment invalid, and deleting the addition of Rs. 35,63,423 made by the Assessing Officer. The decision was pronounced on 4th October 2022.

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