2022 (11) TMI 624 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe - contention of the AR that the satisfaction recorded by the AO is not clear and the reason to suspect cannot replace the reason to believe for reopening of assessment u/s. 147 - HELD THAT - The belief formed about escapement of income for recording reasons to reopen the assessment is only prima facie. Such material coming from independent source may not be complete or full may prove to be incorrect on inquiry but before reopening assessment the AO must be able to infer in good faith that income of the assessee is chargeable to tax and has escaped assessment. Thus relevancy of material for formation of belief is crucial. AO has noticed from the documents impounded during the course of search noticed that there are several entries relating to cash transactions and other receipts and payments which have not been recorded in the books of accounts of the assessee and on that ground the AO has a reason to believe that the income has escaped assessment. Therefore in our considered view the notings in the diary impounded during the course of survey proceedings is a relevant material for the formation of the belief by the AO and hence we see no reason to interfere with the order of CIT(A) in so far as the legal issue contended by the assessee is concerned. The grounds raised in this regard is dismissed. Suppressed sale of scrap - Addition made with respect to purported sale of steel based on the noting made - State Bank of Hyderabad had confirmed the outward remittance to SAIT vide letter dated 30.12.2016 addressed to the CIT(A). We further notice that this submission of the assessee regarding factual position has not been considered by the lower authorities as whether the noting in the diary crystallized in the subsequent financial year and the addition is made merely based on the entries in the diary - these transactions relate to import of materials from the vendor SAIT which is an expense in the hands of the assessee and from the records / ledger copies it is noticed this transaction has materialized in the subsequent financial year i.e. 2007-08. We therefore see merit in the argument that noting found in the diary are proposed imports which happened in the subsequent year. AO has made the addition as undisclosed income by sale of steel scrap whereas based on facts submitted the transaction is that of an import/purchase and hence the findings of the AO is factually incorrect. In view of this discussion and based on the perusal of the facts of the case we are of the considered view that this addition is not tenable and therefore deleted. Addition based on the noting in the diary where it is mention as Steel Scrap Rs.17 lakhs - CIT(A) rejected these documents by stating that the assessee has not submitted the same before the AO inspite of having sufficient opportunity and did not provide sufficient cause for his failure to furnish these documents before the AO. On this ground the CIT(A) upheld the addition. AR during the course of hearing submitted that the major amount of Rs.4, 99, 000 does not belong to the assessee and belongs to some other entity. The ld AR in this regard drew our attention to pg 168 of paper book where the relevant document to substantiate the said claim and submitted that the same was furnished before the lower authorities. Since the CIT(A) did not admit the documents to arrive at the decision to uphold the addition and that the assessee s contention that the amounts are either personal in nature or does not belong to the assessee need to be factually examined. Since the AO has stated that the assessee has not furnished any details before him to support the claim in the interest of justice we remit the issue back to the AO. AO is directed to consider the evidences and documents and decide the issue afresh after examination in accordance with law. Needless to say that the assessee may be given a proper opportunity of being heard. Appeal by the assessee is partly allowed.

Summary

Issues Involved:
1. Legality of reopening the assessment under Section 147.
2. Addition of Rs. 49,04,000/- towards alleged suppressed sale of scrap.
3. Interest under Sections 234A, 234B, and 234C.
4. Additional grounds regarding the addition of Rs. 6,64,180/-.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147:
The assessee contested the reopening of the assessment under Section 147, arguing that the reasons recorded by the Assessing Officer (AO) were not clear and that a "reason to suspect" cannot replace a "reason to believe." The AO had reopened the assessment based on entries in a diary impounded during a survey, which were not reflected in the books of accounts. The Tribunal noted that the AO must have a rational connection or relevant bearing on the formation of belief that income has escaped assessment. The AO's belief was based on notings in the diary, which were not recorded in the books, leading to the conclusion that income had escaped assessment. The Tribunal upheld the reopening, stating that the AO had a "reason to believe" based on relevant material, and dismissed the grounds raised by the assessee.

2. Addition of Rs. 49,04,000/- Towards Alleged Suppressed Sale of Scrap:
The AO made two additions based on diary entries: Rs. 32,04,000 and Rs. 17,00,000. The first addition was based on a noting related to a proposed import from SAIT, which actually materialized in the subsequent financial year. The Tribunal found merit in the assessee's argument that the notings were related to imports and not sales, and thus deleted the addition of Rs. 32,04,000. The second addition of Rs. 17,00,000 was based on a noting for "Steel Scrap," which the assessee claimed was a projected receipt from a sister concern. The Tribunal remitted this issue back to the AO for fresh examination, directing the AO to verify the ledger and other documents submitted by the assessee.

3. Interest under Sections 234A, 234B, and 234C:
The assessee contested the interest charged under Sections 234A, 234B, and 234C. However, this issue was not elaborated upon in the judgment, and it appears that the Tribunal did not specifically address this ground separately.

4. Additional Grounds Regarding the Addition of Rs. 6,64,180/-:
The AO treated various amounts noted in the diary as unexplained expenditure under Section 69C, as they were not entered in the books of accounts. The CIT(A) did not admit additional evidence filed by the assessee and confirmed the addition. The Tribunal noted that the assessee had submitted documents during the appellate proceedings, which were not considered by the CIT(A). The Tribunal remitted the issue back to the AO for fresh examination, directing the AO to consider the evidences and documents and decide the issue afresh in accordance with the law.

Conclusion:
The appeal by the assessee was partly allowed. The Tribunal upheld the reopening of the assessment under Section 147 but deleted the addition of Rs. 32,04,000 and remitted the addition of Rs. 17,00,000 and Rs. 6,64,180 back to the AO for fresh examination. The Tribunal emphasized the need for a rational connection between the material and the formation of belief by the AO and directed a proper examination of the evidences submitted by the assessee.