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2022 (11) TMI 941 - AT - Income TaxValidity of reopening of assessment u/s 147 - Reason to believe - sufficient material to form a prima facie belief - assessee had incurred bogus sub- contracting expenses - HELD THAT - AO has given detailed reasonings on the basis of which he formed the belief that in the instant set of facts, the AO was of the view / had reason to believe that the assessee has created bogus sub-contracting expenses and thus income had escaped assessment. It is a well settled principle of law that that while recording the reasons, the AO need not establish the escapement of income. The belief at that time is only primafacie and not conclusive. In the case of Raymond Woollen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT as observed that the Court has only to see whether there was prima-facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. Accordingly, in our view, the AO had sufficient material to form a prima facie belief that the assessee has engaged in creating bogus subcontracting expenses in the instant set of facts, thereby leading to escapement of income. Therefore, in the instant set of facts, we find no infirmity in the order of Ld. CIT(Appeals) when he held that issuance of notice under section one 47 of the Act was valid in the instant set of facts. Assessee s application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 challenging the reopening of assessment under section 147 of the Act is hereby dismissed.
Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act. 2. Disallowance of subcontract expenses as bogus for various assessment years. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147: The Revenue reopened assessments for the years 2009-10 to 2012-13 and 2016-17 based on findings from a survey under section 133A, which suggested that the assessee had created bogus subcontracting expenses. The assessee challenged the reopening, arguing that there was no "reason to believe" that income had escaped assessment. The CIT(A) dismissed this challenge, stating that the AO had a prima facie belief based on the sub-contractors' statements and lack of proper records. The Tribunal upheld this view, citing various judicial precedents that allow reopening based on prima facie material and not conclusive evidence. The Tribunal emphasized that the AO need not establish escapement of income at the time of recording reasons for reopening. 2. Disallowance of Subcontract Expenses as Bogus: The AO disallowed subcontract expenses for the years under consideration, claiming they were bogus. The AO's observations included: - Majority of subcontractors worked only for the assessee. - Subcontractors lacked records like material purchase bills and wage registers. - Subcontractors' bank accounts were managed by the assessee's employees. - Subcontractors had no technical training or financial capacity for large-scale work. The CIT(A) deleted these additions, stating that the AO's conclusions were based on presumptions without concrete evidence. The CIT(A) noted that the subcontractors admitted to working for the assessee and that the income from such work was taxed. The CIT(A) also highlighted that disallowing the entire expenses would distort the profit margins unrealistically. Assessment Year 2009-10: The AO disallowed Rs. 1,86,97,354/- as bogus subcontract expenses. The CIT(A) deleted the addition, emphasizing that the subcontractors admitted to working for the assessee and that the income from such work was taxed. The Tribunal, considering the totality of facts and judicial precedents, held that disallowing the entire expenses was unjustified. Instead, it directed a 10% disallowance of the alleged bogus expenses. Assessment Year 2010-11: Similar facts as 2009-10, with Rs. 2,11,82,210/- disallowed by the AO. The CIT(A) deleted the addition, and the Tribunal upheld a 10% disallowance of the alleged bogus expenses. Assessment Year 2011-12: Similar facts as 2009-10, with Rs. 2,55,99,559/- disallowed by the AO. The CIT(A) deleted the addition, and the Tribunal upheld a 10% disallowance of the alleged bogus expenses. Assessment Year 2012-13: Similar facts as 2009-10, with Rs. 2,29,18,612/- disallowed by the AO. The CIT(A) deleted the addition, and the Tribunal upheld a 10% disallowance of the alleged bogus expenses. Assessment Year 2016-17: Similar facts as 2009-10, with Rs. 1,61,75,302/- disallowed by the AO. The CIT(A) deleted the addition, and the Tribunal upheld a 10% disallowance of the alleged bogus expenses. Conclusion: The Tribunal partly allowed the Revenue's appeals for all assessment years, directing a 10% disallowance of the alleged bogus subcontract expenses while upholding the validity of reopening assessments under section 147.
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