2023 (4) TMI 530 - AT - Income Tax

Reopening of assessment u/s 147 - Income escaped pertaining to the transaction of fictitious losses - HELD THAT - As assessee had categorically stated that it had not incurred any loss in F O Segment either in the sum of Rs.10, 09, 250/- or 20, 18, 500/-. This is also evident from the ledger account of IMSPL maintained by the assessee which is placed on record before the Ld. AO. This fact is further evident from the ledger account of assessee as maintained in the books of account of IMSPL which was also placed on record before the Ld. AO. All these facts collectively go to prove that even on merits there is no case made out by the Revenue that assessee had incurred fictitious losses on either Rs.10, 09, 250/- or Rs.20, 18, 500/-. On the contrary the assessee had made actual profit on 73, 40, 121/- which was duly offered to tax from the F O Segment. Hence we have no hesitation to hold that the reopening made suffers from various legal infirmities and deserves to be quashed. Even on merits there is no case made out by the Revenue and hence the addition made in the sum is hereby deleted. Accordingly Grounds No.1 3 and 4 raised by the assessee are allowed.

Summary

Issues Involved:
1. Legality of the reassessment order under Section 147 of the Income Tax Act.
2. Validity of the addition of Rs.20,18,500/- made by the AO and confirmed by the CIT(A).
3. Disallowance of carried forward loss amounting to Rs.40,87,460/- from previous year.

Summary:

1. Legality of Reassessment Order Under Section 147:
The assessee challenged the reassessment order under Section 147, arguing it was not in accordance with the provisions of the Income Tax Act, 1961. The Tribunal noted that the reasons recorded for reopening the assessment were based on information from the Investigation Wing, without independent inquiry by the AO. The AO cited three different figures (Rs.10,09,250/-, Rs.20,18,500/-, and Rs.1,70,650/-) as income escaping assessment, leading to confusion and incorrect assumptions. The Tribunal concluded that the reasons recorded did not have a live link to form a belief that income had escaped assessment, rendering the reopening invalid.

2. Validity of the Addition of Rs.20,18,500/-:
The AO added Rs.20,18,500/- to the assessee's income, alleging fictitious losses through client code modification. The Tribunal found that the assessee had not claimed any loss in the return of income and had actually earned a profit of Rs.73,40,121/-. The AO did not verify whether the assessee had claimed any fictitious loss. The Tribunal held that the addition was based on incorrect assumptions and lacked merit, leading to the deletion of the Rs.20,18,500/- addition.

3. Disallowance of Carried Forward Loss:
The assessee argued against the disallowance of carried forward loss amounting to Rs.40,87,460/- from the previous year. The Tribunal, having quashed the reassessment proceedings, deemed the adjudication of this issue academic and did not address it substantively.

Conclusion:
The Tribunal allowed the appeal, quashing the reassessment proceedings and deleting the addition of Rs.20,18,500/-. The issues regarding the disallowance of carried forward loss were rendered academic. The order was pronounced on 12th April 2023.