2023 (7) TMI 930 - AT - Income Tax

Reopening of assessment u/s 147 - undisclosed revenue receipt - assessee has not recognized the income in respect of receipt from from M/s Indu Project Limited which assessee had claimed was received against the work order - claim of assessee is that the payments which were made to M/s. Dingle Buildcon Pvt. Ltd. was part of execution of work order received from M/s Indu Project Ltd - HELD THAT - Assessee claims that in the year under consideration no expenditure on account of job charges has been claimed and job charges have been taken is work in progress. As this fact is not disputed by the Revenue, in the present assessment year 2010-11 any disallowance u/s 37(1) of the Act is not justified and so does the reopening of assessment when the additions made for sum received from M/s Indu Project Ltd, has also not been allowed to be added in the year under consideration by the Tribunal, while upholding the deletion of addition made on that account by the Ld. AO. Even otherwise, the material on record suggests that Tax Authorities have heavily relied the statements of Shri Anil Aggarwal who is an alleged Entry Operator controlling the four tainted entities. The Statements are part of the assessment order itself and Ld. Counsel in the presence of ld. DR was able to canvass that in none of the statements no specific statement is made by these persons qua the assessee which may indicate that they were involved in showing bogus job work towards assessee. - There was no direct transaction of the assessee with the four tainted companies operated by Shri Anil Aggarwal. It can be appreciated that primarily on the basis of statements alone and no other corroborative evidence the Ld. AO has drawn the inferences without giving assessee an opportunity to cross examine the said persons, - In assessment order Ld. AO mentions notices issued to these four tainted companies were received unserved, then the onus was on the Ld. AO to have certainly give opportunity to cross examine Shri Anil Aggarwal, who was allegedly operating these tainted companies. The Bench is of considered view that AO had fallen in error in invoking the jurisdiction u/s 147/148 of the Act and otherwise the addition is not sustainable too - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of action under sections 147/148 of the Income Tax Act.
2. Justification of the addition of Rs. 5.81 crores to the income of the assessee.
3. Assessment of the expenses claimed by the assessee and their impact on profit and loss.

Summary:

Issue 1: Legality of action under sections 147/148 of the Income Tax Act:
The assessee challenged the reopening of the assessment under sections 147/148 on the grounds that the issue of reopening was already examined in the original assessment made under section 143(3). The Tribunal noted that the reopening was based on information from the DDIT (Inv.) regarding alleged bogus transactions. However, it was found that the reasons recorded for reopening did not provide any specific allegation of failure on the part of the assessee to disclose material facts fully and truly. The Tribunal held that there was no fresh tangible material to justify the reopening, and the action was barred by limitation.

Issue 2: Justification of the addition of Rs. 5.81 crores to the income of the assessee:
The addition of Rs. 5.81 crores was made by the AO on the grounds that the job work expenses claimed by the assessee were bogus, based on statements from individuals associated with the alleged entry operator. The Tribunal observed that the assessee had shown the expenses as work in progress and had not claimed them as an expenditure in the profit and loss account. It was also noted that the statements relied upon by the AO did not specifically pertain to the assessee, and no opportunity for cross-examination was provided to the assessee. The Tribunal concluded that the addition was not justified as there was no impact on the profit and loss account for the relevant assessment year.

Issue 3: Assessment of the expenses claimed by the assessee and their impact on profit and loss:
The Tribunal found that the expenses of Rs. 5.81 crores were included in the closing stock as work in progress and were not claimed as an expenditure in the profit and loss account. It was noted that the expenses were genuine business expenses, and there was no impact on the profit and tax liability for the relevant assessment year. The Tribunal also addressed the issue of double disallowance and held that the disallowance made by the AO resulted in double addition, which was not sustainable.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reopening of the assessment was not justified, and the addition of Rs. 5.81 crores was not sustainable. The Tribunal emphasized the importance of providing an opportunity for cross-examination and the need for tangible material to justify reopening and additions. The order was pronounced in the open court on 19th July 2023.