2023 (10) TMI 1098 - AT - Income Tax

Reopening of assessment - Addition on outstanding sundry creditors - reason to believe that there was cessation of liability which was income escaped to tax - information received from the DDIT (Inv) that the assessee has failed to repay the loan availed along with the other banks and has ceased off the liability and, hence, for the reason that income has escaped assessment, the case was reopened - CIT(A) upheld the order of the ld. A.O. for the reason that the assessee has failed to substantiate whether the outstanding liability to sundry creditors has ceased to exist - HELD THAT - Jurisdictional High Court in the case of CIT vs. Jet Airways (I) Limited 2010 (4) TMI 431 - HIGH COURT OF BOMBAY wherein it was held that the A.O. has to assess or reassess such income for which reopening was made along with any other income chargeable to tax which comes to the notice during the assessment proceeding and failure to make an addition on the grounds for which the reopening was done while passing the assessment order will make it null and void. AO cannot make an addition on any other income chargeable to tax without making an addition on the grounds for which the reopening was done. In the present case in hand, the ld. A.O. in the last paragraph of the reasons for reopening has belief that income has escaped assessment amounting to Rs. 86.00 crores in the form of cessation of liability along with any other income and the said amount being the loan taken from ADB by the assessee for which the repayment was not made resulting in cessation of liability. As observed that assessee has given the list of Sundry Creditors as on 31.03.2009 and onetime settlement offer given by the assessee to ADB had stated that the outstanding due - It is also evident from OTS offer that the assessee has paid interest and other charges to ADB as per the letter dated 28.09.2011 and has also undertaken to make payment subsequently. Both the A.O. as well as the first appellate authority has failed to elaborate as how they have arrived at the impugned addition - Hence, it is evident that the ld. A.O. has not made addition for the reason for which the reopening was made but had only made addition on the outstanding sundry creditor declared by the assessee. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Addition on outstanding sundry creditors.
2. Violation of the principle of natural justice.
3. Reopening of assessment proceedings.

Summary:

1. Addition on Outstanding Sundry Creditors:
The assessee, a partnership firm engaged in manufacturing and exporting gold jewelry and diamonds, challenged the addition of Rs. 107,53,11,047/- on outstanding sundry creditors made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The A.O. determined a gross loss of Rs. 12,66,71,272/- and made an addition of Rs. 51,26,21,438/- during the initial assessment. Upon reopening the case under section 147 of the Income Tax Act, 1961, the A.O. added Rs. 107,53,11,047/- on account of unexplained sundry creditors, which the CIT(A) upheld, stating the assessee failed to substantiate its claim with cogent evidence.

2. Violation of Principle of Natural Justice:
The assessee contended that they were not given sufficient opportunity of hearing by the CIT(A), thereby violating the principle of natural justice. The Tribunal noted that the A.O. had rejected the assessee's objections to the reopening notice and passed the assessment order under section 144 read with section 147 of the Act without providing adequate opportunity for rebuttal.

3. Reopening of Assessment Proceedings:
The assessee also challenged the reopening proceedings under section 148(1) of the Act as time-barred and argued that the A.O. did not make additions related to the reasons recorded for reopening. The Tribunal observed that the A.O. reopened the assessment based on information from the Investigation Wing, alleging cessation of liability due to non-repayment of loans from Antwerp Diamond Bank (ADB) and other banks. However, the A.O. made an addition on outstanding sundry creditors instead of the bank loan, which was the basis for reopening.

The Tribunal relied on the decision in CIT vs. Jet Airways (I) Limited, which mandates that the A.O. must assess the income for which the reopening was initiated. Since the A.O. did not make an addition on the grounds for reopening but only on the outstanding sundry creditors, the Tribunal held the assessment order to be null and void.

Conclusion:
The Tribunal declared the assessment order invalid and allowed the appeal filed by the assessee, rendering other grounds of appeal academic in nature. The order was pronounced in the open court on 22.09.2023.