2024 (7) TMI 1554 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - sales treated as deemed income u/s 68 - HELD THAT - As evident that the discrepancy in the reasons, as pointed out on behalf of the assessee, is clear and admitted, that is to say, the reasons recorded by the AO for issuance of notice of re-opening of the completed assessment have been recorded on wrong facts, in as much as firstly, the date of filing of the return of income of the assessee for the year under consideration has been wrongly mentioned. Then, the declared income has wrongly been shown at Rs.1,62,28,910/- as against the actually declared Nil income. As we hold that the re-opening of the completed assessment in the present case was not valid. The plea of the Department, that the recording of wrong facts by the AO in the reasons was an inadvertent mistake, is of no avail and it does not validate the reasons recorded by the AO. It is trite that the reasons recorded are to be read as they are, and the reasons recorded in the present case, read as they are, are factually incorrect reasons which could not have led the AO to arrive at a valid satisfaction that income for the year under consideration had escaped assessment. Accordingly, the initiation of the re-assessment proceedings through the incorrect reasons recorded and the entire re-assessment proceedings, culminating in the order under appeal are quashed as void ab initio.

Summary

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act for reopening the case.
2. Treatment of sales as deemed income under Section 68 of the Income Tax Act.
3. Enhancement of addition and unexplained expenditure under Section 69C.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:

The primary issue in both appeals was the validity of the notice issued under Section 148 of the Income Tax Act, which pertains to the reopening of completed assessments. The assessee contended that the notice was based on incorrect facts, specifically the wrong date of filing the return and incorrect income figures. The Assessing Officer (AO) mentioned that the return was filed on 30.09.2010 with an income of Rs. 1,62,28,910/-, whereas it was actually filed on 28.09.2011 declaring 'NIL' income. The Department argued that these were typographical errors and did not invalidate the reasons for reopening.

The Tribunal found that the discrepancies in the reasons recorded by the AO were clear and admitted, leading to the conclusion that the re-assessment proceedings were based on incorrect facts. Citing various precedents, including 'Smt. Monika Rani Vs ITO' and 'Sagar Enterprises Vs ACIT', the Tribunal held that the reopening of the assessment based on incorrect facts was not valid. The plea of inadvertent mistakes by the Department was not accepted, as the reasons recorded must be factually correct to form a valid basis for reopening. Consequently, the re-assessment proceedings were quashed as void ab initio.

2. Treatment of Sales as Deemed Income Under Section 68:

The assessee challenged the treatment of certain sales as deemed income under Section 68, arguing that these sales were already declared in the return filed. The Tribunal noted that the CIT(A) had upheld the addition of these sales as deemed income without proper justification, as the sales were already part of the declared income. The Tribunal found that the CIT(A) erred in applying Section 68, as the sales were not unexplained credits but part of the regular turnover.

3. Enhancement of Addition and Unexplained Expenditure Under Section 69C:

The Tribunal also addressed the enhancement of the addition to Rs. 42,68,400/- and the addition of Rs. 85,368/- as unexplained expenditure under Section 69C. The assessee argued that these additions were made without proper basis and opportunity for explanation. The Tribunal found that the CIT(A) had erred in enhancing the addition and making the unexplained expenditure addition without sufficient grounds. It emphasized the need for proper verification and opportunity for the assessee to explain the discrepancies before making such additions.

Conclusion:

The Tribunal allowed both appeals, quashing the re-assessment proceedings as void ab initio due to the incorrect reasons recorded by the AO. It also found fault with the CIT(A)'s treatment of sales as deemed income and the enhancement of additions without proper justification. The decisions were based on established precedents that emphasize the necessity of correct and factual reasons for reopening assessments and the requirement for proper verification before making additions.