2009 (5) TMI 128 - AT - Income Tax

Reopening of the assessment u/s. 148 - Escapement of Income - Tax Evasion Petition (TEP) - Notice issued u/s. 148 was illegal, bad in law and without jurisdiction - Whether AO have jurisdiction to frame the order of reassessment? - return of income filed by the assessee had been processed but the last date for service of notice u/s. 143(2) had not expired - AO made enquiries on the TEP to test its veracity and such enquiries extended far beyond - HELD THAT - On verification of the contents of the TEP, he came to the conclusion that income had escaped assessment within the meaning of s. 147. Therefore, a notice u/s. 148 was issued. The AO was not aware of the escapement of income, when the return was processed. He was not convinced about such escapement as the enquiries into the TEP were not completed by that time. Therefore, we are of the view that on the date when notice u/s. 148 was issued, there was no jurisdiction with him to issue notice u/s. 143(2) and accordingly he was competent to issue notice u/s. 148. Further, we are of the view that the whole situation regarding the reopening of the assessment has to be seen from the facts obtained on the date of recording of the reasons. It may happen that on that day, AO may be prima facie convinced that there were reasons to believe that the income had escaped assessment. However, it may further happen that on detailed enquiry in the reassessment proceedings, he may come to the conclusion that no addition was called for. Such a conclusion will not render the reopening of the assessment as null and void or illegal. The ld counsel also argued that no other addition could have been made except with reference to the matter covered in the satisfaction note. This issue does not infringe on the jurisdiction of the AO to record reasons and issue notice u/s. 148. However, AO will not be competent to make fishing enquiries to make additions which are otherwise made in assessment u/s. 143(3) on the basis of notice issued u/s. 143(2) or s. 142(1). Therefore, these grounds are dismissed. Income from Cash credit - Addition u/s 68 - Bogus transactions - Transactions of purchase and sale - No documentary evidence was filed in support of these transactions - HELD THAT - The finding of bogus sale can only lead to the inference that the corresponding amount should be deleted from the turnover of the assessee. The AO has also not rejected the books of account to estimate profit on these transactions in case it was a firm finding that purchases and sales were bogus. The facts of the case of La Medica are different in the sense that detailed enquiries were made into the purchases made by the assessee, which were held to be bogus by the AO. It was found that the purchase consideration got deposited in a bank account of an employee in Calcutta, which was opened with the introduction of the assessee. No such enquiry was made in this case. In the case of La Medica, it was also not the case that sales were effected from the purchases made and, thus, the purchases could not be out-rightly termed as bogus. Therefore, we are of the view that the facts of the two cases are distinguishable. In absence of displacing the finding of CIT(A) and the fact that the assessee showed profit from these transactions, it is held that there is no such error in the order of CIT(A) which requires correction from us. Thus, this ground is dismissed. Cash voucher receipt - Addition u/s 68 - assessee had produced cash voucher before AO in the course of reassessment proceedings - She had also been paid in the past and such payments were not doubted - AO did not make any attempt to make enquiries with Ms. Sneh Sengar and the addition was made merely on the basis of suspicion raised as he had received a TEP containing an averment that cash paid to Ms. Sneh Sengar. HELD THAT - We are of the view that no addition can be made merely on suspicion. AO did not make any enquiry into the matter to crystallize the fact as to whether the impugned sum was ever paid to Ms. Sneh Sengar. Therefore, we do not find any reason to disturb the findings of CIT(A) in the matter. Thus, this ground is also dismissed.

Issues Involved:
1. Reopening of the assessment under Section 148.
2. Addition of Rs. 5 lakhs under Section 69C.
3. Deletion of addition of Rs. 6,10,95,391 on account of bogus transactions.
4. Deletion of addition of Rs. 4 lakhs for unexplained cash payment.

Issue-wise Detailed Analysis:

1. Reopening of the assessment under Section 148:
The assessee challenged the reopening of the assessment on the grounds that the notice issued under Section 148 was illegal, bad in law, and without jurisdiction. The assessee argued that the assessing officer had the opportunity to issue a notice under Section 143(2) upon receiving the Tax Evasion Petition (TEP) but failed to do so within the stipulated time. The reopening was based on the TEP which alleged bogus transactions and cash payments. The Tribunal upheld the reopening, stating that the assessing officer was not aware of the income escapement at the time of processing the return and only became satisfied of the need for reassessment after completing inquiries beyond the deadline for issuing a Section 143(2) notice. The Tribunal dismissed the grounds, confirming the validity of the notice under Section 148.

2. Addition of Rs. 5 lakhs under Section 69C:
The assessee contested the addition of Rs. 5 lakhs made by the assessing officer and sustained by the Commissioner (Appeals) under Section 69C, arguing it amounted to an enhancement of income without proper notice. However, the Tribunal noted that the assessee had surrendered the amount during the hearing before the Commissioner (Appeals) and did not argue the case on its merits. The Tribunal found no merit in the argument that the change of section constituted an enhancement of income and dismissed the grounds.

3. Deletion of addition of Rs. 6,10,95,391 on account of bogus transactions:
The revenue challenged the deletion of the addition made for bogus transactions with certain parties. The assessing officer had added both purchases and sales from these parties, considering them non-existent or unresponsive. The Commissioner (Appeals) found that the transactions were reflected in the sales-tax returns and that the goods purchased were sold, generating profit. The Tribunal upheld the Commissioner (Appeals)'s decision, noting that the assessing officer had accepted the trading results and that the transactions led to taxable profit. The Tribunal distinguished the case from the cited La Medica case, where detailed inquiries had established bogus purchases. The Tribunal dismissed the revenue's ground, affirming the deletion of the addition.

4. Deletion of addition of Rs. 4 lakhs for unexplained cash payment:
The revenue also contested the deletion of the addition for an alleged unexplained cash payment of Rs. 4 lakhs to Ms. Sneh Sengar. The Commissioner (Appeals) found that the assessee had produced a cash voucher for Rs. 4,000 and that previous payments to Ms. Sengar were not doubted. The assessing officer had made the addition based on the TEP without further inquiry. The Tribunal agreed with the Commissioner (Appeals), emphasizing that no addition could be made merely on suspicion and that the assessing officer failed to substantiate the claim with concrete evidence. The Tribunal dismissed the revenue's ground, affirming the deletion of the addition.

Conclusion:
Both the assessee's and the revenue's appeals were dismissed, with the Tribunal upholding the decisions made by the Commissioner (Appeals) regarding the validity of the notice under Section 148, the addition under Section 69C, and the deletions of the additions for bogus transactions and unexplained cash payments.

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