2004 (1) TMI 356 - AT - Income Tax

Summary

Issues Involved:
1. Whether the reopening of the assessment under section 147 of the Income-tax Act was justified and lawful.
2. Whether the material collected for the assessment year 1994-95, indicating certain creditors were bogus, could justify reopening the assessment for the assessment year 1993-94 under section 147 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Justification and Lawfulness of Reopening the Assessment Under Section 147:

The Tribunal examined the reopening of the assessment for the year 1993-94 based on inquiries made for the assessment year 1994-95. The Assessing Officer (AO) reopened the assessment citing that certain sundry creditors were non-existent or transactions with them were non-genuine. The CIT(A) annulled this reopening, stating that no specific escaped income was identified or taxed in the reassessment order. The AO had merely rejected the books of account and estimated a higher income without proper identification and quantification of escaped income, which is essential for forming a "reason to believe" under section 147.

The Tribunal referenced various judicial precedents, including:
- Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC)
- Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 (SC)
- S. Narayanappa v. CIT [1967] 63 ITR 219 (SC)
- CIT v. T.S. PL.P, Chidambaram Chettiar [1971] 80 ITR 467 (SC)

These cases emphasized that "reasons to believe" must be based on specific and reliable information directly connected to the assessment year in question. The Tribunal found that the AO's reasons were vague and not adequately substantiated, lacking a direct nexus with the assessment year 1993-94.

2. Validity of Reopening Based on Material Collected for Assessment Year 1994-95:

The Tribunal scrutinized whether findings from the assessment year 1994-95 could justify reopening the assessment for 1993-94. The AO had found that some creditors listed for 1994-95 were non-genuine, and some of these creditors also appeared in the 1993-94 list. However, the Tribunal noted that the inquiries for 1994-95 were still ongoing and not conclusive at the time of reopening the 1993-94 assessment.

The Tribunal cited:
- Phoolchand Bajranglal v. ITO [1993] 203 ITR 456 (SC)
- ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC)
- CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC)
- Praful Chunilal Patel v. M.J. Mahwana, Asstt. CIT [1999] 236 ITR 832 (Guj.)

These cases underscored that reopening should be based on reliable and specific information relevant to the year being reassessed. The Tribunal concluded that the AO's belief, based on inquiries for a subsequent year, was speculative and did not meet the standard of "reason to believe" for the earlier year.

Separate Judgments:

- Accountant Member's View: The reopening was justified based on the inquiries and findings for 1994-95, even if the reasons recorded were sketchy.
- Judicial Member's View: The reopening was invalid as the AO's belief was based on conjecture without adequate material specific to 1993-94.

Third Member's Decision:
The Third Member concurred with the Judicial Member, emphasizing that the material available at the time of reopening was insufficient for forming a bona fide belief of escaped income for 1993-94. The reopening was based on suspicion rather than concrete evidence.

Final Order:
In accordance with the majority view, the Tribunal held that the reopening of the assessment under section 147 was unjustified and bad in law. The appeal of the revenue was dismissed, and the cross-objection by the assessee was deemed infructuous.