2024 (6) TMI 562 - AT - Income Tax

Validity of Reopening of assessment u/s 147/148 - reasons to believe - change of head of income from business to income from other source of the receipt - AO mentions in the reasons that during the inquiries it was found that the quality of the material used in the execution of sub-contract was poor and that the sub-contract was executed by another sub-contractor - AO had considered the statement of one of the Directors of the assessee company and found that the purchases made by the assessee company from certain name suppliers were not of good quality - HELD THAT - What crystallises is that at the time of passing assessment order u/s 143(3) of the Act on 17.10.2012, the then AO had before him all the relevant material to examine revenue from the work done by the assessee concerning Common Wealth Games. The reasons for reopening themselves manifest that extensive inquiries were made on the basis of survey operations including recording of statement of Shri Amarjit Mehta, one of the directors of the company. The reasons make it apparent that whatever information was subsequently considered at the time of recording of reasons for reopening was, in fact, part of the assessment record on the basis of which assessment was completed on 17.10.2012 u/s 143(3) of the Act. As observed earlier, at the time of recording of the reasons, there is specific reference to a notice dated 30.05.2011 by which the assessee was said to have been given a final opportunity to produce books of account and copy of bank statement in compliance of which Shri Suraj Garg, CA and assessee filed bank statements and copy of the last audited balance sheet. Thus, it is established that at the time of recording of the reasons there was no fresh information with the AO. It appears that only because there was a new AO the case was reopened. As a matter of fact, the assessment u/s 143(3) of the Act and the survey was done by the same AO who was Joint Commissioner of Income-tax, Range-1, Bathinda who had concluded the assessment on 17.10.2012. The subsequent notice u/s 148 of the Act dated 11.08.2014 is issued by the Asstt. Commissioner of Income-tax, Circle-1, Bathinda while taking cognizance of only so much of the information which was available on record with Shri S.K. Mittal, the Assessing Officer at the time of conclusion of assessment u/s 143(3) of the Act. The law in regard to reopening stands settled that the reasons to believe for the purpose of section 147/148 of the Act reassessment should be recorded or based on some information which was not available or not considered or left out of consideration due to any act of assessee or assessing officer, at the time of original assessment. Any information which has been consciously procured and processed becomes stale and if same used will amount to a mere change of opinion. Reliance in this regard is placed on judgments Rasalika Trading Investment Co. Pvt. Ltd 2014 (2) TMI 851 - DELHI HIGH COURT and CIT V/s Kelvinator of India Ltd 2002 (4) TMI 37 - DELHI HIGH COURT . The Hon ble Supreme Court 2010 (1) TMI 11 - SUPREME COURT confirmed the decision of the Hon ble Delhi High Court judgement in CIT V/s Kelvinator of India Ltd. (supra) wherein the Hon ble Supreme Court judgement in the case of Indian and Eastern Newspaper Society 1979 (8) TMI 1 - SUPREME COURT was relied for making observations that the AO must first have information in his possession and then in consequence of such information he must have reasons to believe that income has escaped assessment. The information to be relied, to our mind, should be one which was not in the knowledge of the AO, for the reasons it was not patent or left latent. In the case in hand, the AO has merely relied on the survey and post survey/search inquiries made by the then AO , himself. The aforesaid discussion establishes that there were extensive inquiries post survey with regard to the sub-contract work and its accounting in the books of the assessee in the course of regular assessment and merely by using the same the reasons to believe were recorded. DR has although defended the reasons for reopening relying on the prima facie belief test that at the stage of reopening only a prima facie belief is to be formed and mere possibility is sufficient. However, it is not the case of lack of substance in the information, but, as discussed above case of no information at all, as what is considered as information was already processed and had culminated into the assessment order u/s 143(3) of the Act. CIT(A) seems to have missed the vital fact that all the enquires referred in re-opening reasons were collected before the original assessment u/s 143(3) - CIT(A) has merely gone on the question if there was prima facie some material for reopening and not sufficiency or correctness of the material , relying on the judgement of Raymond s Woolen Mills 1997 (12) TMI 12 - SUPREME COURT where there was allegation of suppression of material facts by the assessee during initial assessment, which is not the case here at all. Every aspect was enquired in initial assessment and there was no further information to show that was accepted out of enquiry in initial assessment was erroneous on facts or law, requiring re-assessment. Mere change of head of income from business to income from other source of the receipt from SNSPL, the Ld. AO has found it case of escapement. However, we are of considered view that it cannot at all result into belief of escapement of income or assessment without establishing and quantifying the escapement of tax in reasons itself. In the case of assessee both business receipts and income from other sources are liable to the same rate of 30% tax, and the Assessing Officer, in the reasons, has not specified that any expense debited by the assessee to its Profit Loss Account is bogus or inflated expenditure or otherwise not allowable under any provision of the Act. Assessee had duly recognised the amount of Rs. 3.46 crore as its income in its audited accounts and consequently, had offered the same to tax in its ITR which stood accepted. There is no allegation in the reason that any income chargeable to tax has been under assessed or assessed at too low a rate or made the subject of excessive relief under the Act or excessive loss or depreciation allowance or any other allowance has been computed in the original assessment order dated 17/10/2012. Thus assumption of jurisdiction u/s 147 of the Act was vitiated and same goes to the root of assessment u/s 143(3)/148 of the Act, making it illegal. The assessment so framed is liable to be quashed. Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction u/s 147 of the Income Tax Act.
2. Validity of reopening of assessment u/s 147/148 of the Act.
3. Rejection of accounts and estimation of profit.
4. Change of head of income from business to income from other sources.

Summary:

1. Assumption of jurisdiction u/s 147 of the Income Tax Act:
The appeal was preferred by the Assessee against the order dated 28.03.2016 of the Commissioner of Income Tax (Appeals), Bathinda, arising out of an appeal against the order dated 08.01.2015 passed u/s 143(3) r.w.s. 148 of the Income Tax Act, 1961. The Assessee argued that the assumption of jurisdiction u/s 147 by the Assessing Officer (AO) was illegal as it was based on stale information and constituted a change of opinion. The AO had earlier conducted a scrutiny assessment and accepted the returned income except for an estimated addition of Rs. 3 lakhs. The reopening was based on a survey conducted on 27.05.2011 and subsequent inquiries, which were already considered in the original assessment.

2. Validity of reopening of assessment u/s 147/148 of the Act:
The Assessee contended that the reopening was based on the same information available during the original assessment, thus constituting a change of opinion. The AO had no fresh information to justify the reopening. The Tribunal held that the reopening was invalid as it was based on information already processed during the original assessment. The Tribunal relied on the judgments of Rasalika Trading & Investment Co. Pvt. Ltd. v. DCIT and CIT V/s Kelvinator of India Ltd., confirming that reopening based on the same information constitutes a change of opinion.

3. Rejection of accounts and estimation of profit:
The AO rejected the Assessee's accounts and estimated the profit at 10% of the turnover, subject to deduction of depreciation allowance. The Assessee argued that the rejection was unjustified as no incriminating material was found during the survey, and the accounts were regularly maintained and audited. The Tribunal found that the AO's rejection of accounts was based on the non-availability of addresses of construction workers in the muster roll, which was not a statutory requirement. The Tribunal held that the AO's action was unjustified and based on mere suspicion.

4. Change of head of income from business to income from other sources:
The AO treated the receipt of Rs. 3.46 crores from SNSPL as "income from other sources" instead of business income. The Assessee argued that this change did not result in any escapement of income as both heads of income are taxed at the same rate. The Tribunal agreed with the Assessee, stating that the AO had not specified any bogus or inflated expenditure in the reasons for reopening. The Tribunal concluded that the change of head of income did not justify the reopening of assessment.

Conclusion:
The Tribunal allowed the Assessee's appeal, quashing the reassessment order. The assumption of jurisdiction u/s 147 was found to be vitiated, rendering the reassessment illegal. The other grounds raised by the Assessee were left open as the primary issue of jurisdiction was decided in their favor.

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