2024 (8) TMI 184 - HC - Income Tax

Reopening of assessment u/s 147 - reasons for re-opening the assessment - tangible material available with the AO to form a reasonable belief, formation of opinion - taxation in the hands of firm or petitioner company - reliance on statement of the partner/director recorded during a survey - whether brokerage income shown in the firm's profit and loss account belonged to petitioner company? HELD THAT - As reasons recorded in case of the company as well as firm, it is not in dispute that the brokerage income is shown in the P L account of the firm whereas the actual income belonged to the petitioner company as confirmed by Shri Jignesh Shah that the whole work was performed by the petitioner company. It is also not in dispute that the firm has claimed bad debts in the books of accounts and to ensure that no liability of tax arises in the case of the petitioner company, as the said brokerage income is credited in the books of account of the firm so that the same can be set off against the bad debts claimed by the petitioner firm. The Assessing Officer has, therefore, rightly relied on the decision of ITO v. Atchaiah 1995 (12) TMI 1 - SUPREME COURT as the right person i.e. firm is required to be taxed for the purpose of charging of income tax for doing work for M/s. Vema Lift Oy, Finland, as the entire brokerage income belongs to the petitioner company who has performed the work for the said company. Therefore, the contention raised on behalf of the petitioner firm that it was regularly showing such brokerage income in the books of accounts would be a matter of scrutiny during the course of assessment proceedings by the AO. As per the facts available on record in case of the petitioner company as well as firm, it is apparent that the company is not rightly taxed and the income prima facie has escaped assessment and therefore, the Assessing Officer was justified in assuming the jurisdiction for re-opening of the assessment. Similarly, in case of the petitioner firm also, there was no scrutiny assessment for the year under consideration and the issues which are raised by the Assessing Officer would prima facie justify the re-opening of the assessment and the reliance placed by the petitioner for assuming jurisdiction by the Assessing Officer to re-open the assessment would not be applicable in the facts of the case, more particularly, when it appears to be a fact not disputed on the basis of reply to the statement made by the partner of the firm that the entire brokerage income is belonging to the petitioner company as the work was done by the petitioner company for M/s. Vema Lift Oy, Finland. Whether such statement can be relied upon or what is the evidentiary value of the same can be considered during the course of assessment proceedings which will be proceeded by the Assessing Officer after giving opportunity of hearing to the petitioner to lead the evidence including the cross-examination. No interference is called for in the impugned notice for re-opening. Petition dismissed.

Issues Involved:
1. Validity of notice for re-opening under Section 148 of the Income Tax Act, 1961.
2. Reliance on statements recorded during survey under Section 133(A) of the Act.
3. Jurisdiction of the Assessing Officer to re-open assessments.
4. Justification and evidentiary value of statements made by the Director/Partner.
5. Legality of the claim of bad debts by the partnership firm.
6. Tax liability and correct assessment of income.

Issue-wise Detailed Analysis:

1. Validity of Notice for Re-opening under Section 148 of the Income Tax Act, 1961:
The court examined the issuance of the notice under Section 148 for re-opening the assessment for A.Y. 2012-13. The notices were issued based on the statement recorded during a survey conducted on 04th February 2019. The court noted that the brokerage income of Rs. 1,77,20,977/- shown by the partnership firm actually belonged to the petitioner company. The re-opening was justified on the grounds that the income had escaped assessment due to the improper allocation of brokerage income to the firm instead of the company, as confirmed by the Director/Partner's statement.

2. Reliance on Statements Recorded During Survey under Section 133(A) of the Act:
The petitioners argued that the statement recorded under Section 133(A) has no evidentiary value as it was not made on oath. They cited various judgments, including S. Khader Khan Son (352 ITR 480 SC), to support their claim that no addition could be made solely based on such statements without corroborative material. However, the court observed that the statement of Shri Jignesh Shah, which confirmed that the brokerage income belonged to the petitioner company, was a significant piece of evidence. The court held that the statement could be considered during the assessment proceedings.

3. Jurisdiction of the Assessing Officer to Re-open Assessments:
The petitioners contended that the Assessing Officer lacked jurisdiction to re-open the assessments, especially after four years, in the absence of any tangible material. They argued that all material facts were fully disclosed during the original assessment. However, the court found that the Assessing Officer had sufficient reasons to believe that income had escaped assessment, particularly due to the misallocation of brokerage income and the dubious claim of bad debts by the partnership firm. The court upheld the jurisdiction of the Assessing Officer to issue the re-opening notice.

4. Justification and Evidentiary Value of Statements Made by the Director/Partner:
The court emphasized that the statement of Shri Jignesh Shah, recorded during the survey, was self-explanatory and indicated that the brokerage income belonged to the petitioner company. The court noted that the statement could be scrutinized during the assessment proceedings, where the petitioner would have the opportunity to present evidence and cross-examine witnesses. The court dismissed the argument that the statement lacked evidentiary value at the re-opening stage.

5. Legality of the Claim of Bad Debts by the Partnership Firm:
The court examined the claim of bad debts amounting to Rs. 2,12,72,899/- by the partnership firm. The Assessing Officer found that the firm had not provided sufficient evidence to substantiate the claim and had artificially increased the debts. The court observed that the bad debts were claimed without proper documentation and were not bona fide. The court upheld the re-opening of the assessment to scrutinize the legitimacy of the bad debts claim.

6. Tax Liability and Correct Assessment of Income:
The court referred to the decision in ITO v. Ch. Atchaiah (218 ITR 239 SC), which mandates taxing the right person. The court found that the brokerage income should have been taxed in the hands of the petitioner company, not the partnership firm, as the work was performed by the company. The court dismissed the petitioners' argument of tax neutrality, noting that the improper allocation of income led to tax evasion. The court concluded that the Assessing Officer was justified in re-opening the assessment to ensure the correct assessment of income.

Conclusion:
The court dismissed both petitions, upholding the validity of the re-opening notices issued under Section 148. The court emphasized that the Assessing Officer had sufficient reasons to believe that income had escaped assessment and that the statements made during the survey could be scrutinized during the assessment proceedings. The court discharged the notices and vacated any interim relief granted.

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