2012 (9) TMI 282 - AT - Income Tax

Validity of reopening of assessment - alleged excessive deduction u/s 80IA on ground of deliberately reporting of higher profits, suppression of expenses, insufficient Plant & machinery for huge production - Held that - AO has led no evidence whatsoever to either allege or establish that the expenses incurred were insufficient to carry out the manufacturing process. He has also led no material to assume that net profit declared was exceptionally high rate of profit. There is also no material to allege that P&M was insufficient to carry out the manufacturing process. AO has thus not relied upon any material or evidence, which could enable him to assume that income of the assessee, has escaped assessment either by understatement or expenses or overstatement of profits. He has merely proceeded on surmises, conjectures and suspicion to observe that income of the assessee has escaped assessment which in law cannot constitute a reason to believe for invoking section 147. Entire reassessment proceedings are therefore, found to be null and void and on this basis the assessment order is liable to be quashed - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the CIT(A) erred in quashing the assessment made under section 147 of the Income-tax Act and holding the re-assessment proceedings null and void.
2. Whether the order of the CIT(A) should be set aside and the order of the Assessing Officer restored.

Issue-wise Detailed Analysis:

1. Quashing of Assessment under Section 147 and Re-assessment Proceedings:

The Tribunal examined whether the CIT(A) was correct in quashing the assessment made under section 147 and declaring the re-assessment proceedings null and void. The assessments were reopened on the basis that the assessee had shown excessive profits due to the availability of deduction under section 80IA, which were reduced when the deduction was lowered to 25%.

Upon appeal, the CIT(A) decided in favor of the assessee, following the Tribunal's decision in the assessee's own case for the assessment years 1998-99, 1999-2000, and 2000-01. The Tribunal reaffirmed this decision, stating that the original return had been processed under section 143(1), and no action under section 143(2) was taken within the prescribed period. The Tribunal cited the Delhi High Court's decision in Mahanagar Telephone Nigam Ltd. vs. Chairman, CBDT, which held that the Assessing Officer could initiate reassessment proceedings under section 147 if the conditions were fulfilled, even if only an intimation under section 143(1) had been issued.

The Tribunal further referenced the case of Rajesh Jhaveri Stock Brokers (P) Ltd., where it was held that no opinion is expressed by an Assessing Officer when an assessment is framed under section 143(1), and there is no change of opinion on the invocation of section 147. The Tribunal emphasized that "reason to believe" is a mandatory precondition for the assumption of jurisdiction under section 147, which must be based on relevant material.

In this case, the reasons recorded by the Assessing Officer for initiating proceedings under section 147 were based on the high net profit percentage, low expenses under specific heads, and insufficient plant and machinery for the declared production. However, the Tribunal found that these reasons were unsupported by any material evidence and were based on surmises, conjectures, and suspicion. The Tribunal cited the Supreme Court's decision in Indian Oil Corporation vs. ITO, which held that "reasons to believe" is not the same as "reasons to suspect." The Tribunal concluded that the Assessing Officer's belief was unsupported by evidence and that the proceedings were initiated for the purpose of investigation, which is not permissible under section 147.

2. Setting Aside the Order of the CIT(A) and Restoring the Order of the Assessing Officer:

The Tribunal found that the Assessing Officer had not discharged the burden of placing on record any material that enabled him to have "reason to believe" that the income of the assessee had escaped assessment. The Tribunal reiterated that the initiation of proceedings under section 147 was without jurisdiction and that the entire reassessment proceedings were null and void. Consequently, the Tribunal quashed the assessment order and allowed the grounds in favor of the assessee.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to quash the assessment made under section 147 and declared the re-assessment proceedings null and void. The appeals filed by the revenue were dismissed, and the order of the Assessing Officer was not restored.