2013 (7) TMI 10 - AT - Income Tax

Income from undisclosed sources - CIT(A) deleted the addition - whether CIT(A)-VIII erred in law in deciding the appeal in favour of the assessee without giving opportunity to AO as per provision of Rule 46A of the I.T.Rule, 1962 - reopening of assessment as that there was deposits in cash as well as cheque in the bank account maintained by the assessee with ABN AMRO bank with assessee having only interest income which was much less than the amount of deposit - Held that - In the instant case the income which was added in the re- assessment was not on the basis of any subsequent information received by the AO but was only for the reason that the assessee could not prove sale transaction of unquoted equity shares already recorded in the books of account. In the recorded reasons the AO formed belief about escapement of income on the ground that there was deposit in AMB AMRO bank of the assessee by cash as well as by cheque and there was increase in cash balance as at the end of the relevant years in compare to the opening cash of those years and as in the opinion of the AO the assessee has not sold any shares during the year under consideration and therefore he believed that income chargeable to tax has escaped assessment. It was not the case of the Revenue that bank account with ABN AMRO bank of the assessee was not a disclosed bank account recorded in the regular books of account maintained by the assessee. Further in the impugned years the AO admitted that the assessee has shown sale of shares in both the years and therefore the contrary facts observed in the recorded reasons were erroneous. Thus the belief about the escapement of income was formed on the basis of an erroneous assumption of facts and therefore reopening of assessment was not valid. In favour of assessee.

Issues Involved:
1. Validity of reopening of assessment under Section 147.
2. Addition of income from undisclosed sources.
3. Verification of cash deposits.
4. Opportunity to the Assessing Officer (AO) as per Rule 46A of the Income Tax Rules, 1962.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:

The primary issue addressed was the validity of the reopening of assessments for the Assessment Years (A.Y.) 2006-07 and 2007-08 under Section 147 of the Income Tax Act, 1961. The assessee challenged the jurisdiction of the AO for reopening the assessment, arguing that the reasons recorded by the AO were based on "surmises and conjectures and irrelevant considerations." The AO had issued notices for reopening based on information about significant cash deposits in the assessee's bank account, which were not justified by the recorded income and transactions.

The CIT(A) upheld the AO's action, citing the Supreme Court's decision in Rajesh Jhaveri Stock Brokers Private Ltd. v. ACIT, which held that an intimation under Section 143(1) is not an assessment order and does not preclude the AO from initiating reassessment proceedings if there is reason to believe that income has escaped assessment.

2. Addition of Income from Undisclosed Sources:

The Revenue's appeal contested the deletion of additions made by the AO on account of income from undisclosed sources. For A.Y. 2006-07, the AO had added Rs.99,40,000, and for A.Y. 2007-08, Rs.57,75,000, based on the assessee's inability to substantiate the sale of unquoted shares recorded in cash. The Tribunal found that the additions were based on the AO's belief that the assessee could not prove the sale transactions of unquoted shares already recorded in the books of account.

3. Verification of Cash Deposits:

Another issue was the verification of cash deposits. The AO had initially reopened the assessments based on substantial cash deposits in the assessee's bank account, which were not justified by the income reported. However, the Tribunal noted that the AO did not make any additions based on these cash deposits in the final reassessment orders. Instead, the additions were related to the sale of unquoted shares, which the assessee had recorded in its books.

4. Opportunity to the Assessing Officer (AO) as per Rule 46A:

The Revenue argued that the CIT(A) erred by deciding the appeal in favor of the assessee without giving the AO an opportunity as per Rule 46A of the Income Tax Rules, 1962. This rule mandates that any additional evidence submitted by the assessee during the appeal should be shared with the AO for comments. However, the Tribunal did not specifically address this procedural aspect in detail, focusing instead on the substantive issues related to the reopening of assessments and the validity of the additions made.

Conclusion:

The Tribunal concluded that the reopening of assessments was invalid because the reasons recorded by the AO were based on erroneous assumptions. The belief about the escapement of income was formed on incorrect facts, and no additions were made based on the original reasons for reopening. The Tribunal cited precedents from the Delhi High Court in Ranbaxy Laboratories Ltd. vs. CIT and the Rajasthan High Court in CIT vs. Shri Ram Singh, which held that reassessment proceedings must be based on valid and existing facts.

Outcome:

The Tribunal allowed the cross-objections of the assessee, declaring the reopening of assessments invalid. Consequently, the appeals of the Revenue were dismissed as infructuous and academic in nature. The order was pronounced in court on 21.06.2013.

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