2015 (6) TMI 255 - AT - Income Tax

Reopening of assessment - suppression of sales - CIT(A) deleted the addition - Held that - the failure of the assessee to produce books of account on the ground that the books of account were stolen from factory premises cannot be ignored because in absence of books of account the A.O. was left with no alternative but to estimate the turnover and the suppressed income and undisclosed investment on the basis of specific information received from the BOI. It is also observed that the assessee has accepted the decision of the AO. regarding addition of undisclosed income from suppressed turnover so far as no cross objection has been taken before the ITAT on this issue despite the fact that the Ld. CIT (A) has not dealt with the specific ground taken by the assessee before the Ld. CIT (A) on this issue. It was contended by the Ld. counsel that since the addition to business income on suppressed profit was covered by deduction u/s. 80-IA the addition was not pursued in appeal before us, cannot be considered correct because despite deduction u/s. 80-IA specific grounds were taken before the Ld. CIT (A) challenging the estimation of suppressed sales and undisclosed profit. The Ld. CIT (A) has failed to deal with this ground of appeal and the assessee has not raised this issue which implies that estimation of suppressed turnover and profit thereon is acceptable. Once that estimation of suppressed turnover and undisclosed profit thereon is accepted, it is very logical that unexplained investment in purchases is estimated for the purpose of relevant assessment. CIT(A) could have exercised his coterminous powers and should have caused the enquiries to be made documents requisitioned and provided proper opportunities to the assessee and decided the issue on merits rather than deleting the addition on technicalities. In the interest of justice and fair play we are therefore, of the opinion that the issue is required to be restored to the file of the Ld. CIT (A) for fresh adjudication after making necessary enquiries or causing the enquiries made from the BOI requisitioning the relevant documents and providing proper opportunity to the assessee. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act.
2. Adequacy of evidence for additions made under Section 69 of the Income Tax Act.
3. Procedural fairness and opportunity given to the assessee during the assessment process.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated Under Section 147:
The Assessing Officer (A.O.) initiated reassessment proceedings under Section 147 of the Income Tax Act based on information from the Bureau of Investigation (BOI) indicating suppression of turnover and evasion of sales tax by the assessee for the financial years 1995-96, 1996-97, and 1997-98. The A.O. issued notices under Section 148, which were contested by the assessee on grounds of procedural lapses and lack of proper evidence. The Tribunal observed that the reassessment was based on specific information from the BOI and justified the reopening of assessments. However, the Third Member noted that the issuance of notice under Section 148 without proper application of mind and mechanical approval by the Commissioner of Income Tax (CIT) rendered the reassessment proceedings void.

2. Adequacy of Evidence for Additions Made Under Section 69:
The A.O. made additions under Section 69 for unexplained investments based on the suppressed sales figures calculated by the BOI. The CIT(A) deleted these additions, stating that the A.O. did not have any documentary evidence to substantiate the assessments and failed to requisition the books of account from the BOI. The Tribunal found that the information received from the BOI was specific and justified the reopening of assessments, but the A.O. did not provide adequate opportunity to the assessee to rebut the evidence. The Third Member agreed with the Judicial Member that the additions under Section 69 were not sustainable as they were based on unsubstantiated information and were not confronted to the assessee.

3. Procedural Fairness and Opportunity Given to the Assessee:
The assessee contended that they were not given a proper opportunity to rebut the evidence used by the A.O. The CIT(A) observed that the A.O. did not provide the assessee with the material received from the BOI, leading to a breach of natural justice. The Tribunal noted that the A.O. should have provided the assessee with the relevant documents and given them a fair chance to explain. The Third Member emphasized that the lack of opportunity to the assessee was fatal to the assessment and upheld the CIT(A)'s decision to delete the additions.

Separate Judgments Delivered:
The Tribunal delivered separate judgments, with the Judicial Member and Accountant Member differing in their opinions. The Third Member, H.L. Karwa, agreed with the Judicial Member that the reassessment proceedings and the additions under Section 69 were void due to procedural lapses and lack of proper evidence. Consequently, the appeals filed by the Department were dismissed.

Conclusion:
The Tribunal, by majority opinion, held that the reassessment proceedings and the additions made under Section 69 were not justified due to the lack of proper evidence and procedural fairness. The appeals filed by the Department were dismissed, and the CIT(A)'s order deleting the additions was upheld.