2016 (7) TMI 666 - AT - Income Tax

Reopening of assessment - reasons to believe - difference between the sub-contract income shown by the assessee in its P&L Account and that reflected in the TDS certificates - Held that - On perusing reasons for reopening of the assessment as noted in the assessment order, it is seen that reassessment was initiated on account of under assessment of income to the extent of ₹ 3,38,508/-, being the difference between the sub-contract income shown by the assessee in its P&L Account and that reflected in the TDS certificates submitted by the assessee. The aforesaid addition was made by the AO while framing assessment u/s.148 of the Act but the same were deleted by the ld.CIT(A) vide order dated 30/05/2007 as those receipts were duly declared by the assessee and further we find that the ld.CIT(A) has also noted that AO in the Remand Report dated 28/03/2012 and opined that the impugned suppressed receipts were declared by the assessee in the income-tax return. Also in the assessment order framed u/s.144 r.w.s.254 of the Act vide order dated 14/12/2010 in the second round of appeal also, no addition of suppressed receipts has been made by the AO. Thus, there is no addition of suppressed receipts of ₹ 3,38,508/- in the reassessment proceedings, meaning thereby that no addition was made on the ground which was the basis for reaching the conclusion of escapement of income in the reasons recorded for issuance of notice u/s.148 of the Act. We find that the Hon ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. reported at (2010 (4) TMI 431 - HIGH COURT OF BOMBAY ) on the issue as to whether addition on other grounds could be made when no addition has been made of the income, which was initially the basis of reopening has decided the issue in favour of assessee.

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act.
2. Deletion of addition made by the Assessing Officer on account of low Gross Profit.
3. Assessment of income and the rejection of books of accounts.
4. Charging of interest under Sections 234A, 234B, and 234D, and non-granting of interest under Section 244A.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued Under Section 148:
The primary issue was the reopening of the assessment under Section 148 due to alleged suppression of job work receipts amounting to ?3,38,508/-. The Commissioner of Income-Tax (Appeals) [CIT(A)] found that these receipts were duly declared by the assessee, and therefore, the satisfaction recorded before issuing the notice under Section 148 was not linked with the initiation of proceedings. The CIT(A) held that there must be tangible material indicating the escapement of income, which was missing in this case. The Tribunal upheld this view, noting that no addition was made on the ground which was the basis for reopening the assessment, thus rendering the proceedings under Section 148 invalid.

2. Deletion of Addition Made by the Assessing Officer on Account of Low Gross Profit:
The Assessing Officer (AO) had made an addition of ?65,26,337/- towards low Gross Profit (G.P.) by estimating the income at 8% of the turnover. The CIT(A) quashed this addition, stating that the provisions of Section 44AD were not applicable as the turnover exceeded ?40 lakhs, and the assessee maintained regular books of accounts. The Tribunal agreed with the CIT(A), emphasizing that the AO did not find any specific defects in the books of accounts and had not made the addition of ?3,38,508/- for suppressed receipts, which was the basis for reopening. Therefore, the addition towards low G.P. was not tenable.

3. Assessment of Income and Rejection of Books of Accounts:
The CIT(A) noted that the AO had not rejected the books of accounts, nor recorded any finding that the system of accounting was such that correct profits could not be deduced. The Tribunal upheld this view, citing established legal propositions that without specific defects, the books of accounts cannot be rejected, and the provisions of Section 145 could not be invoked. The Tribunal referenced several cases, including Pandit Brothers vs. CIT and CIT vs. Margadarse Chit Funds Pvt. Ltd., to support this stance.

4. Charging of Interest Under Sections 234A, 234B, and 234D, and Non-granting of Interest Under Section 244A:
The assessee had raised a ground regarding the charging of interest under Sections 234A, 234B, and 234D, and non-granting of interest under Section 244A. The CIT(A) had disposed of this ground as premature. Since the Tribunal dismissed the Revenue's appeal, the assessee's cross-objection on this issue was also dismissed as not pressed.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to quash the assessment order under Section 148 and delete the addition of ?65,26,337/- towards low G.P. The Tribunal also dismissed the assessee's cross-objection as not pressed. The judgment emphasized the necessity of tangible material for reopening assessments and the requirement to find specific defects in books of accounts before making additions.

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