2017 (8) TMI 477 - AT - Income Tax

Reopening of assessment - assessee s failure to file the return of income u/s 139 - Held that - As the validity of the notice issued u/s 148 and reassessment order made u/s 143(3) r.w.s 147 are concerned, we find, notice issued and reassessment made should be upheld considering assessee s failure to file the return of income in time as provided u/s 139(1) of the Act. Regarding grant of adequate opportunity of the Commissioner of Income (Appeals), we are of the view that the said ground is not supported by any evidence. We find that the Commissioner of Income Tax (Appeals) has granted a number of opportunities as detailed above for both the appeals and decided the case of the assessee. Rejecting of claim of loss - ad-hoc estimation of income - Held that - There is no dispute on the fact that the assessee conducted the hotel business during the year under consideration, assets were put to use, expenditure are required to be incurred for conducting hotel business. Therefore, the Assessing Officer is under obligation to allow the business expenditure as per the provisions of the Act. However, the Assessing Officer is allowed to make additions for want of evidences and the same should be fair and reasonable. Assessing Officer should avoid multiple additions on any account. We find the reassessments under consideration are prima facie unreasonable and unsustainable in the present forum. For example, the Assessing Officer cannot estimate profits of the hotel business on one side and also add entire business expenditure on the other. Considering the same, we are of the view that the matters on the merits of additions on both assessment years should be remanded to the Assessing Officer s file for fresh reassessment with the following directions. (1) The Assessing Officer shall gather data needed for GP/NP estimation from the comparable hotel industries from the comparable location/area/town and if necessary, resort to estimation provided, the books of account fail to meet the requirement of the law and if they are any way to be rejected; (2) Once estimation of GP/NP is done, Assessing Officer shall not add the expenditure claimed in the profit and loss account; (3) Assessing Officer shall allow the statutory deductions if any, as per the law out of the said estimated profits of business. Assessing Officer shall note that the best judgment assessment involves fair judgment assessment. Further, it goes without saying that the Assessing Officer shall grant reasonable opportunity of being heard to the assessee as per the set principles of natural justice

Issues Involved:
1. Validity of the reassessment made under section 143(3) read with section 147 of the Income Tax Act.
2. Adequacy of opportunity provided by the Commissioner of Income Tax (Appeals).
3. Rejection of books of accounts and estimation of income.
4. Disallowance of expenses and additions on merits.

Detailed Analysis:

1. Validity of the reassessment made under section 143(3) read with section 147 of the Income Tax Act:
The assessee did not file the return of income under section 139(1). Consequently, the Assessing Officer (AO) issued a notice under section 148. Despite multiple notices, the assessee failed to respond adequately. Eventually, the AO completed the reassessment by rejecting the books of accounts and making ad-hoc additions. The Tribunal upheld the notice issued and reassessment made, considering the assessee’s failure to file the return of income in time as provided under section 139(1).

2. Adequacy of opportunity provided by the Commissioner of Income Tax (Appeals):
The assessee argued that the Commissioner of Income Tax (Appeals) did not afford adequate opportunity. However, the Tribunal found that multiple opportunities were given to the assessee to present their case, as detailed in the order. Therefore, the ground regarding the lack of adequate opportunity was dismissed due to lack of supporting evidence.

3. Rejection of books of accounts and estimation of income:
The AO rejected the books of accounts and estimated the net profit at ?10,00,000 for AY 2009-10 and ?15,00,000 for AY 2010-11. Additionally, the AO disallowed expenses claimed in the financial statements. The Tribunal found the AO and Commissioner of Income Tax (Appeals) to be extremely unfair in making these additions, noting that such actions result in double taxation of the same income. The Tribunal emphasized that when gross profit (GP) or net profit (NP) is estimated, no separate disallowance of expenses is warranted. The Tribunal directed the AO to gather data from comparable hotel industries and to ensure that the reassessment is fair and reasonable, avoiding multiple additions.

4. Disallowance of expenses and additions on merits:
The AO disallowed ?4,82,05,599 for AY 2009-10 and ?6,03,23,291 for AY 2010-11, claiming these amounts as disallowable based on the financial statements. The Tribunal found these disallowances to be unreasonable and unsustainable. The Tribunal directed the AO to allow business expenditure as per the provisions of the Act and to avoid multiple additions. The matters on the merits of the additions were remanded to the AO for fresh reassessment, with specific directions to ensure a fair judgment.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, directing the AO to conduct a fresh reassessment with specific guidelines to ensure fairness and reasonableness in the estimation of income and disallowance of expenses. The Tribunal emphasized the need for the AO to gather relevant data from comparable hotel industries and to avoid double taxation by not making multiple additions. The Tribunal also highlighted the importance of granting reasonable opportunities to the assessee as per the principles of natural justice.

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