2018 (8) TMI 207 - HC - Income Tax

Reopening of assessment - bogus expenditure - Held that - No doubt each assessment year is to be seen differently; however the note from the investigation unit talks of a pattern of expenditure claims over a five-year period. Three of those years were dealt with; the assessee emerged unscathed. Given these circumstances this is clearly a case where the revenue is attempting to fish from the same stale pond when it dipped into the TEP as the basis for the investigation to suddenly discern a pattern of suspect or bogus expenditure. In this case the trigger for all the reassessment attempts by the revenue was the same TEP which led to previous attempts to re-open completed assessments. The material on record show that the AO had conducted inquiries at the time of completion of the original assessments. There is nothing to show that the entities to whom payments were made (by the assessee) were fictitious; in fact TDS amounts were apparently deducted. There was no fresh evidence supporting the reassessment. Consequently there was no tangible specific material to justify the impugned reassessment notice. For the above reasons this petition has to succeed. The impugned reassessment notice dated 30.03.2016 and all further proceedings are hereby quashed. The petition is allowed - decided in favour of assessee

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961 for A.Y. 2010-11.
2. Whether the information used to reopen the assessment had a "live link" or nexus to the assessment order in question.
3. Examination of the genuineness of contractor charges claimed by the assessee.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148:
The petitioner, engaged in consultancy business, challenged the reopening of its assessment for A.Y. 2010-11 under Section 148 of the Income Tax Act, 1961. The petitioner argued that the reopening was based on stale material and lacked new tangible evidence. The revenue had previously attempted to reopen assessments for A.Y. 2007-08 and 2008-09 on similar grounds, which were unsuccessful. The court emphasized that the information forming the basis for reassessment should have a "live link" or nexus to the assessment order in question, and mere suspicion or conjecture is insufficient.

2. Relevance of Information Used for Reopening:
The revenue's basis for reopening the assessment was a Tax Evasion Petition (TEP) and subsequent investigations that alleged the petitioner claimed bogus expenditures. The petitioner contended that information relating to one assessment year (A.Y. 2007-08 and 2008-09) was not relevant for another assessment year (A.Y. 2010-11). The court agreed, citing previous judgments that emphasized the need for tangible material relevant to the specific assessment year in question. The court found that the reasons provided for reopening the assessment did not demonstrate a live link to A.Y. 2010-11 and were based on mechanical and repetitive grounds.

3. Examination of Contractor Charges:
The revenue alleged that the contractor charges claimed by the petitioner were used for non-business purposes and were, therefore, bogus. The petitioner had previously provided evidence, including TDS deductions and statements from subcontractors, to support the genuineness of these charges. The court noted that previous assessments and revisions had not conclusively established the charges as bogus. The court found that the revenue's reliance on the same TEP and investigation findings, without new tangible evidence, did not justify the reassessment.

Conclusion:
The court concluded that the reopening of the assessment for A.Y. 2010-11 was not justified as it was based on stale material, lacked a live link to the assessment year in question, and did not provide new tangible evidence. The impugned reassessment notice dated 30.03.2016 and all further proceedings were quashed. The petition was allowed without any order on costs.