2019 (1) TMI 271 - AT - Income Tax

Reopening of assessment - assessee have claimed interest expenditure paid in the nature of jamakharchi transactions - validity of reason to believe - Held that - The assessee had successfully demonstrated during the course of lower appellate proceedings that it had never claimed the impugned interest expenditure in its books. He thereafter holds that the Assessing Officer s sole reason of re-opening no more survives and this is what brings into action various decisions that if a re-opening is done for x reason, then it deserves to be quashed in case no addition is made for the said reason. Mr. Majumdar s case is that the Assessing Officer had made the twin addition(s) including one forming the subject-matter of re-opening. He fails to dispute the clinching fact that assessee had no where claimed the impugned expenditure in its books for the impugned assessment year which gave rise escapement of taxable income from being assessed. CIT(A) has rightly observed therefore that the above re-opening reason itself had been assumed on an incorrect factual position. That being the case, we find merit in the CIT(A) s above extracted detailed reasoning that the impugned re-opening would not sustain the test of legality. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the re-opening/re-assessment under Section 147 of the Income Tax Act, 1961.
2. Addition of ?14,18,390/- as interest paid to bogus/jamakharchi companies.
3. Addition of ?5,35,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Re-opening/Re-assessment:
The primary issue in the Revenue’s appeal was the validity of the re-opening/re-assessment under Section 147 of the Income Tax Act, 1961. The CIT(A) had quashed the re-opening/re-assessment on the grounds that the basis for re-opening, i.e., the interest payment of ?14,18,390/- to bogus/jamakharchi companies, was not claimed as a deduction by the assessee. The CIT(A) relied on various case laws, including CIT vs. Jet Airways (I) Ltd (2011) 331 ITR 236 (Bom) and Ranbaxy Laboratories Ltd vs. CIT (2011) 336 ITR 136 (Del), which held that if the reason for re-opening is not sustained, the re-assessment cannot survive. The Tribunal upheld the CIT(A)’s decision, stating that the Assessing Officer’s reason to believe that ?14,18,390/- had escaped assessment was based on an incorrect factual position, as the amount was never claimed as a deduction by the assessee.

2. Addition of ?14,18,390/- as Interest Paid to Bogus/Jamakharchi Companies:
The CIT(A) found that the assessee had not claimed the interest payment of ?14,18,390/- as an expenditure in its books for the relevant assessment year. The amount was shown under the head "details of inventories (work-in-progress)" in the audited balance sheet. Since the interest payment was not claimed as a deduction, the CIT(A) held that the Assessing Officer’s action of disallowing the interest payment was unsustainable. The Tribunal concurred with the CIT(A), stating that the disallowance of ?14,18,390/- was not justified as the amount was not claimed as an expenditure by the assessee.

3. Addition of ?5,35,00,000/- as Unexplained Cash Credit:
The CIT(A) also quashed the addition of ?5,35,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961, on the grounds that the re-opening itself was invalid. The Tribunal upheld this decision, referencing its coordinate bench’s decision in Sanju KJalan vs. ITO ITA No.634/Kol/2017, which held that if the reason for re-opening is not sustained, any other additions made in the re-assessment cannot be sustained. Consequently, the addition of ?5,35,00,000/- was rendered infructuous.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)’s findings that the re-opening/re-assessment was invalid as the basis for re-opening was not sustained. The addition of ?14,18,390/- as interest paid to bogus/jamakharchi companies and the addition of ?5,35,00,000/- as unexplained cash credit were both quashed. The assessee’s cross-objection was dismissed as rendered infructuous.