2019 (3) TMI 131 - AT - Income Tax

Reopening of assessment - reasons to believe - Allegation of no work done by the company for PACL Ltd without any material - HELD THAT - Opinion of the AO was that though ₹ 15 crores was received by the assessee from PACL for developing of land and the receipts was also duly disclosed but the expenses claimed in respect of the same were not allowable as it was not actually incurred as he was of the opinion that the actual development work of the land was not done. We find the recording could not point out as to what was the expense claimed by the assessee which was allegedly not incurred by the assessee and the basis of such belief. As there was no material before the AO at the time of making of recording on the issue to show that any expense claimed by the assessee was not allowable as deduction and as the receipt of ₹ 15 crores was duly disclosed as income by the assessee, there was no valid reason to believe that any income of the assessee which was chargeable to tax has escaped assessment for the year under consideration. Consequently, the assumption of jurisdiction to reopen the assessment, in the instant case, was bad in law. Hence, the impugned order of reassessment is hereby cancelled. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of assessing income at a higher amount than declared.
2. Validity of proceedings initiated under sections 147/148.
3. Rejection of books of accounts under section 145(3).
4. Denial of cross-examination of statements used against the assessee.
5. Classification of work contract receipts as deemed income under section 68.
6. Enhancement of income without notice.
7. Application of an 8% net profit rate on gross receipts.

Issue-wise Detailed Analysis:

1. Validity of Assessing Income at a Higher Amount:
The assessee contested the CIT(A)’s confirmation of the AO’s assessment of income at ?16,73,54,700/- against the declared ?1,66,42,143/-. The Tribunal found that the reassessment order was invalid as the reasons recorded by the AO did not constitute a valid belief of income escaping assessment. Consequently, the reassessment order was canceled.

2. Validity of Proceedings Initiated under Sections 147/148:
The Tribunal examined whether the notice under section 148 was validly issued. The notice was issued to a firm that had been dissolved before the notice date. Citing various judicial precedents, the Tribunal concluded that issuing a notice to a non-existent entity renders the reassessment order invalid. Additionally, the AO did not dispose of the objections raised by the assessee against the reopening, further invalidating the proceedings.

3. Rejection of Books of Accounts under Section 145(3):
The AO rejected the books of accounts under section 145(3), but the Tribunal found that the AO did not point out any specific defects in the books of accounts. Since the reassessment was invalid, this issue became infructuous.

4. Denial of Cross-Examination of Statements:
The assessee was denied the opportunity to cross-examine the statements relied upon by the AO for making additions. The Tribunal noted that such denial violates principles of natural justice, referencing the Supreme Court judgment in the case of Andaman Timber Industries.

5. Classification of Work Contract Receipts as Deemed Income under Section 68:
The CIT(A) directed the AO to treat work contract receipts of ?15,00,00,000/- as deemed income under section 68 instead of income from other sources. The Tribunal found that the reasons recorded for reopening did not justify such classification, rendering the reassessment invalid.

6. Enhancement of Income without Notice:
The Tribunal observed that the CIT(A) confirmed the addition of ?15 crores without issuing a notice of enhancement. This action was deemed improper as it violated the principles of natural justice.

7. Application of an 8% Net Profit Rate on Gross Receipts:
The AO applied an 8% net profit rate on gross receipts after rejecting the books of accounts. The Tribunal found that the reassessment was invalid, and thus, this ground became infructuous.

Conclusion:
The Tribunal allowed the appeal of the assessee, canceling the reassessment order due to invalid reasons for reopening and procedural lapses, including issuing notice to a non-existent entity and not disposing of objections. Consequently, other issues raised became infructuous.