2019 (5) TMI 275 - AT - Income Tax

Reopening of assessment u/s 147 - no relevant fresh material - original assessment u/s 143(3) - failure on part of assessee to disclose necessary material fact for assessment - addition u/s 68 - cash deposit in bank account - admission of additional evidence by CIT(A) - HELD THAT - In the instant case there was no relevant and sufficient material to make satisfaction for initiation the process of re-assessment u/s 147 hence, we do not find any infirmity, impropriety or illegality in the action of the CIT(A) in not sustaining the action u/s 147 by the Assessing Officer. Proper opportunities have been offered to the AO to file the remand report by verifying the documents and claim of the assessee, however, he did not make any effort to do so and ultimately the CIT(A) not only considered the normal practice of the assessee qua receiving of the advances from the customers as well as audited balance sheets of the preceding and succeeding assessment years but also considered the financial statements of the year under consideration reflected the advances from customers which were duly audited by the Chartered Accountant and opined that the appellant/assessee has fully explained the details of the deposits in the Bank Account and therefore, deleted the additions, which according our mind does not suffers from any perversity, illegality and impropriety. Hence, the action of the CIT(A) in non-sustaining of the action of the AO, on merit also does not require any inference and consequently stands affirmed. - Decided against revenue

Issues Involved:
1. Validity of the initiation of proceedings under Section 147 of the Income Tax Act.
2. Deletion of addition under Section 68 of the Income Tax Act on account of unexplained cash deposits.

Issue-wise Detailed Analysis:

1. Validity of the Initiation of Proceedings under Section 147 of the Income Tax Act:
The Revenue Department questioned whether the Commissioner of Income Tax (Appeals), Jammu, was right in quashing the assessment order on the issue of initiation of proceedings under Section 147. The Revenue argued that the assessee failed to substantiate alleged advances from customers, leading to the initiation of proceedings under Section 148. The Revenue cited several cases to support its stance, including CIT vs. PVS Beedies P. Ltd. and Raymond Woolen Mills Ltd. vs. ITO.

The appellant contended that the reopening of the case under Section 148 was a mere change of opinion and thus illegal. The appellant argued that the bank deposits used as the basis for reopening had already been considered in the earlier assessment, where the then AO had applied a net profit rate on such deposits. The appellant relied on several judgments, including CIT vs. Kelvinator of India Pvt. Ltd., where the Supreme Court held that a mere "change of opinion" cannot justify reopening an assessment.

The CIT(A) concluded that there was no new material or fresh information to justify the reopening of the assessment. The CIT(A) emphasized that a change of opinion does not constitute a valid reason to believe that income has escaped assessment. The CIT(A) quashed the assessment order, deeming the reopening invalid and illegal.

2. Deletion of Addition under Section 68 of the Income Tax Act on Account of Unexplained Cash Deposits:
The Revenue Department also questioned whether the CIT(A), Jammu, was right in deleting the addition under Section 68 on account of unexplained cash deposits. The Revenue argued that the relief was mainly allowed based on additional evidence produced during the appeal proceedings, which were not available during the assessment.

The appellant argued that the addition of ?99,43,535/- under Section 68 was unjustified. The appellant provided a breakdown of the deposits in the bank accounts, including turnover, inter-bank transfers, cheques returned, and advances from customers. The appellant produced additional evidence, including a certificate from the bank and a list of customers who had paid advances.

The CIT(A) admitted the additional evidence under Rule 46A and forwarded it to the AO for verification. The AO failed to verify the documents and merely commented that these were not produced during the assessment. The CIT(A) observed that it was the AO's duty to verify the documents and that the AO had no power to refute the decision to admit additional evidence. The CIT(A) noted that receiving advances from customers was a normal practice for the appellant, as reflected in audited balance sheets of preceding and succeeding years. The CIT(A) found the addition unjustified and deleted it.

The Tribunal affirmed the CIT(A)'s decision, noting that the AO had ample opportunity to verify the documents but failed to do so. The Tribunal found no infirmity or illegality in the CIT(A)'s action and upheld the deletion of the addition.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue Department, upholding the CIT(A)'s decision to quash the assessment order and delete the addition under Section 68. The Tribunal found that the reopening of the assessment was based on a mere change of opinion and that the AO failed to verify the additional evidence provided by the appellant. The Tribunal's decision was pronounced in open court on 23.04.2019.

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