2021 (6) TMI 730 - AT - Income Tax

Reopening of assessment u/s 147 - addition towards payments made to the sub-contractors on the ground that the assessee could not produce any information nor could produce any sub-contractor - HELD THAT - It is a settled position of law that the assessment can be reopened under section 147/148 on the basis of reason to believe and not reason to suspect . Unless the reasons to believe about the escapement of income exist, no recourse can be taken to the provisions of section 147. It is well settled by a number of judgments of the Hon ble Supreme Court that the twin conditions which are required to be fulfilled before an Assessing Officer can exercise his jurisdiction under clause (a) of section 147 of the Act are (a) that the Assessing Officer must have reason to believe that income, profits or gains chargeable to tax had either been underassessed or had escaped assessment and (b) that the Assessing Officer must have reason to believe that such escapement or underassessment was caused by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. In the impugned case, the Assessing Officer has not satisfied with the second limb of section 147. The reopening of assessment can be quashed on two counts, i) no new material was brought on record by the AO in the reopening of assessment to establish that the income of the assessee has escaped assessment as the assessee has already disclosed all the information necessary for completion of original assessment and ii) the reopening of assessment made beyond four years from the AY under consideration. AO reopened the assessment based on change of opinion, which is not acceptable as per the decisions quoted supra. Therefore, we quash the reopening of assessment made by the AO and the grounds raised by the assessee on this issue are allowed.

Issues Involved:
1. Validity of reopening the assessment under Section 147/148 of the Income Tax Act.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Addition of ?95,49,67,088/- towards payments made to sub-contractors.
4. Alleged bogus nature of sub-contract expenses.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147/148:
The case was reopened to verify sub-contractor expenditure of ?95,49,67,088/-. The CIT(A) quashed the assessment order passed by the AO under Section 147/148, noting that the AO did not record satisfaction as to the failure on the part of the assessee as required under the first proviso to Section 147. The CIT(A) observed that the AO did not have the assessment records at the time of recording reasons for reopening, which is essential to conclude that there was a failure by the assessee to disclose fully and truly all material facts. The Tribunal upheld this finding, emphasizing that the reasons recorded must include allegations of failure to disclose fully and truly all material facts, which were absent in this case.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts:
The CIT(A) and the Tribunal found no allegation or evidence in the reasons recorded by the AO that the assessee failed to disclose fully and truly all material facts necessary for the assessment. It was noted that the original assessment was completed under Section 143(3), and the reopening was attempted beyond four years. The Tribunal cited several judicial precedents, including the Supreme Court's decision in CIT Vs. Kelvinator of India Limited, which mandates that reopening beyond four years requires specific reasons indicating the assessee's failure to disclose material facts, which were not present in this case.

3. Addition of ?95,49,67,088/- Towards Payments Made to Sub-Contractors:
The AO made an addition of ?95,49,67,088/- towards payments made to sub-contractors, claiming the assessee could not produce any information or sub-contractors. The CIT(A) quashed this addition, noting that the AO did not conduct adequate inquiries and relied solely on the report from the Investigation Wing. The Tribunal supported this view, emphasizing the need for tangible material to justify reopening and making additions, which were lacking in this case.

4. Alleged Bogus Nature of Sub-Contract Expenses:
The AO alleged that the sub-contract expenses were bogus as the sub-contractors were untraceable. The CIT(A) found that the AO's reliance on the Investigation Wing's report without independent verification was insufficient to substantiate the claim of bogus expenses. The Tribunal upheld this finding, reiterating that the AO must have concrete evidence and not merely suspicion to justify such claims.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to quash the reopening of the assessment under Section 147/148 and the addition of ?95,49,67,088/-. The Tribunal emphasized the necessity of recording specific reasons indicating the assessee's failure to disclose material facts and the requirement of tangible evidence to justify reopening and making additions. The appeal of the revenue was dismissed.

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