2021 (10) TMI 500 - AT - Income Tax

Accrual of income / Undisclosed income - Nature of advance money received - Addition as facilitation fee / commission / brokerage - Eligible material to establish the fact that the advance was in the nature of Commission/Brokerage or facilitation fee - assessee received the sum from K.G. Krishna who was the Purchaser of the property on behalf of whom the assessee rendered various services to various properties in and around Bangalore -assessee himself has admitted on Oath before made by the AO in respect of that he has received - HELD THAT - As there was an agreement of development work between the assessee and Astitva group of concerns, on whose instructions, the ultimate buyer of the land, K.G. Krishna has made these payments. As rightly pointed out by the assessee, the development work could not be done in view of the pending litigation before the City Civil Court in OS 198/2009. The transaction took place in the FY 2007-08 and the said suit was in respect of ownership of the property and the assessee is having no ownership rights over the disputed land, but he was only concerned with the development work as a contractor. Accordingly, the assessee was not a party to the litigation. The amount so received of ₹ 2.55 cores is only for carrying out the development work in terms of the agreement between the parties and it was duly shown in the balance sheet filed with the authorities, as such it cannot be considered as commission or brokerage paid to assessee. It was received by the assessee as an agent to carry out the work entrusted to the assessee by Astitva group of companies and it cannot be taxed in the hands of assessee as income. Being so, the CIT(Appeals) was justified in deleting the addition on this count. Validity of Reopening of assessment u/s 147 - whether AO did not have any information, except information received from the Investigation Wing for reopening the assessment? - HELD THAT - In the present case, the AO simply relied upon the information received by him and stated that income has escaped assessment which has not been disclosed by the assessee and it is the income which escaped assessment in the hands of assessee. It clearly shows that AO simply acted upon the information and did not apply his own mind to the information to arrive at a belief independently that on the basis of material before him to come to the conclusion that income has escaped assessment. It was only a doubt, but not a reason to believe meaning thereby that, even if there was some material in respect of source of receipt, it was not sufficient for arriving at the conclusion that the receipt represented unexplained income of the assessee. In other words, the AO has just suspicion in his mind and it is trite law that an assessment cannot be reopened merely on the basis of suspicion and initiation of reassessment proceedings u/s. 148 of the Act on the basis of this aspect was invalid in the eye of law. AO reopened the assessment merely on suspicion and surmise, without there being any positive material in his possession to prove that the assessee is the owner of the bank account or having beneficial interest in this bank account. Therefore, we are of the opinion that the reopening of assessments are bad in law, which cannot be sustained. Accordingly, we quash the reassessment. Reopening of assessment u/s 147 or 153C - Whether Reopening of assessment on the reason that assessment was reopened consequent to search action in the case of K.G. Krishna K.G. Krishna u/s. 148, it should be reopened u/s. 153C? - HELD THAT - First of all, the AO of the searched person would have to arrive at a satisfaction that document or asset seized does not belong to a person searched, but to some other person, and secondly, the seized documents or assets are handed over to the AO having jurisdiction over that person, i.e., person other than the one searched and to whom the seized document or assets are said to belong. In the present case, the basis for reopening the assessment was information received from DDIT (Inv)Unit 1(2), Bangalore, about the payment of ₹ 2.55 crores to the assessee by K.G. Krishna who was searched u/s. 132 of the Act. The search team had not found any assets or documents seized belonging to the present assessee. Since there was no unearthing of document or assets during the course of search u/s. 132 belonging to the present assessee, consequent to search action in the case of K.G. Krishna. Being so, as per the provisions of section 153C as it stood on 1.6.2015, the assessee s case cannot be reopened u/s. 153C of the Act and on the basis of information gathered through DDIT (Inv)Unit 1(2), Bangalore, the assessment of present assessee could be reopened only u/s. 147/148 of the Act and this is subject to our findings in ground No.3 in CO. This ground of objection by the assessee is dismissed. Competent authority to approve the reopening of assessment - Notice u/s. 148 was issued to the assessee after 4 years and no approval was obtained from the CCIT as required u/s. 151 - HELD THAT - In the instant case, though the assessment was reopened after 4 years, there was no assessment u/s. 143(3) of the Act. As seen from the provisions of section 151(2), Jt. Commissioner is the competent authority to approve the reopening of assessment and there is no necessity of approval of Commissioner of Income Tax to reopen the assessment. The assessee is relying on proviso to section 151(1) of the Act, which is only applicable to assessment to be reopened after four years in case original assessments were completed u/s. 143(3) of the Act. Being so, this argument of the assessee is also dismissed.

Summary

Issues Involved:
1. Validity of the CIT(A)'s Order
2. Reliance on Information from Investigation Wing
3. Admission of ?2.55 Crores Receipt
4. Evidence for ?2.55 Crores as Development Work Advance
5. Deletion of Additions by AO
6. Balance Sheet Discrepancies
7. Reopening of Assessment u/s 147 vs. 153C
8. Delay in Filing Revenue's Appeal

Detailed Analysis:

1. Validity of the CIT(A)'s Order:
The Revenue challenged the CIT(A)'s decision, arguing it was opposed to law and facts. The CIT(A) had ruled that the AO relied solely on information from the Investigation Wing without substantive evidence to classify the ?2.55 crores as commission or brokerage.

2. Reliance on Information from Investigation Wing:
The CIT(A) noted that the AO's decision was based on information from the Investigation Wing and a statement recorded under oath. The CIT(A) emphasized that the AO must have sufficient material evidence to form a belief of income escapement. The assessee's statement alone, without corroborative evidence, was deemed insufficient.

3. Admission of ?2.55 Crores Receipt:
The Revenue contended that the assessee admitted receiving ?2.55 crores and agreed to revise the return. However, the CIT(A) observed that the statement was recorded contrary to CBDT instructions and without supporting material evidence. The amount was shown as an advance for development work, not income.

4. Evidence for ?2.55 Crores as Development Work Advance:
The CIT(A) found that the assessee provided evidence of the amount being an advance for development work. The AO misunderstood the expenses incurred by the assessee. The CIT(A) concluded that the amount was for development work and not taxable income.

5. Deletion of Additions by AO:
The CIT(A) deleted the additions made by the AO, stating that the AO relied on presumptions without evidence. The development work was hindered by litigation, and the amount was shown as an advance in the balance sheet. The CIT(A) ruled that the amount could not be assessed as income.

6. Balance Sheet Discrepancies:
The AO noted discrepancies in the balance sheet regarding the ?2.55 crores. The CIT(A) observed that the amount was shown as an advance in the balance sheet for the relevant year and not as income. The AO's reliance on the absence of this amount in subsequent years was deemed irrelevant.

7. Reopening of Assessment u/s 147 vs. 153C:
The assessee argued that the assessment should have been reopened under section 153C, not 147. The CIT(A) upheld the reopening under section 147, stating that the information did not belong to the assessee and was sufficient for reopening under section 147. The Tribunal agreed, noting that the AO had prima facie material to suggest income escapement.

8. Delay in Filing Revenue's Appeal:
The assessee claimed that the Revenue's appeal was delayed and lacked an application for condonation. The Tribunal clarified that the actual date of communication was 9.10.2018, not 17.3.2016, and there was no delay in filing the appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions and the reopening of assessment under section 147. The Tribunal also partly allowed the assessee's cross-objections, quashing the reassessment due to lack of tangible material and improper application of section 147.