2022 (2) TMI 316 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Eligibility of reasons to believe - notice after expiry of four year - unexplained expenditure u/s 69 - HELD THAT - Admittedly notice under section 148 was issued after expiry of four year from the end of relevant assessment year, therefore the Proviso to section 147 will come into effect. And as per said Proviso, no action can be taken after expiry of four year unless any income chargeable to tax has escape assessment by the reasons on the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. As the assessee has already disclosed all the facts fully and truly all necessary for assessment in the form of expenses of purchases shown purchases. Hence, we are of the view that notice under section 148 is issued on the basis of material available on record on the file of AO, thus, it is also a case of change of opinion, which is not permissible under law and has been held in CIT Vs Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT . In view of the aforesaid factual and legal discussion, we are of the view that the reopening under section 147 and issuance of notice under section 148 is not in accordance with law and the same is set aside, resultantly the assessment order dated 25.02.2015 is quashed. Considering the facts that we have accepted two primary submissions of the Ld. AR for the assessee, therefore discussions on other submissions has become academic. In the result, ground No. 1of the appeal is allowed. Unexplained expenditure u/s 69 - We find that the AO has not rejected the books of the assessee, no comment was made by the AO on various documentary evidence, which were available before him. The ld AR for the assessee further submits that the assessee has declared better gross profit (GP) for the year under consideration @ 5.19%, which is more than the earlier years. Therefore, we find that the assessee has good case on merit as well - Appeal of the assessee is allowed

Summary

Issues Involved:

1. Validity of reopening the assessment under Section 147/148 of the Income Tax Act.
2. Addition of ?1,68,69,977/- on account of alleged unexplained expenditure under Section 69 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147/148:

The primary issue was whether the reopening of the assessment for AY 2007-08 under Section 147/148 was justified. The reopening was based on findings during proceedings under Section 263 for AY 2005-06, where it was discovered that the assessee made purchases from non-existing parties. The AO issued a notice under Section 148 on 29.03.2014, leading to the reassessment. The assessee filed objections against the reopening, arguing that the order under Section 263 for AY 2005-06, which formed the basis for reopening, was quashed by the Tribunal.

The Tribunal noted that the order under Section 263 dated 30.03.2014 was indeed quashed, making the basis for reopening invalid. The Tribunal referred to the Delhi High Court's decision in CIT Vs International Tractors Ltd., which held that if the order under Section 263 is quashed, the reopening under Section 147 based on that order is also not justified.

Further, the Tribunal observed that the AO had all the relevant information regarding the purchases on record, indicating that there was no new material to justify the reopening. The notice under Section 148 was issued after four years from the end of the relevant assessment year, invoking the Proviso to Section 147, which prohibits reopening unless there is a failure on the part of the assessee to disclose fully and truly all material facts. Since the assessee had already disclosed all necessary facts, the reopening was deemed a change of opinion, which is not permissible as per the Supreme Court's ruling in CIT Vs Kelvinator of India Ltd.

Thus, the Tribunal concluded that the reopening under Section 147 and the issuance of notice under Section 148 were not in accordance with the law and quashed the assessment order dated 25.02.2015.

2. Addition of ?1,68,69,977/- on Account of Alleged Unexplained Expenditure under Section 69:

On the merits of the addition, the Tribunal noted that the AO did not reject the assessee's books of accounts and did not comment on the documentary evidence provided. The assessee had declared a better gross profit rate of 5.19% for the year under consideration compared to earlier years. The Tribunal found that the AO's reliance on the inspector's report from the proceedings under Section 263 for AY 2005-06, conducted 8-10 years later, was insufficient to doubt the purchases.

Given that the Tribunal had already set aside the assessment order on the grounds of invalid reopening, the discussion on the merits of the addition became academic. However, the Tribunal indicated that the assessee had a strong case on merit as well.

Conclusion:

The Tribunal allowed the appeal, setting aside the reopening under Section 147 and quashing the assessment order dated 25.02.2015. The addition of ?1,68,69,977/- was also not sustained due to the quashing of the assessment order. The appeal of the assessee was thus allowed in full.