2023 (9) TMI 1108 - AT - Income Tax

Validity of assumption of jurisdiction u/s 147- Reason to believe - notice u/s 148 as issued beyond four year - transactions of commodity/derivatives trading - HELD THAT - We find that the ld. AO in the reasons has made a very general observation in para-8 that assessee company had not declared its affairs correctly in the return filed by it. When the assessee had denied having any transactions with the Sub-brokers listed in the reasons and in view of the fact that assessee had already disclosed that profit earned from derivatives transactions carried out through M/s R.K. Commodities Pvt. Ltd. in the original return filed and assessed already u/s 143(3) of the Act, how can thereby any failure on the part of the assessee to disclose fully and truly all material facts that are relevant for the purposes of framing the assessment. How can the assessee be expected to prove the negative? The assessee could be expected to give explanation for the transactions carried out by it. It could not be expected to give explanation for the transactions not carried out by it, merely because some information had already been received by the Ld. AO from the Investigation Wing, Kolkata. We also find that the Ld. AO in the original scrutiny assessment proceedings had examined the entire transactions of commodity/derivatives trading during the course of original assessment proceedings itself which is evident from notice u/s 142(1) - Thus as sufficient enquiries were already made by the Ld. AO on the impugned transactions mentioned in the reasons. Hence, it also tantamount to change of opinion on the part of the Ld. AO for initiating the reassessment proceedings u/s 147 of the Act. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Assumption of Jurisdiction under Section 147 of the Income Tax Act.
2. Whether the reassessment proceedings were based on valid information or merely on suspicion.
3. Examination of transactions and whether the reassessment leads to double addition.

Summary:

1. Validity of Assumption of Jurisdiction under Section 147 of the Income Tax Act:
The assessee challenged the validity of the assumption of jurisdiction under Section 147 of the Act. The Tribunal found that the original assessment was completed under Section 143(3), and the reassessment proceedings were initiated based on information from the Investigation Wing. The assessee argued that the reasons recorded for reassessment were merely a change of opinion without any new material. The Tribunal noted that the Assessing Officer (AO) did not conduct a preliminary verification of the facts from the Income Tax Return, which would have shown that the income was already offered to tax. Thus, the AO did not have a "reason to believe" that income had escaped assessment, but only a "reason to suspect."

2. Whether the reassessment proceedings were based on valid information or merely on suspicion:
The Tribunal found that the reassessment was initiated based on vague information from the Investigation Wing, which did not constitute a live link to form a belief that income had escaped assessment. The AO failed to verify the transactions from the return filed by the assessee and relied solely on the information received. The Tribunal held that the AO's actions were based on suspicion rather than concrete evidence, and the reassessment proceedings were not justified.

3. Examination of transactions and whether the reassessment leads to double addition:
The Tribunal observed that the assessee had already disclosed the profit from commodity transactions in the original return, and the AO had examined these transactions during the original assessment proceedings. The reassessment proceedings, if sustained, would lead to double addition of the same transactions. The Tribunal also noted that the assessee had conducted transactions through its broker, M/s R.K. Commodities Pvt. Ltd., and not through the sub-brokers mentioned in the reasons recorded. No contrary evidence was provided by the Revenue.

Conclusion:
The Tribunal quashed the reassessment proceedings under Section 147 of the Act, stating that they were based on vague information and constituted a change of opinion. The appeal filed by the assessee was allowed. The reassessment was deemed invalid both on legal grounds and on merits. The order was pronounced on 16th May 2023.