2024 (9) TMI 956 - AT - Income Tax

Reopening of assessment - difference in purchase shown by the assessee and sales shown by the party from where purchases are made - CIT(A) held that the AO had recorded the reasons for reopening as needs to be verified , which is outside the purview of section 147 - HELD THAT - CIT(A) held that the AO has merely mentioned that he needs to verify the transactions. However, we do not agree with the conclusion drawn by the ld.CIT(A). AO in the reasons has specifically mentioned that Rs. 1,68,24,239/- is required to be taxed in the hands of the assessee. Similarly, AO has mentioned that assessee has suppressed gross profit and hence, there is an escapement of income - Thus, in the reasons AO has properly recorded after analysing the ledger accounts, that there was an escapement of income. In certain parts, AO does have mentioned that he needs to verify certain amounts. However, one needs to read the reasons recorded in totality. We can appreciate the reasons only when we read the entire reasons in totality. Therefore, after reading the entire reasons, we are convinced that AO has properly recorded the satisfaction regarding escapement of income. The mere mention of the word verification does not vitiate the entire reasons in totality. The Hon ble Supreme Court in Raymond Woollen Mills ltd. 1997 (12) TMI 12 - SUPREME COURT has laid down the law that the sufficiency or correctness of the material is not a thing to be considered at this stage. One only needs to see whether there was any prima-facia satisfaction based on some material. We are convinced that the AO has properly recorded the reasons for reopening. Therefore, CIT(A) has erred in holding that AO was not justified in taking recourse to the provisions of section 147 of the Act, merely to verify the facts. Decided in favour of revenue.

Issues Involved:
1. Justification of the Assessing Officer (AO) in taking recourse to Section 147 for verification purposes.
2. Validity of reasons recorded by the AO for reopening the case.
3. Tangibility of material suggesting escapement of income.
4. Ld. CIT(A)'s decision to set aside the case without addressing the merits.
5. Evaluation of the AO's reliance on tangible material for issuing notice under Section 148.

Issue-wise Detailed Analysis:

1. Justification of the Assessing Officer (AO) in taking recourse to Section 147 for verification purposes:
The Revenue contested the Ld. CIT(A)'s decision, arguing that the AO's notice under Section 148 was based on tangible information and not merely for verification. The AO had received concrete information from the Tax Recovery Officer (TRO) indicating discrepancies between the purchases shown by the assessee and the sales recorded by the supplier, which suggested potential income escapement. The AO's reasons for reopening included specific findings of inflated purchases and cash payments that required verification.

2. Validity of reasons recorded by the AO for reopening the case:
The AO issued a notice under Section 148 after recording reasons based on information received from the TRO. The AO identified discrepancies in the ledger accounts, including inflated purchases and cash receipts, which led to a belief that income had escaped assessment. The AO's reasons included specific figures and discrepancies, providing a basis for reopening the case. The Tribunal found that the AO's reasons were not merely for verification but were based on concrete information suggesting income escapement.

3. Tangibility of material suggesting escapement of income:
The AO's reasons for reopening the case were based on tangible material, including discrepancies in ledger accounts and cash receipts. The AO identified specific amounts that suggested inflated purchases and suppressed profits. The Tribunal concluded that the AO's reasons were based on firm and concrete facts, not on arbitrary or vague information. The AO's belief that income had escaped assessment was supported by tangible evidence.

4. Ld. CIT(A)'s decision to set aside the case without addressing the merits:
The Ld. CIT(A) set aside the case without addressing the merits of the additions made by the AO. The Tribunal found this approach to be erroneous. The Tribunal emphasized that the Ld. CIT(A) should have adjudicated the grounds raised by the assessee regarding the merits of the additions. The Tribunal directed the Ld. CIT(A) to adjudicate the grounds on merits and provide an opportunity for both the assessee and the Revenue to present their cases.

5. Evaluation of the AO's reliance on tangible material for issuing notice under Section 148:
The Tribunal evaluated the AO's reliance on tangible material and found that the AO had properly recorded reasons based on concrete information received from the TRO. The AO's reasons included specific figures and discrepancies that suggested income escapement. The Tribunal concluded that the AO's reasons were not based on mere suspicion but on tangible evidence. The Tribunal distinguished the present case from other cases cited by the Ld. CIT(A), where the reasons for reopening were based on mere verification without concrete evidence.

Conclusion:
The Tribunal allowed the Revenue's appeal, concluding that the AO had properly recorded reasons for reopening the case based on tangible material. The Tribunal set aside the Ld. CIT(A)'s order and directed the Ld. CIT(A) to adjudicate the grounds on merits, providing an opportunity for both the assessee and the Revenue to present their cases. The appeal of the Revenue was allowed, and the Tribunal emphasized the need for a comprehensive evaluation of the merits of the additions made by the AO.

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