2024 (11) TMI 685 - AT - Income Tax

Reopening of assessment - reasons to believe - information received from the Investigation Wing - HELD THAT - The section 147 of the Act mandates the Assessing Officer to record reasons to believe that any income chargeable to tax has escaped assessment. It is no more res intigra that borrowed satisfaction for reopening the assessment vitiates reassessment proceedings. A plain reading of the reasons recorded by the AO, unambiguously reflect that the AO has reopened the assessment based on the information received from the Investigation Wing of the Department. The reasons to believe are not of the AO. Assessment is liable to be quashed on this ground alone. We find no infirmity in the findings of the CIT(A) on this issue. We see no merit in ground no. 2 of appeal; hence, the same is dismissed. Addition u/s 37 - payment made to two companies - contention of assessee is that the assessee has not claimed expenditure against the payments made to Telestar Packaging P. Ltd., Sahara Prime City Ltd., during the relevant period - The CIT(A) on this issue has recorded finding of fact that, the impugned payments to the above two companies were advances for execution of work and the said advances were not capitalized in work-in-progress and therefore there is no reason otherwise also for the AO s conclusion that the said payments are to be exclude from WIP, thus rendering the finding and conclusion of the AO a falsity and nullity . The Revenue has not been able to controvert the said findings of the CIT(A). In the absence of any contrary material, we see no reason to disturb the findings of CIT(A) on merits of the addition. Ergo, ground of appeal no. 3 is dismissed.

Summary

Issues:
1. Validity of assessment proceedings based on reasons for reopening.
2. Addition of payments made to specific companies.

Analysis:

Issue 1: Validity of assessment proceedings based on reasons for reopening:
The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2010-11. The Revenue contended that the CIT(A) erred in quashing the assessment order under section 147/148 of the Income Tax Act, 1961, alleging that the Assessing Officer (AO) had independently applied his mind before reopening the assessment. The Revenue argued that the reasons for reopening indicated an escape of income. On the contrary, the assessee's representative argued that the AO had not independently applied his mind and the reasons for reopening were based on borrowed information. The assessee had previously provided all necessary documents during assessment proceedings for the relevant year, and no expenditure was claimed against the payments in question. The Tribunal found that the AO had reopened the assessment solely on information from the Investigation Wing, which is impermissible. The assessment was quashed on this ground, and the appeal on this issue was dismissed.

Issue 2: Addition of payments made to specific companies:
Regarding the addition of payments made to M/s. Telestar Packaging P. Ltd. and M/s. Alishan Estates Pvt. Ltd., the Revenue argued for the disallowance of these payments. However, the CIT(A) found that the payments were advances for work execution and were not capitalized in work-in-progress. The Tribunal upheld the CIT(A)'s findings, noting that the Revenue failed to provide contrary evidence. As a result, the addition was deemed to have no merit, and the appeal on this issue was dismissed. Ultimately, the impugned order was upheld, and the Revenue's appeal was dismissed for lacking merit.

This judgment highlights the importance of the Assessing Officer independently applying their mind before reopening assessments and the necessity of providing concrete evidence to support any additions or disallowances made during the assessment process.