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TMI Blog2021 (10) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... words show that AO was not having reason to believe , rather he has reopened the case on mere suspicion . As the main component of reasons should be AO having reason to believe. The words has reason to believe are stronger than the words is satisfied . The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. Where reasons recorded by AO lack clarity and it was practically impossible to derive meaning out of it and was incapable of being understood , reassessment notice was liable to be quashed. AO mentioned about section 40A(3) in the reasons of reopening and opined that the said transaction of 7.12 crores attracts the violation of section 40A(3). However, we find that the AO deviated from his aforesaid stand which he basically took while reopening the case and later on while framing the assessment he added the said amount u/s 69A. Thus, from this action of AO, it is concluded that he was not sure in himself since beginning that the transaction involved is of what nature, which section is attracted here and what kind of violation is there. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts - in the instant case, there is no evidence that the assessee was found to be the owner of any money during the subject year. There is no other tangible material on records which shows that assessee was actually indulged into any such transaction and the authenticity of copy of ledger account of assessee in the books of Keti Construction Ltd. was also doubted by the assessee. AO has discussed about the statement of one Shri Kedarmal Jakhetiya, director of Keti Constructions Ltd. the ld. Assessing Officer placed reliance on the said statement where Mr. Jakhetiya has submitted a list of certain bogus petty contractors in which assessee s name was also included. However, we observe that during the entire assessment proceedings, neither the copy of the statement was provided to the assessee nor the said person was allowed to be confronted by the assessee. Ld. AO was duty bound to provide an opportunity to assessee to confront Mr. Jakhetiya regarding the same. But AO did not follow the principle of natural justice. Thus in such a situation, the discussion made by AO about the statement of director of said company is invalid in view of the violation of principle of natural ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 71,12,000/- made by the Assessing Officer on account of unexplained money u/s 69A of the IT act 1961. 3. Further, the assessee has also filed the following application for admission of additional ground for the assessment year 2009- 10: "BEFORE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE IN THE MATTER OF M/S FERRO CONCRETE CONST. [INDIA] PVT. LTD. V/S DCIT 1[1], INDORE (M.P.) ASSESSMENT YEAR 2009-10 PAN No.- AAACF2726K The Appellant Company submitted return of income declaring income of ₹ 1,48,83,190/- on 28/09/2009 and regular assessment was completed on a total income at ₹ 1,81,09,152/- vide order dated 19/12/2011 u/s 143(3) by JCIT Range-(4), Indore. That the notice u/s 148 dated 04/03/15 and in compliance thereof, return was submitted and reasons for reopening was requested to DCIT Circle-1(1), Indore (M.P.). The Ld. AO supplied the reasons for reopening the assessment on 27/05/2015 and objections thereof were filed on 03/06/15 and same were disposed off by Assessing Officer vide order dated 21/12/15 and same were available at page 9 to 11 of the paper book. The Ld AO completed the re-assessment by additions of ₹ 7,12,00,000/- to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income for A.Y. 2009-10 on 28.09.2009 declaring total income of ₹ 1,43,83,190/-. The case was then selected for scrutiny and notices were issued which were duly complied. Finally the assessment u/s 143(3) was completed vide order dated 19.12.2011 thereby making addition of ₹ 37,25,962/- on account of low net profit and deemed dividend u/s 2(22)(e) and hence assessing total income at ₹ 1,81,09,150/-. Thereafter, an order u/s 154 was passed on 26.12.2012 on the question of depreciation resulting into determination of total income of the assessee at ₹ 1,86,21,994/-. Thereafter, on 04.03.2015, the case was reopened by issuing notice u/s 148 and vide AO's letter dated 27.05.2015, reasons for reopening the case were provided to the assessee. In response, the assessee filed its objections on 03.06.2015 which were disposed of by the AO through an order dated 21.12.2015. Further a query letter u/s 142(1) dated 04.01.2016 was issued to the assessee, against which, reply was submitted vide letter dated 25.01.2016. The only basis of reopening was the copy of assessee's ledger account in the books of one M/s Ketti Construction Ltd. found during searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. Per contra, ld. CIT-DR relied upon the orders of the Revenue Authorities and submitted that the reopening was rightly initiated by the Assessing Officer as the copy of assessee's ledger account in the books of one M/s Ketti Construction Ltd. was found during search at the latter's premises and the Ld. AO observed that there were cash payments made by the assessee to Ketti Const. Ltd. during A.Y. 2009-10 amounting to ₹ 7,12,00,000/- in totality. Thus, the Assessing Officer had rightly reopened the assessment u/s 147 of the I.T. Act. 9. We have considered the rival submissions of both the parties and gone through the material available on the file. We find that the assessment u/s 143(3) was completed vide order dated 19.12.2011 thereby making addition of ₹ 37,25,962/- on account of low net profit and deemed dividend u/s 2(22)(e) and hence assessing total income at ₹ 1,81,09,150/-. Thereafter, an order u/s 154 was passed on 26.12.2012 on the question of depreciation resulting into determination of total income of the assessee at ₹ 1,86,21,994/-. Thereafter, on 04.03.2015, the case was reopened by issuing notice u/s 148 and reasons for reopening the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year." From the above, we find that the reassessment can be done only where AO has reasons to believe that any income chargeable to tax has escaped assessment and there was a failure on the part of assessee to make full and true disclosure. However, in the instant case, the assessee had already given all the disclosures and information during original assessment proceedings and Assessing Officer did not find anything warranting reassessment. He has simply relied upon information received from DCIT-Central, Indore. Therefore, the AO has overlooked the first proviso to section 147 as at no point of time he has brought on record anything to the effect that there is any omission or failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. We find that in the reasons, the Ld. Assessing Officer nowhere mentioned the words "Income chargeable to tax" which are of utmost importance as is evident from the Section 147 which speaks that "If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017) 99 CCH 0124 DelHC : (2017) 397 ITR 0469 (Delhi), the Hon'ble Delhi High Court held as under: Reassessment-Income escaping assessment-Failure to make full and true disclosure of income and facts-Petitioner-Assessee challenged notice issued by AO u/s 148 seeking to re-open assessment for Assessment Year ('AY') 2003-04 as well as order passed by AO dismissing objections filed by Petitioner-AO passed reassessment order on ground that, Assessee failed to make full and true disclosure of income-Held, AO had not made effort of disclosing, in reasons, what according to him constituted failure by Assessee to make full and true disclosure-Mere reproduction of language of provision would not suffice-Also, although making such averment either in order rejecting objections of Assessee or subsequently in counter-affidavit in answer to writ petition would not satisfy requirement of law-For complying with jurisdictional requirement under first proviso to section 147, reasons would have to show in what manner Assessee had failed to make full and true disclosure of all material facts necessary for assessment-Burden was still on AO notwithstanding Explanation 1 to first proviso to Section 147- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed. The Hon'ble Supreme Court observed as under: "The powers of the ITO to reopen assessment, though wide, are not plenary. The words of the statute are 'reason to believe' and not 'reason to suspect'. The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken, the requirements of the law should be satisfied. The live-link or close nexus which should be there between the material before the ITO in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of belief that income has escaped assessment. Thus where reasons recorded by AO "lack clarity and it was practically impossible to derive meaning out of it and was incapable of being understood", reassessment notice was liable to be quashed. 14. We also find that the Ld. AO mentioned about section 40A(3) in the reasons of reopening and opined that the said transaction of ₹ 7.12 crores attracts the violation of section 40A(3). However, we find that the AO deviated from his aforesaid stand which he basically took while reopening the case and later on while framing the assessment he added the said amount u/s 69A. Thus, from this action of AO, it is concluded that he was not sure in himself since beginning that the transaction involved is of what nature, which section is attracted here and what kind of violation is there. Therefore, the Ld. AO has absolutely changed his view which was formed initially and which was formed while concluding the assessment. Therefore, the statutory provisions per 'reasons' and contents in 'assessment order' are distinct which shows that the reasons were not on account of application of mind on the part of AO. Thus it is a clear case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of above named person. It has not been brought on record either in the reasons under section 148(2) or during the assessment proceedings at any stage as to what action has been taken in the case of M/s Keti Construction Ltd. We find that on the strength of information received from the DCIT-Central Indore; the Assessing Officer alleged that the assessee had received a payment of ₹ 7,12,00,000/- which had been paid back in cash by the assessee to M/s Ketti Construction Ltd. However, we find that during the original assessment framed u/s 143(3), the bank statement of the assessee was examined by the AO very minutely. It clearly reflected receipt from M/s Ketti Construction Ltd. which was on account of sub contract awarded by M/s Ketti Construction Ltd. to the assessee. The corresponding receipt was duly recorded in the profit and loss account of the assessee, thus there is no deny on the issue of payment received. The theory advanced by the Ld. Assessing Officer of payment back to M/s Ketti Construction Ltd. by cash is based on some document recovered from M/s Ketti Construction Ltd. Therefore, M/s Ketti Construction Ltd. alone could be answerable on the content of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady been offered by the assessee for taxation as sub contract receipts and confirmed the addition of Rs. ₹ 71,12,000/- on presumption estimating the commission @10%. However, we are of the view that when ld. CIT(A) himself noted the fact that the sum of ₹ 7,12,00,000/- has already been offered by the assessee for taxation as sub contract receipts still ld. CIT(A) failed to appreciate the fact that the said receipts were duly accounted for in the books of account and income was already assessed on said receipts. We find that during regular assessment, the Assessing Officer noted that the total turnover during the assessment year 2009-10 was ₹ 32,98,40,875/-. It includes the sum of ₹ 7,12,00,000/- in question before us and the Assessing Officer applied n.p. rate of 1% higher than disclosed making an addition of ₹ 32,98,409/- on account of low net profit. Thus, the addition was already included in regular assessment on account of low n.p. at ₹ 32,98,409/-. Accordingly, we do not find any merit in confirming the addition on estimation basis by the ld. CIT(A). Therefore, in view of the facts narrated above in the light of the judicial pronouncements ..... X X X X Extracts X X X X X X X X Extracts X X X X
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