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TMI Blog2021 (11) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case, we are of the considered opinion that reason to believe which is the jurisdictional precondition to reopen the assessment as required by the law has not met in the reasons recorded in the instant case and therefore the action of the AO to reopen the assessment is null in the eyes of law and hence we are inclined to quash the initiation of reassessment proceedings being ab-initio void. Addition of non-charging of interest on business advances made to suppliers - Proof of sufficiency of own funds - HELD THAT:- As own interest free funds of the assessee is to the tune of ₹ 2,18,18,572/- whereas the assessee has advanced the interest free loan to the tune of ₹ 63,22,457/-, which is less than the own free funds, therefore, based on this factual position, no disallowance on account of interest free advance should be made and hence we delete the addition. Ad-hoc addition on account of office expenses - Estimation only after rejecting the books of accounts of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 - HELD THAT:- Here in this case, the AO has not passed any order u/s 144 of the Act. The AO thus without rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeals for hearing. 4. In these appeals the assessee has challenged the validity of reopening of assessment u/s 147 of the Act. We take the lead case in ITA No.223/SRT/2018 for AY 2008-09, wherein the grounds of appeal raised by the assessee are as follows: 1.0 (i) That on the facts and in the circumstances of the case and in Law, Ld. Commissioner of Income Tax (Appeals)-III, Surat [here-inafter referred to as Ld CIT(Appeals) was not justified and grossly erred in partly upholding the addition of ₹ 20,97,294/- made by the AO in respect of being 12.5% of total unverifiable purchase on estimated basis. (ii) That on the facts and in circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the action of the AO in by accepting part addition on account of unverifiable purchases amounting to ₹ 20,97,294/- to the total income of the assessee 5.The assessee has raised additional ground of appeal on the technical issue which is reproduced below: Additional ground of appeal. 1. On the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of National Thermal Power Company Ltd., vs. CIT (1998) 229 ITR 382 (SC), we admit the additional ground raised by the assessee. 9. The facts of the case which can be stated quite shortly are as follows: Assessee is a firm and there was search proceedings u/s 132 of the Act in the case of Rajendra Jain andothers at Mumbai on 03.10.2013 and it was alleged that bogus sales was made by M/s Mayank Impex to the assessee-firm for ₹ 12.50 lakh. The assessee filed its original return of income declaring total income at ₹ 9,43,013/- on 14.08.2008. After recording the reasons, the case was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 24.03.2015. The same was served upon the assessee on 24.03.2015. In response to said notice, the assessee, vide its letter dated 07.05.2015 stated that return of income filed on 14.08.2008 may be treated as field in response to notice u/s 148 of the Act and also requested for reasons for re-opening the assessment. The copy of reasons for re-opening the assessment was provided to the assessee by the assessing officer, vide letter dated 03.06.2015. Subsequently, the assessee was issued notice u/s 142(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment. In the facts and circumstances, I am convinced that the reopening in this case is justified. Further, in his submissions and verbal arguments, the AR contested that the ld. AO has not provide details of specific transactions that he is proposing to added. The exact nature i.e. whether purchases or loan transaction is also not stated by ld. AO the assessee. The AR emphasized that without specific details the assessee still tried to explain and prove all the transaction. He also insisted that the reasons provided to assessee did not contain the exacts nature of the transactions with alleged parties. I have considered the issue in details, and I feel that is lapse of ld. AO is not fatal. It is a remediable irregularity and the details were given in scrutiny proceedings. Hence, I decide the Ground no. 1 against the assessee. 12. Aggrieved by the order of Ld. CIT(A) the assessee is in appeal before us. 13.Shri P.M.Jagasheth, Learned Counsel for the assessee, begins by pointing out that there is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer. The assessing officer himself is not certain about the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, to ascertain the fact whether reasons have been recorded as per the scheme of section 147 of the Act or not. The reasons recorded by the assessing officer under section 147 of the Act is reproduced below for ready reference: Form for recording the reasons for initiating proceedings under section 147 and for obtaining the approval of the Addl.C.I.T., Rage-3(3), Surat. 1. Name and address of the assessee RAIYANI BROTHERS 2 Range/Circle/Ward Ward 3(3)4), Surat 3. PAN AADFR0702K 4. Status Individual 5.Assessment Year 2008-09 6. The Quantum of Income which has escaped assessment ₹ 1,67,78,359/- 7. Whether the Provisions of Sec 147 (a) or 147(b) are applicable or both the sections are applicable Yes 8. Whether the assessment is proposed to be made for the first time, If the reply is in the affirmative please state a) Whether any voluntary return has alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has shown Return of Income for A.Y. 2008-09 is only ₹ 9,43,010/-, which is not a true income considering the huge transaction. In view of the above, I have the reason to believe that the assessee has escaped assessment of ₹ 1,67,78,359/- on the above non-genuine transactions of ₹ 8,50,500/-, which is not shown in the RETURN OF INCOME filed for the A.Y. 2008-09. Thus the above income of ₹ 1,67,78,359/- has escaped assessment by the reason of failure on the part of the assessee to disclose fully and truly, all material facts necessary for his assessment for A.Y. 2008-09. Hence, notice u/s 148 of the I.T. Act is being issued to verify the genuineness of the above transactions made by the assessee during A.Y. 2008-09. 12. Whether the Addl./Jt. Commissioner of Income Tax is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of a Notice u/s. 148 of the I.T. Act. Yes, I am satisfied. 16.From the above reasons recorded, it is abundantly clear that assessing officer does not apply his mind while recording the reasons under section 147 of the Act. The assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the belief. - Circumstances must exist and cannot be deemed to exist for arriving at an opinion; - Reasons to believe must be honest and not based on suspicion, gossip, rumour or conjecture; - Reasons referred to must disclose the process of reasoning by which the AO holds reasons to believe and change of opinion does not confer jurisdiction to reassess; - There must be nexus between material and belief; and - Reasons recorded must show application of mind by the AO. 18. We note that none of the above conditions have been fulfilled by the assessing officer in assessee`s case under consideration therefore reasons recorded by the assessing officer are not in accordance with the scheme of the provisions of section 147 of the Act. 19. Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words reason to believe did not mean a change of opinion. The Hon ble Supreme Court in ITO vs Lakhmani Mewal Das [1976] 103 ITR 437 has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s.147 of the Act. The Hon ble Court first held that the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has reopened the assessment are ambiguous and vague, as the amount mentioned in the reasons recorded is uncertain and the assessing officer does not know that how much income of the assessee has escaped assessment. The Assessing Officer having not carried out the scrutiny assessment within the prescribed statutory limit, cannot be given another innings for no fault of the assessee and therefore in the facts and circumstances of the case, we are of the considered opinion that reason to believe which is the jurisdictional precondition to reopen the assessment as required by the law has not met in the reasons recorded in the instant case and therefore the action of the Assessing Officer to reopen the assessment is null in the eyes of law and hence we are inclined to quash the initiation of reassessment proceedings being ab-initio void. 22 As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous. 23. In the result, appeal filed by the assessee for assessment year 2007-08 and 2008-09, (in ITA No.222/SRT/2018 ITA No.223/SRT/2018) are allowed. 24.Coming to the assessee s a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,400/- on account of interest not charged on advances was added back to the total income of the assessee. 26. On appeal, ld CIT(A) has confirmed the action of the assessing officer. Aggrieved, the assessee is in further appeal before us. 27.We have heard both the parties. Learned Counsel submits before us that assessee has sufficient own interest free funds to advance as interest free loan to these two persons. The Ld. Counsel drew our attention towards the audited Balance Sheet submitted by the assessee, wherein we noticed that own funds of the assessee is to the tune of ₹ 2,18,18,572/- whereas the assessee has advanced the interest free loan to the tune of ₹ 63,22,457/-. The own interest free funds are more than the interest free advance, hence no disallowance is attracted. On the other hand, Ld. Sr-DR for the Revenue relied on the order of lower authorities. 28.We find merit in the submission of ld Counsel. We note that own interest free funds of the assessee is to the tune of ₹ 2,18,18,572/- whereas the assessee has advanced the interest free loan to the tune of ₹ 63,22,457/-, which is less than the own free funds, therefore, based on this factual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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