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TMI Blog2024 (8) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... e objection it is clear that there is violation of principle of merger as the very issue of sundry creditors is pending before the CIT(Appeals) and the respondent-AO therefore, cannot reopen the assessment on the ground that the remaining 80% is required verification in re-assessment proceedings. AO while framing the regular assessment under section 143(3) after considering the total sundry creditors made addition of 20% thereof which is subject matter of appeal before the CIT(Appeals). Therefore, the very basis of the rejection on the objection by the respondent is fallacious and contrary to the principle of merger. Merely on the basis of the audit objection, the respondent-Assessing Officer could not have assumed the jurisdiction to issue the impugned notice u/s 148 of the Act to reopen the assessment for the year under consideration. The petition succeeds and is accordingly allowed. - HONOURABLE MR. JUSTICE BHARGAV D. KARIA and HONOURABLE MR. JUSTICE NIRAL R. MEHTA MS VAIBHAVI K PARIKH(3238) FOR THE PETITIONER(S) NO. 1 KARAN G SANGHANI(7945) FOR THE RESPONDENT(S) NO. 1 SERVED BY RPAD (N) FOR THE RESPONDENT(S) NO. 2 JUDGMENT ( PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA ) 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60/- after making addition including amount of Rs. 2,10,25,656/- being 20% of total sundry creditors of Rs. 10,51,28,281/- on the count that such liability is bogus. 5.7 The petitioner therefore, filed appeal against the assessment order before the CIT(Appeals) raising the ground to challenge the addition of Rs. 2,10,25,656/- made in respect of the sundry creditors. 5.8 Thereafter, the respondent issued impugned notice dated 29.03.2021 under section 148 of the Act to reopen the case of the petitioner. The petitioner filed the return of income in response to such notice on 17.01.2022 and requested for copy of reasons which was supplied by the respondent on 10.03.2022. The reasons recorded by the respondent read as under : Brief details of information collected/received by the AO: As per information available on records, it is noticed that the assessee has shown sundry creditors of Rs.10,51,28,281/-. However, on perusal of records, no details have been submitted by the assessee during the course of assessment proceedings u/s.143(3) of the Act. Therefore, identity of the creditors, genuineness, and creditworthiness remains unexplained during the course of assessment proceedings u/s.14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessee during the year under consideration. 5.9 The petitioner also preferred objection by letter dated 15.03.2022 explaining in detail with regard to the issue of sundry creditors along with the assessment order passed under section 143(3) wherein, the addition of 20% of the said amount of alleged creditors has been made. It was therefore, contended that no re-assessment can be made based on change of opinion in absence of any fresh tangible material to support the reopening of assessment and the amount of so-called creditors was already there with the Assessing Officer which has been dealt with by treating certain amount from the same as income. 5.10 The respondent-Assessing Officer by order dated 22.03.2022 rejected the objection filed by the petitioner on the ground that as per Para No. 2 of the reasons recorded, it was clearly stated that in absence of the full details, the sundry creditors remained unexplained and should be verified accordingly. It was also pointed out that the subject matter of appeal which is pending before the CIT (Appeals) is in respect of disallowance of 20% of sundry creditors for the relevant assessment year and not the balance 80% which fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside on the basis of applying the principle of merger as the issue of sundry creditor is pending before the CIT(Appeals) in light of the third proviso to section 147 of the Act. 6.4 It was further submitted that the respondent could not have formed any reason to believe that income chargeable to tax has escaped assessment in view of the facts of the case as the sundry creditors outstanding at the end of the year under consideration cannot be the ground to hold that same are bogus and hence, income chargeable to be taxed had escaped assessment on account of the same. It was submitted that in any case, out of total sundry creditors of Rs. 10,51,28,281/- reflected in balance-sheet only Rs. 1,15,50,282/- were sundry creditors for expenses and Rs. 9,35,78,199/- pertained to advances received from the customers and hence, reopening is based upon factually incorrect premise that sundry creditors of Rs. 10,51,28,281/- require to be verified resulting into escapement of income. 6.5 It was submitted that the respondent-Assessing Officer has no new tangible material before him to come to the conclusion that the income has escaped assessment after framing of the regular assessment so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n though he has no intention to pay it back but to enjoy the same for an unlimited period without being added to his income. However, the AO has made addition to the extent of 20% of the total creditors on ad-hoc basis by invoking the provisions of section 41(1) of the Act is not correct by way because when the Assessing Officer is accepting the identity of the creditors as well as genuineness of the transaction and he is also accepting the creditworthiness/ existence of the creditor also to the extent of 80% of the credit outstanding in the name of concerned creditor and is making ad-hoc addition of 20% without giving any specific finding that the creditworthiness/ existence of the creditor is established to the extent of 80% only. The stand of Assessing Office in adding only 20% of sundry creditors is not according to the Provisions of the Act. Either it should have accepted entire sundry creditors or should have added back the entire amount outstanding in the name of sundry creditors. Thereby the ITO (IAP), Rajkot has stated the understatement of income by a sum of Rs. 8,40,02,625/-. It is submitted that all the due procedure laid down in the section 147 r.w.s. 148 of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Bajranglal vs. ITO reported in 203 ITR 456 (SC) and in case of Raymond Woolen Mills Ltd vs. ITO reported in 236 ITR 34(SC) and submitted that no interference may be called for, for setting aside the impugned notice under section 148 of the Act. 8. Considering the submissions made by both the learned advocates for the parties and on perusal of the facts emerging from the material placed on record, it is not in dispute that the issue of sundry creditors amounting to Rs. 10,51,28,281/- was considered by the Assessing Officer during the regular course of assessment by issuance of notice dated 29.08.2018 followed by notice dated 05.10.2018 in respect of the sundry creditors appearing in the balance-sheet of the petitioner. 9. The Assessing Officer during the regular course of assessment has disallowed 20% of the sundry creditors by observing as under: 7.2 The reply submitted by the assessee is vague and has been made with a motive to delay the assessment proceeding and to avoid the independent inquiry in the case. For any credit balance appearing in the books of the assessee, it is the utmost liability of the assessee to furnish details to the satisfaction of A.O. In this case, ample ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the order rejecting the objection as under: Therefore it is clear that the subject matter of appeal which is pending before the CIT(A) is in respect of disallowance of 20% of Sundry Creditors for the relevant assessment year and not the balance 80% which forms part of 100% of Sundry Creditors which requires further verification during the current re-assessment proceeding. Therefore the 3rd proviso to section 147 of the Act does not apply in your case. 12. From the above observation made by the respondent-Assessing Officer while rejecting the objection it is clear that there is violation of principle of merger as the very issue of sundry creditors is pending before the CIT(Appeals) and the respondent-Assessing Officer therefore, cannot reopen the assessment on the ground that the remaining 80% is required verification in re-assessment proceedings. 13. The Assessing Officer while framing the regular assessment under section 143(3) after considering the total sundry creditors of Rs. 10,51,28,281/- made addition of 20% thereof which is subject matter of appeal before the CIT(Appeals). Therefore, the very basis of the rejection on the objection by the respondent is fallacious and c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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