2014 (10) TMI 180 - AT - Income Tax

Tribunal upholds CIT(A)'s order, dismisses Revenue's appeal on reassessment.

The tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s order quashing the reassessment proceedings under Sections 147/148 and deleting ... Reopening of assessment u/s 147/148 – Change of opinion – Held that:- Assessee submitted that the original assessment was completed U/s 143(3) of the Act on 28/12/2007 i.e. after the date of survey - The original assessment proceedings, the assessee vide letter dated 07/12/2007 explained each annexure impounded in survey from the premises of the assessee and M/s Khushboo Jewellers – the AO specifically asked explanation in respect of certain specific papers in the impounded annexures – AO further examined the books of account and loose papers found in survey, completed the assessment u/s 143(3) of the Act and made addition - In the reasons recorded for reopening of the assessment, the AO had referred to six annexures - All the annexures have been enquired into and considered by the AO while framing the original assessment as evident from the assessment order. Reopening of the assessment on the basis of those very papers on the ground that they were not considered in course of assessment proceedings U/s 143(3) of the Act is factually incorrect - the reassessment proceedings initiated by the AO is bad in law and deserve to be quashed - second thought on the same material and omission to draw the correct legal presumption during the original assessment do not warrant the initiation of the proceeding u/s 147 of the Act –relying upon ITO Vs. Nawab Meer Barkat Ali Khan Bahadur [1974 (10) TMI 1 - SUPREME Court] - fresh litigation on the ground of new views or new version cannot be permitted - action u/s 147 of the Act cannot be taken on the basis of reasons to suspect or on change of opinion for which he relied upon the decision in the case of CIT Vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] and cannot taken advantage of his own wrong doing through reopening the case. AO in original assessment had made specific query and specific reply was filed by the assessee in original assessment, which has been considered by the AO - after considering the reply, a detailed order has been passed by the AO – AO is not authorized to issue notice u/s 147 of the Act on reason to suspect or on change of opinion - even any wrong doing of the AO cannot be remitted through Section 147 of the Act as relied upon by the AR - only change of opinion is there and there is no tangible material before the AO to come to the conclusion that there was escapement of income from assessment –Decided against revenue. Issues Involved:1. Quashing of reassessment proceedings under Section 147/148.2. Deletion of addition representing unrecorded sales to M/s Kamlesh & Co.3. Deletion of addition based on entries in Approval Memo Annexure-23.4. Direction to allow set off of income from unrecorded sales against income already taxed in another case.Issue-wise Detailed Analysis:1. Quashing of Reassessment Proceedings under Section 147/148:The first issue pertains to the quashing of reassessment proceedings under Sections 147/148 of the Income Tax Act, 1961. The reassessment was initiated without providing an opportunity of being heard and was based on a change of opinion. The original assessment for A.Y. 2005-06 was completed under Section 143(3) on 28/12/2007. During the original assessment, the Assessing Officer (A.O.) had specifically considered Annexures-7, 8, 22, 23, and 24. The reassessment was initiated based on these same annexures, which were already scrutinized during the original assessment. The tribunal held that the reassessment was based on a change of opinion, which is not permissible under the law. The tribunal relied on the principle that action under Section 147 cannot be taken on the basis of reasons to suspect or change of opinion, referencing the Supreme Court decision in CIT Vs. Kelvinator of India Ltd. 320 ITR 561 (SC). Therefore, the reassessment proceedings were quashed.2. Deletion of Addition Representing Unrecorded Sales to M/s Kamlesh & Co.:The second issue involved the deletion of an addition of Rs. 1,40,64,604/- representing unrecorded sales to M/s Kamlesh & Co. The CIT(A) had observed that the account maintained with M/s Kamlesh & Co. was related to unaccounted sales by the assessee. The gross profit (G.P.) rate on these sales was taken at 19%, resulting in a G.P. of Rs. 26,72,275/-. The CIT(A) accepted the assessee's plea that this amount should be treated as invested in excess stock, which was surrendered in the next assessment year. The tribunal upheld this finding, noting that no evidence was found during the survey or assessment proceedings to suggest that the sale proceeds were diverted for personal consumption or other investments. Thus, the addition made by the A.O. was deleted.3. Deletion of Addition Based on Entries in Approval Memo Annexure-23:The third issue was the deletion of an addition of Rs. 91,84,116/- made by the A.O. based on entries in Approval Memo Annexure-23. The CIT(A) noted that the goods sent on approval or taken for approval were either returned or sold, and the G.P. on these sales should be calculated and set off against the excess stock surrendered during the survey. The G.P. rate was taken at 19%, resulting in unrecorded sale proceeds of Rs. 17,44,982/-. The tribunal agreed with the CIT(A)'s finding that these sale proceeds should be set off against the excess stock surrendered, as no evidence was found to suggest diversion of funds. Therefore, the addition was deleted.4. Direction to Allow Set Off of Income from Unrecorded Sales:The fourth issue involved the direction to allow set off of income from unrecorded sales against income already taxed in the case of M/s Bihari Lal Hola Ram in A.Y. 2006-07. The CIT(A) had directed that the G.P. from unrecorded sales should be set off against the excess stock surrendered in the next assessment year. The tribunal upheld this direction, noting that the combined unrecorded sales aggregated to Rs. 2,32,48,720/-, and the G.P. worked out by the CIT(A) was Rs. 44,17,257/-. The tribunal found that the CIT(A)'s approach was rational and based on the evidence available. Therefore, the direction to allow set off was upheld.Conclusion:The tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s order quashing the reassessment proceedings and deleting the additions made by the A.O. The tribunal concluded that the reassessment was based on a change of opinion, which is not permissible under the law, and that the additions made were not justified based on the evidence available. The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 26/09/2014.