2014 (12) TMI 177 - AT - Income Tax

Tribunal decision on tax receipts from NCCPL: revised returns rejected, further inquiries ordered.

The Tribunal upheld the validity of the proceedings under section 147, rejecting the revised returns and audit reports. However, it directed further ... Reopening of assessment u/s 147 r.w section 148 – Reason to believe - Held that:- Assessee has initially shown receipts as revenue receipts and claimed various expenses and declaring incomes in the P & L account - AO found that the expenditure entries made in the books of accounts are not genuine and accordingly, he brought to tax entire receipts as shown in the P & L Account as income of assesse - In the re-assessment proceedings after the notice u/s 148 was issued, assessee revised its accounts and claimed that no income has accrued to it or loss should be assessed - AO has reason to believe that incomes have escaped at that point of time - AO did not find any expenditure vouchers in assessee’s premises during survey proceedings and so, he has reason to believe that income has escaped assessment - Thus he has validly initiated proceedings u/s 147 - as no assessment u/s 143(3) was originally done and only returns were accepted u/s 143(1), following the principles laid down in Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited [2007 (5) TMI 197 - SUPREME Court] - the intimation u/s 143(1) cannot be treated as order of assessment - Prior to 01.04.1989, AO had to pass an assessment order if he decides to accept the return but now amended provisions, requirement of passing the order has been dispensed with and instead only intimation is required to be sent - as there is no assessment u/s 143(3), the question of change of opinion does not arise - what is required at the time of issuance of notice u/s 147 is reason to believe that the income has escaped assessment, but not the established act of escapement of income – thus, the assessee’s contentions on reopening are not valid – Decided against assessee. Revised return filed with revised audited accounts – Held that:- Assessee’s action cannot be supported in the light of the fact that proceedings are u/s 147 - in the case of Commissioner of Income-Tax Versus Sun Engineering Works Pvt. Limited [1992 (9) TMI 1 - SUPREME Court] - it was held that proceedings u/s 147 are for the benefit of Revenue and not for the benefit of assesse - Since, assessee has offered incomes originally which were accepted, the proceedings being initiated are only to add some more to the originally admitted incomes - the entire receipts received by assessee as income is upheld - the action of AO cannot be upheld in treating the entire receipts as income and at the same time - while disallowance of entire expenditure made by AO cannot be upheld as such, the assesse is set aside and the matter is remitted back to the AO for fresh enquiries – Decided in favour of assesse. Issues Involved:1. Validity of initiation of proceedings under section 147.2. Non-provision of the statement of Mr. Prasad V. Potluri to the assessee.3. Validity of revised returns filed by the assessee.4. Consideration of revised audit reports.5. Taxability of receipts from NCCPL as revenue receipts.Detailed Analysis:1. Validity of Initiation of Proceedings Under Section 147:The assessee contested the initiation of proceedings under section 147, arguing it was merely a change of opinion since the original returns were accepted. The Ld. CIT(A) rejected this contention, stating that the notice under section 148 was issued following a survey that revealed no bills or vouchers for claimed expenditures, and a statement from Mr. Prasad V. Potluri confirmed no work was done for the payments made. Thus, there was 'adequate tangible material' for the Assessing Officer's belief that income had escaped assessment, necessitating action under section 147. The Tribunal upheld this view, noting that the AO had valid reasons to believe that income had escaped assessment, and the principles laid down by the Supreme Court in the case of Rajesh Jhaveri Stock Brokers Ltd. were applicable, confirming the validity of the reopening.2. Non-provision of the Statement of Mr. Prasad V. Potluri:The assessee raised the issue of not being provided with a copy of Mr. Prasad V. Potluri's statement. The Ld. CIT(A) directed the AO to provide the statement and allow the assessee to make submissions. The Ld. CIT(A) recorded that the assessee had no further submissions to make, indicating the grievance was redressed.3. Validity of Revised Returns Filed by the Assessee:The assessee argued that the revised returns filed on 12.02.2013 should be considered as valid. The Ld. CIT(A) rejected this, citing that proceedings under section 147 are for the benefit of the revenue and not the assessee, as held in CIT v Sun Engg Works Ltd. The Tribunal agreed, noting that the revised returns were not valid as they were filed beyond the permissible time limit under section 139(5) and did not meet the conditions laid down therein.4. Consideration of Revised Audit Reports:The assessee contended that the revised audit report should be considered. The Ld. CIT(A) rejected this, stating that the revision of accounts was not valid. The Tribunal upheld this view, emphasizing that the proceedings under section 147 are not meant to give the assessee a fresh opportunity to revise accounts and claim benefits.5. Taxability of Receipts from NCCPL as Revenue Receipts:On the merits of the additions, the Ld. CIT(A) held that since the assessee did not carry out any development activity, the entire receipts from NCCPL were revenue receipts and taxable. The Tribunal noted that while the AO found no genuine expenditure, taxing the entire receipts as income was not justified. The Tribunal set aside the assessment to the AO for fresh enquiries to determine the correct position of incomes, considering whether any proceedings under other Acts like the Money Laundering Act were initiated and whether the transactions gave rise to any concealed income. The AO was directed to accept the income returned if no escaped incomes were found.Conclusion:The Tribunal upheld the validity of the proceedings under section 147 and the rejection of the revised returns and audit reports. However, it did not fully support the AO's action of taxing the entire receipts as income, directing further enquiries to ascertain the correct tax liability. The appeals of the assessee were partly allowed for statistical purposes.