2018 (2) TMI 1945 - HC - Income Tax

High Court Upholds ITAT Decision Setting Aside Re-assessment for AY 2004-05

The High Court upheld the decision of the Income Tax Appellate Tribunal (ITAT) to set aside the re-assessment for AY 2004-05 under Section 260A of the ... Disallowance of the credit claimed - re-opening of assessment on the basis of a statement made by one Mr. S.K. Gupta - HELD THAT:- AO in the re-assessment order refused to give effect to the retraction of that statement, brushing aside the later statement, on the ground that it was made years later. At the same time, this Court for another Assessment Year (AY 2002-03) held that whilst it was open to the AO to not rely upon the statement taken into account or rather ignore the retraction, yet, primary duty to verify the soundness of the claim of having been made genuine payment had to be gone into and verified. This was not done and consequently in Principal Commissioner of Income Tax (Central)-I vs. M/s FIIT JEE Ltd. [2018 (1) TMI 1396 - DELHI HIGH COURT] the Court upheld the order of ITAT setting aside the additions on merits made during the re-assessment. Since on the merits, the additions are not sustainable, the Court is of the opinion that no substantial question of law arises. Issues:1. Validity of re-assessment under Section 260A of the Income Tax Act, 1961 for AY 2004-05.2. Disallowance of credit claimed based on a statement by Mr. S.K. Gupta.3. Comparison with a similar case for AY 2002-03 regarding re-assessment and additions made.Issue 1: Validity of re-assessment under Section 260A for AY 2004-05:The High Court dealt with the appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) for AY 2004-05. The Assessing Officer (AO) re-opened the assessment and added a sum of Rs. 1,39,32,757 based on alleged bogus claims for payments made towards services rendered. The CIT(A) and ITAT set aside the re-assessment due to the objections to the notice not being decided, citing a previous judgment. The Court noted that the ITAT and the Court had ruled against the Revenue on the merits of the additions made, specifically the disallowance of the credit claimed. The Court highlighted the importance of verifying the genuineness of claims and upheld the ITAT's decision to set aside the additions on merits made during re-assessment.Issue 2: Disallowance of credit claimed based on a statement by Mr. S.K. Gupta:The re-assessment was premised on a statement by Mr. S.K. Gupta. The AO refused to consider the retraction of the statement made years later, leading to the additions. The Court emphasized the AO's duty to verify the genuineness of claims, as seen in a similar case for AY 2002-03. In that case, the CIT(A) deleted the additional sum after verifying expenses and confirming that payments were made through legitimate channels to income tax assessees, a decision upheld by the ITAT. The Court dismissed the appeal, stating that the additions were not sustainable on merits, and no substantial question of law arose.Issue 3: Comparison with a similar case for AY 2002-03 regarding re-assessment and additions made:The Court drew parallels with a case for AY 2002-03 where re-assessment was initiated based on a statement by Mr. S.K. Gupta. The CIT(A) in that case deleted the additional sum after thorough verification of expenses and confirming the legitimacy of payments to income tax assessees. The ITAT upheld these findings, leading the Court to dismiss the appeal for AY 2004-05 on similar grounds, as the additions were deemed unsustainable on merits.