2018 (8) TMI 652 - AT - Income Tax

Tribunal validates income reassessment under tax law, rejects challenge, partially favors assessee on expense disallowance.

The Tribunal upheld the initiation of reassessment proceedings under section 147 of the Income Tax Act, citing a reasonable belief in the escapement of ... Reassessment u/s 147 - disallowance of expenses u/s 37(1) - bogus expenditure - recording of reasons for satisfaction - Revenue submitted that, as per report of Investigating wing, assessee is one of the beneficiary of accommodation entry from concerns of S.K. Gupta group - Held that:- We have also perused reasons recorded for reopening the assessments, wherein there is specific information regarding assessee before us, of having accepted accommodation entry bills, which could not have been verified without calling for necessary details. Further in order to verify the information received by Ld.AO issued notice under section 147 which was necessary to ascertain, if there has been any escapement of income. - Reopening of assessment confirmed - Decided against the assessee. Enhancement of income by the CIT(A) in appellate proceedings - CIT (A) has in a way enhanced addition by charging 2% commission for providing accommodation entries to assessee. - Held that:- It is observed that assessee was not given any notice of enhancement by Ld.CIT (A), thereby not following due process of law, as per section 251 of the Act. We are therefore inclined to delete addition made by Ld.CIT (A) to of 2% as commission for providing accommodation entry to assessee. Decided in favor of assessee partly. Issues Involved:1. Validity of initiation of reassessment proceedings under section 147 of the Income Tax Act.2. Disallowance of expenses claimed as business expenditure.Issue 1: Validity of Reassessment Proceedings:The appeal was filed against the order passed by the Ld. CIT (A) upholding the initiation of proceedings under section 147 of the Income Tax Act. The Assessing Officer (AO) initiated the proceedings based on information received from the investigating wing regarding accommodation entries received by the assessee from certain entry operators. The AO believed that income had escaped assessment due to these accommodation entries. The Ld. CIT (A) held that the initiation of reassessment was based on a reasonable belief as specific information was available, and there was a rational connection between the information received and the escapement of income. The Ld. CIT (A) also cited relevant case laws to support the decision. The Tribunal upheld the Ld. CIT (A)'s decision, stating that there was no infirmity in the reasoning and observations, thereby dismissing the ground raised by the assessee challenging the validity of the reassessment proceedings.Issue 2: Disallowance of Expenses:The AO disallowed expenses amounting to Rs. 30,87,460 as bogus expenditures booked in the assessee's profit and loss account. The Ld. CIT (A) deleted a portion of the addition, observing that the assessee had never claimed a certain amount of expenses. The Ld. CIT (A) restricted the addition to Rs. 19,87,460 and further added a 2% commission as charges. The Tribunal reviewed the submissions and records, noting that the Ld. CIT (A) had properly verified the accounts and restricted the addition to the claimed expenses. However, the Tribunal found fault with the Ld. CIT (A) for enhancing the addition by charging a commission without notifying the assessee, which violated due process. Consequently, the Tribunal partly allowed the ground raised by the assessee, deleting the 2% commission addition. Thus, the appeal filed by the assessee was partly allowed.This detailed analysis of the judgment covers the issues of the validity of reassessment proceedings and the disallowance of expenses, providing a comprehensive understanding of the Tribunal's decision in each aspect.