2020 (2) TMI 69 - AT - Income Tax

Tribunal quashes reassessment under Income Tax Act due to lack of material

M/s. Modi Industries Ltd. Versus ACIT, Central Circle-31, New Delhi

M/s. Modi Industries Ltd. Versus ACIT, Central Circle-31, New Delhi - TMI Issues Involved:1. Validity of the reassessment proceedings under section 147/143(3) of the Income Tax Act, 1961.2. Disallowance of travel expenditure amounting to Rs. 11,00,000 for hiring a chartered flight.Issue-wise Detailed Analysis:1. Validity of the reassessment proceedings under section 147/143(3) of the Income Tax Act, 1961:The assessee contested the validity of the reassessment proceedings initiated by the Assessing Officer (AO) under section 147/143(3) of the Income Tax Act, 1961. The primary argument was that the reassessment was initiated without a 'reason to believe' that income had escaped assessment, based on incorrect inferences drawn from existing records, and without independent application of mind by the AO. The assessee also argued that the reassessment was based on third-party information without tangible material.The CIT(A) upheld the validity of the reassessment proceedings, stating that the AO had reason to believe that the expenses of Rs. 11,00,000 for hiring a chartered flight were not incurred for business purposes. The AO's belief was based on the unusual nature of the expenses for the business purposes of the assessee company. The CIT(A) concluded that the AO's action was justified and dismissed the assessee's grounds challenging the issuance of notice under section 148.Upon appeal, the Tribunal found that the AO issued the notice under section 148 based on suspicion without any tangible material. The recorded reasons indicated that the AO was not certain whether the expenses were allowable under section 37 of the Act. The Tribunal cited the Gujarat High Court's decision in the case of Nitin P Shah Vs DCIT, where reopening was quashed because the AO's belief was based on 'possible escapement of income' without concrete information. Consequently, the Tribunal quashed the reassessment proceedings, allowing the assessee's grounds challenging the reassessment.2. Disallowance of travel expenditure amounting to Rs. 11,00,000 for hiring a chartered flight:The assessee also contested the disallowance of travel expenditure amounting to Rs. 11,00,000 incurred for hiring a chartered flight. The CIT(A) upheld the disallowance, stating that the assessee failed to substantiate that the expenditure was incurred wholly and exclusively for business purposes. The CIT(A) noted discrepancies in the assessee's submissions, including the lack of evidence of business activities at the travel destinations and the absence of exigency for hiring the chartered flight. The CIT(A) also rejected the alternate argument to restrict the disallowance to Rs. 9,97,280, as the total invoice amount of Rs. 11,00,000 was claimed in the P&L account.Since the Tribunal quashed the reassessment proceedings, the grounds challenging the merit of the addition were rendered academic and were not adjudicated.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings under section 147/143(3) of the Income Tax Act, 1961, on the grounds that the AO's belief was based on suspicion without tangible material. Consequently, the issue of disallowance of travel expenditure was not adjudicated, as it became academic. The order was pronounced on 7th January, 2020.