2020 (3) TMI 1143 - AT - Income Tax

ITAT rulings on assessment appeals: Genuine evidence supports discount claims; seized accounts from different year.

Sharuk Passi (Prop. M/s. Pascos) Versus DCIT Central Circle-20 New Delhi And ACIT Central Circle-8, New Delhi Versus Sharuk Passi

Sharuk Passi (Prop. M/s. Pascos) Versus DCIT Central Circle-20 New Delhi And ACIT Central Circle-8, New Delhi Versus Sharuk Passi - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether reopening of assessment under Section 148 was valid where original assessment under Section 143(3) had considered and accepted rebate/discount transactions supported by invoices, delivery orders and bank details. 2. Whether additions disallowing rebate/discount payments are sustainable where bank records and earlier adjudication in original assessment indicate genuineness of payments and no fresh incriminating material was produced at reopening. 3. Whether entries in seized regular books of account (ledger/accounts seized in search) constitute 'incriminating documents' for the assessment year in question, where the seized material pertains to a different assessment year. 4. Whether multiple disallowances (rebate/discounts, transportation, new vehicle expenses, travelling expenses, personal expenses, and Section 14A disallowance) can be sustained where the Assessing Officer made ad-hoc disallowances without specific, year-wise incriminating material or particularised findings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of Reopening under Section 148 where original Section 143(3) assessment addressed same transactions Legal framework: Reopening under Section 148 requires recording of reasons to form belief that income chargeable has escaped assessment; reopening cannot be based on mere change of opinion where relevant material was available and considered in original assessment (established principles governing scope of s.148 and change of opinion). Precedent treatment: Parties referred to authorities on scope of reopening (judgments cited by parties indicating limits on reopening where material was examined in original assessment). The Court considered these precedents in context but applied the established principle that mere doubt does not justify reopening when original assessment addressed the matter. Interpretation and reasoning: The original assessment under Section 143(3) had specifically inquired into rebate/discount transactions, received documentary evidence (invoices, delivery orders, transfer vouchers) and bank particulars, and completed assessment without adverse finding. Bank information and records obtained later did not disclose any new suspicious facts specific to the assessment year and the reasons recorded for reopening were incomplete and did not demonstrate fresh incriminating material or proper justification for invoking Section 148. Mere creation of doubt by the Assessing Officer was held insufficient to justify reopening. Ratio vs. Obiter: Ratio - reopening under Section 148 is invalid where original assessment has adjudicated the same transactions on material then available and reasons recorded for reopening do not demonstrate fresh incriminating material or proper satisfaction; such reopening amounts to impermissible change of opinion. Obiter - references to particular precedents discussed by parties. Conclusion: Reopening was held bad in law and assessment framed on that basis was quashed; appeal allowed in favour of assessee on this point. Issue 2 - Sustainment of additions disallowing rebate/discounts where bank records and original adjudication supported genuineness Legal framework: Additions or disallowances require evidential foundation; Assessing Officer must point to material demonstrating inexistence/gross falsity of claimed expenses; adductions based on seized material must be relevant to the specific assessment year and must be particularised. Precedent treatment: Reliance was placed by parties on conflicting authorities regarding treatment of seized documents and burden of proof; the Court assessed the facts against these principles rather than overruling any authority. Interpretation and reasoning: Bank statements and information already before the Assessing Officer indicated genuineness of rebate/discount payments. No fresh incriminating material specific to the relevant assessment year was produced to displace the earlier acceptance. The Assessing Officer's reasons were not specific and did not establish that claimed discounts were bogus. Therefore the additions lacked foundation. Ratio vs. Obiter: Ratio - additions disallowing rebates/discounts cannot be sustained in absence of specific incriminating material or where original assessment had accepted the transactions; mere general allegations are insufficient. Obiter - observations on adequacy of particular bank evidence in this case. Conclusion: Addition of Rs. 87,17,271 (AY 2005-06) was deleted by allowing the assessee's appeal; similar deletion for rebate/discount claim (AY 2012-13) was sustained where the Assessing Officer failed to establish the disallowance. Issue 3 - Whether seized regular books constitute 'incriminating documents' for the assessment year Legal framework: Material seized in search can be treated as incriminating only if it is shown to pertain to and incriminate for the assessment year in question; seized regular books spanning other years cannot be automatically treated as incriminating for a given year absent specific linkage. Precedent treatment: The Court considered authorities on the nature of seized documents and their applicability; it did not depart from general legal position but applied it to facts where ledgers related to an earlier year. Interpretation and reasoning: The seized ledger accounts before the Assessing Officer pertained to A.Y. 2011-12, not A.Y. 2012-13. Therefore that seized material could not be held to form incriminating documents for A.Y. 2012-13. The Assessing Officer failed to demonstrate year-wise nexus or specific entries incriminating for the assessment year under appeal. Ratio vs. Obiter: Ratio - seized regular books cannot be treated as incriminating for an assessment year unless specific entries or nexus to that year are demonstrated; relevance of seized material must be particularised. Obiter - references to reliance on external authorities by the parties. Conclusion: The Tribunal held seized ledgers were not incriminating for AY 2012-13; additions based on those seized books did not sustain. Issue 4 - Validity of multiple ad-hoc disallowances absent specific findings and year-wise incriminating material (transportation, new vehicle, travelling, personal expenses, Section 14A) Legal framework: Disallowances must be based on evidence and reasoned findings; ad-hoc or blanket disallowances without particulars violate the requirement of material foundation for assessing additions and disallowances; Section 14A disallowance requires application of law and facts to show exempt income-related expenses. Precedent treatment: The Court applied established tax law principles requiring specific findings and rejected ad-hoc approaches; it noted reliance by parties on High Court authority but adjudicated on factual deficiency of AO's order. Interpretation and reasoning: The Assessing Officer made several disallowances on an ad-hoc basis without pointing to specific incriminating entries or year-wise evidence. No incriminating material was shown for the relevant assessment year(s). For Section 14A, the Court noted absence of proper foundation for disallowance. Overall, the AO did not particularise the basis for each disallowance and failed to produce documentary or specific investigative material to justify amounts disallowed. Ratio vs. Obiter: Ratio - disallowances cannot be upheld where they are ad-hoc, not founded on year-wise incriminating material or specific findings; AO must make particularised, evidence-based findings for each disallowance. Obiter - discussion of incorrect reliance on unrelated High Court authority when factually inapplicable. Conclusion: The Tribunal dismissed the Revenue's appeal and deleted the various disallowances (rebate/incentive, transportation, new vehicle expenses, travelling expenses, personal expenses, and Section 14A disallowance) for lack of foundation; Revenue's appeal did not sustain.