2022 (2) TMI 388 - AT - Income Tax

Tribunal quashes reassessment order, finds declared profit margin reasonable.

Ramesh Bhojprasad Gupta Versus The Income Tax Officer, Ward-7, Vapi.

The Tribunal allowed the Assessee's appeal, quashing the reassessment order due to invalid reopening under section 147 and incorrect issuance of notice ... Reopening of assessment u/s 147 - unexplained deposit in his bank account in Punjab National Bank - HELD THAT:- We are of the view that the reasons recorded was not correct, and the AO has not assumed jurisdiction validly, therefore, the action of the AO is void-ab initio and all subsequent action is liable to be set-aside. Even on merit, we find that Ld. CIT(A) estimated the income @ 51.84% on account of undisclosed sales. The assessee claimed that he has shown book net book profit @ 11.45% and in subsequent year Assessing Officer has made addition @ 10% of net profit in the assessment order passed under section 143(3) of the Act. It is settled law that only profit element embedded in undisclosed sale or purchases is to be added not the substantial part of transaction. In our view when in subsequent assessment year in AY 2011-12, the AO himself made addition only @ 10% of net profit in the assessment order passed under section 143(3); the book profit shown by assessee @ 11.45% for the year under consideration was reasonable and justified. Therefore, the assessee also succeeded on merit. Appeal of assessee allowed. Issues Involved:1. Validity of reopening the assessment under section 147 and issuance of notice under section 148.2. Addition of Rs. 9,14,448/- based on 51.84% profit on undisclosed sales of Rs. 18,98,771/-.3. Disallowance of deductions under Chapter-VI-A amounting to Rs. 37,679/-.Detailed Analysis:1. Validity of Reopening the Assessment under Section 147 and Issuance of Notice under Section 148:The Assessee contended that the reasons recorded for reopening were invalid as the AO incorrectly noted that no return was filed for AY 2010-11, whereas the return was filed on 17.03.2011. The Tribunal found that the AO was aware of the filed return during reassessment but still proceeded with reopening based on incorrect facts. This was supported by the case of Rinakumar A. Shah, where similar grounds led to the quashing of reassessment. The Tribunal concluded that the AO did not assume jurisdiction validly, making the action void ab initio and all subsequent actions invalid.2. Addition of Rs. 9,14,448/- Based on 51.84% Profit on Undisclosed Sales of Rs. 18,98,771/-:The Assessee argued that the profit margin in the scrap business is low, around 3-4%, and had shown a profit of 11.45% in response to the notice under section 148. The Tribunal noted that in the subsequent AY 2011-12, the AO had estimated income at 10% of turnover. The Ld. CIT(A) had accepted the Assessee's contention regarding the PNB transactions and calculated the profit on undisclosed sales at 51.84%. However, the Tribunal held that only the profit element embedded in undisclosed sales should be added, not the entire transaction amount. Given the AO's own estimation of 10% in the subsequent year, the Tribunal found the Assessee's declared profit of 11.45% reasonable and justified.3. Disallowance of Deductions under Chapter-VI-A Amounting to Rs. 37,679/-:The AO disallowed the deductions on the grounds that they were not claimed in the original return and no supporting evidence was provided. The Assessee countered that similar deductions were claimed in the original return and that the interest on housing loan (part of the deduction) was allowed under section 24. The Tribunal did not specifically address this issue in the final decision, as the primary ground of invalid reassessment was upheld, rendering other issues academic.Conclusion:The Tribunal allowed the Assessee's appeal, quashing the reassessment order due to invalid reopening under section 147 and incorrect issuance of notice under section 148. Additionally, on merits, the Tribunal found the Assessee's declared profit margin of 11.45% reasonable, thus also succeeding on the second ground. The disallowance of deductions under Chapter-VI-A was not specifically adjudicated due to the primary ground being upheld.