2022 (4) TMI 283 - AT - Income Tax

Revenue's Appeal Dismissed, AO's Jurisdiction Challenged. Section 148 Misuse and Section 68 Addition Overturned.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision. The AO wrongly assumed jurisdiction under Section 148 without proper ... Assumption of jurisdiction under Section 147/148 - reason to believe - application of the first proviso to Section 147 regarding reassessment after four years - requirement of minimum inquiry upon receipt of investigational information - accommodation entries / bogus billing - double addition and applicability of Section 68Assumption of jurisdiction under Section 147/148 - reason to believe - application of the first proviso to Section 147 regarding reassessment after four years - requirement of minimum inquiry upon receipt of investigational information - Validity of the Assessing Officer's reopening of the completed assessment by issuing notice under Section 148/147 - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the reassessment notice was without jurisdiction. The reasons recorded by the Assessing Officer were founded on advisory information received from the investigative wing (DDIT (Inv.)) which suggested possible accommodation entries but expressly advised further enquiries. The Assessing Officer issued the Section 148 notice shortly after receipt of that information without conducting the suggested or any independent preliminary inquiry to form a definite prima facie belief of escapement of income. Where information is tinged with suspicion and expressly calls for verification, an Assessing Officer must undertake minimal inquiries before forming the statutory reason to believe. Further, because the original assessment under Section 143(3) was completed and the reassessment was initiated after four years, the conditions of the first proviso to Section 147 applied; the Assessing Officer also failed to show that the alleged escapement was due to the assessee's failure to disclose fully and truly all material facts. The reasons recorded did not identify any specific non-disclosure and thus did not satisfy the twin conditions required by the proviso. On these grounds the notice under Section 148/147 was held to be non est and rightly quashed by the CIT(A). [Paras 9, 10]Reopening of assessment set aside for lack of valid reason to believe and failure to meet the requirements of the first proviso to Section 147.Accommodation entries / bogus billing - double addition and applicability of Section 68 - Legitimacy of the addition made under Section 68 by treating part of the declared turnover as unexplained cash credits - HELD THAT: - On merits the Tribunal declined to interfere with the CIT(A)'s deletion of the addition. The Assessing Officer had accepted the turnover in the original assessment but in reassessment treated a portion of that same turnover as unexplained receipts and added it again under Section 68, effectively producing a double addition. The CIT(A) found that if sales were to be treated as bogus the corresponding goods would reflect in closing stock and the Assessing Officer had not pointed to any discrepancy in purchases; having accepted purchases and turnover in original assessment, it was unsustainable to make an alternate addition under Section 68 without reconciling the accounting and evidentiary position. The Tribunal found the CIT(A)'s reasoning sound and saw the Assessing Officer's action as manifestly unsustainable in law. [Paras 11, 12]Addition under Section 68 deleted as constituting an impermissible double addition and unsupported on merits.Final Conclusion: The Revenue's appeal is dismissed: the reopening under Section 147/148 was invalid for want of a proper reason to believe and non-compliance with the first proviso to Section 147, and the addition under Section 68 was deleted as an unsustainable double addition. Issues Involved:1. Validity of jurisdiction assumed under Section 148 of the Income Tax Act.2. Merits of additions made under Section 68 of the Income Tax Act.Detailed Analysis:1. Validity of Jurisdiction Assumed Under Section 148:The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had allowed the assessee's challenge on the grounds of jurisdiction and merits. The CIT(A) found that the Assessing Officer (AO) had wrongly assumed jurisdiction under Section 148 of the Income Tax Act, 1961, to reopen the completed assessment. The AO had issued a notice under Section 148 based on information received from the Deputy Director of Income Tax (Inv.)-I, Faridabad, suggesting that the assessee had engaged in transactions with entities suspected of issuing bogus billing of steel. However, the AO did not conduct any inquiries to verify this information before reopening the case.The Tribunal noted that the information received from the DDIT was advisory and required the AO to make proper inquiries, which were not conducted. The AO proceeded to issue the notice under Section 148 without any interim inquiry to ascertain the facts. The Tribunal emphasized that the 'reason to believe' is fundamental for jurisdiction under Section 147 and cannot be based on mere suspicion. The information provided by the DDIT was not corroborated, and the AO's action lacked the necessary inquiry to form a prima facie opinion of income escapement. Consequently, the Tribunal upheld the CIT(A)'s decision that the AO had wrongly assumed jurisdiction under Section 147.Additionally, the Tribunal addressed the requirements of the first proviso to Section 147, applicable since the assessment was reopened after four years from the end of the relevant assessment year. The Tribunal found that the AO did not allege any failure on the part of the assessee to disclose fully and truly all material facts. The reasons recorded by the AO did not meet the conditions stipulated in the first proviso to Section 147. Therefore, the Tribunal concluded that the reopening of the assessment was not justified, and the CIT(A) rightly upheld the plea of the assessee regarding the lack of jurisdiction.2. Merits of Additions Made Under Section 68:On the merits of the additions, the CIT(A) observed that the transactions with Natwest Trade Link, amounting to Rs. 3,54,99,691/-, were part of the turnover/sales declared by the assessee. The AO, however, made an addition under Section 68 of the Income Tax Act without reducing the corresponding sales, resulting in a double addition. The Tribunal found this approach unsustainable, as it led to double taxation of the same amount—once as turnover and again under Section 68. The Tribunal agreed with the CIT(A) that the AO had not appreciated the full facts and wrongly made the addition. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order on both counts—invalidating the jurisdiction assumed under Section 148 and deleting the addition made under Section 68. The Tribunal found that the AO had not conducted the necessary inquiries to justify reopening the assessment and had made unsustainable double additions. The order was pronounced in the open Court on 29/03/2022.