2019 (5) TMI 2045 - AT - Income Tax

Reassessment based on ITSC additional income disclosure u/s147 upheld, but post-reopening addition deleted without incriminating search material

Reopening under s.147 was challenged on the ground that no incriminating material was found in search and the only basis was income offered in a petition ... Reopening of assessment u/s 147 - appellant filed a petition before the Income Tax Settlement Commission (ITSC) offering an income being receipts from sale of car parking and on-money and also offered disallowance for prior period expenses - appellant submits that when no incriminating material was found during the course of search, just because the assessee had offered some income before the ITSC, without any basis, shall not constitute a ‘reason to believe’ for reopening the assessment u/s 148 HELD THAT:- Similar issue arose in the case of the appellant’s group company case i.e. M/s Anantnadh Constructions & Farms Pvt. Ltd [2017 (5) TMI 1692 - ITAT MUMBAI] as held AO had precise and definite information as regard to escapement of incom since the said income was declared as additional income before Settlement Commission. The assessee has not disclosed its amount in the return of income. The AO had sufficient information regarding reopening the order and moreover assessee’s writ petition before the High Court was also dismissed and the department was free to initiate the proceedings under section 147 of the Act. Therefore, we are of the view that Revenue is justified in reopening the assessment order - Decided against assessee. Why the income offered in the petition filed before the ITSC shall not be assessed as income of the appellant? - We find that similar issue arose in appellant’s group company i.e. M/s Anantnadh Constructions & Farms Pvt. Ltd. [2017 (5) TMI 1692 - ITAT MUMBAI] as held assessee has offered additional income of Rs.5 lakhs towards the land brokerage income. This offer was made for maintainability of petition before Settlement Commission as stated in clause (i) and clause (ia) of section 245C(1) - We are of the view that after reopening of the assessment order no addition can be made on the basis of income offered by the assessee before Settlement Commission. No incriminating material was found during the course of search action substantiating that assessee has actually earned undisclosed income. Therefore, just because assessee has offered additional income before Settlement Commission, no addition can be made without basis. Hence, the addition made by the AO and Ld. CIT(A) is deleted. Decided in favour of assessee. Assessee appeal is partly allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether reassessment could validly be reopened under section 147/148 on the basis of information that the assessee had disclosed additional income in a petition filed before the Settlement Commission, when such income was not disclosed in the return. (ii) Whether additions for alleged receipts from sale of car parking/on-money and disallowance of prior period expenses could be sustained when the only basis was the disclosure made in the Settlement Commission petition and there was no incriminating material or other evidence substantiating actual earning or incurrence. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Validity of reopening under section 147/148 based on disclosure in Settlement Commission petition Legal framework: The Tribunal examined reopening under section 147/148 on the touchstone of existence of 'reason to believe' founded on 'new tangible material' and recorded reasons. Interpretation and reasoning: The Tribunal treated the disclosure of specific additional income in the Settlement Commission petition, which had not been shown in the return, as precise and definite information indicating escapement of income. It accepted the approach that such information constituted tangible material sufficient to justify formation of belief for reopening, and relied on the identical determination in the group concern's case. Conclusion: Reopening was upheld; the ground challenging the validity of reassessment was dismissed. Issue (ii): Sustainability of additions made solely on the basis of Settlement Commission petition without incriminating material/evidence Legal framework: The Tribunal considered whether an addition can be made in reassessment merely because a taxpayer disclosed amounts in a Settlement Commission petition, in the absence of direct or corroborative evidence found in search or otherwise. Interpretation and reasoning: The Tribunal noted that the assessee consistently asserted that no incriminating documents/material were found during search to show actual receipt of on-money/car parking consideration or warrant disallowance of prior period expenses. It further noted that the disclosed amounts were stated to have been offered in the Settlement Commission petition only to meet the threshold for maintainability. The Tribunal held that, after reopening, the assessment of income still required evidentiary basis; mere disclosure in the Settlement Commission petition, without any supporting material establishing actual undisclosed income or inadmissible expenditure, could not by itself justify additions. Following the identical reasoning adopted in the group concern's case, it concluded that additions made by the assessing authority and confirmed in appeal lacked basis. Conclusion: The additions for alleged receipts from sale of car parking/on-money and the disallowance of prior period expenses were deleted; the related grounds were allowed.