1991 (3) TMI 197 - AT - Income Tax

Invalid Assessment Reopening under IT Act

RL. TRADERS. Versus INCOME TAX OFFICER.

The Tribunal held that the reopening of the assessment under Section 147(a) of the Income Tax Act was invalid due to the lack of specific material and ... - Issues Involved:1. Validity of reopening of assessment under Section 147(a) of the Income Tax Act.2. Quantum of additions made by the Assessing Officer based on alleged under-invoicing and bogus transactions.Issue-wise Detailed Analysis:1. Validity of Reopening of Assessment under Section 147(a):The primary issue contested by the assessee was the validity of the reopening of the assessment under Section 147(a). The assessee argued that the reasons for reopening were never supplied despite repeated requests, and the reopening was based on a general circular from the Intelligence Wing of Bombay. The assessee contended that there was no direct nexus or live link between the material and the belief of income escapement. The Delhi High Court had previously set aside similar orders, emphasizing that 'reopening of the assessment must have a rational connection or relevant bearing on the formation of belief,' which was lacking in this case. The assessee's sales and purchases were accepted by the Sales-tax Department, and no defects were pointed out. The past gross profit rates were accepted by the department, indicating no reason for additions on account of under-invoicing.The Tribunal considered the rival submissions and noted that the Supreme Court in the case of Lakhmani Mewal Das had established that reasons for the formation of belief must have a rational connection or relevant bearing. The Tribunal found that there was no specific material against the assessee to show involvement in bogus transactions or under-invoicing. The information relied upon by the Department was general and not specific to the assessee. The Tribunal concluded that the reopening of the assessment was based on conjectures and surmises and was invalid. Therefore, the order of the CIT(A) directing the ITO to make further investigation was set aside.2. Quantum of Additions Made by the Assessing Officer:The Assessing Officer made additions of Rs. 11,45,175 for the assessment year 1980-81 and Rs. 6,25,425 for the assessment year 1981-82, based on alleged under-invoicing at Rs. 25 per kg. The CIT(A) found that there was no material to support the substantial additions made by the Assessing Officer and remitted the case to the Assessing Officer to redecide the quantum of addition afresh. The assessee challenged this, arguing that the sales and purchases were accepted by the Sales-tax Department and no defects were pointed out. The assessee's past gross profit rates were accepted by the department, and there was no reason for additions on account of under-invoicing.The Tribunal, having found the reopening of the assessment invalid, did not find it necessary to discuss the merits of the additions made by the Assessing Officer.Conclusion:The Tribunal allowed the appeals of the assessee, holding that the reopening of the assessment under Section 147(a) was invalid due to the lack of specific material and direct nexus. Consequently, the order of the CIT(A) directing further investigation was set aside, and the Tribunal did not address the merits of the additions made by the Assessing Officer.