Loading judgment…
Facts
The assessee is engaged in trading various goods and filed a return of income. A survey revealed an investment in property renovation that was not accounted for, leading to reopening of assessment. The AO made additions for the renovation cost and ad-hoc disallowances for purchases, rent, and salary.
Held
The Tribunal held that the reopening of assessment was valid as there was material found during the survey. The addition for renovation cost was upheld. However, the matter of ad-hoc disallowances was restored to the AO for fresh adjudication after providing the assessee an opportunity to submit evidence.
Key Issues
Whether the reopening of assessment was justified based on survey findings and whether the ad-hoc disallowances made by the AO were sustainable.
Sections Cited
147, 148, 143(3), 133A, 44AA(3), 131, 132(4), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI JAGADISH
आदेश / O R D E R
PER BENCH: Aforesaid four appeals filed by the assessee for Assessment Years (AYs) 2014-15 to 2017-18 arises out of the common order of Learned Commissioner of Income Tax (Appeals), Chennai-18 [hereinafter “CIT(A)”] dated 14.05.2024 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 147 of the Income-tax Act, 1961 (hereinafter “the Act”) on 24.12.2019.
to 1888/Chny/2024 :- 2 -: 2. The facts in all the appeals of the assessee are identical and issues are common hence, we proceed to pass a common order. For 2015-16 as lead case. The grounds of appeal raised by the assessee for A.Y 2015-16 are as under:
“1. The order of the Commissioner of Income Tax (Appeals), Chennai - 18 is contrary to the law, facts and circumstances of the case and in any case violative of principles of equity and natural justice.
The Notice under section 148 does not mention about the approval obtained from the Joint Commissioner.
The assessing officer has erred in assuming jurisdiction u/s.147 for the following reasons: a. The reasons recorded by the assessing officer and the issue of notice u/s.148 to re-assess the income, when a regular assessment was never made clearly indicates non application of mind on the part of the assessing officer in assuming jurisdiction. b. The re-opening is solely based on the statement recorded during a survey which does not have any evidentiary value. Further, in the instant case, the statement recorded during the survey contain apparent contradictions and therefore value, if any, of such a statement is further eroded. c. The notice for initiating reassessment proceedings have been based on mere assumptions, surmises and conjectures without any fresh tangible material and proves to have been initiated solely for the purpose of conducting a roving enquiry based on the financial statements filed by the appellant. d. Further to the notice u/s. 148, the re-assessment proceedings were carried out without any new finding "from materials upon which the respondent had reasons to believe" and proved to be a mere conduct of roving enquiry due to change of opinion as is evident from the nature of additions made in the assessment, which are based on estimates and surmises. e. The Joint Commission of Income Tax has mechanically given approval for re-opening of the case. f. There is no fresh tangible material for re-opening the assessment as is evident from the additions made in the assessment.
4. The CIT(A) erred in dismissing the ground that the reopening of the assessment is bad in law. to 1888/Chny/2024 :- 3 -:
The assessing officer in his order disposing the objections has attempted to improvise the reasons for re-opening. It is settled law that only the reasons recorded before issue of notice should be reckoned if the re- opening of the assessment is challenged.
6. The assessing officer erred in holding that the statement made during the survey on 10/10/2018 was provided during the course of survey and based on the statement recorded u/s.131 on 11/10/2018 & 02/11/2018, which are factually incorrect. Where an authority relies on incorrect facts to arrive at a conclusion
7. The assessing officer does not have any material whatsoever to suggest that the appellant has inflated expenses debited to the profit and loss account and therefore adhoc disallowances made on that basis cannot be sustained.
The appellant is not carrying on the profession as mentioned under section 44AA(3); therefore, the prescribed books of account as mentioned in Rule-6F of the Income-tax Rules were not required to be maintained by the assessee.
No assessment/ reassessment can be made solely on the basis of a statement recorded under section 133A of the Income Tax Act, 1961 in the absence of any other tangible evidence available with the Assessing Officer. Additions primarily based only on the statements and not corroborated by independent evidence are not sustainable. 10. The reasons recorded for reopening must meet the judicial scrutiny. The reasons should be examined only on a standalone basis and they are to be read as they were recorded. There should not be any substitution as the AO has made in the order disposing objections. 11. Statements and confessions given during the survey do not serve any useful purpose as it is not as the statement on oath as given u/s.132(4) of the Act. The statement recorded at the time of the survey holds no evidentiary value. 12. Any ad-hoc disallowance of expenditure without specifying expenditure that was either not incurred for the purpose of business or was not substantiated by documentary evidence/material is unsustainable in law.”
3. The brief facts of the case are that the assessee is engaged in the business of trading in leather goods, all accessories, handicrafts, jewellery, textiles & cosmetics under the name and style of M/s. Limra Mobile Accessories. The assessee has filed return of income on to 1888/Chny/2024 :- 4 -: 30.11.2014 declaring total income of Rs. 4,98,470/- and the return was processed u/s. 143(1) of the Act. A survey u/s. 133A of the Act was carried out in the office premises of the assessee at New No.2, old No 2, C M Mudaliyar street, Nungambakkam Chennai , No 15/8 Gulam Abbas Ali Khan 3rd Street, Thousands Light Chennai on 10.10.2018 . During the course of survey, books of accounts was not found at the business premises and assessee stated that he does not maintain books of account. During survey it was also found that the assessee has made investment in renovation of property at No.8, Gulam Abbas Ali Khan, 3rd Street, Thousand Lights, Chennai, and assessee has deposed that sum of Rs 41 lakh was incurred towards renovation which was not accounted. The A.O on the basis of survey conducted u/s. 133A of the Act has recorded reason and reopened the assessment after taking approval from JCIT, Non Corporate Range-3, Chennai. During the assessment, the assessee did not furnish any of documentary evidences and explanation sought in the show cause notice and therefore, the A.O has passed order u/s. 143(3) of the Act by disallowing 10% of the purchases, 10% of rent and 20% of salary on employee benefit expenses. The A.O has also made addition of Rs.41,00,000/- towards renovation of property at No.8, Gulam Abbas Ali Khan, 3rd Street, Thousand Lights Chennai . The assessee has filed appeal before Ld. CIT(A). The Ld. CIT(A) in a speaking order has to 1888/Chny/2024 :- 5 -: dismissed all the six grounds including the challenging of reopening of assessment and sustaining the addition made by A.O.
4. The Ld. Authorized Representative (A.R) of the assessee before us has mainly argued against reopening of the assessment. The Ld. AR has argued that assessment has been reopened on the basis of statement recorded during the survey, which does not have any evidential value. The Ld. AR has also argued that the A.O has reopened the assessment for the investment in renovation, but the year of investment has not been mentioned. The Ld. AR has submitted that there is a contradiction in the statement recorded as the assessee has stated that there are no books of accounts maintained however there are audit reports filled at the time of filing of return. The Ld. AR on merit has submitted that the assessee has maintained regular books of accounts, which are duly audited and therefore, adhoc disallowances is uncalled for.
5. The Ld. Departmental Representative (DR), on the other hand, has argued that the assessment has been made on the basis of survey conducted u/s. 133A of the Act in which it was found that the assessee has made investment for renovation of property, but has not disclosed in the return of income. The Ld DR submitted that books of to 1888/Chny/2024 :- 6 -: account has not been found during survey at the business premises and assessee himself admitted that books of account are not being maintained and investment in renovation is unaccounted . The Ld. DR has also submitted that the assessee’s case was not scrutinized therefore, the A.O after recording the reason and obtaining approval of competent authority has reopened the assessment. As regard to addition made, the Ld. DR has submitted that the assessee has not submitted any evidence in support of his contention either before A.O or before Ld. CIT(A) and the Ld. CIT(A) has passed reasoned order and therefore, order of Ld. CIT(A) may be confirmed.
We have heard the rival submissions, and perused the materials available on record. The A.O has reopened the assessment after recording the reasons as under:
6. Reasons for reopening assessment. Para 1: Basic details of the The assessee filed the return of income for the AY assessee 2015-16 on 30.09.2015 admitting a total income of Rs.5,27,060/-, No assessment order was passed u/s 143(3)/147 Para-2: Brief details of Discreet enquires revealed that the investment has information collected/received been made by the assessee in renovation of the building at No: 15/8. Ghulam Abbas Ali Khan street, Thousand lights, Chennai- 600006 and various rooms have been let out in this building. Also, verification of return of income shows that there are huge purchases/rent payments by the assessee during the FY 2014- 15 relevant to AY 2015-16 Para-3 information Analysis As there is no information in the return of income collected/received as to the source of the said investment, the same require to be treated as income of the assessee for the AY 2015-16 that had escaped assessment within the meaning of section 147 of the Income to 1888/Chny/2024 :- 7 -: Tax Act, 1961. Para-4:Enquires made by the AO as sequel to information A Survey u/s 133A of the Income Tax Act, 1961 received was conducted in the case of the assessee on 10.10.2018 at New No: 4, Old No: 2, C.M Mudaliar Street, Nungambakkam, Chennai-600064 with the prior approval of the Joint commissioner of Income Tax Non corporate Range-3, Chennai. In the sworn statement recorded on 10.10.2018 during the course of survey proceedings, it was deposed by the assessee that the assessee is carrying on the business of books, handicrafts, leather purse etc., at the Chennai International Airport.
To the specific questions raised in the Sworn statement recorded on 10.10.2018, it was deposed by the assessee as follows:
Whether the books of account are maintained for your business activities? If so please state where you maintain your books of accounts? Ans: I am not maintaining any regular books of account Normally, I sell the above articles on cash basis. The sales is mainly carried out with the air passengers. The business is run in the name and style of Syed Asim. This is a proprietorship of mine
It is noticed that renovation work has been carried out at the property at No:8, Ghulam Abbas Ali Khan 3rd Street, Thousand Lights, Chennai- 600006, What is the cost of renovation and source for the same.? Ans: A sum of Rs.41 lakhs was incurred by me towards renovation of the above property. This amount is not accounted. I offer the same as my income.
Have you undertaken any foreign travel during the last 6 years? Ans: I used to travel locally in India once in a year along with my family members and my parents. These trips cost around Rs. 2 lakhs per annum. During the year 2014, we travelled to Malaysia and Singapore which costed about Rs.3 lakhs.
Para-5. Findings of the AO From the facts narrated in the annexure attached, it is clear that the assessee has invested substantial amount in renovation of property at No:8. Ghulam Abbas Ali Khan 3rd Street, Thousand Lights, Chennai-600006, is not able to substantiate huge purchases in the absence of books of accounts and expenditure for travel with family members has not been accounted for. Thus, these investments have escaped assessment and are to be brought to tax. to 1888/Chny/2024 :- 8 -: Para-6:Basis of forming reason In view of the above findings, I have reasons to to believe and details of believe that reason to believe and income had escapement of income escaped assessment for the AY 2015-16 within the details of escapement of meaning of section 147.
The A.O has taken the approval of JCIT, Non Corporate Range- 3, Chennai , before issuing notice u/s. 148 of the Act. The Ld. CIT(A), after considering all the arguments of assessee has passed speaking order. We find that survey under section 133A of the Act has been conducted at the premises of assessee as result of which renovation in property was unearthed. The assessee himself has admitted that a sum of Rs 41 lakhs has been incurred towards renovation of property and the same is unaccounted. Therefore, in our opinion the A.O has sufficient material to reopen the case and Ld CIT(A) has correctly upheld the reopening of assessment. As per Section 147 of the Act, the A.O is empowered to reopen an assessment, if he has reason to believe that income chargeable to tax has escaped assessment. It is a settled principle of law that while the A.O must have reason to believe the sufficiency of reason is not required. The reopening in the present case has been done on the basis of material found during survey that the assessee has renovated his property, but the investment has not been disclosed the same in the return of income. The Hon’ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Ltd. [2007] 291 ITR 500 (SC) has a held that the A.O only needs to to 1888/Chny/2024 :- 9 -: have reason to believe and not a conclusive evidence and the material gathered during the survey suffice for such belief. The Hon’ble Supreme Court in the case of Raymond Woolen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) has held that Court cannot go into adequacy or sufficiency of the reason recorded by the A.O, but only into their existence. In view of the above, the Ld. CIT(A) has correctly upheld the reopening of the assessment.
8. As regard to addition on renovation of property, the A.O, during the course of survey, found renovation in the property. The assessee himself stated the expenses at Rs. 41 Lakhs. The assessee in the statement recorded u/s 131 on 02.11.2018 has admitted that investment has been made during F.Y 2014-15. Accordingly, the A.O has added Rs. 41 Lakhs as investment in the property and Ld CIT(A) has upheld the addition . We do not find any infirmity in the order of Ld CIT(A), therefore the ground of appeal filed by the assessee is dismissed.
9. As regard to the disallowance of expenses, the assessee has not submitted any details in support of claim of expenditure in profit & loss account , AO therefore made adhoc disallowance of 10% of purchase, and rent and 20% of salary and staff welfare expenses. The Ld CIT(A) has confirmed the addition . The Ld. AR has argued that adhoc to 1888/Chny/2024 :- 10 -: disallowances is not called for as assessee’s account are audited. We find that A.O has made ad hoc disallowances of certain expenses as assessee has not furnished the details of expenditure. We are of opinion that, the matter of disallowances of expenditure be restored to the file of A.O with direction to assessee to submit all evidences before the AO in support of claim of expenditure. The A.O shall decide the matter after providing proper opportunity to the assessee. The ground of appeal is accordingly allowed for statistical purposes.
10. We find that the identical issues of reopening the assessment and adhoc disallowances are involved in assessee’s appeals for A.Ys 2014-15, 2016-17 & 2017-18. Accordingly, our adjudication above in A.Y 2015-16 applies mutatis mutandis to these appeals as well.
11. The A.O in the assessment year 2017-18 has reopened the assessment on the basis of unaccounted investment in renovation unearthed and addition of proprietor account. The AO has made addition of proprietors capital Rs.98,37,445/- introduced during the year under section 68 of the Act as assessee has failed to furnish any documentary evidence. The assessee before Ld. CIT(A) explained that the property at Chennai & Land at Injabakkam, were acquired in year 2007 & 2008 but recorded in the books of account of the proprietary to 1888/Chny/2024 :- 11 -: business this year, by adjusting the opening balance of capital account. The assessee explained the increase in capital account only on account of recording already existing asset of Land at Injabaakkam of Rs. 9,00,000/- and Property at Chennai of Rs.84,04,600/-. The Ld CIT(A) did not accept assessee’s contention as assessee has not maintained any books of account to substantiate the entries made in the financials filled with the return. The Ld. AR before us has argued that assessee has maintained books of account and the increase in capital is only because recording already existing assets in the current year. We find that assessee’s contention needs verification, therefore we restore the matter back to the file of A.O with direction to assessee to submit all documents in support of his contention before A.O.
In the result, all the four appeals filed by the assessee are partly allowed.
Order pronounced on 27th January, 2025.