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Facts
The Revenue challenged the CIT(A)'s order quashing reassessment proceedings for AY 2010-11. The assessment was reopened based on information about transactions with two entities, leading to an addition of Rs. 28,00,32,120/- under Section 37. The assessee argued that the reopening was based on borrowed satisfaction and that the payments were advances, not claimed as expenditure.
Held
The Tribunal found that the Assessing Officer reopened the assessment solely on borrowed information from the Investigation Wing without independent application of mind, thereby vitiating the reassessment proceedings. It also agreed with the CIT(A)'s finding that the payments were advances for work and not capitalized as work-in-progress, and no expenditure was claimed by the assessee, making the addition unwarranted. The Tribunal upheld the CIT(A)'s order.
Key Issues
1. Validity of reopening of assessment u/s 147/148 when the Assessing Officer acts on borrowed satisfaction without independent application of mind. 2. Whether payments made by the assessee were expenditure liable for disallowance u/s 37 or advances not claimed as expenditure.
Sections Cited
Section 147 of the Income Tax Act, 1961, Section 148 of the Income Tax Act, 1961, Section 143(3) of the Income Tax Act, 1961, Section 37 of the Income Tax Act, 1961
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Income Tax Appellate Tribunal, DELHI BENCH “A”, DELHI
(A.Y.2010-11) Assistant Commissioner of Income Tax, Central Circle-1, r. No. 334, 3rd Floor, E-2, ARA Centre, Jhandewalan Extension, ...... अपीलाथ�/Appellant New Delhi 110055 बनाम Vs. M/s. Sahara Prime City Ltd., R/o Sahara India Centre, 2- Kapoorthala Complex, ..... �ितवादी/Respondent Aliganj, Lucknow, UP PAN: AABCS-7893-P अपीलाथ� �ारा/ Appellant by : Ms. Ritu Sharma, CIT-DR �ितवादी�ारा/Respondent by : Shri Ajay Vohra, Senior Advocate with Ms. Shaily Gupta, Shri Kunal Pandey, Advocates and Shri Archit Kabra, Chartered Accountant सुनवाई क� ितिथ/ Date of hearing : 13/08/2024 घोषणा क� ितिथ/ Date of pronouncement : : 08/11/2024 आदेश/ORDER
PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-23, New Delhi (hereinafter referred to as 'the CIT(A)') dated 23.12.2016, for assessment year 2010-11.
The Revenue in appeal has assailed the order of CITA(A) on followings grounds: “1. The order of Ld. CIT(A) is not correct in law and on facts. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law on facts in its decision for quashing the assessment order u/s 147/148 r.w.s. 143(3) of the Income Tax Act, 1961.
On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.28,00,32,120/- made by AO u/s 37 of the Income Tax Act, 1961.” 3. Ms. Ritu Sharma, representing the department submits that the CIT(A) has erred in quashing assessment merely on the ground that reasons recorded for reopening the assessment do not indicate independent application of mind by the Assessing Officer (AO). She submitted that though the initial information was received by the AO from the Additional Director of Investigation Wing, but the AO has also independently applied his mind and has recorded reasons to believe that income in the case of assessee has escaped assessment. The ld. DR prayed for quashing findings of the CIT(A) and upholding validity of assessment proceedings. 3.1. On merits of the addition, the ld. DR vehemently supported the findings of the AO in making disallowance of payments aggregating to Rs.28,00,32,120/- to M/s. Telestar Packaging P. Ltd., and M/s. Alishan Estates Pvt. Ltd.
Per contra, Shri Ajay Vohra appearing on behalf of the assessee strongly supported the impugned order and prayed for dismissing appeal by the Revenue. The ld. Counsel for the assesses submits that a bare perusal of reasons recorded for reopening would show that the AO has not independently applied his mind before recording the reasons for reopening. The assessment has been reopened merely on borrowed information. The ld. Counsel for the assessee further submitted that the assessee had filed objections before the AO on the reasons recorded for reopening of assessment u/s. 147 of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’). The same are at pages 81 to 83 of the paper book. It was categorically stated therein that the reasons on which assessment has been reopened has already been examined by the AO during assessment proceedings for AY 2011-12. A specific query in respect of the payments made to Sahara Prime City Ltd. and Telestar Packaging P. Ltd., was raised by the AO, the assessee in response to the said query furnished all documentary evidences to substantiate transactions with the above mentioned parties. No expenditure was claimed by the assessee against these payments during the period relevant to assessment year 2010-11. Hence, there was no question of making disallowance in respect of said payments in the impugned assessment year. The very reason for reopening the assessment for AY 2010-11 is ill founded.
We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee/respondent filed its original return of income for AY 2010-11 on 04.10.2010 declaring total income of Rs.40,59,90,641/-. The assessee thereafter filed revised return of income on 03.02.2012 declaring total income of Rs.41,56,39,018/-. The assessment u/s. 143(3) of the Act was made vide order dated 27.03.2014. Thereafter on the basis of information received from Investigation Wing, assessment for AY 2010-11 was reopened and notice u/s. 148 of the Act was issued to the assessee on 01.04.2014. In response to the said notice, the assessee filed revised return on 25.01.2014 declaring gross total income of Rs.41,56,39,018/-.
The reasons recorded for reopening as provided to the assessee are as under: “Information has been received from Addl. Director of Income-tax (Inv) (Hqsurs.) (Amin.), New Delhi in this office about transactions between M/s. Sahara Prime City Ltd, and M/s. Telestar Packaging Pvt. Ltd. 156A, Lenin Sarani, Kolkata-7000013 of an amount of Rs. 8,00,32,120/. Similar information has also been received about transactions between M/s. Sahara Prime City Ltd, and Alishan Estates Pvt. Ltd, 156A, Lenin Sarani, 3rd floor, Kamalalaya Centre, Kolkata of Rs. 20,00,00,000/- during the F.Y. 2009-2010 relevant to A.Y. 2010-11. Therefore, I have reason to believe that income in the case of the assessee has escaped assessment for A.Y. 2010-11 and it is a fit case for issue of notice u/s 148 of Income Tax Act, 1961.”
A bare perusal of the above reasons reveal that the AO has reopened assessment solely on the basis of information received from the Investigation Wing. The section 147 of the Act mandates the Assessing Officer to record reasons to believe that any income chargeable to tax has escaped assessment. It is no more res intigra that borrowed satisfaction for reopening the assessment vitiates reassessment proceedings. A plain reading of the reasons recorded by the AO, unambiguously reflect that the AO has reopened the assessment based on the information received from the Investigation Wing of the Department. The “reasons to believe” are not of the AO. The assessment is liable to be quashed on this ground alone. We find no infirmity in the findings of the CIT(A) on this issue. We see no merit in ground no. 2 of appeal; hence, the same is dismissed.
As regards ground no. 3 of appeal, the contention of assessee is that the assessee has not claimed expenditure against the payments made to Telestar Packaging P. Ltd., & Sahara Prime City Ltd., during the relevant period. The CIT(A) on this issue has recorded finding of fact that, “the impugned payments to the above two companies were advances for execution of work and the said advances were not capitalized in work-in-progress and therefore there is no reason otherwise also for the AO’s conclusion that the said payments are to be exclude from WIP, thus rendering the finding and conclusion of the AO a falsity and nullity”. The Revenue has not been able to controvert the said findings of the CIT(A). In the absence of any contrary material, we see no reason to disturb the findings of CIT(A) on merits of the addition. Ergo, ground of appeal no. 3 is dismissed.