ASSISTANT COMMISSIONER OF INCOME-TAX vs. S M AUTO ENGINEERING PVT. LTD.,, PUNE

The brief facts of the case as emanating from records are : The assessee-company is engaged in manufacturing of auto components such as radiators, exhaust fans, silencers etc. A search and seizure action u/s. 132 was carried out at the premises of assessee on 28-08-2012. During search the assessee disclosed additional income of Rs.61,99,044/- on account of unaccounted sale of scrap in assessment years 2007-08 to 2011-12. On the basis of declaration made by assessee during search proceedings and the appraisal report, the Assessing Officer reopened the assessment for assessment year 2006-07. The reasons recorded for reopening were provided to the assessee. The assessee filed detailed objections which were rejected by Assessing Officer vide separate order. The Assessing Officer completed the reassessment proceedings and made addition of Rs.1,03,94,870/- on account of unaccounted sale of MS scrap.

Shri Achal Sharma representing the Department submitted that original assessment u/s. 143(3) was completed on 31-12-2007. Thereafter, search and seizure action u/s. 132 was carried out at the premises of assessee on 28-08-2012. Documents seized during search clearly indicated that the assessee had indulged in sale of scrap without recording the transactions in books. The assessment year under appeal was beyond the period of 6 years, therefore, no notice u/s. 153A could have been issued. However, the assessment year 2006-07 was within the time limit for issuing notice u/s. 148, hence, assessment for assessment year 2006- 07 was reopened. The ld. DR submitted that the assessee was provided with the reasons for reopening the assessment. The objections filed by the assessee were duly considered and rejected by the Assessing Officer by passing a speaking order separately. The Managing Director of assessee company Shri Sanjay Mohanlal Chopda in his statement recorded u/s. 132(4) admitted that scrap was sold against cash and the same is not reflected in the books. He made declaration of additional income of Rs.61,99,044/- in the Financial Years 2006-07 to 2011-12. The ld. DR referred to the summary of sale of scrap at page 15 of the paper book. The ld. DR referring to the document at page 15 submitted that the said document was seized during search and is part of Bundle No. 1 as page 21. The ld. DR pointed that the table at page 15 shows sale of scrap during 17-06-2004 to 14-05-2008 which covers Financial Year 2005-06 as well. During this period the difference between total value of scrap sold and the amount received by cheque is Rs.2,26,41,000/-. The ld. DR further referring to statement of Shri Sanjay Mohanlal Chopda pointed that in reply to Q. No. 11 he has admitted that the seized page No. 21 contains the summary of total scrap and expected cash to be received for the period 17- 06-2004 to 14-05-2008. The expected value of cash is shown as

On the other hand Shri Kishore Phadke appearing on behalf of the assessee vehemently defended the order of Commissioner of Income Tax (Appeals) in holding reassessment proceedings as invalid. The ld. AR submitted that a perusal of reasons recorded for reopening would clearly show that in the reasons recorded there is no reference of assessment year 2006-07. In the reasons the Assessing Officer has mentioned about sale of scrap in assessment year 2008-09 alone. The ld. AR further submitted that the Assessing Officer has recorded the reasons for initiating proceedings u/s. 148 on the basis of appraisal report. The assessee has not recorded his „reasons to believe‟ that the income of assessee has escaped assessment. The ld. AR further submitted that in the reasons recorded there is no reference of any incriminating material, the Assessing Officer has not pointed any transaction which has not been recorded in the

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We have also considered the documents and the decisions on which both the sides have placed reliance. The Revenue in appeal has assailed the order of Commissioner of Income Tax (Appeals) in holding reassessment proceedings u/s. 147 of the Act as invalid. Before proceeding further it would be relevant to refer to the reasons recorded by the Assessing Officer for reopening the assessment. The same are reproduced here-in-below : “Reasons for issue of notice u/s. 148 of the I.T. Act, 1961. During search the modus operandi of under invoicing of scrap sale has been detected. The person purchasing scrap has also admitted that he used to pay the difference between invoice value and the real sale value in cash. This activity was going on for years. On account of this the assessee has disclosed an income of Rs.61,99,044/- each for the A.Ys. 2007-08 to 2011-12. For the year under consideration scrap sale is to the extent of Rs.103,94,870/-. This sale is more than the scrap sales shown of Rs.1,01,71,337/- for the A.Y. 2008-09. For the AY 2008-09 the assessee has disclosed an amount of Rs.61,99,044/-. Hence keeping in view the modus operandi being adopted by the assessee, the assessee company is having undisclosed income of more than Rs.61,99,044/-. Therefore, I have reasons to believe that income assessable to tax in excess of Rs.61 lakhs has escaped assessment for the year under consideration also. This is because of the failure on the part of the assessee to disclose the full facts. On facts according to me it is a fit case for issue of notice u/s. 148 of I.T. Act, 1961.

A perusal of the reasons show that the Assessing Officer has made reference to the disclosure made by the assessee for the assessment years 2007-08 to 2011-12. Further, the Assessing Officer has referred to sale of scrap shown by the assessee in assessment year 2008-09. In the reasons

The ld. DR has time and again referred to page No. 21 of Bundle No. 1 seized during search action to thrust that the unaccounted sale of scrap in cash was prevalent in assessment year 2006-07 as well. However, we find that in the reasons recorded the Assessing Officer has not mentioned the said document as the basis of reopening assessment. A further perusal of Form for recording reasons for initiating proceedings u/s. 148 shows that the Assessing Officer has mentioned reasons for reopening as Appraisal Report. This clearly indicates that the Assessing Officer has not applied his mind in recording his reason to believe that income has escaped assessment. He has merely borrowed the reasons from Appraisal Report.

The Hon‟ble Bombay High Court in the case of Hindustan Lever Ltd. Vs. R.B. Wadkar (supra) has held that the Assessing Officer has to speak through his reasons for reopening the assessment. If the Assessing Officer has failed to mention anything in the reasons he cannot supplement the same by filing affidavit or making oral submissions. The relevant extract of the observations of the Hon‟ble High Court are as under : “20. The reasons recorded by the AO nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the AO to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the AO to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the AO. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.”

The basic requirement of section 147 is that the Assessing Officer should have „reasons to believe‟ that the income chargeable to tax has escaped assessment. The reasons to believe as envisaged in section 147 should be of the Assessing Officer and not borrowed from any other authority. The Assessing Officer has to form an opinion from fresh

The Hon‟ble Delhi High Court in the case of Principal Commissioner of Income Tax VS. Meenakshi Overseas (P.) Ltd. (supra) has held that where the assessment is reopened on the basis of information received from DIT(I) and there is no independent application of mind by Assessing Officer and the reasons failed to demonstrate link between the tangible material and formation of reason to believe that income has escaped assessment, reassessment is not justified. The relevant extract of the observations of Hon‟ble High Court are as under : “26. The first part of Section 147 (1) of the Act requires the AO to have “reasons to believe” that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment.”

In the present case, we find that the reasons recorded by the Assessing Officer does not speak of any fresh material in possession of Assessing Officer linking with the escapement of income, if any during assessment year 2006-07. We are of considered view that the reasons recorded does not spell out that any income chargeable to tax has escaped

In the result, the appeal of Revenue is dismissed.