SHEETAL V. BHAT,CHENNAI vs. ACIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 4, Chennai, dated 21.10.2016 and pertains to assessment year 2007-08.

Shri D. Anand, the Ld.counsel for the assessee, submitted that the first issue arises for consideration is reopening of assessment under Section 147 of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. counsel, the assessee filed return of income on 29.10.2007 and the same was processed under Section 143(1) of the Act. Subsequently, the Assessing Officer reopened the assessment by issuing notice under Section 148 of the Act on 25.03.2015. The Ld.counsel submitted that once the assessment proceeding was terminated by operation of law, the Assessing Officer cannot reopen the same under Section 147 of the Act.

On the contrary, Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the return of income was admittedly processed under Section 143(1) of the Act. It is not a case that there was no material for opening assessment.

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the return filed by the assessee on 29.10.2007 was processed under Section 143(1) of the Act. Subsequently, a notice under Section 148 of the Act was issued on 25.03.2014. The question arises for consideration is whether the Assessing Officer has rightly reopened the assessment by issuing notice under Section 148 of the Act.

We have carefully gone through the judgment of Madras High Court in TANMAC India (supra). The issue before the Madras High Court is an identical reopening of assessment after processing the return under Section 143(1) of the Act. The Madras High Court after referring to the judgment of Apex Court in Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra), found that for initiating proceeding under Section 147 of the Act, reason to believe on the part of the Assessing Officer that income chargeable to tax was escaped assessment, is one of the essential conditions. The High Court further found that the Court cannot examine the sufficiency of the reason on the basis of which reassessment was initiated, still the existence or otherwise such reason to believe is certainly open to verification and would be evident from the reasons recorded prior to issue of notice under Section 148 of the Act. In the case before the Madras High Court, the reason for reopening assessment was the debit claimed towards lump sum payment made as a compensation for future profits to the extent of `5,50,000/-. The High Court found that the document relied on by the Assessing Officer was part of the return filed by the assessee. The High Court further found that if the Assessing Officer, after processing the return under Section 143(1) of the Act, does not issue notice under Section 143(2) of the Act to initiate scrutiny proceeding, the obvious conclusion is that the Assessing Officer does not consider it necessary or expedient to do so to verify the return filed by the assessee. This opinion cannot be arbitrarily changed by the Assessing Officer to re-assess on the basis of the material already on record. Since no material is available on record after processing return under Section 143(1) of the Act, the High Court found that the reassessment processing initiated by the Assessing Officer is not justified.

In the case on our hand, the facts are entirely different. In this case, after processing under Section 143(1) of the Act, the Assessing Officer received a report from the Deputy Director of Income Tax (Investigation)-II, Mumbai regarding bogus purchase of diamonds from M/s Daksh Diamonds, Mumbai. Therefore, the report received from Deputy Director of Income Tax (Investigation)- II, Mumbai was the basis for reopening of assessment. Hence, it cannot be said that the reopening was made on the basis of the material already existed on record. This Tribunal is of the considered opinion that when the Assessing Officer received information with regard to bogus purchase of diamonds from M/s Daksh Diamonds, she rightly reopened the assessment by issuing notice under Section 148 of the Act, therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

Now coming to the merit of the addition made by the Assessing Officer, Shri D. Anand, the Ld.counsel for the assessee, submitted that the assessee, in fact, purchased diamonds from M/s Daksh Diamonds and payments were made through banking channel. The invoice dated 05.07.2006 was produced before the Assessing Officer and the payment was also made on 01.09.2006, almost two months later. If the transactions were sham and bogus as claimed by the Assessing Officer, then there may not be any necessity to the assessee to settle the payment through banking channel. Therefore, according to the Ld. counsel, the Assessing Officer is not justified in making any addition.

Referring to the order of the CIT(Appeals), the Ld.counsel for the assessee submitted that the CIT(Appeals) confirmed the order of the Assessing Officer only on the ground that M/s Daksh Diamonds has not confirmed the purchase of diamonds by the assessee even after issuing of notice under Section 133(6) of the Act. According to the Ld. counsel, it is for the Assessing Officer to enforce the attendance of M/s Daksh Diamonds, Mumbai, in exercise of his statutory power and to verify whether the assessee has in fact purchased the diamonds from M/s Daksh Diamonds.

On the contrary, Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the assessee has not produced any material before the Assessing Officer to substantiate the transaction, therefore, the entry made in the books of account to the extent of `9,70,515/- was found to be bogus. Moreover, the Assessing Officer made an attempt to verify the purchases by issuing notice under Section 133(6) of the Act. The so-called M/s Daksh Diamonds has not responded to the letters issued by the Assessing Officer. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. The main contention of the assessee is that the diamonds were purchased from M/s Daksh Diamonds and the details of ledger and bank accounts were produced before the Assessing Officer as well as the CIT(Appeals) and the payments were made through banking channel. This is obvious from the observation made by the Assessing Officer in the impugned order itself. However, the purchase bills were not produced before the Assessing Officer.

Income-tax Act is a special enactment for the purpose of computation of taxable income as per the material available on record. No tax can be levied on presumption. Unless the material available on record establishes that the assessee has earned the income, no tax can be levied by the authorities on the presumption that the third party has not responded to the query made by the Assessing Officer. The Income-tax Act confers ample power and authority on the Assessing Officer to enforce the attendance of M/s Daksh Diamonds and call for records from them to verify the transaction made by the assessee. The Assessing Officer is not expected to leave the matter as such merely because M/s Daksh Diamonds has not responded to her letters issued under Section 133(6) of the Act. If the Assessing Officer did not want to proceed after issuing letters under Section 133(6) of the Act, the assessee cannot be penalized on presumption.

The matter would stand differently in case the Assessing Officer proceeds further after issuing notice under Section 133(6) of the Act, and establish that the assessee has not purchased any diamond from M/s Daksh Diamonds. In this case, the Assessing Officer has not taken any further step after issuing the notice under Section 133(6) of the Act. Therefore, this Tribunal is of the considered opinion that there cannot be any disallowance / addition on the basis of presumption that the information received by the Assessing Officer was established beyond reasonable doubt.

In the result, the appeal filed by the assessee is allowed.