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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
The captioned cross proceedings are preferred by the Revenue and the assessee pertaining to the assessment year 2008-09 and are directed against the order passed by the CIT(Appeals) -19, Mumbai dated 01.10.2014, which in turn has arisen from an order passed by the Assessing Officer dated 06.03.2013 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short ‘the Act’).
In brief, the facts are that initially the assessee company filed a return of income on 30/09/2008 declaring a loss of Rs.2,11,181/-, which was processed under section 143(1) of the Act on 24/07/2009. Subsequently, a notice under section 148 of the Act was issued and served on the assessee on 30/03/2012, whereby the assessment was sought to be reopened on the ground that income chargeable to tax had escaped assessment on account of certain bogus purchases from one M/s. U.M Exports(Proprietor Shri Mahesh Mehta) to the extent of Rs.4,90,275/-. In response to the said notice, assessee communicated to the Assessing Officer that the original return filed be taken as return filed in response to the notice issued under section 148 of the Act. In the ensuring assessment, the Assessing Officer treated the purchases made by the assessee from M/s. U.M Exports as a mere accommodation entry. Accordingly, purchases to the extent of Rs.9,32,931/- was considered as bogus purchases. Furthermore, addition @ 25% was also made on the ground that the assessee would have earned the profits in cash, which amounts to Rs.2,33,230/-. In this manner, as against the returned loss of Rs,2,11,181/- the Assessing Officer assessed the total income at Rs.9,54,980/-. The said assessment was challenged in an appeal before the CIT(Appeals) in law and on facts. Firstly, the assessee contended that the issuance of notice under section 148 of the Act was bad in law; and, secondly, the assessment finalized under section 143(3) r.w.s. 147 was liable to be quashed. On facts also, the addition made was sought to be assailed.
The CIT(Appeals) considered the reasons recorded by the Assessing Officer for reopening under section 148 of the Act and held that the same did not reflect any application of mind and were, therefore, contrary to the legal position. Accordingly, the initiation of proceedings by issuance of notice under section 147/148 of the Act was found to be ab-initio invalid. The CIT(Appeals) accordingly, quashed the reassessment proceedings. In this view of the matter, the Revenue is in appeal before the Tribunal, inter-alia, contending that the quashing of the reopening proceedings by the CIT(Appeals) was not justified.
Before me, the Ld. Departmental Representative has primarily reiterated the averments made in the Grounds of appeal, which primarily revolve around the objection that the information received by the Assessing Officer is a good ground for commencement of proceedings under section 147/148 of the Act. It is sought to be contended that at the time of commencement of proceedings under section 147 of the Act, what has to be seen is only prima-facie material and not the sufficiency or correctness of the material.
On the other hand, Ld. Representative for the assessee has supported the decision of the CIT(Appeals) by pointing out that the reasons recorded by the Assessing Officer did not reflect any application of mind on the part of the Assessing Officer for formation of belief about escapement of income. Therefore, according to him, the CIT(Appeals) made no mistake in setting-aside the impugned assessment proceedings having regard to the ratio of the following judicial pronouncements:-
Signature Hotels vs. ITO & another, 338 ITR 51(Del) 2. Meera Kapoor vs. CIT, of 2008 dated 31/08/2012(Del) 3. ITO vs. Lakhmani Mewal Das, 103 ITR 437 (SC) 4. M/s. Intime Credit & Holdings Pvt. Ltd. v. ITO, ITA No.1726/Mum/2012 order dated 27.07.2015
I have carefully considered the rival submissions. One of the necessary ingredients required to initiate reassessment proceedings under section 147 of the Act is formation of belief by the Assessing Officer that certain income chargeable to tax had escaped assessment. It is also a trite law that the formation of such belief should be discernible from the material and information on record when the Assessing Officer records his reasons. In other words, it is an accepted position of law that there should be a live link between the reasons and the evidence/material available with the Assessing Officer. In the present case, the CIT(Appeals) has extracted the reasons recorded by the Assessing Officer in para 3.2 of his order. A reading of such reasons reveal that the Assessing Officer refers to information received from the Investigation Wing that assessee made bogus purchases from one M/s. U.M Exports to the extent of Rs.4,90,275/-. Merely noticing such information, the Assessing Officer proceeds to record a belief that income chargeable to the aforesaid extent had escaped assessment. In the context of such recording of reasons the CIT(Appeals) referred to the judgment of the Hon’ble Delhi High Court in the case of Meera Kapoor (supra), wherein a somewhat similar reasons recorded were held to be non- complaint with the requirement of section 147/148 of the Act.
6.1 At the time of hearing, the Ld. Representative for the assessee referred to the Paper Book, wherein a copy of the statement rendered by Shri Mahesh P. Mehta, proprietor of M/s. U.M Exports is placed. On that basis, it is sought to be explained that the assessee has not been specifically named therein.
6.2 Be that as it may, I am presently only examining the conclusion of the CIT(Appeals) that the reasons recorded by the Assessing Officer do not reflect independent application of mind as to whether the information before him suggested any escapement of income. To that extent, in my view, the reasons recorded do not satisfy the requirement of section 147 of the Act in as much as they do not refer to any documents or statement, etc., which would prima-facie establish a link between the bogus nature of the impugned purchases and consequential escapement of income. Therefore, having regard to the facts and material found by the CIT(Appeals), the initiation of proceedings under section have been rightly held to be ab-inito invalid. The order of the CIT(Appeals) on this aspect is hereby affirmed.
6.3 So far as the arguments put-forth by the Revenue are concerned, the same are not tenable having regard to the facts of the present case.
In the result, appeal of the Revenue is dismissed.
So far as the Cross Objection filed by the assessee is concerned, the same relates to the merits of the additions made by the Assessing Officer, which do not survive as I have already affirmed the action of the CIT(Appeals) of quashing the reassessment proceedings.
In the result, the appeal of the Revenue as well as Cross Objection of the assessee are dismissed.
Order pronounced in the open court on 29/02/2016.