I-T - Complaint received against assessee is a reason to suspect but it is not a reason to believe that some income has escaped assessment untill AO verifies content of information before initiating re-assessment: ITAT
By TIOL News Service
NEW DELHI, JULY 17, 2018: THE ISSUE IS - Whether complaint received against assessee can be a reason to suspect but it is not reason to believe that income in form of unrecorded cash receipts has escaped assessment untill AO verify the content of information and then based on tangible material initiate re assessment. YES IS THE VERDICT.
Facts of the case
The assessee company had filed return for relevant AY, which was not picked up for scrutiny either through CASS or was not taken up for scrutiny. However, a complaint was received from the PMO reference against the assessee alleging that the assessee company was having income much above the figure which was declared to the Income-tax Department. The minimum charges for decoration and arrangement for Marriage and other parties per day was Rs. 6,00,000/- as per the complaint. However, the receipts are in cash and were not declared to the Revenue. The AO therefore, had reasons to believe that income in this case had escaped assessment which needs scrutiny and investigation. The AO issued notice for reopening of assessment u/s 148 of the Act and accordingly passed assessment order by making addition. On appeal, CIT(A) held that AO had wrongly assumed jurisdiction u/s 147 of the Act and thereby cancelled the assessment order. The Revenue filed appeal before Tribunal and assessee filed cross appeal.
Tribunal held that,
++ it appears that without verifying the contents of the information, the AO has reopened the assessment. The reasons to believe forms the foundation for assuming jurisdiction u/s 147 of the Act. The information on the basis of which the AO forms a belief must be in the form of some tangible material which can be used against the assessee. In the case in hand, there was no such tangible material for reopening the assessment. Reason to suspect is different from reason to believe. The information received by the Assessing Officer may raise suspicion against the assessee but without any basis and without any tangible material, reason to suspect cannot become reason to believe;
++ power to reopen is not an unfettered power and recording of reason is not just an idle formality. There must be cause and effect relationship between material in possession and formation of belief and reasons recorded must bring out the nexus and relationship. All these ingredients are missing in the case in hand. In the case of Ganga Saran & Sons Pvt. Ltd Vs. ITO 130 ITR 1, the Supreme Court has held as under " The "reason to believe" must be tenable in law. Only if the information or the reason has no nexus with the belief or there is no material or tangible information for forming of requisite belief, can the court interfere, otherwise not.";
++ the reason was recorded on the basis of tax evasion petition in which petitioner has complained that Ms. Radhika was supplying hostesses around 50 to 60 in number per day and was charging Rs. 1,500/- per hostess per day. It was also mentioned that Ms. Radhika was supplying hostesses to M/s Invitation Banquet Hall and S.K. Caterers Pvt. Ltd [the assessee]. Ironically, the Assessing Officer has not brought anything on record which could prove any relationship between Invitation Banquet Hall and the assessee. Moreover, no enquiry was made from Ms Radhika. Thus, it can be safely concluded that there is no nexus between reasons recorded and information available with the AO. The AO has mechanically recorded reasons for issuing notice u/s 148 of the Act. Considering the facts of the case in totality in the light of the decisions of the Jurisdictional High Court of Delhi, no error or infirmity was found in the findings of the CIT(A). In the result, the appeal of the revenue is dismissed whereas the cross objection of the assessee is allowed.
(2018-TIOL-1083-ITAT-DEL)
