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2021 (10) TMI 1007 - AT - Income TaxReopening of assessment u/s 147 - Eligibility of reason to believe - reason to believe” V/S “suspicion” - Independent opinion of assessee need to be recorded - Addition u/s 69A on unexplained money - AO has mentioned about section 40A(3) in the reasons of reopening, however, the AO deviated from his aforesaid stand and later on while framing the assessment, he added the said amount u/s 69A- HELD THAT:- It is mandatory that the opinion should be that of assessing officer for forming belief whereas in the instant case, he has relied upon the information received from the DCIT-Central for which he himself was not sure on the question of authenticity as perceived from the word “it appears” noted in the reasons u/s 148(2) wherein in the first line, the AO wrote that “it appears that payments to the tune of ₹ 7,12,00,000/- was given to M/s Ferro Concrete Const. (I) Pvt. Ltd. to M/s Keti Constructions Ltd.”. Thus, these words show that AO was not having “reason to believe”, rather he has reopened the case on mere “suspicion”. As the main component of reasons should be AO having reason to believe. The words "has reason to believe" are stronger than the words "is satisfied". The belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. Where reasons recorded by AO "lack clarity and it was practically impossible to derive meaning out of it and was incapable of being understood", reassessment notice was liable to be quashed. AO mentioned about section 40A(3) in the reasons of reopening and opined that the said transaction of ₹ 7.12 crores attracts the violation of section 40A(3). However, we find that the AO deviated from his aforesaid stand which he basically took while reopening the case and later on while framing the assessment he added the said amount u/s 69A. Thus, from this action of AO, it is concluded that he was not sure in himself since beginning that the transaction involved is of what nature, which section is attracted here and what kind of violation is there. Therefore, the Ld. AO has absolutely changed his view which was formed initially and which was formed while concluding the assessment. Therefore, the statutory provisions per ‘reasons’ and contents in ‘assessment order’ are distinct which shows that the reasons were not on account of application of mind on the part of AO. Thus it is a clear case of lack of basic ingredient of section 147 i.e. “reason to believe”, as AO himself was not able to decide about the legal provisions which are being attracted in the given case. Reassessment proceedings were initiated under suspicion as narrated above, therefore, the proceedings u/s 147 is bad in law for want of jurisdiction in the light of first proviso to section 147 and in the absence of cogent reasons to form belief that the assessee’s income had escaped assessment and also in the light of the fact that the AO deviated from his stand by changing his view which was formed initially and which was formed while concluding the assessment as he was not sure in himself since beginning that the transaction involved is of what nature, which section is attracted here and what kind of violation is there. Thus, the reassessment proceedings are bad in law and accordingly, we quash the present assessment order for the assessment year 2009-10 being void and invalid. As on merits of the case, we find that there is no case of assessing the income as there was no material evidencing movement of cash. Further, principal of natural justice was badly ignored by accepting version of third party without affording opportunity for cross examine. We also find that Section 40A(3) applies for payment otherwise than account payee cheque or bank draft against expenses and in the instant case, we find that no goods or service were provided by M/s Keti Construction Ltd. against which payment warranting action under section 40A(3) would be required. We find that the primary onus as regard to movement of cash, as alleged was on M/s Keti Construction Ltd. Therefore, it had bearing in the assessment in the case of above named person. It has not been brought on record either in the reasons under section 148(2) or during the assessment proceedings at any stage as to what action has been taken in the case of M/s Keti Construction Ltd. Section 69A deals on the question of money etc. found to be in the ownership of the assessee and such money is not recorded in the books of accounts - in the instant case, there is no evidence that the assessee was found to be the owner of any money during the subject year. There is no other tangible material on records which shows that assessee was actually indulged into any such transaction and the authenticity of copy of ledger account of assessee in the books of Keti Construction Ltd. was also doubted by the assessee. AO has discussed about the statement of one Shri Kedarmal Jakhetiya, director of Keti Constructions Ltd. the ld. Assessing Officer placed reliance on the said statement where Mr. Jakhetiya has submitted a list of certain bogus petty contractors in which assessee’s name was also included. However, we observe that during the entire assessment proceedings, neither the copy of the statement was provided to the assessee nor the said person was allowed to be confronted by the assessee. Ld. AO was duty bound to provide an opportunity to assessee to confront Mr. Jakhetiya regarding the same. But AO did not follow the principle of natural justice. Thus in such a situation, the discussion made by AO about the statement of director of said company is invalid in view of the violation of principle of natural justice. Assessing Officer applied n.p. rate of 1% higher than disclosed making an addition on account of low net profit. Thus, the addition was already included in regular assessment on account of low n.p.-. Accordingly, we do not find any merit in confirming the addition on estimation basis by the ld. CIT(A). - Decided in favour of assessee.
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