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2022 (5) TMI 672 - AT - Income TaxValidity of reopening of assessment - assumption of jurisdiction by the Assessing Officer - Application of mind while recording satisfaction - no return of income was filed by the assessee for the year under consideration - bogus purchases - HELD THAT:- As no return of income was filed by the assessee for the year under consideration. In third paragraph of reasons recorded also, the Ld. Assessing Officer emphasized that the assessee had not filed return of income for the year under consideration. In the last para, the Assessing Officer is referring to omission on the part of the assessee in filing the return of income. In our opinion, the word “filing” is missing in that sentence. Therefore, only on the basis of the fourth para to presume that he did not apply his mind while recording reasons, is not justified. The Assessing Officer has duly recorded the fact of non-filing of the return of income, not once but twice. Accordingly, we reject the contention of the Ld. Counsel of the assessee that AO has not applied mind, while recording reasons. In the instant case, assessment has been reopened in view of the information of bogus purchases by the assessee exceeding Rs. 80 lakh, and therefore it was not of the case that income escaped was below taxable limit. In view of the clear statement of income more than the taxable limit, the decision relied upon is distinguishable as GENERAL ELECTORAL TRUST VERSUS INCOME TAX OFFICER 20 (1) (2) , MUMBAI & OTHERS [2016 (8) TMI 959 - BOMBAY HIGH COURT] No reference of source of information for reopening the assessment except that information was available on record - According to the Ld. DR, said information was duly provided to the assessee by the Assessing Officer during the course of the assessment proceeding after filing return of income in response to notice under section 148 of the Act. However, the Ld. counsel has not produced any evidence to support that source of the information was asked from the Assessing Officer. It was the onus of the assessee to file necessary evidence in support of its claim that such information was asked from the Assessing Officer and he had not supplied. In absence of any such evidence before us, no adverse inference can be drawn against the Revenue. There was no requirement in the law for the Assessing Officer to presume that the assessee is an honest entity and will not enter into transactions of the accommodation entry. Further, deed to no return of income being on record, the Assessing Officer cannot presume that it was having huge bank loans or hundred percent tax exemption unit or a loss-making unit. These arguments of the Ld. counsel of the assessee are accordingly rejected. We are unable to find as when this letter was addressed to the Assessing Officer. More so, it does not appear from the said letter that assessee had asked for source of the information or copy of the material relied upon. Under the procedure laid down by the Hon’ble Supreme Court in the case of GKN Drive Shafts (India) Limited [2002 (11) TMI 7 - SUPREME COURT] the assessee can claim copy of reasons recorded after filing the return of income and the assessee had been duly provided copy of reasons recorded. Therefore, to presume that no material was available with the Ld. AO at the time of recording reasons is baseless. We reject the contention of the Ld. Counsel of the assessee challenging the jurisdiction of the Assessing Officer in issuing notice as well as completing the assessment. Plea that if addition on the issues other than the issues of reopening are not sustainable, if there is no addition on the issue of the reopening - In our opinion the contention of the Ld. counsel of the assessee that no addition has been made in respect of the basis on the which assessment was reopened, is not correct and therefore his request for considering the decision on the issue that no other addition could be made if the Assessing Officer has not made addition on the issue for which the assessment was reopened, is also rejected. Legality of the assessment on the ground that no notice under section 143(2) of the Act was issued - HELD THAT:- DR filed copy of the notice under section 143(2) of the Act dated 10/03/2015 issued by the ITO Ward 8(3)(3) and notice dated 11/01/2016 issued by the ACIT - 8(3)(2). The Ld. DR has also filed report of the service of these notices. The Ld. counsel of the assessee could not controvert this factual finding of issue and service of the notice under section 143(2) of the Act. The ground has been filed by the assessee in very casual manner without verifying its records. The action of the assessee is highly deplorable. Therefore, the additional ground raised by the assessee is accordingly dismissed. Deduction under section 10AA - Whether income of the assessee is assessed into profit, the exemption under section 10AA of the Act should be allowed as assessee fulfilled the eligibility criteria for said exemption? - HELD THAT:- In our opinion, if the assessee is otherwise eligible for deduction under section 10AA of the Act and fulfilling all the criteria as laid down in the relevant section, then there is no reason as why the assessee should be denied the deduction under section 10AA of the Act. If the income of the relevant unit is finally positive, then assessee may be considered for deduction under section 10AA if the assessee so satisfies the terms and conditions specified therein. The ground of the appeal of the assessee is accordingly allowed for statistical purposes. NP estimation - applying of net profit rate of 3% on the turnover by the Ld. CIT(A) as against the net profit rate of 5% applied by the Assessing Officer - plea of the assessee is that as per the data of the textile industry there was an average net loss of 4% on turnover across the textile industry - HELD THAT:- The assessee has not provided any instances of other companies along with their asset base and turnover, which could form a basis for estimating the profit of the assessee for the year under consideration. The Ld. CIT(A) has observed that while estimating net profit rate at the 5% of turnover, the Assessing Officer as relied on the book result for assessment year 2007-08 and assessment year 2010-11 - we set aside the finding of the Ld. CIT(A) on the issue in dispute and uphold the finding of the Assessing Officer. Further, the direction of the Ld. CIT(A) to exclude the export incentives from the non-operative income is also not justified . The Assessing Officer has applied the net profit rate of assessment year 2010-11 worked out on the basis of audited accounts. If the said incentive has been separately considered as part of the non-operative income in assessment year 2010-11, same cannot be considered as part of book result for the year under consideration. Accordingly, we direct the Assessing Officer to examine the addition of export incentive as non-operative income on comparative book results for assessment year 2010-11. Accordingly, the ground No. two of the appeal of the assessee is dismissed, whereas solitary ground No. one of the appeal of the revenue is allowed. Interest payment received - HELD THAT:- We are of the opinion that when the Assessing Officer has applied the book results for AY 2007-08 and 2010-11 for estimating the book results for the year under consideration, then treatment for the interest income has also to be given in the year under consideration, what has been given by the assessee in assessment year 2007-08 and 2010-11. Before us, the assessee has not substantiated that said interest income for assessment year 2010-11, was not part of business operations. In absence of any supporting evidence by the assessee, the action of the Ld. CIT(A) in directing to add the interest income from fixed deposit to the estimated profit from business operation is justified and accordingly upheld. The ground No. three and additional ground of the appeal are accordingly dismissed. Disallowance u/s 40(a)(ia) of the Act for non-deduction of tax at source on various expenditure incurred - HELD THAT:- No disallowance under section 40(a)(ia) Act is called for when invoking section 145(3) of the Act net, profit rate has been applied for estimation of profit. The ground No. four of the appeal of assessee is accordingly allowed. Addition of loan outstanding held as unexplained - HELD THAT:- We are of the opinion that as far as estimation of the income is concerned, the computation of the profit by the assessee has been rejected, which does not mean that entries of unsecured loan recorded in those books of accounts are of no relevance. The addition for unsecured loan is made in terms of section 68 of the Act where the assessee failed to explain source and nature of the credit in its books of accounts. The credit in books of accounts shown as received by way of unsecured loan are independent from estimation of profit from business operation. It is for the assessee to explain source of the said credit and in failure to do so, said credit is liable to be added under section 68 of the Act. We find that Tribunal Hyderabad Bench in the case of Smt. Shoba Gupta [2013 (8) TMI 756 - ITAT HYDERABAD] has discussed this issue in detail and held that addition u/s 68 of the Act can be made along with estimation of income unless the assessee establish that unexplained cash credit was arising out of the profit of business of assessee.
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