By TIOL News Service

NEW DELHI, AUG 01, 2018: THE issue before the Bench is - Whether when reassessment attempt by the Revenue, on the basis of suspicion of bogus expenditure as assumed by the investigation unit was failed for previous years, the Revenue can still frame reassessment on the basis of same pattern of expenditure. And the verdict is NO.

Facts of the case

The assessee-company, engaged in consultancy business, filed return for the relevant AY and assessment was completed. However, later on, the AO proceeded to reopen the assessment u/s 147 r/w section 148. It is important to mention here that for two previous years, AY 2007-08 and 2008-09, orders seeking to re-examine the original scrutiny assessments were made u/s 263 and later u/s 147 and 148. However, those attempts to revisit the original scrutiny assessments, (on the allegation that claims for bogus expenditures were made) were unsuccessful. Subsequently, reassessment for AY 2009-10 was on account of a Tax Evasion Petition (TEP), where the investigation was conducted and it was observed that for the year ending 31.03.2009, the contract charges claimed were unduly high. The TEP also alleged that those amounts were distribution of illegal gratifications by the assessee. That matter is also sub-judice with the Delhi High Court are currently in progress.

The High Court held that,

++ the Revenue's explanation to distinguish the facts of the present case, from those in A.Y. 2009-10 which was dealt with in the earlier proceeding is specious and unconvincing. The AO has mechanically followed the investigation unit's recommendation for A.Y.2008-09. The examination was of material in light of the facts of the relevant period that assessee is showing consultancy income of Rs 3,31,14,2091- from its single client Pernod Ricard and has debited an amount of Rs 3,07,95,5591- as sub-contractor charges and returned an income of Rs 3,10,3361/- only. However, though the letter from the Investigation unit mentioned that the suspicion of bogus expenditure was later dealt with in revision and the addition was revised to only 5% disallowance, the notice recording reasons to justify the reopening of assessment for AY 2010-11 willfully omits to note that. Furthermore, the order of ITAT in the assessee's appeal, for the previous year, which had been reassessed, in fact found that the AO had called the concerned sub-contractors, who had disclosed the amounts received from the present assessee, in their returns;

++ each assessment year is to be seen differently; however, the note from the investigation unit talks of a pattern of expenditure claims over a five-year period. Three of those years were dealt with; the assessee emerged unscathed. Given these circumstances, this is clearly a case where the revenue is attempting to fish from the same stale pond, when it dipped into the TEP as the basis for the investigation, to suddenly discern a pattern of suspect or bogus expenditure;

++ the trigger for all the reassessment attempts by the Revenue was the same TEP, which led to previous attempts to re-open completed assessments. The material on record show that the AO had conducted inquiries at the time of completion of the original assessments. There is nothing to show that the entities to whom payments were made (by the assessee) were fictitious; in fact TDS amounts were apparently deducted. There was no fresh evidence supporting the reassessment. Consequently, there was no tangible, specific material to justify the reassessment.

(See 2018-TIOL-1511-HC-DEL-IT)