By TIOL News Service

ALLAHABAD, FEB 20, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether a mistake or non-application of mind at the time of passing of original assessment order, would justify the Department to re-initiate the proceedings of reassessment. NO IS THE VERDICT.

Facts of the case:

The assessee is an individual, running a Proprietorship concern in the name and style of "M/s National Thread Manufacturing Company" at Kanpur. The original assessment order in his case was passed u/s 143(3), in which a total income of Rs. 6,54,620/- was assessed to tax. Later on, a survey u/s 133-A was conducted at the business premises of M/s Indian Overseas Trading Company and it was found that in the partnership concern, the assessee was one of the partners and also, the business as Proprietorship is run by him in the name and style of M/s National Thread Manufacturing Company from the same premises. The case of the assessee was selected for scrutiny as per the guidelines of CBDT. Thereafter, proceedings u/s 154 were initiated. It was found that sundry credit amounting to Rs. 79,88,253/- shown by assessee were not verified during the course of original assessment proceedings u/s 143(3). It was further alleged by the Department that the assessee had created fake and fictitious liability, which was not ascertainable; hence, the same should be disallowed and added back to the income of assessee, which resulted in escapement of tax to the tune of Rs. 24,44,404/-. Accordingly, proceedings u/s 148 were initiated on the ground that the assessee had declared a huge amount of sundry creditors in the name of two concerns, viz., M/s Dulbecco Meyer & Company Limited and La-grand Consumables at Rs. 34,30,503/- and Rs. 45,57,750/- respectively, which lacked due confirmation/ verification.

High Court held:

++ on perusal of the record, it would reveal that at the time of passing of assessment order, the then AO has noted that there was certain difference in creditors' account and the assessee has given explanation that due to wrong posting done by the Accountant, the total amount of purchase made by him during the year, is much more than recorded. The said fact was confirmed by submitting the copy of the accounts of those party. On verification of the said documents produced by the assessee, the AO was satisfied that the total purchases were much more than the purchases found. Further, the re-assessment proceedings have been initiated on the ground that two concerns, namely, M/s Dulbecco Meyer & Company Limited and La-grand Consumables, are not genuine sundry creditors and is unverifiable and unjustifiable, which is liable to be added back to the income of assessee. The proceedings u/s 154 were also initiated against the assessee on the same set of facts, and later on the same were dropped;

++ the Supreme Court in the case of State of Uttar Pradesh and others vs. Aryaverth Chawal Udyog and others (2015) 17 SCC 324 has held that mere change of opinion while perusing the same material cannot be a "reason to believe" that a case of escaped assessment exists requiring assessment proceedings to be reopened. In view of the said judgment, even if, at the time of passing of the original assessment order, there is a mistake or non-application of mind, it would not justify the Department to re-initiate the proceedings of reassessment. In the case, in hand, the AO had applied its mind and passed the original assessment order and there is no fresh material on record permitting the Department to initiate re-assessment proceedings. The reopening notice thus, amounts to change of opinion on the same set of facts, which were available at the time of passing the original assessment order. This Court is of the opinion that the initiation of re-assessment proceedings is bad in law and is liable to be set aside.

(See 2019-TIOL-388-HC-ALL-IT)