The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT)of Judicial Member Kuldip Singh, quashed the reopening of assessment by the Assessing Officer (AO) due to the absence of valid reasons and tangible materials and deleted the additions made.
The assessee engaged in manufacturing of steel wool, filed an appeal before the ITAT to set aside the impugned order order dated 27.03.2022 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] of the A.Y. 2008-09 on several grounds.
The brief facts is that, the AO, on the basis of information provided by the Electricity Authorities through a letter V&S/ENF/874 dated 18.03.2006, initiated the reopening proceedings. The letter states that the assessee had consumed 37.3 units of electricity per hour in his factory out of which steel wool making machine consumed 29.84 units electricity per hour i.e. 80% of the total consumption of 37.3 units per hour. The notice under Section 142(1) of the Income Tax Act, 1961 was issued to the assessee to furnish the required information.
The AO rejected the contentions raised by the assessee and proceeded to estimate the turnover and profit ratio thereon to the tune of 8.11%. AO reopened the assessment by estimating the production of the assessee @ 2.5 Kg per unit of electricity consumption and taken the same @ 55 per Kg as declared by the assessee and computed the turnover @ Rs.67,26,225/- and then estimated the net
profit @ 8.11%.
The assessee filed an appeal before the CIT(A) but got dismissed and then filed an appeal before the Tribunal on the same.
On behalf of the assessee, P. Daniel contended that “there was no ‘tangible material’ whatsoever with the AO to reopen the assessment, though, framed under section 143(1) of the Act and the letter issued by the electricity department intimating the consumption of electricity units per hour is not a tangible material in any case.”
The single bench of Judicial Member Kuldip Singh observed that, “the assessment was framed under section 143(1) of the Act but assessee has a right to challenge the reopening because of “change of opinion” as there was no reason whatsoever with the AO except the letter issued by the electricity department which was not relevant for confirmation of the belief.”
The bench further observed that “since the AO was not having any valid reason to reopen the assessment nor any intangible material was there, further estimating
the income by merely calculating the production of the assessee on the basis of guess work is not sustainable on merits also.”
It was also observed that, “The AO has also not made any comparison with the assessee’s own productions in the earlier years to arrive at the logical conclusion. Even in earlier years for A.Y. 2002-03, 2003-04 and 2005-06 the Ld. CIT(A) himself quashed the reopening which was made on the basis of information received from Maharashtra State Electricity Board that the assessee is involved in theft of electricity.”
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