AO Not Required to Record Categorical Finding For Income Escapement: ITAT Upholds Reassessment Despite Lack of Cross Examination [Read Order]
The Tribunal upheld the reassessment proceedings, ruling that the Assessing Officer is not required to record a categorical finding of income escapement but only needs to form a prima-facie belief based on credible information.
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The Chandigarh Bench of the Income Tax Appellate Tribunal ( ITAT ) has upheld the reassessment proceedings initiated by the Assessing Officer (AO) stating that a categorical finding of income escapement is not necessary for reopening an assessment. Malbros International Pvt. Ltd. (assessee) filed income tax returns for the assessment years 2016-17 and 2017-18, declaring incomes of...
The Chandigarh Bench of the Income Tax Appellate Tribunal ( ITAT ) has upheld the reassessment proceedings initiated by the Assessing Officer (AO) stating that a categorical finding of income escapement is not necessary for reopening an assessment.
Malbros International Pvt. Ltd. (assessee) filed income tax returns for the assessment years 2016-17 and 2017-18, declaring incomes of Rs. 4,60,52,060 and Rs. 5,73,17,740, respectively. The AO reopened the assessments based on information from the Deputy Director of Investigation.
The information suggested that purchases were made from M/s S.A. Agro International and M/s Ridhi Sidhi Impex, controlled by Shri Ashok Kumar Gupta, were potentially bogus. The Revenue appealed against the order of the Commissioner of Income Tax (appeals) [ CIT(A)].
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The CIT(A) deleted the additions of bogus purchases totalling to Rs. 9.6 Crores. The assessee filed Cross Objections before the ITAT. The assessee challenged the reopening of the assessments by the AO.
The assessee argued that the AO relied solely on a statement recorded during a survey without offering an opportunity for cross-examination of Ashok Kumar Gupta. The assessee contended that the reopening was invalid due to incorrect purchase figures mentioned in the reasons to believe and the lack of independent verification by the AO.
The Revenue argued that the information from the investigation unit constituted credible evidence, raising suspicion about the nature of the assessee’s expenditure. The AO had formed a prima-facie belief that income had escaped assessment, which was sufficient to justify the reopening.
The two-member bench comprising Rajpal Yadav (Vice President) and Krinwant Sahay (Accountant Member) observed that the AO received credible information from the investigation unit, indicating that some expenses debited by the assessee could be doubtful.
The Tribunal observed a slight variation in the quantum of purchases mentioned in the reasons to believe for the assessment year 2017-18 but held that this did not invalidate the reopening.
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The Tribunal observed that, at the stage of forming a belief for reassessment, the AO is only required to have a prima-facie opinion based on credible information and is not obligated to record a categorical finding of income escapement.
The bench held that the AO had rightly formed the opinion for reopening based on the information supplied by the investigation unit. The Cross Objections of the assessee were dismissed.
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