If AO failed to analyse details of expenditure while forming a belief that income had escaped assessment, re-opening of case u/s 147 is bad in law.

 

Reopening Failure to disclosed full and true facts Assessee filed return of income which was assessed by AO without making any addition Thereafter, AO sought to reopen assessee’s case by observing that assessee was a Director of M/s. G whose records were subjected to audit survey It was found that M/s. G had disallowed a sum which related to personal expenditure, hence, it was construed that expenditure incurred on personal needs of Director ought to have been shown by Director as perquisite Thus, assessee failed to recognize that expenditure as his income had escaped assessment AO completed assessment after making addition in this regard CIT(A) held that assessment was reopened after expiry of 4 years from end of relevant AY, and therefore, proviso to s. 147 would come in way of AO for reopening of assessment, unless it was established that income had escaped assessment on account of failure of assessee to disclose all material facts fully and truly AO failed to refer to any material which could be alleged that assessee failed to disclose fully and truly, and accordingly, re-assessment order was deleted Held, there could not be any benefit of personal nature in advertisement expenditure Similarly, printing and station expenses were related to Company Out of such expenditure, how it could be construed that element of personal nature was involved, and its perquisite value in hands of Director AO had not analysed details of such expenditure while forming a belief that income had escaped assessment Taking into consideration nature of expenditure, there was no specific expenditure which could be termed as incurred exclusively for personal needs of Directors If company wants to pay taxes, that was its discretion, but for that a completed assessment of director after 4 years could not be reopened Assessee was having shareholding of 9% and 4.3% in said two companies viz. M/s. U and M/s. M He was not having substantial interest in those companies It was brought to notice of CIT(A) that assessee had not obtained any loan from M/s. M during this year It was opening balance It was also contended that non-charging of interest on debit balance in running account of directors would not constitute a perquisite Again, though AO had to form a prima facie belief only, but had not analysed any of those details while forming a belief that income had escaped assessment, more particularly, when he was leveling allegations that it was escaped on account of non-disclosure of facts fully and truly AO had not demonstrated this aspect in reasons recorded by him Therefore, CIT(A) had rightly quashed reassessment order Revenue’s ground dismissed.

 

DEPTUY COMMISSIONER OF INCOME TAX vs. SHEKHAR G. PATEL

 

(2019) 55 CCH 0160 AhdTrib