Sales recorded in books of account, even if alleged to be in genuine, do not result in income escaping assessment: Delhi HC
Bombay High Court: Agfa India Pvt. Ltd. (ITA No 1857/ 2018)
The High Court upheld the ITAT’s decision, noting that the AO had acted under the directions of superior officers without independent application of mind, and dismissed the appeal.
Background and Issues:
Agfa India Pvt. Ltd. filed its return of income for AY 2007-08 on 31 October 2007, declaring a total income of Rs. 11,42,17,803/-, which was later revised to Rs. 12,30,39,783/-. The original assessment was completed under Section 143(3) of the Act, on 22 December 2010, accepting the returned income.
For AY 2008-09, the TPO suggested an adjustment of Rs. 11,22,74,613/-, leading to the reopening of the assessment for AY under consideration, i.e., 2007-08.
A notice under Section 148 was issued on 19 January 2012, and the reassessment was completed on 25 March 2013 without referring to the TPO.
The PCIT-1, Thane, exercised revisional jurisdiction under Section 263 of the Act and set aside the AO’s order dated 25 March 2013, directing a de novo assessment after referring to the TPO.
The reassessment was completed on 24 October 2017, assessing the income at Rs. 23,53,14,390/- after making an addition of Rs. 11,62,91,948/-.
Tribunal’s decision:
The ITAT allowed the assessee’s appeal and quashed the reassessment proceedings, noting that the AO had acted under the directions of the TPO and the Joint Commissioner without independent application of mind.
The ITAT found that the AO had no reason to believe that income had escaped assessment and that the reassessment proceedings were initiated based on borrowed satisfaction.
High Court’s decisions:
The High Court noted that the AO must have reason to believe that income had escaped assessment, and this belief must be independent and not based on the directions of superior officers.
The High Court referred to various judgments, including Anirudhsinhji K Jadeja v. State of Gujarat and Sodexo India Services (P) Ltd. v. ACIT, which emphasized that the AO must exercise discretion independently and not under the dictates of other authorities.
The High Court upheld the ITAT’s decision, finding no error in the reasoning that the AO had acted under dictation and that the reassessment proceedings were vitiated.
Interestingly, the case law does not talk much about the 263 proceedings.
The copy of the order is as under:
