Nakoda Metal Industries Vs ITO (ITAT Mumbai)
Introduction: In a pivotal ruling by the Income Tax Appellate Tribunal (ITAT) Mumbai, the Assessing Officer’s (AO) decision to initiate reassessment proceedings based on information from an external investigation was upheld. This case, Nakoda Metal Industries Vs ITO, sheds significant light on the limits and capabilities of AOs in pursuing reassessment. Below, we dissect the facts, legal arguments, and implications of this case.
AO’s Right to Initiate Reassessment Proceedings: The appeal had been filed by Nakoda Metal Industries for the assessment year 2009-10, opposing the earlier orders dated 05/02/2018 and 28/01/2021 under various sections of the Income Tax Act, 1961. The Tribunal decided to move ahead with the appeal’s adjudication even when the assessee had filed a writ petition before the Bombay High Court. A key point was whether the AO could initiate reassessment based on information received from an external agency, DGIT (Investigation) Wing, Mumbai, in this case.
Grounds for Reassessment: The AO received vital information initially from the Sales Tax Department of Maharashtra, indicating that the assessee was involved in making bogus purchases. Based on this, the AO had reason to believe that income for the assessment year in question had escaped assessment, and hence initiated proceedings under section 147 of the Act.
Assessee’s Counter-Arguments: Nakoda Metal Industries argued that the reassessment was against the principles of natural justice and that it was based on borrowed information from the Sales Tax Department. They also contended that contradictory findings were recorded which were prejudicial and based on conjecture.
ITAT’s Judgment: The Tribunal, citing the Supreme Court’s judgment in ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd, held that “reason to believe” was sufficient for the AO to initiate proceedings under section 147. It mentioned that at the initiation stage, what mattered was whether there was relevant material on which a reasonable person could have formed a requisite belief that income had escaped assessment.
No Violation of Natural Justice: The CIT(A) had earlier dismissed the assessee’s arguments, saying there was no violation of natural justice principles. ITAT upheld this, stating that the AO had followed due process and laws, making the reassessment valid and legal.
Conclusion: The ruling in the case of Nakoda Metal Industries Vs ITO reiterates the extent to which an AO can rely on external information for initiating reassessment proceedings. This case serves as a precedent and provides insights into how ‘reason to believe’ is sufficient for reassessment, thereby reinforcing the robustness of the tax collection framework in India. It underscores the due diligence required from assessees while filing their income, as any information, even from external agencies, can trigger a reassessment.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the assessee challenging the order dated 05/02/2018, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)–30, Mumbai, [“learned CIT(A)”], for the assessment year 2009-10.
2. The present appeal has been listed for hearing before us pursuant to the order dated 28/01/2021, passed by the coordinate bench of the Tribunal in M/s. Nakoda Metal Industries vs ITO, M.A. no. 155/Mum./2020 (in ITA no. 4958/Mum./2018, for the assessment year 2009-10), whereby, the earlier order dated 28/11/2019, passed under section 254(1) of the Act was recalled limited to the adjudication of the issue of reopening raised in assessee’s appeal.
3. When the present appeal was called for hearing neither anyone appeared on behalf of the assessee nor was any application seeking adjournment filed. From the perusal of the record, we find that after the recall of the aforesaid order passed under section 254(1) of the Act, the present appeal was listed for hearing on various occasions. However, no one has appeared for/on behalf of the assessee. We also find that several notices issued through Registered Post A/D were also returned unserved by the postal authorities with the remark ‘not known’. We find from the record that vide letter filed on 16/11/2022, the assessee has submitted that it has filed a writ petition before the Hon’ble High Court against the original order dated 28/11/2019, and order dated 28/01/2021, passed under section 254(2) of the Act. Vide aforesaid letter, the assessee requested to keep the matter pending till the order and disposal of the writ petition by the Hon’ble Bombay High Court. From the status report on the writ petition, filed by the learned DR vide letter dated 14/02/2023, we find that the aforesaid writ petition is at the pre-admission stage. No further details regarding the current status of the writ petition have been placed on record by the assessee. We find that vide order dated 28/11/2019, passed under section 254(1) of the Act, the coordinate bench upheld the findings of the learned CIT(A) on merits. As noted above, vide order dated 28/01/2021, passed under section 254(2) of the Act the coordinate bench recalled the matter only limited to the issue of reopening challenged by the assessee in its appeal. Further, the coordinate bench rejected the prayer of the assessee seeking recall of the order passed on merits. Therefore, we are of the considered view that the pendency of the writ petition before the Hon’ble Bombay High Court against the aforesaid orders dated 28/11/2019 and 28/01/2021, will not have any bearing on the adjudication of the issue on reopening since after the aforesaid orders only findings of the coordinate bench on merits is sustaining till date. Accordingly, we proceed to decide the issue of reopening, as restored by the coordinate bench vide order dated 28/01/2021, passed under section 254(2) of the Act.
4. The brief facts of the case are that the assessee is a firm and for the year under consideration, filed its return of income on 25/08/2009 declaring a total income of Rs.4,51,770. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, on the basis of information received from DGIT (Investigation) Wing, Mumbai about having received vital information from the Sales Tax Department of Maharashtra about some of the dealers indulged in the practice of providing accommodation entries in the form of issuing bogus sales/purchase bills without supplying any goods but providing accommodation entries only and the assessee being one of the beneficiaries of such bogus bills, proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued on 08/03/2014. In response to the aforesaid notice, the assessee vide letter dated 15/07/2014, requested to treat the return originally filed as a return filed in response to the notice issued under section 148 of the Act. As per the aforesaid information, it was noticed that the assessee has availed following accommodation entries for the period under consideration:-
