2010 (2) TMI 776 - AT - Income Tax

Quashing the reassessment u/s 147 on the ground of no satisfaction by JCIT as it is the case of an Assessing Officer below the rank of JCIT or DCIT as per the provisions of Section 151. - Held that - in the explanatory memorandum in the Finance Bill, 2009 relating to clarificatory amendment in respect of reassessment proceedings u/s 147, it was provided that AO may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this action, notwithstanding that the reasons for such issue has not been included in the reasons recorded under sub-section (2) of Section 147. As this amendment is retrospective from 1.4.1989, it will apply in relation to assessment years 1989-90 and subsequent years. - Restored the entire appeal to AO for deciding afresh all the points of addition after giving due opportunity to the assessee and the assessee is also directed to produce complete set of audited books of accounts as found during the course of survey. Appeal of the Revenue is allowed for statistical purposes

Issues Involved:
1. Validity of reassessment proceedings under Section 147.
2. Jurisdiction of the Assessing Officer (AO) in reopening the assessment.
3. Legitimacy of the revised return filed by the assessee.
4. Merits of the additions made by the AO during reassessment.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The primary issue was whether the reassessment proceedings initiated under Section 147 were valid. The AO initiated reassessment proceedings after a survey revealed discrepancies between the income declared in the original return and the audited accounts. The AO recorded reasons to believe that income had escaped assessment, specifically noting a discrepancy of Rs. 2,00,000. The CIT(A) annulled the reassessment, citing the jurisdictional High Court's decision in Vipan Khanna, which required reasons to be recorded for each item of under-assessment. However, the Tribunal noted that the Supreme Court's decision in Sun Engineering and the Explanation to Section 147, as amended, allowed the AO to reassess income on any issue that comes to notice during proceedings, even if not included in the original reasons recorded.

2. Jurisdiction of the AO in Reopening the Assessment:
The CIT(A) held that the AO had exceeded his jurisdiction by making additions beyond the reasons recorded for reopening. The Tribunal, however, referred to the Punjab and Haryana High Court's decision in Shakuntala Devi, which clarified that the AO could proceed under Section 147 even if proceedings under Section 143(2) were pending. The Tribunal emphasized that the AO had a valid reason to believe that income had escaped assessment, justifying the reopening.

3. Legitimacy of the Revised Return Filed by the Assessee:
The assessee argued that the revised return filed before the reasons for reopening were recorded should be considered. The AO and the Tribunal rejected this, noting that the original return was filed late and could not be revised under Section 139(5). The Tribunal also cited the Kerala High Court's decision in A. Sreenivasa Pai, which held that a revised return filed after a survey does not qualify under Section 139(5) if it incorporates income discovered during the survey.

4. Merits of the Additions Made by the AO During Reassessment:
The AO made several additions during reassessment, including estimating net profit at 8% of turnover, adding unexplained loans, and unexplained investments. The CIT(A) did not address these on merits, having annulled the reassessment. The Tribunal set aside the CIT(A)'s order and remanded the case to the AO to reconsider all points of addition after giving the assessee an opportunity to present audited books of accounts.

Conclusion:
The Tribunal concluded that the reassessment proceedings were valid under Section 147, setting aside the CIT(A)'s annulment. The case was remanded to the AO for fresh consideration of all additions, with instructions to the assessee to cooperate and present complete audited accounts. The appeal of the Revenue was allowed for statistical purposes.

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