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2010 (1) TMI 943 - AT - Income TaxReopening of the assessment - contention of the assessee s counsel is that the AO has not properly recorded the reasons for reopening the assessment under s. 148(2) - Held that - Unable to appreciate how the AO holds the opinion that the assessee has any income from the crusher unit. The reasons recorded by the AO do not disclose by what process of reasoning he holds such a belief that crusher unit of the assessee has not earned income from it. Merely saying that the assessee belatedly filed the return of income for the asst. yr. 2000-01 on 11th Aug., 2002 and he has not shown any income from the crusher unit cannot be considered to be the reason for reopening of the assessment. The AO is required to disclose the reason which led him to hold such a belief otherwise it does not confirm jurisdiction on the AO to take action u/s 147 and 148. The AO is required to record the reason for the formation of his belief to reopen the assessment before initiating the proceedings under s. 148. In the absence of the recorded reasons the conclusion is inescapable that exercise of power under s. 148 is without any jurisdiction. In the present case, the AO not having compiled with the mandatory requirement of recording the reasons before issue of notice under s. 148 as such the reassessment is invalid.
Issues Involved:
1. Reopening of the assessment. 2. Addition of Rs. 7,03,231 to the income. Issue-wise Detailed Analysis: 1. Reopening of the Assessment: The primary issue in this appeal concerns the reopening of the assessment for the assessment year 2000-01. The assessee argued that there was no material in the hands of the Assessing Officer (AO) to justify the reopening of the assessment. The mere filing of a belated return cannot be a reason for reopening the assessment. The AO had issued a notice under section 148 of the Income Tax Act, stating that the return filed on 11th September 2003 should be treated as filed in response to the notice. However, the assessee contended that the AO did not have a valid reason or material to form a belief that income had escaped assessment. The AO's proposal to the Additional Commissioner of Income Tax (Addl. CIT) for approval to issue a notice under section 148 was based on the fact that the return was belated and that no income from the crushers was shown. The Addl. CIT approved the proposal with a simple "Yes, approved for 148" without further elaboration. The Tribunal noted that the AO must record reasons for reopening the assessment, reflecting why he believes that income has escaped assessment. In this case, the AO's reasons were deemed insufficient as they did not disclose the process of reasoning that led to the belief that the assessee had income from the crusher unit. The Tribunal emphasized that the AO is required to record reasons before issuing a notice under section 148, and failure to do so makes the reassessment invalid. The Tribunal annulled the reassessment on the grounds that the AO did not comply with the mandatory requirement of recording reasons before issuing the notice under section 148. 2. Addition of Rs. 7,03,231: The second issue pertains to the addition of Rs. 7,03,231 to the assessee's income. The AO made this addition on the grounds that the assessee introduced fictitious sundry debtors and failed to explain the source of investment, treating it as income from undisclosed sources. The CIT(A) sustained this addition, leading to the assessee's appeal before the Tribunal. The assessee argued that the amount in question was part of the opening capital as on 1st April 1999, and the investment was made from brought forward balances in the capital account, which were already disclosed to the Department. The assessee also provided a cash flow statement reflecting the balance available for investment. The AO, however, did not consider the cash flow statement or the agricultural income of the assessee. The assessee further contended that the AO ignored confirmatory letters from family members and the realization of amounts from debtors brought forward as on 1st April 1996. The Departmental Representative countered that the assessee had requested the AO to treat the belated return as filed in response to the notice under section 148. The AO issued notice under section 143(2) and processed the return under section 143(1). The AO also recorded reasons for issuing the notice under section 148, considering the belated return and non-disclosure of income from the crusher unit. The Tribunal, having annulled the reopening of the assessment on legal grounds, refrained from addressing the merits of the addition made by the AO. Consequently, the appeal was partly allowed in favor of the assessee, primarily on the issue of the invalid reopening of the assessment.
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