2014 (7) TMI 680 - AT - Income Tax

Reopening of assessment u/s 147 r.w 148 Reopening only on the on the basis of retracted statement No further enquiry made Held that - There may be a substantive assessment without any protective assessment but there cannot be any protective assessment/addition without a substantive assessment/addition - there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition - the AO proceeded to make protective assessment by way of reopening of assessment of the assessee appellant company without being a substantive assessment on the date of assumption of jurisdiction u/s 147 of the Act which is not permissible as decided in M.P. Ramachandaran vs DCIT 2009 (5) TMI 121 - ITAT BOMBAY-E . Following the decision of CIT vs Dr. R.N. Thippa Shetty 2008 (4) TMI 452 - KARNATAKA HIGH COURT - if the very basis on which reopening was ordered did not exist, then there was no question of reopening the assessment and thus, notice u/s 148 of the Act deserves to be held as illegal and without jurisdiction - the AO assumed jurisdiction to initiate and reopen reassessment u/s 147 of the Act on the basis of retracted statement of Shri Subodh Gupta which was recorded during the survey on Shri Subodh Gupta in his individual capacity and the AO also proceeded to make a protective assessment/addition without any substantive assessment/addition and without making any further investigation and inquiry about the material and information before him at the time of recording reasons. The AO assumed jurisdiction for reopening of assessment u/s 147 of the Act and for issuing notice u/s 148 of the Act on wrong premise and without any justified, cogent and legal reason - there existed no good or sufficient ground or reason for reopening of the case and issuance of notices u/s 148 of the Act against the assessee company - the condition precedent for valid initiation of reassessment is not being satisfied as the belief that income chargeable to tax has escaped assessment does not exist on the date of assuming jurisdiction u/s 147 of the Act thus, all subsequent proceedings including issuance of notice u/s 148 of the Act were illegal and bad in law Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of the jurisdiction assumed by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961.
2. Legality of the reassessment proceedings based on retracted statements.
3. Permissibility of protective assessment without substantive assessment.

Detailed Analysis:

1. Validity of Jurisdiction Assumed by AO under Section 147:
The assessee challenged the jurisdiction of the AO under Section 147 on the grounds that no specific reasons were recorded against the assessee company. The AO's reasons were based on a statement by Shri Subodh Gupta, which was later retracted. The AO's notice and subsequent proceedings were deemed invalid as they did not specifically target the assessee but rather focused on Shri Subodh Gupta. The Tribunal cited the Supreme Court's decision in CIT vs K. Adinarayana Murty, emphasizing that incorrect status in the notice renders it illegal, and the AO's assumption of jurisdiction was based on incorrect and insufficient grounds.

2. Legality of Reassessment Proceedings Based on Retracted Statements:
The Tribunal noted that the AO initiated reassessment proceedings based on a retracted statement by Shri Subodh Gupta. The Karnataka High Court's decision in CIT vs Dr. R. N. Thippa Shetty was referenced, which held that reopening based on a withdrawn statement is illegal. The Tribunal concluded that the AO's reliance on the retracted statement without further inquiry or investigation was unjustified and invalidated the reassessment proceedings.

3. Permissibility of Protective Assessment Without Substantive Assessment:
The Tribunal highlighted that protective assessments cannot exist without substantive assessments. The AO's attempt to make a protective assessment without any substantive assessment on record was deemed impermissible. The Tribunal referenced ITAT, Mumbai's decisions in M.P. Ramachandaran vs DCIT and Suresh K. Jajo vs ACIT, which established that protective assessments must follow substantive assessments. The Tribunal found that the AO's protective assessment was not supported by any substantive assessment, rendering it invalid.

Conclusion:
The Tribunal quashed the reassessment proceedings under Section 147 and the issuance of notice under Section 148, holding that the AO assumed jurisdiction on an incorrect premise without justified reasons. Consequently, all subsequent proceedings were declared illegal and bad in law. The Tribunal allowed the assessee's appeal on legal grounds, and the remaining grounds on merits were dismissed as they did not survive for adjudication.