2015 (1) TMI 1014 - AT - Income Tax

Validity of reopening of assessment - Held that - Since the approval was obtained by the Assessing Officer from the ld. Commissioner of Income-tax instead of Joint Commissioner of Income-tax or the Addl. Commissioner of Income-tax under section 151(2) of the Act, notice under section 148 of the Act is invalid and void ab initio. We accordingly quash the assessment after holding that the reopening was not done in accordance with the provisions of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction and validity of the order under section 147/143(3) of the I.T. Act, 1961.
2. Validity of reasons and material for initiating action under section 147.
3. Addition of Rs. 79,00,000 as unexplained cash credit under section 68.
4. Addition of Rs. 3,95,000 under section 69 for alleged commission.
5. Taxation of Rs. 79,00,000 in earlier assessment year.
6. Expenditure of Rs. 3,95,000 under section 69.
7. Addition of Rs. 4,82,750 as capital expenditure.
8. Overall validity of the CIT(A) order.

Detailed Analysis:

1. Jurisdiction and Validity of the Order under Section 147/143(3):
The primary objection raised by the assessee was the validity of the reopening of assessment. The counsel for the assessee argued that the reopening was done after obtaining approval from the Commissioner of Income-tax, whereas under section 151(2) of the I.T. Act, 1961, the approval was required from the Joint Commissioner of Income-tax if the assessment was not completed under section 143(3) and was reopened after four years. The tribunal held that since the approval was obtained from the Commissioner of Income-tax instead of the Joint Commissioner, the reopening was invalid and the assessment framed consequent thereto deserved to be quashed. This decision was supported by the precedent set in the case of Jai Prakash Ahuja, Kanpur vs. Income Tax Officer 2(2), Kanpur.

2. Validity of Reasons and Material for Initiating Action under Section 147:
The tribunal found that the reopening of the assessment was not in accordance with section 151 of the Act. The approval required under section 151(2) was not obtained from the competent authority, i.e., the Joint Commissioner of Income-tax. This procedural lapse rendered the initiation of action under section 147 invalid.

3. Addition of Rs. 79,00,000 as Unexplained Cash Credit under Section 68:
The tribunal did not specifically address this issue in detail due to the primary finding that the reopening of the assessment itself was invalid. Consequently, the addition of Rs. 79,00,000 as unexplained cash credit under section 68 was also invalidated.

4. Addition of Rs. 3,95,000 under Section 69 for Alleged Commission:
Similar to the issue of unexplained cash credit, the tribunal did not delve into the specifics of this addition due to the invalid reopening. The addition of Rs. 3,95,000 under section 69 for alleged commission was also quashed.

5. Taxation of Rs. 79,00,000 in Earlier Assessment Year:
The assessee contended that the amount of Rs. 79,00,000 had already been taxed in the earlier assessment year (A.Y. 2001-02) as income from commission, and thus should not be treated as unexplained cash credit under section 68. This argument was rendered moot by the tribunal's finding on the invalidity of the reopening.

6. Expenditure of Rs. 3,95,000 under Section 69:
The tribunal did not address the specifics of the expenditure of Rs. 3,95,000 under section 69 as the primary issue of reopening was found to be invalid.

7. Addition of Rs. 4,82,750 as Capital Expenditure:
The tribunal did not specifically address this issue due to the primary finding that the reopening of the assessment was invalid. Consequently, the addition of Rs. 4,82,750 as capital expenditure was also invalidated.

8. Overall Validity of the CIT(A) Order:
The tribunal concluded that the CIT(A) order was erroneous and bad in law due to the invalid reopening of the assessment. All the additions upheld by the CIT(A) were quashed.

Conclusion:
The tribunal quashed the assessment on the grounds that the reopening was not done in accordance with the provisions of the I.T. Act, specifically section 151(2). The appeal of the assessee was allowed, and the order of the CIT(A) along with all the additions made by the AO were invalidated. The judgment emphasized the importance of obtaining approval from the correct authority as mandated by the statute.