2006 (4) TMI 555 - AT - Income Tax

Reopening of the assessment - assumption of jurisdiction u/s 148 - non-satisfaction of the condition precedent - HELD THAT - In the present case in appeal, the proforma in which reasons are recorded reveal that the ld CIT has conveyed his satisfaction merely by stating yes to the reasons recorded in the same report. No separate reasons disclosing satisfaction of the Assessing Officer for formation of belief that income of the assessee has escaped assessment has been recorded. He appears to have only a vague feeling that the assessee had taken bogus entry of capital gains and did not come to prima facie conclusion that the transactions to which he referred are not genuine transactions. There is however a distinction in the reasons recorded and the report of Assessing Officer seeking approval in the proforma. Thus the requisite satisfaction disclosing reasons envisaged u/s 148 not being available on record and having regard to the judgment of Supreme Court in the case of Chhugamal Rajpal v. S.P. Chaliha 1971 (1) TMI 9 - SUPREME COURT , the initiation of proceedings are held vitiated and notice so issued under section 148 is directed to be quashed and assessment made is annulled. Having annulled the assessment, I do not consider necessary to render any decision in the merits of other grounds in appeals. In the result, both the appeals stand allowed.

Issues Involved:
1. Reopening of assessment under section 147.
2. Treating the amount as income from other sources.
3. Levy of interest under section 234B.
4. Denial of opportunity for cross-examination.
5. Validity of assessment without serving notice under section 143(2).

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The appellants argued that the reopening of assessment under section 147 was invalid as the statutory conditions prescribed under sections 145 to 151 were not complied with. The reasons recorded by the Assessing Officer (AO) did not disclose any independent satisfaction or application of mind. The AO acted on information from the DDIT(Inv.), Gurgaon, without conducting any independent enquiry into the alleged bogus transactions. The reasons were vague and lacked specifics about the transactions. The approval for reopening was obtained from the CIT instead of the Joint CIT, which was contrary to the legal requirement. The court found that the reasons recorded did not show any application of mind by the AO and the initiation of proceedings was illegal as it was based on the belief of the DDIT(Inv.), not the AO. The court annulled the assessment on this ground.

2. Treating the Amount as Income from Other Sources:
The AO treated the amounts of Rs. 2,12,635 and Rs. 1,08,845 as income from other sources, alleging that the appellants had invested their own undisclosed money and taken back the same in the form of cheques/drafts. The CIT(A) upheld this addition, stating that the appellants failed to prove the genuineness of the transactions. The court, however, did not delve into the merits of this issue as the assessment itself was annulled.

3. Levy of Interest under Section 234B:
The appellants contested the levy of interest under section 234B, which was confirmed by the CIT(A). The court did not address this issue separately as the primary ground of reopening of assessment was found to be invalid.

4. Denial of Opportunity for Cross-Examination:
The appellants argued that they were not given an opportunity to cross-examine the broker and other witnesses whose statements were used against them. The court noted that the AO acted on oral evidence without confronting the appellants with the testimony or allowing cross-examination, which was against the principles laid down by the Supreme Court in Kishin Chand Chela Ram v. CIT. However, this issue was not separately adjudicated as the assessment was annulled.

5. Validity of Assessment Without Serving Notice under Section 143(2):
The appellants contended that the assessment was completed without serving notice under section 143(2) within the statutory period. The court referenced the judgment in Raj Kumar Chawla v. ITO, which mandates such notice. This procedural lapse further invalidated the assessment.

Conclusion:
The court found that the initiation of proceedings under section 147 was vitiated due to the lack of independent satisfaction by the AO and procedural irregularities. The assessment was annulled, and the appeals were allowed. The court did not find it necessary to decide on the merits of other grounds due to the annulment of the assessment.

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