2017 (9) TMI 1683 - HC - Income Tax

Reopening of assessment - assessment done on the basis of material found during the course of survey and not on the basis of annulled assessment u/s 143(3)- Held that - It will not be out of place to mention that the judgment which sought to be relied upon by the tribunal in the case of Babulal Lath (2001 (3) TMI 1031 - ITAT MUMBAI) has not been diluted by any other court wherein held as the proceedings under section 147 were initiated to circumvent the time-barred assessment which was quashed by the Commissioner (Appeals) and, hence, they are illegal, without jurisdiction and bad in law. We are of the considered opinion the tribunal has rightly held that the matter of re-assessment u/s 147 was done on the basis of material found during survey subsequent to assessment on 18.3.03. Therefore, we are of the opinion that tribunal rightly decided the issue in favour of the assessee and first issue is required to be answered in favour of the assessee. With regard to second issue in view of finding on issue no.1, this issue is also answered in favour of the assessee.

Summary

Issues Involved:
1. Legality of the tribunal's decision to annul the reassessment under Section 147 based on material found during a survey.
2. Justification of annulling the reassessment under Section 147 when the return of income filed by the assessee assumes the same status after the annulled assessment under Section 143(3).

Detailed Analysis:

1. Legality of the Tribunal's Decision to Annul the Reassessment under Section 147:

The tribunal reversed the CIT(A)'s findings and annulled the reassessment under Section 147, which was based on material found during a survey. The assessee had filed a return of income on 31.10.2001, which was processed, and notices under Sections 143(2) and 142(1) were issued. However, the assessee did not furnish the required details, leading to a survey under Section 133A. The survey uncovered various documents, and the case was referred for a special audit. Despite extensions, the audit was not completed due to non-cooperation from the assessee. The income was determined at ?3,56,78,146/- against the declared income of ?65,172/-.

The CIT(A) found that the notice under Section 143(2) was served beyond the stipulated time, rendering the proceedings void-ab-initio. The tribunal observed that the reassessment under Section 147 was based on the annulled assessment, lacking fresh material or new information. Therefore, the reassessment was deemed invalid as it was based on the same material as the annulled assessment, which had already been subject to appeal and scrutiny.

2. Justification of Annulling the Reassessment under Section 147:

The tribunal held that once an assessment is annulled, it cannot be reopened under Section 147 without fresh material or new information. The original return was filed under Section 139(1) and was subject to scrutiny assessment under Section 143(3). The tribunal emphasized that the annulled assessment could not be the basis for reopening under Section 147. The tribunal cited various case laws, including the decision in Babulal Lath, which supported the view that reassessment requires new material.

The tribunal also referred to the Supreme Court decisions in Raymond Woollen Mills Ltd. vs. ITO and Kalyan Mavji & Co. vs. CIT, which upheld the validity of reassessment notices based on new information. However, in the present case, no new information was available, and the reassessment was based solely on the annulled assessment.

Conclusion:

The tribunal's decision to annul the reassessment under Section 147 was upheld, as it was based on the annulled assessment without any new material. The tribunal rightly decided in favor of the assessee, and the appeal was dismissed. The tribunal's reliance on the Babulal Lath case and other relevant judgments reinforced the view that reassessment requires fresh material or new information, which was absent in this case. The court clarified that if the tribunal's order is reversed, the department may seek reconsideration.