2019 (3) TMI 1607 - AT - Income Tax

Reopening of assessment u/s 147 - borrowed satisfaction - non independent application of mind - material/ information on record giving rise to a reason to believe escapement of income from assessment - HELD THAT - There is nothing on record to show that the audit cell pointed to any factual inconsistency/s in the then AO s reply dated 19.08.2011. There is also no contention to this effect. As it appears therefore the matter kept lingering and finally the incumbent AO issued a notice on 30.03.2013 i.e. the fag end of the limitation period recording the same reason/s as stated in the audit memo dated 27.07.2010. That is the audit cell prevailed and again as it appears in view of a large tax effect calculated at Rs. 51.11 lacs. Not one of the four grounds raised per the audit objections was dropped or the reasons otherwise supplemented meeting the various reasons stated by his predecessor for the reopening being not valid to indicate a fresh application of mind by the incumbent AO. It is thus on facts a clear case of borrowed satisfaction invalidating the same as explained in Larsen and Toubro 2017 (3) TMI 1064 - SUPREME COURT . Rather as a perusal of the reply dated 19.08.2011 shows the original assessment had been framed conscious of and having regard to the aspects brought forth by the audit party taking a permissible view. It is thus also a case of change of opinion. The two infirmities are in fact inter-connected. The reopening of assessment is in our view thus not valid in law and the ensuing assessment in consequence without jurisdiction. Non-issue of notice u/s. 143(2) - There was no compliance of notice u/s. 148 by filing a return as required by it so that there was on facts no need in law to in any case issue a notice u/s. 143(2). We are accordingly not in agreement with the assessee on the second issue also pressed before us. The same however becomes academic in view of our finding of the impugned assessment being without jurisdiction. - Decided against revenue

Summary

Issues Involved:
1. Validity of reopening the assessment based on borrowed satisfaction.
2. Non-issuance of notice under section 143(2) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening the Assessment Based on Borrowed Satisfaction:

The Revenue's appeal challenges the CIT(A)'s decision to quash the assessment on the grounds that the reopening was based on borrowed satisfaction. The Revenue argued that the reopening was initiated on multiple grounds, including under-valuation of stock and concealment of husk produced, and that the audit party's objection was valid. They cited several precedents to support their claim that the AO's satisfaction, even if prompted by an audit objection, is sufficient for reopening the assessment.

The assessee countered by highlighting that the AO had previously written to the audit cell to drop the audit objections, indicating no valid grounds for reopening. The CIT(A) had annulled the assessment, considering it a case of borrowed satisfaction, as the AO's reasons for reopening were influenced by the audit party without independent application of mind.

The Tribunal upheld the CIT(A)'s decision, stating that the satisfaction for reopening must be of the AO who issues the notice, not of any predecessor or superior authority. The Tribunal found that the incumbent AO's reasons for reopening were not independently formed but were a reiteration of the audit objections, thus constituting borrowed satisfaction. Consequently, the reopening of the assessment was deemed invalid, and the ensuing assessment was without jurisdiction.

2. Non-Issuance of Notice Under Section 143(2):

The second issue pertained to the non-issuance of notice under section 143(2). The Revenue contended that since the assessee did not file a return in response to the notice under section 148, there was no requirement to issue a notice under section 143(2). The assessee argued that the AO's acceptance of the original return as a response to the notice under section 148 necessitated the issuance of a notice under section 143(2).

The Tribunal analyzed that the assessment order's reference to section 143(3) was not conclusive. The Tribunal found that there was no compliance with the notice under section 148 by filing a return, and the AO proceeded with the assessment under section 144 r/w section 147. The Tribunal concluded that the non-issuance of notice under section 143(2) did not invalidate the assessment, as the jurisdiction to reassess was validly assumed with the issuance of the notice under section 148.

Separate Judgment by Judicial Member:

The Judicial Member concurred with the decision on the first issue but disagreed with the conclusion on the second issue. Despite this disagreement, the ultimate result of the appeal remained unchanged, and the appeal of the Revenue was dismissed.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to quash the assessment on the grounds of borrowed satisfaction. The Tribunal also found that the non-issuance of notice under section 143(2) did not invalidate the assessment, as the jurisdiction to reassess was validly assumed. The appeal of the Revenue was dismissed in its entirety.