2019 (5) TMI 1858 - AT - Income Tax

Reopening of assessment u/s 147 - AO did not dispose of the objections separately and proceeded and passed the re-assessment order - HELD THAT - In the present case it is clear that despite the request by the assessee, the Assessing Officer has completed the assessment without furnishing the reasons recorded for reopening of assessment. Furnishing the reasons recorded for reopening of the assessment is mandatory condition as held by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO 2002 (11) TMI 7 - SUPREME COURT wherein the Hon'ble Supreme Court has laid down the principle that recorded reasons must be furnished to the assessee when the assessee sought for the reasons. We also find that Hon ble Bombay High Court in the case of M/s. Bayer Material Science Pvt. Ltd. 2016 ( ) TMI 179 - BOMBAY HIGH COURT after considering the decision of Hon ble Apex Court in the case of GKN Driveshafts 2002 (11) TMI 7 - SUPREME COURT had held that the reassessment order to be non sustainable when the objections to the re-assessment were not disposed off by the AO. Similar view was taken by the Hon ble Bombay High Court in the case of KSS Petron Pvt. Ltd. 2016 (10) TMI 1112 - BOMBAY HIGH COURT . Recording of reasons and furnishing of the same has to be strictly complied with as it is a jurisdictional issue and in the absence of reasons being furnished when sought for would make an order passed on reassessment bad in law. Revenue has not placed any contrary binding decision in its support. Considering the totality of the aforesaid facts and relying on the decisions cited herein above, we hold the reassessment order passed by the AO to be bad in law and thus set it aside.

Issues:
1. Validity of re-opening of assessment under Section 147
2. Approval of Additional CIT for re-opening under Section 151
3. Taxability of deemed dividend under Section 2(22)(e)
4. Delay in filing the appeal
5. Condonation of delay in filing the appeal
6. Disposal of objections to re-opening of assessment

Issue 1: Validity of re-opening of assessment under Section 147

The appeal challenged the legality of re-opening the assessment under Section 147, claiming it was illegal and without jurisdiction. The appellant argued that the action was taken without valid reasons and without approval of the Additional CIT as required by Section 151. The appellant contended that the reassessment proceedings were based on mere suspicion and lacked a valid reason to believe in the escapement of income. The tribunal held that the AO failed to furnish the reasons for re-opening to the assessee, despite objections raised, which was deemed mandatory as per the decision in GKN Driveshafts (India) Ltd. v. ITO. Citing precedents, the tribunal concluded that the reassessment order was non-sustainable due to the failure to dispose of objections, setting it aside.

Issue 2: Approval of Additional CIT for re-opening under Section 151

The appellant argued that the reasons recorded for re-opening were without the approval of the Additional CIT, as mandated by Section 151. The tribunal found that the mentioning of prior approval in the assessment order alone did not comply with the legal requirements. Relying on legal precedents, the tribunal held that the assessment was illegal and lacked jurisdiction due to the absence of the Additional CIT's approval, thus setting aside the order.

Issue 3: Taxability of deemed dividend under Section 2(22)(e)

The appellant contested the addition made under Section 2(22)(e) to tax deemed dividend, arguing that in the absence of sufficient accumulated profits, any payment by a closely held company to a shareholder could not be treated as deemed dividend. The tribunal agreed with the appellant, finding that the addition made by the AO and confirmed by the CIT(A) was not sustainable in law. Consequently, the tribunal ordered the deletion of the addition.

Issue 4: Delay in filing the appeal and Condonation of delay

The appeal faced a delay of 253 days in filing, with the appellant attributing it to a bona fide mistake. The tribunal, after considering the reasons provided, condoned the delay and admitted the appeal for hearing, as the delay was unintentional and adequately explained.

Issue 5: Disposal of objections to re-opening of assessment

The tribunal highlighted the failure of the AO to furnish the reasons for re-opening to the assessee and dispose of objections raised, as required by law. Citing legal principles, the tribunal set aside the reassessment order, emphasizing the mandatory nature of providing reasons to the assessee and disposing of objections, making the order bad in law.

In conclusion, the tribunal found in favor of the appellant on various grounds, including the legality of re-opening the assessment, approval of the Additional CIT, taxability of deemed dividend, delay in filing the appeal, and disposal of objections to re-opening. The reassessment order was deemed non-sustainable and set aside, rendering the appeal of the assessee allowed.

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