2015 (6) TMI 1217 - AT - Income Tax

Reopening of assessment u/s 147 - partnership firm Citi Plaza in which the assessee had 25% share had issued three post dated cheques and made bank payments towards principal and towards interest whereas the above payments were much more than the income declared by the assessee - HELD THAT - Here is a case in which the very reasons on account of which the CIT(A) has deleted the quantum additions were also good enough to hold that the initiation of reassessment proceedings is bad in law and yet the CIT(A) was fighting shy of the logical conclusions thereto and natural corollaries to these findings. The relief so granted by the CIT(A) on the basis of which the additions in respect of the reasons recorded for reopening the assessment were deleted and which were in our considered view good enough to quash the reassessment itself is not even challenged in further appeal. These findings of the CIT(A) have thus reached finality. and are not even in dispute before us. If such be the facts there can be no justification for taking these findings to its logical conclusions and based on these uncontroverted findings quash the reassessment itself. What held good for deleting the additions on the basis of the reasons recorded the assessment on the fact of this case and in our humble understanding was good enough to hold the reasons for reopening the assessment to be incorrect as well. We are unable to see any legally sustainable reasons to come to different conclusions. In our considered view therefore the CIT(A) ought to have quashed the reassessment as well. Bearing in mind entirety of the case we hold that the CIT(A) ought to have on the peculiar facts and circumstances of the case quashed the reassessment proceedings as well. We therefore quash the reassessment proceedings. As reassessment itself is quashed as above nothing else survives for adjudication.

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147/148 of the Income Tax Act, 1961.
2. Legitimacy of additions made by the Assessing Officer based on the reasons for reopening the assessment.
3. Contradiction in the CIT(A)'s decision to uphold reassessment while quashing the additions.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148:
The appeal challenges the order dated 23rd January 2014 regarding the assessment year 2005-06. The core issue is whether the reassessment proceedings initiated under sections 147/148 were valid. The assessment was reopened based on information that the assessee and others were involved in real estate transactions through a firm, M/s. City Plaza, and had made significant payments that exceeded the declared income. The CIT(A) upheld the reassessment proceedings, stating that the Assessing Officer had "plenty of reasons to issue notice u/s. 148 of the Act," based on undisclosed facts during the investigation and irregularities in cheque issuances.

2. Legitimacy of Additions Made by the Assessing Officer:
The Assessing Officer made additions based on the reasons for reopening the assessment, which were later quashed by the CIT(A). The CIT(A) found that the payments made by the partnership firm and its partners were satisfactorily explained with documentary evidence, indicating that the payments to outgoing partners and bank loans were made directly by the purchaser of the property, not by the firm or its partners. Thus, the additions of Rs. 17,67,750/-, Rs. 10,22,657/-, and Rs. 10,23,142/- were directed to be deleted.

3. Contradiction in CIT(A)'s Decision:
Despite quashing the additions, the CIT(A) upheld the reassessment proceedings, leading to a contradiction. The tribunal noted that the CIT(A) should have also quashed the reassessment proceedings since the reasons for reopening were found to be incorrect. The tribunal emphasized that the validity of reassessment proceedings is crucial for any additions to be made. The tribunal referred to legal precedents, including the Bombay High Court's ruling in Hindustan Lever Ltd. vs. R.B. Wadkar, which states that the reasons for reopening must be disclosed and cannot be inferred.

The tribunal also addressed the Departmental Representative's reliance on the Punjab & Haryana High Court's judgment in Majinder Singh Kang vs. CIT, which allows additions during reassessment even if the original reasons for reopening are not sustained. However, the tribunal clarified that this judgment does not apply when the reasons for reopening are found to be incorrect.

Conclusion:
The tribunal concluded that the CIT(A) should have quashed the reassessment proceedings based on the incorrect reasons for reopening. The tribunal quashed the reassessment proceedings and allowed the appeal, emphasizing that the reassessment proceedings were legally unsustainable. The decision highlights the importance of the validity of the reasons for reopening an assessment and the need for consistency in adjudicating reassessment proceedings and related additions.