2019 (12) TMI 1498 - AT - Income Tax

Reopening of assessment u/s 147 - non supply of reasons of reopening to assessee - HELD THAT - Reasons have to be recorded before assumption of Jurisdiction u/s 147 i.e. before issue of notice u/s 148 - Any developments which take place after assumption of jurisdiction u/s 147 r.w.s.148 has no relevance for deciding whether the AO had reason to believe, before assumption of jurisdiction u/s 147 of I.T.Act ( i.e. before issue of notice u/s 148 that income had escaped assessment. When such reasons are not made available by Revenue either to the assessee or to the appellate authorities we have to conclude that the onus has not been discharged by Revenue to justify assumption of jurisdiction u/s 147 through issue of notice under section 148 of Income Tax Act. When the assumption of jurisdiction u/s 147 read with section 148 of I.T.Act lacks validityt he resultant assessment order lacks legitimacy. On this ground alone, the aforesaid assessment order dated 12.12.2008 deserves to be annulled. We further note that the Assessing Officer has not furnished reasons for issue of notice u/s 148 to the assessee in spite of order of Hon ble Supreme Court in the case GKN Driveshafts (India) Ltd 2002 (11) TMI 7 - SUPREME COURT whereby the Assessing Officer is bound to provide reasons recorded by him for issue of notice u/s 148 of I.T.Act to the assessee once the assessee has filed return in response to the notice issued u/s 148 of Income Tax Act. As assumption of jurisdiction by the AO u/s 147 of I.T.Act read with section 148 of I.T.Act is based on inquiries conducted without the authority of law. We are of the firm view that assumption of jurisdiction u/s 147 r.w.s. 148 of I.T.Act on the basis of inquiries conducted without the authority of law lacks legitimacy. Assumption of jurisdiction must be held to be unauthorized, when the inquiries made for assuming the jurisdiction were unauthorized in law; and the assessment order passed in pursuance of unauthorized assumption of jurisdiction u/s 147 r.w.s. 148 of I.T. Act, also lacks legitimacy. - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of assumption of jurisdiction u/s 147/148 by the Assessing Officer.
2. Enhancement of total income by the Ld. CIT(A) based on adhoc basis expenses.
3. Disallowance of expenses made by the Assessing Officer.

Detailed Analysis:
1. The appeal was filed by the department against the order passed by the Ld. CIT (Appeals) for assessment year 2006-07. The Assessing Officer issued a notice u/s 148 of the Income Tax Act without providing reasons for the belief that income had escaped assessment. The Ld. CIT(A) enhanced the total income of the assessee without proper justification. During the ITAT proceedings, it was highlighted that the reasons for assuming jurisdiction were not provided to the assessee or the appellate authorities. The Ld. Departmental Representative admitted the lack of reasons recorded by the Assessing Officer. The ITAT concluded that the assumption of jurisdiction u/s 147 read with Section 148 lacked validity due to the absence of recorded reasons, rendering the assessment order illegitimate. Additionally, the Assessing Officer conducted inquiries without authority of law before issuing the notice u/s 148, further undermining the jurisdiction assumed. Consequently, the ITAT annulled the assessment order and allowed the appeal, as the grounds related to income enhancement became academic in light of the annulment.

2. The Ld. CIT(A) enhanced the total income of the assessee to a specific figure without sufficient material, directing the Assessing Officer to consider the income at the enhanced amount. However, the ITAT annulled the assessment order due to jurisdictional issues, making the grounds related to income enhancement inconsequential and not decided.

3. The Assessing Officer disallowed a specific amount of expenses claimed by the assessee based on the absence of supporting vouchers. This disallowance was challenged by the assessee in the appeal. However, as the ITAT annulled the assessment order on jurisdictional grounds, the issue of disallowance of expenses became irrelevant and was not decided.

In conclusion, the ITAT found the assumption of jurisdiction by the Assessing Officer to be invalid due to the lack of recorded reasons and unauthorized inquiries conducted before issuing the notice u/s 148. Consequently, the assessment order was annulled, rendering the issues related to income enhancement and expense disallowance moot.