2018 (4) TMI 1883 - HC - Income Tax

Validity of reopening of assessment u/s 147 - eligibility of reasons to believe - AO received information from DIT Investigation, Varanasi that the assessee s company has received bogus entries - assessee argued that reopening based on non-existing facts as Assessee has been able to explain that the income which was believed to have escaped assessment was explainable - whether Tribunal was justified in holding that the proceedings for reassessment under Section 148/147 were initiated by the ld. Assessing Officer on non-existing facts because ultimately the Assessee has been able to explain that the income which was believed to have escaped assessment was explainable but some other additions were made under the assessment order ? - HELD THAT - As tribunal being the last fact finding authority has not given any cogent reason for reversing the finding recorded by CIT(A) in para no.5.3. Solely on that ground, we set aside the order of the tribunal and remit the matter back to the tribunal. It is made clear that we are not commenting on any of the judgments relied by the assessee. The tribunal will reconsider the judgments keeping in mind, the judgment of Supreme Court, High Court as well as judgment of the tribunal itself. We are not answering the issue and the matter is remitted back as stated above. It will be open for the tribunal to decide the issue in accordance with law.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 148/147 of the Income Tax Act, 1961.
2. Adherence to precedents set by higher courts.
3. Reliance on judgments from different jurisdictions.
4. Justification for adhoc additions in respect of unsecured loans.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary issue revolves around whether the Tribunal was justified in holding that the reassessment proceedings under Section 148/147 were initiated on non-existing facts. The court noted that the appellant had filed its return declaring a loss, which was processed under Section 143(1). The AO reopened the assessment based on information from DIT Investigation, Varanasi, about bogus entries. The Tribunal's decision was influenced by the precedent set in the case of Shri Ram Singh, which emphasized that if the AO finds the income, which was believed to have escaped assessment, to be explainable, his jurisdiction to assess other incomes ceases unless a fresh notice under Section 148 is issued.

2. Adherence to Precedents:
The Tribunal was criticized for not following the precedent set by the jurisdictional High Court in the case of Shri Ram Singh. The court highlighted that the Tribunal should have adhered to the principle that the AO loses jurisdiction to assess other incomes if the initially suspected escaped income is found to be explainable. This principle was also supported by the judgments in Jet Airways and other cases, which emphasized that the AO must reassess the income he had reason to believe had escaped assessment before assessing any other income that comes to his notice.

3. Reliance on Judgments from Different Jurisdictions:
The Tribunal relied on the judgment of the Bombay High Court in Jet Airways, which was applicable to the assessment years involved. The court observed that the Explanation 3 to Section 147, inserted by the Finance (No. 2) Act, 2009, does not override the necessity of fulfilling the conditions set out in the substantive part of Section 147. The court reiterated that the AO must assess the income that formed the basis of his "reason to believe" before assessing any other income that comes to his notice during the reassessment proceedings.

4. Justification for Adhoc Additions:
The Tribunal confirmed an adhoc addition of ?4,02,646 in respect of unsecured loans without any basis, despite the appellant submitting a duly certified audit report. The court noted that the AO had not verified the contents of the books of account and pointed out no specific defects. The Tribunal's decision was influenced by the principle that the initial onus is on the assessee to prove the identity, creditworthiness, and genuineness of the transaction, which the assessee failed to discharge satisfactorily.

Conclusion:
The court set aside the Tribunal's order and remitted the matter back to the Tribunal for reconsideration. The Tribunal was directed to re-evaluate the case in light of the judgments from the Supreme Court, High Courts, and its own previous decisions. The Tribunal must provide cogent reasons for its findings and ensure adherence to legal precedents. The appeals were allowed to the extent of remitting the matter back to the Tribunal for a fresh decision.