2018 (3) TMI 1948 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - notice issued beyond 4 years from the end of the assessment years - HELD THAT - We are unable to understand when in the reasons so recorded the A.O. himself is stating that the accommodation entries from the various parties mentioned above which did not find place in the assessee s books of account therefore he has reasons to believe that the income chargeable tax has escaped assessment. When the entries are not found in the books of the assessee how the same could be made basis for reopening the completed assessment. In our understanding of the law veracity of the notice u/s. 148 of the Act has to be tested on the basis of the notice itself The mandate of First proviso to section 147 is that income that has to be taxed must have escaped assessment by reasons of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. There is not even a whisper in the reasons recorded for the reopening of the assessee relating to non disclosure of full and true facts by the assessee - See HARYANA ACRYLIC MANUFACTURING COMPANY 2008 (11) TMI 2 - DELHI HIGH COURT Coming back to the reasons recorded for reopening of the assessment as mentioned elsewhere it can be seen that there is no independent application of mind by the A.O. It appears that the A.O. has borrowed the investigation made by the Investigation Wing under the DIT (Investigation) New Delhi - we have no hesitation to hold that the notice issued u/s. 148 of the Act is without jurisdiction and the same is set aside. Assessment u/s 153A - Coming to the merits of the case as mentioned elsewhere there is no dispute that no incriminating material has been found at the time of search and therefore it is now settled proposition of law that no assessment u/s. 153A of the Act can be framed in the absence of any incriminating material found at the time of search. For this proposition we draw support from the decision of the Hon ble High Court of Delhi in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT - Decided in favour of assessee.

Issues Involved:
1. Deletion of the addition of ?35 lacs made by the A.O. u/s. 68 of the Act.
2. Challenge to the reopening of the assessment by the issue of notice u/s. 148 of the Act.
3. Deletion of the addition of ?1.50 crores made u/s. 68 of the Act.
4. Compliance with specific directions issued by the ITAT.

Issue-wise Detailed Analysis:

1. Deletion of the addition of ?35 lacs made by the A.O. u/s. 68 of the Act:
The Revenue's grievance relates to the deletion of the addition of ?35 lacs made by the Assessing Officer (A.O.) under Section 68 of the Income Tax Act. The Tribunal observed that the A.O. had reasons to believe that the income chargeable to tax had escaped assessment based on accommodation entries that were not found in the assessee’s books of account. However, the Tribunal noted that the notice under Section 148 was issued beyond the four-year period from the end of the relevant assessment year. The Tribunal emphasized that the proviso to Section 147 requires that the income must have escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal found no such allegation in the reasons recorded for reopening the assessment and thus held the notice under Section 148 to be without jurisdiction.

2. Challenge to the reopening of the assessment by the issue of notice u/s. 148 of the Act:
The assessee challenged the reopening of the assessment on the grounds that the notice under Section 148 was issued beyond the permissible four-year period. The Tribunal referred to several judicial decisions, including the case of Haryana Acrylic Manufacturing Company and Dulichand Singhania, which held that the absence of an allegation of failure to disclose fully and truly all material facts necessary for the assessment makes the action under Section 147 beyond the four-year period without jurisdiction. The Tribunal concluded that the notice issued under Section 148 was invalid as it did not meet the necessary conditions stipulated in the proviso to Section 147.

3. Deletion of the addition of ?1.50 crores made u/s. 68 of the Act:
In the second round of litigation, the Revenue appealed against the deletion of the addition of ?1.50 crores made under Section 68 of the Act. The Tribunal noted that the First Appellate Authority had held that the A.O. relied on the statement of Shri Neeraj Jain without affording the assessee an opportunity for cross-examination. The Tribunal emphasized that the A.O. did not conduct the enquiry prescribed by the Tribunal and relied on material partly on evidence and partly on suspicion. The Tribunal upheld the decision of the First Appellate Authority, which deleted the addition made by the A.O.

4. Compliance with specific directions issued by the ITAT:
The Revenue contended that the A.O. complied with the Tribunal’s directions by issuing notices to Shri Neeraj Jain, which returned unserved. The Tribunal, however, noted that the assessment was framed under Section 153A/143(3) without any incriminating material found at the time of search. The Tribunal referred to the decision of the Hon’ble High Court of Delhi in the case of Kabul Chawla, which held that no assessment under Section 153A can be framed in the absence of any incriminating material found at the time of search. The Tribunal concluded that the assessment order was invalid and quashed it, rendering the Revenue’s appeal a nullity.

Conclusion:
The Tribunal quashed the notice issued under Section 148 and the reassessment order, holding them to be without jurisdiction. The Tribunal also upheld the deletion of the addition of ?1.50 crores made under Section 68, finding that the A.O. did not comply with the Tribunal’s directions and framed the assessment without any incriminating material found at the time of search. The appeals by the Revenue were dismissed.

← Previous Next →