2015 (7) TMI 1405 - AT - Income Tax

Reopening of assessment u/s 147 - Investigation Wing had found out that there were certain persons, who had, on exchange of cash, received accommodation entries in the form of cheques from various persons, who admitted before the investigation Wing that such entries were bogus - HELD THAT - in the case of assessee, no scrutiny assessment u/s 143(3) had taken place, therefore, whether such credits shown in the balance sheet were in the nature of income or not, could not have been found out, merely on perusal of the return of income - reason to believe of the AO that income had escaped assessment was on cogent grounds in view of the specific details of transaction provided by the Investigation Wing. Issue of notice u/s 148, which is the statutory procedure for enabling the Ld. AO to verify whether such information was correct or not, was rightly issued by the AO. However, merely because notice u/s 148 was issued does not mean that the information from the Investigation Wing was a gospel truth, and if on verification, the AO finds that no income can be held to have escaped in the hands of the assessee, no addition in respect of such information can be made to the appellant's income. Therefore, Ld. CIT(A) has rightly held that the issue of notice u/s 148 was good in law and the AO has followed the guidelines prescribed by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT by making note of satisfaction on cogent grounds before issuing the notice u/s 148. Notice u/s 148 and subsequent notices, issued by the AO could never have been served upon the assessee - As it is evident that the notice u/s 148 and subsequent notices, issued by the AO could never have been served upon the assessee as the same was issued at a wrong address, due to the mistake attributable to the Assessing Officer, in making due diligence of issuing the notice at the correct address given in the return of income itself. The latest address of the assessee was also available with the AO as return of income for assessment year 2010-11 and 11-12 also show the latest address at H.No.500, Gali No. 3, Chander Lok, Mandoli Road, Shahdra. Best judgment assessment - AO in the remand report has repeated the facts of the case and rather strengthened the arguments of the assessee that notice was issued at the wrong address at 55, Royal Palace, 1st Floor, Vikas Marg, Delhi, which was the address in earlier years much before the assessee had filed the return of income for the current year on 18.10.2004. Under the circumstances, as the notice u/s 148 which is foundation of the reassessment proceeding, was not served upon the assessee, the whole proceedings are held as void-abinitio. Under the circumstances, the action of the AO of making Best Judgment assessment u/s 144, in respect of which evidently no material was gathered by the AO, is not sustainable. Decided against revenue.

Summary

Issues:
1. Admission of additional evidence by the Ld. Commissioner of Income Tax (Appeals) without sufficient cause.
2. Validity of proceedings initiated under section 148 due to non-service of notice.
3. Legality of making best judgment assessment under section 144 without sufficient material.
4. Address discrepancies leading to non-service of notices.

Analysis:

Issue 1: Admission of Additional Evidence
The Revenue contended that the Ld. CIT(A) erred in admitting additional evidence without sufficient cause preventing the filing of requisite details before the AO. The Tribunal found that the assessment was reopened based on specific and cogent information received from the Investigation Wing. The AO had valid reasons to believe that income had escaped assessment due to lack of disclosure by the assessee. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the notice under section 148 was issued based on cogent grounds and in compliance with legal guidelines laid down by the Hon'ble Supreme Court.

Issue 2: Validity of Proceedings under Section 148
The Revenue challenged the initiation of proceedings under section 148, claiming that the notice was not served upon the assessee. The Tribunal noted that the notices were sent to an incorrect address, different from the one provided by the assessee in the return of income. Due diligence was not exercised by the AO in issuing notices at the correct address. As the foundation of reassessment, the notice under section 148 not being served rendered the entire proceedings void ab initio. Consequently, the Tribunal held that the best judgment assessment under section 144, lacking substantial material, was unsustainable.

Issue 3: Legality of Best Judgment Assessment
The Ld. CIT(A) had deleted the additions made by the AO, emphasizing the non-sustainability of the best judgment assessment under section 144. The Tribunal concurred with this decision, stating that no material was gathered by the AO to support the assessment. The Tribunal upheld the Ld. CIT(A)'s order, concluding that the additions made by the AO were not sustainable.

Issue 4: Address Discrepancies
The Tribunal highlighted the discrepancies in addresses leading to non-service of notices. The AO issued notices at an incorrect address despite the correct address being provided by the assessee in various filings. The Tribunal emphasized that the notice under section 148 should have been issued before the expiration of six years from the end of the assessment year. Due to the incorrect address, the notices could not be served, rendering the proceedings void ab initio.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the Ld. CIT(A)'s order. The judgment emphasized the importance of adherence to legal procedures, including proper service of notices and the necessity of substantial grounds for initiating assessments.