2022 (8) TMI 1354 - AT - Income Tax

Revision u/s 263 - validity of initiation of reassessment proceedings u/s 147 - HELD THAT - We respectfully noted that the settled position of law on this aspect, as held in the case of Haryana Acrylic Ltd. 2008 (11) TMI 2 - DELHI HIGH COURT is that the requirement of recording the reasons, communicating the same to the assessee enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the AO does not reopen the assessment which has been finalized on mere whim or fancy and that he does so only on the basis of lawful reasons and since these steps are also designed to ensure complete transparency and to ensure that the principles of natural justice is followed and, therefore, any deviation from these steps would result in nullifying all the proceedings and reassessment order passed by the AO. We reach to a logical conclusion that the initiation of reassessment proceedings by the AO and reassessment order passed u/s 143(3) r.w. section 147 of the Act dated 28.12.2018 was not valid. Therefore, we are compelled to hold that the initiation of reassessment proceedings in the present case was not valid as the mandatory requirement of section 147 of the Act has not been satisfied. We, therefore, hold that since the reassessment order dated 28.12.2018 was not valid, consequently, the subsequent revisionary order passed by PCIT u/s 263 is also held to be invalid and, thus, the same is quashed. Since, in the earlier part of this order we have quashed the revisionary order of the ld.PCIT u/s 263 of the Act by allowing the legal ground of the assessee, therefore, other grounds of the assessee challenging the revisionary order u/s 263 of the Act have become academic and infructuous. Therefore, the same are not being adjudicated upon. Appeal of assessee allowed.

Summary

Issues Involved:
1. Validity of invoking Section 263 by the Principal Commissioner of Income Tax.
2. Validity of reassessment proceedings initiated under Section 147.
3. Validity of issuance of notice under Section 148.
4. Requirement of tangible material and proper sanction under Section 151.
5. Validity of reassessment order when the reasons recorded and supplied are different.
6. Enhancement of assessment by the Principal Commissioner of Income Tax.

Detailed Analysis:

1. Validity of invoking Section 263 by the Principal Commissioner of Income Tax:
The assessees challenged the invocation of Section 263 by the Principal Commissioner of Income Tax (PCIT), arguing that the reassessment order made by the Assessing Officer (AO) was not erroneous or prejudicial to the interest of revenue. The PCIT had invoked Section 263 on the grounds that the AO had failed to make necessary inquiries and had not applied his mind to the prevailing judgments on the issue. The Tribunal, however, found that the reassessment order was ab initio void due to the invalid initiation of reassessment proceedings, making the invocation of Section 263 by the PCIT unsustainable.

2. Validity of reassessment proceedings initiated under Section 147:
The assessees contended that the reassessment proceedings were invalid as they were based solely on information from the Investigation Wing without any tangible material or proper application of mind by the AO. The Tribunal upheld this contention, noting that the AO did not have valid reasons to believe that income had escaped assessment, and thus, the reassessment proceedings were void ab initio. The Tribunal relied on the judgments of the ITAT Kolkata Bench and the Hon'ble Supreme Court, which established that the validity of reassessment proceedings could be challenged in collateral proceedings under Section 263.

3. Validity of issuance of notice under Section 148:
The assessees argued that the issuance of notice under Section 148 was bad in law as no proper sanction was obtained, and the reasons recorded by the AO were different from those supplied to the assessees. The Tribunal found that the AO had obtained the necessary approval from the JCIT before issuing the notice under Section 148. However, the Tribunal noted discrepancies between the reasons recorded by the AO and those supplied to the assessees, which rendered the reassessment proceedings invalid.

4. Requirement of tangible material and proper sanction under Section 151:
The assessees contended that there was no tangible material in the hands of the AO at the time of initiating reassessment proceedings, and no proper sanction under Section 151 was obtained. The Tribunal found that the AO had tangible material in the form of an enquiry report from the Investigation Wing. However, the Tribunal noted that the AO did not apply his mind to this material properly, and the reasons recorded and supplied were different, which invalidated the reassessment proceedings.

5. Validity of reassessment order when the reasons recorded and supplied are different:
The Tribunal observed that the reasons recorded by the AO and the reasons supplied to the assessees were different. The Tribunal relied on the judgment of the ITAT Delhi Bench in the case of Jansampark Advertising & Marketing Pvt. Ltd., which held that such discrepancies invalidate the reassessment proceedings. The Tribunal concluded that the reassessment order was not sustainable due to this discrepancy.

6. Enhancement of assessment by the Principal Commissioner of Income Tax:
The assessees argued that the PCIT erred in enhancing the assessment by directing the AO to make additions without proper inquiry. The Tribunal did not specifically address this issue as it had already quashed the reassessment proceedings and the subsequent revisionary order under Section 263, rendering the enhancement issue academic and infructuous.

Conclusion:
The Tribunal quashed the reassessment proceedings and the revisionary order under Section 263, holding that the initiation of reassessment proceedings was invalid due to the lack of proper reasons and discrepancies between the recorded and supplied reasons. Consequently, the appeals filed by the assessees were allowed.