2018 (6) TMI 1836 - AT - Income Tax

Reopening of assessment u/s 147 - Necessity of recording satisfaction by the AO as required prior issuing the notice u/s 147 - unexplained investment in share capital - HELD THAT - AO himself was of the view that the amount so invested in share application money needs verification, despite that he has the reason to believe that the investment in share application money and extent of availability during the year 2006-07 (wrongly mentioned in the reasons recorded as 2006-06 ) is from (wrongly mentioned in the reasons recorded as form ) undisclosed sources which is escaped to tax, which is not sustainable in the eyes of law as laid down in the case of Sampatraj Dharmichand Jain 2016 (7) TMI 67 - GUJARAT HIGH COURT wherein it has been observed that reopening may not be permitted for mere verification purpose. Appeal of the assessee is allowed.

Summary

Issues:
1. Validity of notice issued under section 148 and reassessment order passed under section 147 r.w.s. 143(3).
2. Recording of satisfaction by the assessing officer prior to issuing notice under section 147.
3. Legality of additions/disallowances made by the assessing officer.
4. Proper and adequate opportunity of hearing provided to the appellant during assessment proceedings.
5. Charging of interest under Section 234A, 234B & 234C.

Analysis:

1. Validity of Notice and Reassessment Order:
The appeal was filed challenging the legality of the notice issued under section 148 and the reassessment order passed under section 147 r.w.s. 143(3). The appellant contended that both were illegal, bad in law, and without jurisdiction. The Tribunal observed that the assessing officer failed to record satisfaction before initiating proceedings, as required by law. Citing a precedent from the Hon'ble Gujarat High Court, the Tribunal held that reopening for mere verification purposes is impermissible. Consequently, the reassessment order was quashed, rendering other grounds on merits academic.

2. Recording of Satisfaction by Assessing Officer:
The appellant argued that no satisfaction was recorded by the assessing officer as mandated by law before issuing the notice under section 147. The Tribunal found merit in this argument and emphasized the importance of the assessing officer's satisfaction. The failure to record satisfaction was a crucial factor in the decision to quash the reassessment order.

3. Additions/Disallowances Made by Assessing Officer:
The appellant challenged the additions and disallowances made by the assessing officer, claiming they were illegal, unjust, and excessive without proper basis. The Tribunal noted that the assessing officer erred in making ad-hoc additions on an estimated basis, which lacked justification and were arbitrary. The CIT(A) was criticized for upholding such additions based on surmises and conjectures without adequate material on record.

4. Opportunity of Hearing Provided to Appellant:
The appellant contended that proper and adequate opportunity of hearing was not provided during the assessment proceedings. The Tribunal acknowledged this argument, highlighting the necessity for the appellant to present evidence and details to substantiate their claims. The failure to provide a fair hearing was considered an error on the part of the CIT(A) and the assessing officer.

5. Charging of Interest under Section 234A, 234B & 234C:
The appellant raised concerns regarding the wrongful and illegal charging of interest under various sections, arguing that they could not have foreseen the additions/disallowances made. The Tribunal noted the appellant's contention and highlighted that the interest charged was wrongly calculated. This issue was considered in conjunction with the quashing of the reassessment order.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of following legal procedures, recording satisfaction before initiating proceedings, and providing a fair opportunity for appellants to present their case during assessment proceedings. The decision to quash the reassessment order was pivotal in addressing the issues raised by the appellant.