2014 (9) TMI 1273 - AT - Income Tax

Reopening of assessment u/s 147 - inability of the AO to produce the reasons recorded or to produce the evidence of supply of the copy of reasons to the assessee - HELD THAT - Whatever may be the reason but it is mandated by the Hon ble Courts that reasons to believe must necessarily show, indicate and communicate why and for what grounds/cause any income has escaped assessment. Recording of reasons has been emphasised and adverted to as the foundation of the jurisdiction of an AO, who initiates reassessment proceedings. The validity of the reassessment proceedings is tested, by the Hon ble Courts, on the basis of the underlying reasoning stated and recorded for opening of the reassessment. If the person affected by the action of the AO is not aware as to why the AO had found it fit to reopen his assessment, he will be in dark and will not be in position to defend himself. Principles of natural justice demand that nobody should be penalise unheard. Without furnishing the assessee a copy of the reasons recorded would tantamount to punish the assessee without hearing him. The power of the to issue notice u/s. 147 of the Act is coupled with the duty to follow a prescribed method. A duty has been cast upon him to supply the copy of reasons recorded to the assessee. Rights are always accompanied by duties and bigger rights brings higher the duties in picture. Power given to the AO by section 147 is not a simple power it is to unsettle the completed proceedings and it generally results in higher tax liability. Therefore, safeguards have been provided in the Act. Duty of the AO to communicate the reasons to the assessee is the other side of the coin and is the right of the assessee. The assessee cannot be burdened only with duties. His duty is to file the return once he gets the notice. Similarly, his right to know the reasons starts once he files a return and asks the AO to supply him the copy of recorded reasons. Case-issuance of notice u/s. 148 of the Act, the requests made by the assessee during assessment and after the assessment/appellate proceedings, the inability of the AO to produce the reasons recorded or to produce the evidence of supply of the copy of reasons to the assessee-we are of the opinion that validity of the assessment order and the subsequent order of the FAA cannot be upheld. Therefore, in the cases of Videsh Sanchar Nigam Ltd 2011 (7) TMI 715 - BOMBAY HIGH COURT and Fomento Resorts and Hotels 2006 (11) TMI 645 - BOMBAY HIGH COURT we are of the opinion that the order passed by the AO was not valid. The action of the AO has resulted in violation of basic principles of natural justice as well as invaluable right of the assessee. His order is beyond validity, so it is unsustainable. Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of cash seized at Rs. 2,60,000.
2. Addition towards gold balls and jewellery seized.
3. Failure to verify documents by the Department.
4. Non-provision of reasons recorded before issuing notice under Section 148.
5. Failure to issue mandatory notice under Section 143(2).
6. Assessment made on a deceased person.
7. Applicability of Sections 147-148 in block assessment under Chapter XIV-B.

Detailed Analysis:

1. Addition of Cash Seized at Rs. 2,60,000:
The CIT(A) confirmed the addition of Rs. 2,60,000 seized cash appearing in the books of accounts on 11th December 1990 without rejecting the books under Section 145(3) of the Income-tax Act, 1961. The CIT(A) did not appreciate the appellant's letter dated 5th July 2006, where the appellant produced xerox copies of books of accounts, but the Assessing Officer (AO) insisted on original books and declined verification due to time constraints. The appellant had shown the cash balance in the books of accounts as on 11th December 1990, which was seized by Customs Authorities, and the CIT(A) failed to acknowledge this. The AO's order was upheld by the CIT(A), despite the appellant's returns showing a textile business and a small income.

2. Addition Towards Gold Balls and Jewellery Seized:
The CIT(A) did not appreciate that the Department failed to verify documents/evidence produced by the appellant regarding the gold balls and jewellery seized. The appellant submitted affidavits of family members and Wealth Tax Returns during the original assessment and remand proceedings. The FAA deleted certain additions but upheld the addition of Rs. 2.60 Lakhs. Regarding the gold balls weighing 1545 gms, the FAA directed the AO to file a remand report but found no verification was done. The FAA accepted the ownership of the gold ornaments for 975 gms based on wealth tax returns but held that 588.9 gms remained unexplained due to lack of evidence.

3. Failure to Verify Documents by the Department:
The CIT(A) did not appreciate that the Department failed to verify documents from the Income-tax Department, Guntur, about the correctness of various documents produced by the appellant. This failure was noted both at the time of the original assessment and during remand proceedings.

4. Non-Provision of Reasons Recorded Before Issuing Notice Under Section 148:
The CIT(A) erred as the AO did not provide the reasons recorded before issuing the notice under Section 148 despite several reminders from the appellant. The Tribunal cited judgments such as GKN Driveshafts (India) Ltd. and others, emphasizing the mandatory requirement for the AO to furnish reasons within a reasonable time and allow the assessee to file objections. The Tribunal found that the AO failed to supply the reasons recorded to the assessee, which is a violation of natural justice principles.

5. Failure to Issue Mandatory Notice Under Section 143(2):
The CIT(A) did not appreciate that the AO failed to issue the mandatory notice under Section 143(2) within the prescribed time. This procedural lapse was noted but not addressed adequately in the judgment.

6. Assessment Made on a Deceased Person:
The CIT(A) did not appreciate that the AO erred in making an assessment on a deceased person. The Tribunal did not delve deeply into this issue as the jurisdictional issue was decided in favor of the assessee.

7. Applicability of Sections 147-148 in Block Assessment Under Chapter XIV-B:
The CIT(A) did not appreciate that the provisions of Sections 147-148 cannot be applied in the case of block assessment under Chapter XIV-B. The Tribunal admitted this additional ground as it was legal and did not require further investigation of facts.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, deciding the jurisdictional issue in favor of the assessee. The AO's failure to supply the reasons recorded for reopening the assessment resulted in a violation of the principles of natural justice. Consequently, the Tribunal did not address the other grounds of appeal. The order pronounced in the open court on 24th September 2014 invalidated the AO's reassessment order.