2016 (6) TMI 376 - AT - Income Tax

Reopening of assessment - reasos to believe - Held that - We find that the Hon ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs. ITO(2002 (11) TMI 7 - SUPREME Court) has held that it is clear that the completion of assessment/reassessment without furnishing the reasons recorded by the AO for initiation of proceedings under section 147/148 of the Act is not sustainable in law as it is incumbent on the AO to supply them within reasonable time. We note that on the anvil of this judgment, on the request of the Assessee, the AO is bound to furnish the reasons recorded for initiation of proceedings under section 147 of the Act within a reasonable period of time so that the assessee could file its objections thereto and the AO was to dispose of the same by passing a speaking order thereon, which the AO has not done. We also note that even as per the rules of natural justice, the assessee is entitled to know the reasons on the basis of which the AO has formed an opinion that income assessable to tax has escaped assessment. The furnishing of reasons to the assessee is to enable/facilitate it to present its defence and objections to the initiation of proceedings under section 147/148 of the Act. Therefore, we are of the considered opinion that there was no justifiable reasons for the AO to deprive the assessee of the recorded reasons by him for initiating proceedings under section 147/148 of the Act. Therefore, in our considered opinion, the reopening in question is not sustainable in the eyes of law. Accordingly, we allow the assessee s appeal on legality aspect without proceeding to adjudicate on merits by quashing the assessment order. - Decided in favour of assessee

Summary

Issues:
Challenge to jurisdiction u/s 148, addition of income u/s 144, non-supply of reasons for reopening.

Jurisdiction u/s 148:
The Assessee appealed against the Order by the Ld. CIT(A) confirming the assumption of jurisdiction u/s. 148 by the AO. The AO issued a notice u/s. 148 in 2008 based on information regarding alleged accommodation entries instead of gifts. The Assessee failed to provide evidence of the gifts' genuineness. The Assessee argued that the AO did not supply reasons for reopening, violating natural justice. Citing GNK Driveshafts case, the Assessee contended that non-supply of reasons renders the assessment unsustainable. The Tribunal agreed, emphasizing the necessity of furnishing reasons to enable the Assessee to defend against the reopening. The Tribunal held the reopening invalid due to the AO's failure to provide reasons, thus allowing the appeal solely on the legality aspect.

Addition of Income u/s 144:
The AO assessed the Assessee's income at ?14,47,000 by adding ?12 lakhs as income from alleged accommodation entries, as the Assessee failed to prove the creditworthiness of the donors. The Ld. CIT(A) upheld this addition. However, the Tribunal did not address the addition on merits due to the jurisdiction issue. The Tribunal's decision to allow the appeal solely on the jurisdictional aspect rendered the assessment order quashed without delving into the merits of the addition.

Non-supply of Reasons for Reopening:
The Assessee contended that the AO did not provide reasons for reopening, violating principles of natural justice. The Tribunal, following the GNK Driveshafts case, emphasized the Assessee's right to know the reasons for reopening to present a defense. The Tribunal found the AO's failure to furnish reasons unsustainable in law, leading to the quashing of the assessment order solely on the legality aspect. The Tribunal's decision highlighted the importance of providing reasons for reopening to maintain procedural fairness and uphold the Assessee's rights.

This detailed analysis of the judgment highlights the issues raised, arguments presented, legal principles applied, and the Tribunal's decision, ensuring a comprehensive understanding of the case.