2016 (7) TMI 949 - AT - Income Tax

Validity of reopening of assessment - reasons to believe non supplied - Held that - It is settled law that the Assessing Officer is duty-bound to supply the reasons recorded in the reasonable time period as held by the Hon ble Supreme Court in the case of GKN Driveshaft (India) limited Vs. CIT (2002 (11) TMI 7 - SUPREME Court ). We find from the submission of the assessee that despite repeated letters requesting to provide copy of the reasons recorded or the grounds on which the assessment was reopened, no such reasons were provided to the assessee. We find that the Ld. DR could not substantiate whether any reasons were provided by the Assessing Officer to the assessee and merely relying on the fact that general practice was followed in Department of supplying reasons, it cannot be presumed that reasons were supplied in the case of the assessee. On the other hand, the assessee has filed evidences in support of its claim of request for providing grounds of initiation of the reassessment proceedings in almost every submission made before the Assessing Officer. Thus non providing reasons for reassessment within a reasonable time the reassessment completed by the Assessing Officer under section 147 of the Act cannot be sustained in the case of the assessee and quashed - Decided in favour of assessee

Issues Involved:

1. Legality of the notice issued under section 148 and the assessment order.
2. Failure to provide "Reasons to believe" for reopening the assessment.
3. Substitution of the Director of Investigation's report by the AO.
4. Lack of requisite satisfaction from the Joint Commissioner before issuing the notice.
5. Arbitrariness and violation of natural justice principles in the reassessment order.
6. Incorrect assessment of income at ?20,01,190/-.
7. Failure to appreciate the discharge of primary onus by the assessee.
8. Non-consideration of evidence and material showing identity, genuineness, and creditworthiness of subscribers.
9. Failure of revenue to discharge the onus after the assessee's primary onus.
10. Denial of cross-examination of parties named in the order.
11. Incorrect and unlawful observations by the AO and CIT(A).
12. Unjust and excessive additions based on surmises and conjectures.
13. Improper consideration and judicial interpretation of evidence and material.

Issue-wise Detailed Analysis:

1. Legality of the Notice Issued Under Section 148 and the Assessment Order:
The assessee contended that the notice issued under section 148 and the subsequent assessment order were illegal, bad in law, and without jurisdiction. The Tribunal examined whether the procedural requirements for issuing the notice were met and found that the failure to provide the reasons for reopening the assessment rendered the notice invalid.

2. Failure to Provide "Reasons to Believe":
The assessee argued that the AO did not provide the "Reasons to believe" that income had escaped assessment. Despite repeated requests, the reasons were not furnished. The Tribunal cited several precedents, including the Supreme Court's decision in GKN Driveshaft (India) Ltd. vs. CIT, which mandates that reasons must be provided within a reasonable time. The Tribunal concluded that the AO's failure to provide reasons invalidated the reassessment.

3. Substitution of the Director of Investigation's Report:
The assessee claimed that the AO merely substituted the Director of Investigation's report verbatim instead of showing any independent "Reasons to believe." The Tribunal did not specifically address this issue separately but implied that the lack of independent reasoning contributed to the invalidity of the reassessment.

4. Lack of Requisite Satisfaction from the Joint Commissioner:
The assessee argued that the requisite satisfaction of the Joint Commissioner was not recorded before issuing the notice under section 148. The Tribunal did not explicitly address this issue, but the overall procedural lapses highlighted contributed to the decision to quash the reassessment.

5. Arbitrariness and Violation of Natural Justice Principles:
The assessee claimed that the reassessment order was arbitrary, without application of mind, and violated principles of natural justice. The Tribunal found procedural lapses, particularly the failure to provide reasons for reopening, which supported the assessee's claim of arbitrariness and violation of natural justice.

6. Incorrect Assessment of Income at ?20,01,190/-:
The assessee challenged the assessment of income at ?20,01,190/-. The Tribunal did not delve into the merits of this issue as the reassessment itself was quashed on procedural grounds.

7. Failure to Appreciate the Discharge of Primary Onus by the Assessee:
The assessee argued that it had discharged the primary onus by providing adequate evidence and information proving the genuineness of the transaction and the identity and creditworthiness of the subscribers. The Tribunal did not address this issue separately due to the quashing of the reassessment.

8. Non-Consideration of Evidence and Material:
The assessee claimed that the AO and CIT(A) failed to consider evidence and material showing the identity, genuineness, and creditworthiness of the subscribers. The Tribunal did not address this issue separately due to the quashing of the reassessment.

9. Failure of Revenue to Discharge Onus:
The assessee argued that after discharging the primary onus, the revenue failed to discharge its onus. The Tribunal did not address this issue separately due to the quashing of the reassessment.

10. Denial of Cross-Examination:
The assessee contended that it was not provided with recorded statements of parties named in the order for cross-examination. The Tribunal did not address this issue separately due to the quashing of the reassessment.

11. Incorrect and Unlawful Observations by the AO and CIT(A):
The assessee claimed that various observations made by the AO and CIT(A) were factually incorrect, illegal, and based on mere guesswork. The Tribunal did not address this issue separately due to the quashing of the reassessment.

12. Unjust and Excessive Additions:
The assessee argued that the additions made were unjust, unlawful, and based on surmises and conjectures. The Tribunal did not address this issue separately due to the quashing of the reassessment.

13. Improper Consideration and Judicial Interpretation of Evidence:
The assessee claimed that the explanations, evidence, and material provided were not properly considered or judicially interpreted. The Tribunal did not address this issue separately due to the quashing of the reassessment.

Conclusion:
The Tribunal quashed the reassessment under section 147 of the Act due to the AO's failure to provide the reasons for reopening the assessment within a reasonable time, as mandated by the Supreme Court in GKN Driveshaft (India) Ltd. vs. CIT. Consequently, the Tribunal did not delve into the merits of other grounds raised by the assessee. The appeal of the assessee was allowed.

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