2017 (5) TMI 410 - AT - Income Tax

Validity of reopening of assessment - reasons to believe - direction of the Additional CIT - Held that - If we analyse the reasons recorded by the AO, it becomes clear that he has taken a decision to issue the reassessment notice as per the direction of the Additional CIT, that he was not in possession of any material that could be considered to be lead to the belief that taxable income had escaped assessment. Re-opening of completed assessment is not a routine matter.Provisions of section 147 should be invoked in deserving cases. It is said that each re-opened case has to be decided on its own merits and reopening of assessment has to be viewed on the touchstone of the reason to believe as recorded while issuing the notice. The reasons recorded cannot be supplemented by affidavits and other material.In the case before us, the AO has stated that the assessee had claimed deduction to reduce his tax liability. Which were the deduction and how much was the tax effect is not mentioned in the reasons. Reasons recorded by the AO are of very general nature-rather they can be termed vague. Provisions of section 147 cannot be invoked on such frivolous grounds. Non application of mind is evident from the sentence that notice was issued as per the direction of the Addl. CIT. Thus, the entire re-opening proceedings stand vitiated. - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act.
2. Jurisdictional issue regarding the notice issued under section 148.
3. Assessment of penalty under section 271(1)(c) of the Act.

Issue 1: Validity of reassessment proceedings under section 147:
The Appellate Tribunal considered the grounds raised by the Assessee challenging the validity of the reassessment proceedings. The Tribunal noted that the reasons recorded by the Assessing Officer (AO) for issuing the reassessment notice were vague and lacked specific details regarding the alleged income escapement. Referring to the case law of Godrej Industries Ltd., the Tribunal emphasized the strict requirements for reopening an assessment. The Tribunal concluded that the re-assessment proceedings initiated by the AO were invalid as they did not meet the necessary jurisdictional requirements. Consequently, the order passed by the AO was deemed ab initio void, and the jurisdictional issue was decided in favor of the Assessee. Therefore, the Tribunal did not delve into other issues raised by the Assessee due to the invalidity of the reassessment proceedings.

Issue 2: Jurisdictional issue regarding the notice issued under section 148:
The Assessee filed an additional ground of appeal challenging the validity of the reassessment proceedings, specifically questioning the notice issued under section 148. The Tribunal acknowledged that the ground raised by the Assessee was of a legal nature and did not require the appreciation of new evidence. The Tribunal admitted the additional ground as it pertained to the basic jurisdiction and validity of the assessment order passed by the AO. The Tribunal highlighted the importance of addressing the jurisdiction issue first as it forms the foundation of the matter. Ultimately, the Tribunal found that the notice issued under section 148 was invalid, leading to the decision in favor of the Assessee on this issue.

Issue 3: Assessment of penalty under section 271(1)(c) of the Act:
The AO had levied a penalty under section 271(1)(c) of the Act on the Assessee for concealing particulars of income and furnishing inaccurate particulars. However, since the Tribunal had already held the order of the AO to be invalid due to the jurisdictional issues discussed earlier, the penalty imposed for the year under appeal was deemed not to survive. Consequently, both appeals filed by the Assessee were allowed, and the penalty was not upheld.

In conclusion, the Appellate Tribunal, in the cited judgment, extensively analyzed the validity of reassessment proceedings under section 147, the jurisdictional issue regarding the notice issued under section 148, and the assessment of penalty under section 271(1)(c) of the Income Tax Act. The Tribunal found in favor of the Assessee on all counts, emphasizing the importance of adhering to the strict jurisdictional requirements for reopening an assessment and highlighting the necessity of tangible material to support such actions.