2017 (8) TMI 27 - AT - Income Tax

Reopening of assessment - no valid recourse to service of notice by affixture - non independent use of mind by AO - approval/sanction of Joint CIT prior to recording of reasons - Held that - There is no evidence or indication in the report of the Inspector that he had personal knowledge of the present place of business of the assessee and therefore, he was in a position to identity the same. From the affixture report, it is clearly discernible that no independent witness or person was present during the course of affixture who could be said a person who could identify the place of business of the assessee at the time of affixture of notice. Therefore, we hold that neither the procedure laid down under Order V. Rule 17 CPC had been followed nor that laid down under order V rules 19 and 20 had been adhered to. Neither before taking recourse to service by affixture, the Assessing Officer or the concerned officer had recorded the findings to justify the service by this mode nor afterwards called for the affidavit or certificate of service by affixture from the Serving Officer i.e. ITO and Process Server Shri Alam Singh. In view of the above, it is clear that there was no valid service of notice u/s 148 of the Act by way of affixture also. Therefore, we hold that reassessment proceedings resulting into reassessment order dated 30.12.2010 are bad in law. A.O himself noted in the reasons that satisfaction of the ACIT, Range VIII, New Delhi has been obtained on 22.3.2010 to issue notice u/s 148 of the Act which makes it clear that approval/sanction of Joint CIT, Range VIII, New Delhi was obtained prior to recording of reasons and thus we have no hesitation to hold that the A.O recorded reasons subsequently and sanction/approval u/s 151 of the Act was obtained by the ITO prior to recording of reasons. Therefore, we are unable to understand that on which material and reasons the JCIT, Range VIII gave approval/sanction for issuance of notice u/s 148 of the Act and initiation of reassessment proceedings. Thus, we hold that sanction/approval u/s 151 of the Act was given by the sanctioning authority without seeing the reasons and record and without application of mind, in a mechanical manner, which also vitiates the reassessment proceedings and consequent reassessment order. Therefore, we hold that the same are bad in law and not sustainable. A.O, except stating the source of information and taking the total of ₹ 2.67 crore from the information of Investigation Wing has not even seen or referred to the assessment record of the assessee for A.Y 2003-04 and has not applied his mind to the so called list of alleged accommodation entries. This is a case of clear non application of mind by the A.O at the time of initiation of reassessment proceedings and recording of reasons on 22.3.2010. To sum up, in the instant appeal, the main contention of the assessee is that the A.O issued the notice u/s 148 of the Act mechanically simply on the basis of information alleged to have been received from the Investigation Wing without application of mind - Decided in favour of assessee.

Issues Involved:
1. Validity of initiation of reassessment proceedings and issuance of notice under sections 147/148 of the Income-tax Act, 1961.
2. Compliance with mandatory requirements of recording reasons under section 148(2).
3. Disposal of objections raised by the assessee against initiation of proceedings under section 147.
4. Opportunity of being heard provided to the assessee by the CIT(A).
5. Addition of ?4,07,00,000 as unexplained cash credit under section 68.
6. Addition of ?8,14,000 as unexplained expenditure under section 69C.
7. General basis and premises adopted by the authorities below.

Detailed Analysis:

1. Validity of Initiation of Reassessment Proceedings and Issuance of Notice under Sections 147/148:
The assessee contended that the notice under section 148 was never served upon the appellant company as it was issued to the wrong address. The Tribunal observed that the notice was issued to an old address (Nehru Place) despite the department being aware of the new address (Sainik Farm) from previous communications and records. The Tribunal held that issuing the notice to the wrong address did not comply with section 282(1)(a) of the Act and thus vitiated the reassessment proceedings. Additionally, the notice was issued in the name of the company without addressing it to the Principal Officer, which further invalidated the notice as per legal precedents.

2. Compliance with Mandatory Requirements of Recording Reasons under Section 148(2):
The Tribunal noted that the reasons for issuing the notice were recorded after obtaining approval from the Additional CIT, which is contrary to the provisions of section 151 requiring reasons to be recorded prior to obtaining approval. This procedural defect rendered the reassessment proceedings invalid. Furthermore, the reasons recorded were vague and lacked specific details such as the names of parties providing accommodation entries, the nature of entries, and the basis for the belief that income had escaped assessment. The Tribunal found that the reasons were recorded in a mechanical manner without application of mind, making the reassessment proceedings unsustainable.

3. Disposal of Objections Raised by the Assessee:
The Tribunal acknowledged that the Assessing Officer (A.O) did adjudicate the preliminary objections raised by the assessee through a speaking order dated 22.12.2010. Therefore, the Tribunal rejected the assessee's contention that objections were not disposed of.

4. Opportunity of Being Heard Provided to the Assessee by the CIT(A):
The Tribunal did not specifically address this issue in detail as the primary grounds for quashing the reassessment proceedings were already established.

5. Addition of ?4,07,00,000 as Unexplained Cash Credit under Section 68:
Since the reassessment proceedings were held invalid, the Tribunal did not delve into the merits of the addition under section 68.

6. Addition of ?8,14,000 as Unexplained Expenditure under Section 69C:
Similarly, the Tribunal did not address the merits of the addition under section 69C due to the invalidation of the reassessment proceedings.

7. General Basis and Premises Adopted by the Authorities Below:
The Tribunal found that the basis and premises adopted by the authorities were not well-founded and were arbitrary, unjustified, and unsupported by the facts on record.

Conclusion:
The Tribunal quashed the reassessment proceedings and the consequent reassessment order due to the invalid issuance of notice under section 148 and the procedural defects in recording reasons and obtaining approval. The appeal of the assessee was partly allowed on these grounds, making other grounds on merits academic and infructuous. The order was pronounced in the open court on 11th April 2017.

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