2017 (11) TMI 1475 - AT - Income Tax

Reopening of assessment - whether reopening u/s. 147 is correct when the time to issue a notice u/s. 143(2) is open? - Held that - As seen from the satisfaction recorded, the case was reopened by the AO on the reason that there was a difference of ₹ 3,30,017/- in the gross receipts reflected in the Form No 26AS and in the Computation of income with regard to Gross Receipts received from Commissioner, Tirupati Municipality and therefore the AO was of the opinion that there was reason to believe that income, chargeable to tax has escaped assessment. Once the difference in the gross receipts from Commissioner, Tirupati Municipality was duly reconciled by furnishing the rectified Form No.26AS downloaded from the Income Tax Dept. website, the reason to reopen ceased to exist. Further, the reasons recorded for reopening of assessment laid more stress on reconciliation of gross receipts and but not on escapement of any income and therefore there was no belief that there was any escapement of any income and hence the entire order passed u/s. 143(3) r.w.s 147 of the Act is without jurisdiction. Another contention was that the AO did not dispose off the objections. Without passing a separate order by considering the objections of assessee, the AO has simply mentioned in the assessment order that as per the Explanation 3 of the Provisions of the section 147 of the Act are attracted. AO continued the reassessment proceedings, without of disposing the objections raised by assessee by way of a speaking order. For the reasons stated above, both initiation of proceedings and continuation of assessment proceedings are ab initio void. Consequently, the order of AO/ CIT(A) stands set aside. Ld.CIT(A) should have examined the facts and arguments and should have followed the principles of law on the issue, as interpreted by higher judicial authorities. Appeal of assessee is treated allowed.

Summary

Issues Involved:
1. Validity of initiation of proceedings under section 147.
2. Legality of making additions on other issues when the reason for reopening under section 147 ceased to exist.
3. Taxability of compensation received for agricultural land and associated structures.
4. Non-disposal of objections by the Assessing Officer (AO) through a speaking order.

Issue-wise Detailed Analysis:

1. Validity of initiation of proceedings under section 147:
The assessee contested the initiation of proceedings under section 147, arguing that the AO issued the notice under section 148 before the expiry of the time limit for issuing a notice under section 143(2). The tribunal cited the case of M/s. Eenadu Relief Fund Vs. DDIT, which held that reopening of assessment under section 147 is invalid if the time limit for issuing a notice under section 143(2) has not expired. The tribunal concluded that the reopening was ab initio void since the AO had sufficient time to issue a notice under section 143(2) but chose not to do so.

2. Legality of making additions on other issues when the reason for reopening under section 147 ceased to exist:
The tribunal noted that the AO initially reopened the assessment due to a discrepancy in gross receipts. However, after the discrepancy was reconciled, the AO did not drop the proceedings and instead made additions on other issues. The tribunal referenced the Bombay High Court's decision in CIT Vs. Jet Airways (I) Ltd., which stated that if the reason for reopening ceases to exist, the AO cannot make additions on other issues. The tribunal ruled that the assessment made on other issues was without jurisdiction and thus invalid.

3. Taxability of compensation received for agricultural land and associated structures:
The assessee argued that the compensation received for agricultural land and associated structures (katcha houses/huts) should not be taxable, as these structures are part of the agricultural land. The AO treated the compensation for these structures as taxable income, stating that residential units do not qualify as agricultural land. However, the tribunal did not address this issue in detail, as it had already ruled the entire assessment proceedings invalid.

4. Non-disposal of objections by the AO through a speaking order:
The assessee contended that the AO did not dispose of their objections through a speaking order, as required by the Supreme Court in GKN Drive Shifts (India) Pvt. Ltd. Vs. Income Tax Officer. The tribunal agreed, citing the Gujarat High Court's decision in General Motors India (P) Ltd. Vs. Dy. CIT, which held that the AO must first decide the objections and serve a copy of the order on the assessee before proceeding with the assessment. The tribunal ruled that the AO's failure to do so rendered the assessment order invalid.

Conclusion:
The tribunal concluded that both the initiation of proceedings under section 147 and the continuation of assessment proceedings were ab initio void. Consequently, the orders of the AO and CIT(A) were set aside. The tribunal emphasized that judicial authorities must follow the principles laid down by higher judicial authorities. The appeal of the assessee was allowed, and the tribunal did not separately adjudicate the issue of the taxability of compensation on agricultural sheds, given that the assessment proceedings were invalid.