2018 (2) TMI 1580 - AT - Income Tax

Validity of reopening of assessment - Non recording of reasons u/s 148 - notice issued without jurisdiction - cash deposits are made in the bank account of the assessee - Held that - When no reasons are recorded for reopening the assessment prior to issuance of notice, the reassessment proceedings must fail for that reason alone. It is well settled in law that the reasons as recorded for reopening the assessment are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor anything can be deleted from the reasons so recorded. In the present case, the reasons recorded states that cash deposits are made in the bank account of the assessee, but mere fact that these deposits have been made in bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening assessment do not make out a case. AO on a standalone basis and on self-explanatory basis has not brought out any reasons for such reopening. When we are examining the deposits per se in the bank account of the assessee, could it be the basis of holding the view that income has escaped assessment? The reason to believe that income has escaped assessment is not established by the Assessing Officer. The ld. CIT(A) has not at all adjudicated upon the significance of the reasons recorded by the Assessing Officer before initiation of proceedings under section 147/148 of the Act in his order and summarily dismissed the appeal filed by the assessee. The factum per se of deposits in the bank account of the assessee could not be the basis for holding that the income chargeable to tax has escaped assessment overlooking that the source of deposits need not necessarily be income of the assessee and that such reasons recorded were not sufficient to believe escapement of income. - Decided in favour of assessee.

Summary

Issues:
Stay application during appeal process, Jurisdiction of Assessing Officer, Reopening of assessment, Admissibility of additional grounds, Reasons for reassessment, Judicial pronouncements on reassessment, Quashing of reassessment proceedings, Academic nature of other issues raised.

Stay Application during Appeal Process:
The appeal arose from a decision by the ld. CIT(A), where the assessee also filed a Stay Application to halt the demand by the Assessing Officer. A Writ Petition was filed in the Hon'ble Allahabad High Court seeking a stay on recovery during the pendency of the Stay Petition before the ITAT, Lucknow Bench. The High Court directed the ITAT to decide on the stay application expeditiously, preventing coercive actions until then. The assessee agreed to withdraw the stay application if the appeal was heard on priority, which was accepted, leading to the dismissal of the stay application and the initiation of the appeal hearing.

Jurisdiction of Assessing Officer - Reopening of Assessment:
The Assessing Officer initiated proceedings under section 147/148 of the Act based on bank account deposits, alleging income escapement without providing specific reasons or evidence. The assessee contended that the initiation lacked legal basis, citing judicial precedents emphasizing the necessity of valid reasons for reassessment. The Tribunal observed that the mere existence of bank deposits did not automatically imply income escapement, as the source of deposits might not be the assessee's income. The reassessment proceedings were deemed unwarranted, illegal, and beyond the law's scope. The Tribunal quashed the reassessment and set aside the CIT(A)'s decision, emphasizing the importance of clear and justifiable reasons for reopening assessments.

Admissibility of Additional Grounds:
The assessee submitted additional legal grounds related to the jurisdiction and validity of the reassessment. Despite objections from the ld. D.R., the Tribunal admitted these grounds as they were fundamental to the case and required no new evidence for consideration, aligning with legal principles that pivotal issues should be addressed even if raised later in the proceedings.

Judicial Pronouncements on Reassessment:
The Tribunal referenced various judicial decisions, including those from the ITAT and Supreme Court, to support the assessee's argument against the reassessment. Precedents highlighted the necessity of valid reasons and clear justification for initiating reassessment proceedings, emphasizing that reasons recorded by the Assessing Officer must be self-explanatory and directly linked to income escapement to be legally sound.

Quashing of Reassessment Proceedings:
Based on the lack of substantial reasons for reassessment and the absence of a clear connection between bank deposits and income escapement, the Tribunal quashed the reassessment proceedings initiated by the Assessing Officer and upheld the appeal of the assessee. The Tribunal's decision underscored the importance of adherence to legal requirements and justifiable grounds for reopening assessments.

Academic Nature of Other Issues Raised:
Given the quashing of the reassessment proceedings, the Tribunal deemed other issues raised by the assessee as academic and irrelevant, rendering them infructuous. The decision on the reassessment's legality overshadowed these secondary concerns, leading to the allowance of the assessee's appeal.

This detailed analysis of the judgment from the Appellate Tribunal ITAT Lucknow highlights the key legal issues addressed, the arguments presented, and the Tribunal's decision regarding the reassessment proceedings and related matters.