2018 (10) TMI 1297 - AT - Income Tax

Reopening of assessment - addition u/s 68 - reopening after 4 years - Held that - AO himself recorded in the order that the approval of the Additional CIT Range-V, New Delhi was obtained and stated that it was so u/s 151(2) of the Act. As a matter of fact in respect of the cases where notice u/s 148 was proposed to be issued after the expiry of four years from the end of the relevant assessment year, Section 151(1) is applicable but not Section 151(2) of the Act. Section 151(2) clearly states that it is applicable to the cases other than the cases falling under sub-section (1). A plain reading of Section 151 makes it amply clear that the learned AO misread the same and did not follow the mandate of the proviso to Section 151(1) of the Act inasmuch as the case in hand relates to the proposed notice u/s 148 after the expiry of four years from the end of the relevant assessment year. On this ground, assessee succeeds. It is not the case of the revenue that any evidence is there on record to establish that any notice u/s 143(2) was issued before the conclusion of the assessment after its reopening, nor did the learned AO record finding that because of the failure of the assessee to furnish fully and truly all material facts necessary for the assessment, there was escapement of income from assessment. In these circumstances, we find it difficult to hold that the impugned order suffers any illegality or irregularity warranting interference by the Tribunal. The reasons recorded by the learned CIT(A) are perfect and there is no ground for us to interfere with the same. - Decided against revenue.

Summary

Issues:
Challenging order dated 23.9.2014 in Appeal Nos. 0267/2014-15 and 0301/2013-14 regarding Assessment Years 2007-08 and 2006-07, assessee preferred appeals. Assessments completed under section 143(3) of the Income-tax Act, 1961. Search operations revealed accommodation entries provided by a group, including the assessee. AO issued notice under section 148 for both years, making additions on account of bogus entries. Assessee contended that proceedings were bad in law due to lack of approval under proviso to Section 151(1) and absence of notice under section 143(2). CIT(A) allowed appeals on grounds of lack of approval, absence of notice, and absence of failure to disclose material facts. Revenue appealed against CIT(A) order.

Analysis:
1. Lack of Approval: The AO issued notices under section 148 beyond four years from the relevant assessment years without proper approval, contravening the proviso to Section 151(1). The approval obtained under Section 151(2) was incorrect, as this section applies to cases other than those falling under subsection (1). The AO's misinterpretation of the law led to a procedural error, benefiting the assessee.

2. Absence of Notice under Section 143(2): The absence of a notice under section 143(2) before making additions rendered the proceedings defective. The failure to provide an opportunity to be heard and present evidence violated procedural fairness. The CIT(A) rightly considered this defect, supporting the assessee's position.

3. Failure to Disclose Material Facts: The CIT(A) found no evidence of the assessee's failure to disclose material facts leading to income escapement. Without establishing such failure, the basis for reopening the assessment was weak. The lack of proper investigation into the source of funds invested by shareholders further weakened the revenue's case.

4. Merits of the Case: The CIT(A) also observed that the AO failed to conduct necessary enquiries from investors and misapplied the amendment to Section 68 of the Act. Without proving that shareholder investments were not genuine, the additions made by the AO were deemed unsustainable both legally and factually.

5. Final Decision: Upholding the CIT(A)'s order on legal grounds, the Tribunal dismissed the revenue's appeals. The Tribunal found no legal basis to interfere with the CIT(A)'s reasoned decision. By addressing procedural and legal deficiencies in the assessment process, the Tribunal upheld fairness and adherence to statutory requirements.

In conclusion, the judgment highlights the importance of procedural compliance, proper approvals, and the need for substantive evidence in tax assessments. The decision emphasizes the significance of following statutory provisions to ensure fair and lawful tax proceedings.