2019 (4) TMI 1424 - AT - Income Tax

Reopening of assessment u/s 147 - absence of tangible material for formation of reasons to belief - HELD THAT - Admittedly, the assessment is reopened within 4 years from the end of the assessment year. However even in the assessment falling within the period of 4 years from the end of the assessment year there has to be a tangible material coming into the possession of the assessing officer to reopen the cases. Such is the mandate of the honourable Supreme Court in case of Kelvinator s of India Ltd 2010 (1) TMI 11 - SUPREME COURT OF INDIA . Therefore it is apparent that the reasons recorded by the learned assessing officer is on the appreciation of the same facts as was available before the assessing officer during the course of assessment proceedings under section 143 (3). AO has initiated the reassessment proceedings without any tangible material hence it does not deserve to be sustained. Hence, reassessment is quashed on this ground. Violation of the principles of natural justice - HELD THAT - Assessee was provided the reasons only on 25/2/2013 asking to file an objection up to 4/3/2013 and the objections were disposed off on 8/3/2013 whereas the final assessment order based on the above reason was passed on 20/3/2013. This clearly shows that the learned assessing officer has not followed the dictate of the decision of the in case of GKN driveshafts Ltd. Vs ITO 2002 (11) TMI 7 - SUPREME COURT . Further the assessee was not given 4 weeks time after the rejection of the objections against the reopening of the assessment to explore the alternative remedy available to the assessee which is also contrary to the decision in case of ASIAN PAINTS LIMITED. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER. 2007 (1) TMI 159 - BOMBAY HIGH COURT wherein it has been specifically held that if Assessing Officer does not accept the objections so filed, he shall not proceed further in the matter within a period of four weeks from the date of receipt of service of the said order on objections, on the assessee. In the present case even before the service of the order rejecting the objections of the assessee the learned assessing officer as passed the assessment order on 20/3/2013. In view of this, there is a clear-cut violation of the principles of natural justice by the AO and procedure deserves to be set right. Assessee are allowed and reassessment is quashed. - Decided in favour of assessee.

Issues Involved:
1. Legality of proceedings initiated under section 147 of the Income Tax Act, 1961.
2. Validity of the order disposing of objections filed by the appellant company for re-assessment proceedings under section 147.
3. Initiation of proceedings under section 147 parallelly when proceedings under section 154 were pending.
4. Validity of the assessment order passed under section 147/143(3).
5. Addition of ?10,865,713 on account of advances written off as capital expenditure.
6. Non-allowance of current year business loss of ?312,568.
7. Initiation of penalty proceedings under section 271(1)(b) of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of Proceedings Initiated under Section 147:
The appellant argued that the initiation of proceedings under section 147 was erroneous as all information was available during the original assessment, and no new material had come to the Assessing Officer’s knowledge. The Tribunal noted that the original assessment was completed under section 143(3), and subsequently, a notice under section 154 was issued but no orders were passed. The Tribunal found that the Assessing Officer initiated reassessment proceedings without any tangible material coming into possession after the original assessment. It was held that the reopening of the assessment was without any tangible material and thus, not sustainable. Consequently, the reassessment was quashed on this ground.

2. Validity of the Order Disposing of Objections:
The appellant contended that the order disposing of objections was served after the assessment order under section 148 was already served, and the objections were not considered on merits. The Tribunal observed that the Assessing Officer provided reasons for reopening only on 25/02/2013, and the objections were disposed of on 08/03/2013, while the assessment order was passed on 20/03/2013. It was noted that the Assessing Officer did not follow the procedure laid down by the Supreme Court in GKN Driveshafts (India) Ltd. vs ITO, which mandates providing reasons and disposing of objections before proceeding with the assessment. The Tribunal found a clear violation of principles of natural justice and quashed the reassessment proceedings.

3. Parallel Proceedings under Section 147 and 154:
The appellant argued that the proceedings under section 147 were initiated while proceedings under section 154 were pending. The Tribunal noted that the Assessing Officer initiated reassessment proceedings within the allowed time and found no fault in initiating reassessment on the issue for which notice under section 154 was issued earlier. The Tribunal held that there was no procedural fault in initiating reassessment proceedings.

4. Validity of the Assessment Order under Section 147/143(3):
The appellant claimed that the assessment order was passed in violation of natural justice principles, without confronting adverse material and without providing adequate hearing opportunity. The Tribunal observed that the Assessing Officer did not provide sufficient time to the appellant to support its claim after disposing of objections. The Tribunal found procedural irregularities and quashed the reassessment proceedings on the ground of lack of tangible material for reopening.

5. Addition of ?10,865,713 on Account of Advances Written Off:
The appellant challenged the addition made by the Assessing Officer, arguing that the advances written off were revenue expenditure. The Tribunal noted that the Assessing Officer did not examine this issue during the original assessment proceedings. The Tribunal held that the reopening was not based on any new tangible material and thus, the addition could not be sustained.

6. Non-Allowance of Current Year Business Loss of ?312,568:
The appellant argued that the Assessing Officer erred in not allowing the claim of current year business loss while making the above addition. The Tribunal did not specifically address this issue as the reassessment itself was quashed.

7. Initiation of Penalty Proceedings under Section 271(1)(b):
The appellant contended that the initiation of penalty proceedings was erroneous. The Tribunal did not specifically address this issue as the reassessment itself was quashed.

Conclusion:
The Tribunal allowed the appeal, quashing the reassessment proceedings on the grounds of lack of tangible material for reopening and procedural irregularities. The reassessment was held to be invalid, and other grounds of appeal were not adjudicated. The appeal of the assessee was allowed, and the order was pronounced in open court on 25/02/2019.

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