2019 (5) TMI 1552 - AT - Income Tax

Reopening of assessment u/s 148 - notice beyond the period of four years when the original assessment was completed u/s 143(3) - undisclosed income of the assessee which was utilized for obtaining Donation from M/s Society for Welfare of Handicapped Person - HELD THAT - First proviso to section 147 is applicable the reasons recorded should show in what manner the assessee had failed to make a full and true disclosure of all material facts necessary for the assessment. The failure to do so would not be more irregularity but it would render the reopening of assessment after four year invalid. In the reasons recorded, the AO nowhere mentioned that which material facts assessee failed to disclose. There is no finding by the AO that there is any failure on the part of the assessee to make a full and true disclosure of any material fact and therefore on these fact, in the case of HCL Technologies Limited 2017 (7) TMI 962 - DELHI HIGH COURT as well as Unitech Limited 2017 (7) TMI 1010 - DELHI HIGH COURT would be squarely applicable. Allegation in the reasons recorded is that there was a society at Kolkata named as M/s Society for Welfare of Handicapped Person. The assessee paid the cash of ₹ 50,00,000/- to the said society and got the cheque of donation of ₹ 50,00,000/-. Thus the assessee utilized its undisclosed income to get the accommodation entry in the form of donation of ₹ 50,00,000/-. However, at the time of conclusion of the reasons recorded the Assessing Officer himself has mentioned that the assessee has furnished the list of donation during assessment proceedings but no donor from M/s Society Welfare of Handicapped Person is mentioned. Thus, when the assessee has not claimed to have received any donation from the said society the question of making any cash payment from undisclosed sources by the assessee could not arise. Therefore, we are of the opinion that there was no justifiable reason for arriving at the finding by the Assessing Officer that there was undisclosed income of the assessee which was utilized for obtaining Donation from M/s Society for Welfare of Handicapped Person. Relying upon the decision of Hon ble Jurisdictional High Court in the case of Unitech Limited (supra) and also in HCL Technologies Limited (supra) we quash the notice issued for reopening of assessment u/s 148. Once the notice for reopening of assessment u/s 148 is quashed, the assessment order passed in pursuance to such notice cannot survive the same is also quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under section 147 of the Income Tax Act.
2. Allegation of the assessee receiving a bogus donation of ?50,00,000.
3. Compliance with jurisdictional requirements under the first proviso to section 147.

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147:
The primary issue revolves around whether the reopening of the assessment beyond the period of four years was valid. The assessee argued that the reopening did not comply with the jurisdictional conditions stipulated under the Act. Specifically, the proviso to section 147 was applicable since the original assessment was completed under section 143(3). The proviso mandates that the reasons for reopening must show in what manner the assessee failed to make a full and true disclosure of all material facts necessary for the assessment.

The Tribunal found that the reasons recorded for reopening did not mention any failure on the part of the assessee to disclose material facts. The Tribunal relied on the jurisdictional High Court's decision in the case of Unitech Limited, which held that the reasons must explicitly show the failure of the assessee to disclose material facts. The Tribunal concluded that the reopening was invalid as the reasons recorded did not meet this requirement.

2. Allegation of the Assessee Receiving a Bogus Donation of ?50,00,000:
The Assessing Officer (AO) alleged that the assessee received a bogus donation of ?50,00,000 from M/s Society for Welfare of Handicapped Persons (SOWHAP) in lieu of cash. However, the AO's reasons recorded for reopening mentioned that the assessee had furnished a list of donations during the assessment proceedings, but the name of SOWHAP was not included. The Tribunal noted that the assessee had not claimed to have received any donation from SOWHAP, and thus, the question of making any cash payment from undisclosed sources did not arise.

The Tribunal found that the AO's allegation lacked a live nexus and was based on borrowed satisfaction without independent application of mind. Therefore, the Tribunal concluded that there was no justifiable reason for the AO to find that there was undisclosed income used to obtain the donation.

3. Compliance with Jurisdictional Requirements under the First Proviso to Section 147:
The Tribunal emphasized that for the reopening of an assessment beyond four years, the reasons recorded must show the assessee's failure to make a full and true disclosure of all material facts necessary for the assessment. The Tribunal found that the AO's reasons did not meet this requirement, as they did not specify which material facts were not disclosed by the assessee.

The Tribunal referred to the jurisdictional High Court's decision in HCL Technologies Limited, which stated that the reasons must disclose the failure by the assessee to make a full and true disclosure. The Tribunal concluded that the failure to meet this requirement rendered the reopening of the assessment invalid.

Conclusion:
The Tribunal quashed the notice issued for reopening the assessment under section 148 and consequently quashed the assessment order passed in pursuance of such notice. Since the assessment order was quashed, the Tribunal did not adjudicate on the other ground raised by the assessee regarding the addition of ?50,00,000 made by the AO.

Result:
The assessee's appeal was allowed, and the order was pronounced in the Open Court on 22nd May 2019.