2019 (10) TMI 843 - AT - Income Tax

Reopening of assessment u/s 147 - contravention of the provision of sec. 40A (3) - Joint Commissioner, without applying his mind - HELD THAT - Joint Commissioner who has given approval for such reopening has simply mentioned Yes, it is a fit case for issue of notice u/s 148 of the Act, 1961. A perusal of the approval given by the Joint CIT shows that he has not applied his mind properly and has in a mechanical manner written Yes, it is a fit case for issue of notice u/s 148 of the Act, 1961. Reassessment proceedings initiated by the Assessing Officer are not as per law and has to be quashed. As find the reopening was made on the ground that the transaction of the assessee with M/s Uflex Ltd. and M/s Montage Enterprises are not verifiable and, hence, income above ₹ 1 lakh has escaped assessment. A perusal of the assessment order shows that no such addition has been made, but, the addition has been made u/s 40A(3) on account of cash payments and no addition on the very basis on which the assessment was reopened has been made. It has been held in various decisions that when the assessment is reopened on a particular issue and no such addition has been made on that very issue, then, the Assessing Officer cannot make other additions which might have come to his notice during the course of completion of such reassessment. He has to issue separate notice. Since, in the instant case, the Assessing Officer has not made any addition for which the case was reopened, therefore, he lacks the jurisdiction to assess such other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of such proceedings. Therefore, on this ground also, the addition made by the Assessing Officer and sustained by the CIT(A) is not justified - Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147.
2. Justification of addition under Section 40A(3) for cash payments exceeding ?20,000.
3. Legality of the approval process for issuing a notice under Section 148.
4. Compliance with procedural requirements for reassessment.
5. Validity of the reassessment when no addition was made on the basis of the original reason for reopening.
6. Charging of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated Under Section 147:
The Assessing Officer (AO) reopened the assessment based on information that the assessee engaged in cash purchases amounting to ?11,37,031/- which were not disclosed in the return of income, suggesting income above ?1 lakh had escaped assessment. The CIT(A) upheld the reassessment, stating that the AO was justified in having a belief of escaped income exceeding ?1 lakh. The Tribunal, however, found that the approval for reopening was given mechanically without proper application of mind, as the Joint Commissioner merely wrote, "Yes, it is a fit case for issue of notice u/s 148 of the Act, 1961." Citing the Delhi High Court decision in N.C. Cables Ltd., the Tribunal held that such mechanical approval is not valid, thereby quashing the reassessment proceedings.

2. Justification of Addition Under Section 40A(3) for Cash Payments Exceeding ?20,000:
The AO observed that the assessee made cash payments exceeding ?20,000 on various dates, totaling ?2,38,000/-, to Uflex Ltd. This was in violation of Section 40A(3). The assessee contended that payments were made in installments of ?20,000 each day, and not in excess of ?20,000 on any single day. However, the AO and CIT(A) found no evidence to substantiate the assessee's claim, and thus upheld the addition. The Tribunal noted that the AO's addition was based on the details provided by Uflex Ltd. and not on independent verification.

3. Legality of the Approval Process for Issuing a Notice Under Section 148:
The Tribunal found the approval process for issuing the notice under Section 148 to be flawed. The Joint Commissioner's approval lacked proper application of mind, as it was given in a mechanical manner. This was deemed illegal, referencing the Delhi High Court's decision in N.C. Cables Ltd., which mandates meaningful application of mind by the sanctioning authority.

4. Compliance with Procedural Requirements for Reassessment:
The Tribunal scrutinized the procedural compliance and found the AO's reasons for reopening the assessment inadequate. The AO's reasons were based on unverifiable transactions and lacked tangible material. The Tribunal emphasized that reopening an assessment requires substantial evidence, not mere allegations or mechanical processes.

5. Validity of the Reassessment When No Addition Was Made on the Basis of the Original Reason for Reopening:
The Tribunal observed that the AO did not make any addition based on the original reason for reopening the assessment (i.e., undisclosed cash purchases of ?11,37,031/-). Instead, the addition was made under Section 40A(3) for cash payments. The Tribunal cited various decisions, including those from the Delhi High Court, which held that if no addition is made on the original grounds for reopening, the AO cannot make other additions noticed during reassessment without issuing a separate notice. Thus, the addition under Section 40A(3) was deemed unjustified.

6. Charging of Interest Under Section 234B:
The Tribunal did not specifically address the issue of charging interest under Section 234B, as the primary grounds for reassessment and the consequent additions were quashed.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under Section 147 due to improper approval and lack of substantial evidence. It also invalidated the addition under Section 40A(3) as the reassessment was not justified on the original grounds. Consequently, the appeal filed by the assessee was allowed.