2020 (5) TMI 574 - AT - Income Tax

Reopening of assessment u/s 147 - non disposing off the objection raised by the assessee - HELD THAT - Reassessment proceedings completed without disposing off the objection raised by the assessee cannot be sustained and consequent reassessment order u/s 147 r/w 143(3) is hereby quashed and set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction on presumption.
2. Action under Section 148 based on cash deposit in the saving bank account.
3. Re-assessment based on borrowed satisfaction.
4. Non-disposal of objections by order.
5. Re-assessment by the original Assessing Officer (AO).
6. Absence of show cause notice.
7. Explanation of cash deposits in the bank.
8. Interest levied under Sections 234A, 234B, and 234C.

Detailed Analysis:
1. Assumption of Jurisdiction on Presumption:
The assessee argued that the re-assessment proceedings were initiated based on mere suspicion and presumption, which is not a valid ground for assuming jurisdiction under Section 147 of the Income Tax Act. The Tribunal noted that the AO must have "reasons to believe" rather than mere suspicion that income has escaped assessment. The reasons recorded by the AO were scrutinized, revealing that the initiation was based on unverifiable cash deposits.

2. Action under Section 148 Based on Cash Deposit in the Saving Bank Account:
The AO issued a notice under Section 148 based on a cash deposit of ?2,97,000 in the assessee's bank account, which was found unverifiable. The assessee contended that the source of the deposit was the sale proceeds of gold jewelry, which was verifiable. The Tribunal examined the reasons recorded by the AO and found that the initiation of re-assessment was not supported by sufficient material evidence.

3. Re-assessment Based on Borrowed Satisfaction:
The assessee claimed that the re-assessment was based on borrowed satisfaction from the Investigation Wing's enquiry without independent verification by the AO. The Tribunal found that the AO had recorded his satisfaction based on the information received, which constituted tangible material for reopening the assessment. However, the Tribunal emphasized that the AO must independently verify the information before forming a belief of escaped income.

4. Non-disposal of Objections by Order:
The assessee raised objections to the reasons for re-assessment, which were not disposed of by a speaking order, violating the Supreme Court's directions in GKN Driveshafts (India) Ltd. vs. ITO. The Tribunal noted that the AO's failure to dispose of the objections before completing the assessment proceedings constituted a violation of procedural requirements, rendering the re-assessment order invalid.

5. Re-assessment by the Original Assessing Officer (AO):
The assessee argued that the re-assessment should have been conducted by the original AO who made the initial assessment. The Tribunal did not specifically address this issue, as the primary focus was on the procedural lapses in the re-assessment process.

6. Absence of Show Cause Notice:
The assessee contended that the addition of ?2,97,000 as unexplained cash deposit was made without serving a mandatory show cause notice as per CBDT circulars. The Tribunal found that the procedural lapse of not issuing a show cause notice further invalidated the re-assessment proceedings.

7. Explanation of Cash Deposits in the Bank:
The assessee provided evidence of the source of the cash deposits, including purchase bills, valuation reports, and sale invoices of gold jewelry. The Tribunal observed that the AO did not adequately consider the evidence provided by the assessee, which explained the source of the cash deposits.

8. Interest Levied under Sections 234A, 234B, and 234C:
The assessee challenged the interest levied under Sections 234A, 234B, and 234C. The Tribunal did not specifically address this issue, as the primary focus was on the invalidity of the re-assessment proceedings.

Conclusion:
The Tribunal quashed the re-assessment orders for all three assessment years due to procedural lapses, including the non-disposal of objections and the absence of a show cause notice. The Tribunal emphasized the importance of following procedural requirements and independently verifying information before initiating re-assessment proceedings. Consequently, the appeals filed by the assessee were allowed.