2020 (11) TMI 402 - AT - Income Tax

Reopening of assessment u/s 147 - nature of deemed escapement of income and also there is contradictions in the proforma for obtaining sanction u/s 151 - unsecured loan creditors - HELD THAT - Original assessment was framed u/s 143(3) on 10th March, 2014 determining the income at ₹ 20,06,714/- as against the returned loss of ₹ 20,53,019/- and wherein the issue of unsecured loan creditors was duly considered and accepted on the basis of various supporting documents filed at the time of original assessment and since there is no allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment, therefore, the notice issued u/s 148 after a period of four years from the end of the relevant assessment year in the instant case is illegal and invalid being without jurisdiction. AO has proceeded to reopen the assessment on the basis of wrong appreciation of facts by mentioning that the assessment is proposed to be made for the first time whereas the facts stood otherwise, i.e., the assessment was, in fact, completed u/s 143(3) therefore, there is complete non-application of mind by the AO as well as by both the superior authorities. Approval has been given in a mechanical manner without appreciating the facts properly and there is complete non-application of mind by the superior authorities. On this score also, the reassessment proceedings have to be quashed and the decision relied on by the ld. DR in the case of Sonia Gandhi 2018 (9) TMI 720 - DELHI HIGH COURT is not at all applicable to the facts of the present case in view of the glaring mistake and omission that has been committed by the AO which was not looked into by the superior authorities - we quash the reassessment proceedings initiated u/s 147/148. The various other legal grounds raised by the ld. Counsel challenging the validity of the reassessment proceedings become academic in nature in view of the above discussion. Since the assessee succeeds on this legal ground, the grounds challenging the addition on merit also become academic in nature and, therefore, are not being adjudicated. - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings under sections 147/148 of the Income Tax Act.
2. Alleged non-application of independent mind by the Assessing Officer (AO).
3. Mechanical approval by superior authorities under section 151.
4. Validity of reassessment beyond four years without alleging failure to disclose material facts.
5. Addition of ?39,00,055/- under section 68 of the Income Tax Act as unexplained cash credit.

Issue-Wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Sections 147/148:
The assessee challenged the reassessment proceedings initiated under sections 147/148, arguing that the jurisdiction to make the assessment was assumed based on material seized from third parties (Shri Anand Kumar Jain and Shri Naresh Kumar Jain). The assessee contended that the power to take cognizance of such material lies exclusively under section 153C, and not under sections 147/148. The Tribunal found that the AO had proceeded to reopen the assessment based on incorrect facts, stating that the assessment was proposed to be made for the first time, while in reality, an assessment under section 143(3) had already been completed. This indicated non-application of mind by the AO and superior authorities, leading to the quashing of the reassessment proceedings.

2. Alleged Non-application of Independent Mind by the AO:
The assessee argued that the AO did not independently apply his mind but solely relied on information from the Investigation Wing. The Tribunal observed that the AO recorded incorrect facts, stating that no scrutiny assessment had been made, while an assessment under section 143(3) was indeed completed. This demonstrated non-application of mind by the AO, further invalidating the reassessment proceedings.

3. Mechanical Approval by Superior Authorities under Section 151:
The assessee contended that the approval for reopening the assessment was given mechanically without proper application of mind. The Tribunal noted that the approval by the Additional Commissioner and the Principal Commissioner was given in a cursory manner, merely stating "Yes, I am satisfied," without a detailed examination of the facts. This mechanical approval contributed to the invalidation of the reassessment proceedings.

4. Validity of Reassessment Beyond Four Years Without Alleging Failure to Disclose Material Facts:
The assessee argued that the reassessment proceedings were initiated beyond four years from the end of the relevant assessment year without any allegation of failure to disclose material facts fully and truly. The Tribunal found that the reasons recorded by the AO did not contain any such allegation, and the original assessment under section 143(3) had already considered the issue of unsecured loans. Citing various judicial precedents, the Tribunal held that in the absence of such an allegation, the reassessment proceedings initiated beyond four years were invalid and without jurisdiction.

5. Addition of ?39,00,055/- under Section 68 as Unexplained Cash Credit:
The Tribunal did not adjudicate on the merits of the addition under section 68, as the reassessment proceedings were quashed on legal grounds. The assessee had argued that it had discharged its initial onus by providing requisite documents to prove the identity and creditworthiness of the lenders and the genuineness of the transactions. However, since the reassessment proceedings were quashed, the grounds challenging the addition on merit became academic and were not addressed.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under sections 147/148 due to non-application of mind by the AO, mechanical approval by superior authorities, and the absence of any allegation of failure to disclose material facts fully and truly. Consequently, the grounds challenging the addition on merit were not adjudicated. The appeal filed by the assessee was allowed.

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