2021 (7) TMI 1239 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe - HELD THAT - There is no averment to the effect as to what material facts necessary for assessment were not disclosed by the assessee in the course of original assessment proceedings fully as well as truly. The reasons being justiciable, the AO is expected to record a finding to this effect in the reasons recorded itself. AO has failed on this score. Thus, the reasons recorded when seen on standalone basis do not pass the tests of basic requirement for assumption of jurisdiction u/s 147 of the Act. The notice issued for reopening a completed assessment on the basis of such reasons, is thus, time barred and merge in void. The re-assessment order framed on the basis of a time barred notice, thus, cannot be countenanced in law. Hence, we find merit in the ground raised by the assessee towards lack of jurisdiction u/s. 147 of the Act. Consequently, in our considered opinion, the AO has mis- directed himself in reopening the completed assessment without legal foundation. In this view of the matter, the impugned assessment u/s143(3) r.w. s. 147 of the Act is liable to be set aside and cancelled. As we have held that notice u/s 147/148 of the Act is not sustainable in law, we do not consider it necessary to go into all other legal grounds raised by the assessee in its appeal to support the plea for lack of jurisdiction and also other grounds on merits. - Appeal of the assessee is allowed and appeal of the Revenue is dismissed.

Summary

Issues:
- Jurisdiction under section 147 of the Income Tax Act, 1961
- Re-adjudication of deduction of provisions of leave encashment on merits

Analysis:

Jurisdiction under Section 147 of the Income Tax Act, 1961:
- The appeals were filed by the assessee and the Revenue against the orders of the Commissioner of Income Tax (Appeals) concerning assessment years 2006-07 and 2007-08.
- The assessee challenged the legality of jurisdiction under section 147 of the Act and the action of the CIT(A) for re-adjudication of the deduction of provisions of leave encashment by the AO.
- The counsel for the assessee contended that the reasons recorded by the AO did not meet the prerequisites for assuming jurisdiction under section 147 of the Act.
- The notice for reopening AY 2006-07 was issued after four years from the end of the relevant assessment year, which did not meet the requirements of the first proviso to Section 147 of the Act.
- The reasons recorded lacked allegations necessary to attract the first proviso to Section 147 of the Act, rendering the notice issued under section 148 void.
- The AO was found to have misdirected in reopening the completed assessment without a legal foundation, leading to the assessment being set aside and cancelled.

Re-adjudication of Deduction of Provisions of Leave Encashment on Merits:
- The AO's jurisdiction was strongly defended by the CIT-DR, claiming that the jurisdiction assumed by the AO could not be violated for the reasons recorded by the CIT(A).
- The details regarding the actual payment of leave encashment were not fully disclosed during the original assessment proceedings, which led to the reassessment.
- The reasons recorded for reopening the assessments did not pass the basic requirements for assuming jurisdiction under section 147 of the Act.
- The re-assessment orders were found to be time-barred and void, resulting in the appeals of the assessee being allowed and those of the Revenue being dismissed for both assessment years.

Conclusion:
- The appeals of the assessee for both assessment years were allowed, while those of the Revenue were dismissed, as the reassessment orders were found to lack jurisdiction under section 147 of the Income Tax Act, 1961.