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2021 (8) TMI 802 - AT - Income TaxValidity of the reopening of proceedings under section 147 - non adherence to the principles of natural justice - Assessee contended that, assessment was framed on the basis of mere internal office note, without recording reasons as envisaged u/s 148 of the Act and according to the assessee there is no nexus between the alleged reasons and the assessment framed - HELD THAT - As held in the case of Haryana Acrylic Manufacturing Co. v. Commissioner of Income Tax 2008 (11) TMI 2 - DELHI HIGH COURT is that the requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the AO does not reopen assessments which have been finalized on his mere whim or fancy and that he does so only on the basis of lawful reasons, and since these steps are also designed to ensure complete transparency and adherence to the principles of natural justice, any deviation from these directions would entail the nullifying of the proceedings. Admittedly in the case on hand, the reasons supplied to the assessee are not the same and verbatim. In view of this settled position of law and respectfully following the line of decision in Haryana Acrylic Manufacturing Co. v. Commissioner of Income tax 2008 (11) TMI 2 - DELHI HIGH COURT by the higher forum referred to in the decision of the coordinate Bench of this Tribunal in the case of Wimco Seedlings 2020 (6) TMI 586 - ITAT DELHI we find it difficult to sustain the validity of the reopening of proceedings under section 147 of the Act and consequently quash the same. - Decided in favour of assessee.
Issues Involved:
1. Validity of reopening proceedings under Section 148 of the Income Tax Act. 2. Adequacy and communication of reasons for reopening the assessment. 3. Validity of the additions made under Section 68 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Validity of Reopening Proceedings under Section 148 of the Income Tax Act: The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) had no jurisdiction to frame the assessment under Section 143(3) read with Section 148 of the Income Tax Act. The assessee argued that the reopening was based on mere internal office notes without proper recording of reasons as required under Section 148. The Tribunal found that the reasons supplied to the assessee were not the same as those recorded in the assessment records, which is a deviation from the legal requirements. This deviation led to the nullification of the reopening proceedings. 2. Adequacy and Communication of Reasons for Reopening the Assessment: The assessee contended that the reasons provided for the reopening were insufficient and lacked necessary details such as the nature of the transactions and tangible material linking the alleged accommodation entries to the assessee's income. The Tribunal observed that the reasons supplied to the assessee were condensed and did not match the detailed reasons recorded in the assessment records. This discrepancy was highlighted by comparing the reasons provided to the assessee and those found in the assessment records. The Tribunal cited the case of Haryana Acrylic Manufacturing Co. v. Commissioner of Income Tax, emphasizing that the reasons for reopening must be fully communicated to the assessee to ensure transparency and adherence to natural justice principles. The failure to provide the complete reasons invalidated the reopening proceedings. 3. Validity of the Additions Made under Section 68 of the Income Tax Act: The AO had made an addition of ?71 lakh on account of unexplained credit under Section 68 and ?1.42 lakh as commission for accommodation entries. The Ld. CIT(A) initially deleted these additions, but upon remand by the Hon'ble High Court, upheld both the reopening and the additions. The Tribunal, however, quashed the reopening proceedings based on the inadequacy and improper communication of reasons, rendering the additions invalid as well. Conclusion: The Tribunal allowed the appeal of the assessee, quashing the reopening proceedings under Section 147 of the Income Tax Act due to the failure of the AO to provide the complete and accurate reasons for reopening the assessment. This decision was based on the principles of transparency and natural justice as established in the case law cited. Consequently, the additions made under Section 68 were also invalidated. Order Pronounced: The order was pronounced in the open court on the 12th day of August, 2021.
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