2022 (4) TMI 237 - AT - Income Tax

Validity of reassessment u/s 147 - credit balance in assessee s bank account - HELD THAT - As per the assessee, this amount was out of maturity of fixed deposit. This explanation of the assessee was accepted by the AO in the assessment order - on further inquiry, AO found that the assessee had incurred expense in cash on account of salary paid, however, no proof was furnished. Admittedly, in this case, no addition was made on the issue qua the assessment was re-opened. The assessee has relied upon the judgement in the case of Pr.CIT vs Lark Chemicals Pvt. Ltd. 2018 (10) TMI 382 - SC ORDER .Hon ble Supreme Court dismissed the SLP filed by the Revenue. Therefore, the decision of the Division Bench of the Tribunal rendered in the case of Lark Chemicals Pvt. Ltd. vs CIT 2015 (2) TMI 1334 - ITAT MUMBAI attained the finality. Assessing Officer is hereby directed to delete this addition. Thus, grounds raised by the assessee are allowed.

Summary

Issues:
1. Validity of notice u/s 148 of the Income Tax Act
2. Reopening of assessment based on source of credits and cash deposits
3. Legality of re-assessment proceedings
4. Justification for initiating reassessment proceedings
5. Compliance with jurisdictional requirements for reopening assessment
6. Sustaining of addition by the CIT (A)
7. Validity of notice u/s 148 and time limit for completion of assessments
8. Application of the principle that no addition can be made if not on the prime ground
9. Adequate opportunity provided during assessment proceedings

Issue 1: Validity of notice u/s 148 of the Income Tax Act
The appellant challenged the notice u/s 148, claiming it was illegal, void, and without jurisdiction. The appellant argued that the AO erred in issuing the notice, leading to the assessment order being liable to be quashed. The AO's failure to provide complete details/documents for filing objections was highlighted, citing a previous court case as a reference. The appellant contended that the notice was not a substitute for a different notice under the Act.

Issue 2: Reopening of assessment based on source of credits and cash deposits
The AO's allegation that the source of credits, including cash deposits, was not verified at any stage was disputed by the assessee. It was argued that the AO's assumption that bank deposits constituted undisclosed income was fallacious, emphasizing the need for concrete reasons to believe income had escaped assessment. The reopening of the assessment was challenged as being based on mere conjecture and suspicion, without adequate evidence.

Issue 3: Legality of re-assessment proceedings
The appellant contended that the reassessment proceedings were initiated based on presumption and suspicion, lacking valid grounds. It was argued that tangible material was absent in the reasons to believe formed by the AO, questioning the validity of the reassessment. The contention that information from the investigation wing did not constitute tangible material without further inquiry was emphasized.

Issue 4: Justification for initiating reassessment proceedings
The appellant argued that the AO did not apply his mind to independently conclude that income had escaped assessment, a jurisdictional requirement for reopening the assessment. The AO's reliance on borrowed satisfaction rather than conducting further inquiry was highlighted as a basis for challenging the notice u/s 148.

Issue 5: Compliance with jurisdictional requirements for reopening assessment
The appellant challenged the assumption of jurisdiction for reassessment, claiming it was based on presumption and suspicion rather than valid grounds. The lack of mention of tangible material in the reasons to believe formed by the AO was emphasized to question the validity of the reassessment proceedings.

Issue 6: Sustaining of addition by the CIT (A)
The CIT (A) was criticized for upholding the addition of a specific amount by disallowing expenses without adequate proof of payment. The appellant argued that the addition was not based on evidence and disregarded the facts of the case, leading to an unjustified decision by the CIT (A).

Issue 7: Validity of notice u/s 148 and time limit for completion of assessments
The appellant challenged the validity of the notice u/s 148, emphasizing that the AO's actions in handing over the assessment order and demand notice to postal authorities after the time limit had expired rendered the order nullified and void. The time limit for completing assessments was highlighted as a crucial factor in determining the validity of the order.

Issue 8: Application of the principle that no addition can be made if not on the prime ground
The appellant relied on a Supreme Court judgment to argue that no addition could be made if the prime ground for reopening the case did not result in any addition. The appellant emphasized the need for adherence to this principle in the assessment proceedings.

Issue 9: Adequate opportunity provided during assessment proceedings
The appellant contended that the AO did not provide a proper and reasonable opportunity during the assessment proceedings, leading to an unsustainable addition made by the AO. The lack of opportunity to present evidence and address the issues raised during the assessment process was highlighted as a violation of procedural fairness.

This comprehensive analysis of the judgment covers all the issues involved, providing detailed insights into the legal arguments and decisions made by the tribunal.