2022 (4) TMI 602 - AT - Income Tax

Reopening of assessment u/s 147 - notice after the expiry of four years - addition u/s 68 - assessee has received accommodation entry - HELD THAT - Assessee, during the course of original assessment proceedings, vide various replies has given, the details of such unsecured loan. A perusal of the reasons recorded show that there is not even a whisper in the reasons recorded of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. As per first proviso to section 147 where an assessment u/s. 143(3) has been made for the relevant assessment year, no action shall be taken u/s. 147 of the Act after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year for the reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Since the original assessment has been completed u/s. 143(3) and the reopening has been made after a period of four years from the end of the relevant assessment year and in the reasons recorded there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment, therefore, we are of the considered opinion that the reassessment proceedings initiated by the AO and upheld by the CIT(A) are not in accordance with the law. Thus in absence of any allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for the completion of the assessment, no reassessment proceedings can be initiated after a period of four years from the end of the relevant assessment year when the original assessment has been completed u/s. 143(3) of the Act. We, therefore, hold that the re-assessment proceedings initiated in the instant case by the AO is not in accordance with the law - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings initiated under section 147 of the Income Tax Act.
2. Application of mind by the Assessing Officer (AO) in reopening the assessment.
3. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment.
4. Sufficiency and correctness of the reasons recorded for reopening the assessment.
5. Right to cross-examination of persons whose statements were relied upon by the AO.
6. Addition of ?4 crores under section 68 read with section 115BBE of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:
The Tribunal examined whether the reassessment proceedings initiated under section 147 of the Income Tax Act were valid. The Tribunal noted that the original assessment was completed under section 143(3) and the reopening was initiated after four years from the end of the relevant assessment year. The Tribunal observed that there was no allegation in the reasons recorded by the AO that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The Tribunal cited the first proviso to section 147, which bars reassessment after four years unless such failure is alleged. Consequently, the Tribunal concluded that the reassessment proceedings were not in accordance with the law and quashed the same.

2. Application of Mind by the AO:
The Tribunal considered the assessee's argument that the AO had not applied his independent mind while reopening the assessment. The Tribunal noted that the AO relied on information received from the Investigation Wing without independently verifying the facts. The Tribunal referred to various judicial precedents, including CIT v. Nova Promoters & Finlease (P) Ltd. and Jyoti Goyal vs. ITO, which emphasize the need for a "live link" between the information and the reasons for reopening. The Tribunal found that the AO's reasons lacked independent application of mind and were mechanical, thus invalidating the reassessment.

3. Alleged Failure to Disclose Material Facts:
The Tribunal scrutinized whether the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The Tribunal found that the AO had not alleged any such failure in the reasons recorded for reopening the assessment. The Tribunal cited the decision in Haryana Acrylic Manufacturing Co. vs. CIT, which held that in the absence of an allegation of failure to disclose material facts, reassessment proceedings beyond four years are invalid. The Tribunal concluded that the assessee had disclosed all necessary facts during the original assessment, and thus, the reassessment was invalid.

4. Sufficiency and Correctness of Reasons Recorded:
The Tribunal examined the sufficiency and correctness of the reasons recorded by the AO for reopening the assessment. The Tribunal noted that the AO mentioned an incorrect quantification of income in the reasons, which included a bank charge of ?112/- along with the loan amount of ?4 crores. The Tribunal referred to various judicial precedents, including Shamshad Khan vs. ACIT and Pr. CIT vs. SNG Developers Ltd., which held that incorrect quantification of income can invalidate reassessment proceedings. The Tribunal found that the incorrect quantification and lack of specific allegations rendered the reasons insufficient and incorrect.

5. Right to Cross-Examination:
The Tribunal addressed the assessee's argument that the AO did not provide an opportunity to cross-examine the persons whose statements were relied upon. The Tribunal referred to judicial precedents, including Andaman Timber Industries vs. CCE and Kishinchand Chellaram v. CIT, which emphasize the right to cross-examination as a principle of natural justice. The Tribunal found that the AO's failure to provide such an opportunity violated the principles of natural justice, further invalidating the reassessment proceedings.

6. Addition under Section 68 read with Section 115BBE:
The Tribunal considered the addition of ?4 crores under section 68 read with section 115BBE of the Income Tax Act. The Tribunal noted that the assessee had provided various documents to substantiate the identity and creditworthiness of the loan creditor and the genuineness of the transaction. The Tribunal referred to judicial precedents, including Director of Income-tax vs. Modern Charitable Foundation and CIT vs. Ayachi Chandrasekhar Narsangji, which held that repayment of loans in subsequent years indicates genuineness. The Tribunal found that the assessee had discharged its initial onus under section 68 and that the AO's addition was not justified.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated by the AO, holding them to be invalid and not in accordance with the law. Consequently, the Tribunal did not adjudicate the other grounds challenging the reassessment proceedings and the addition on merit, as they became academic in nature. The appeal filed by the assessee was allowed.

← Previous Next →