2022 (11) TMI 316 - AT - Income Tax

Reopening of assessment u/s 147 - addition on protective basis - HELD THAT - As we are of the view that the reopening of assessment made in the hands of the assessee for making addition protective basis is bad in law, since the same amounts to reopening of assessment merely on suspicion. Accordingly, we quash the assessment order passed in the hands of the assessee. Appeal of the assessee is allowed.

Summary

Issues involved:
Validity of reassessment proceedings under section 147 of the Income Tax Act, 1961 and the addition of Rs.3,30,000 made on a protective basis.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The appeal challenges the order of the Ld CIT(A) upholding the validity of reassessment proceedings initiated by the AO under section 147 of the Act. The Tribunal had previously remanded the matter to the Ld CIT(A) to adjudicate the legal ground concerning the validity of reassessment proceedings. The AO reopened the assessment based on the belief that income had escaped assessment, specifically for making a protective addition. However, the Tribunal found that the AO lacked a definite belief of income escapement and initiated the reassessment on suspicions, which is not legally permissible. The reassessment was quashed as it did not meet the mandatory condition for initiating reassessment proceedings.

2. Addition Made on Protective Basis:
The AO reopened the assessment to make a protective addition of Rs.16.00 lakhs in the assessee's hands, which was also done for other joint account holders. The Ld CIT(A) partially confirmed the addition of Rs.3,30,000 in the present appeal, while deleting the substantive addition made in the hands of another joint holder. However, the Tribunal highlighted that the Ld CIT(A) did not provide a definite finding on the assessee in whose hands the addition should be made, leading to confusion regarding tax liability enforcement. The Tribunal emphasized that tax liability can only be enforced against the person in whose hands the addition was made on a substantive basis.

3. Legal Precedents and Observations:
The Tribunal referred to legal precedents, such as the case of DCIT vs. Bullion Investments & Financial Services P Ltd, to support its decision. The Tribunal emphasized that reassessment cannot be made on mere suspicion and that the AO must have a definite belief of income escapement. The Tribunal also highlighted the importance of providing clear findings on the assessee in whose hands the addition should be made, to ensure proper enforcement of tax liability.

In conclusion, the Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings and emphasizing the importance of meeting the legal requirements for initiating reassessment based on a valid belief of income escapement. The decision provides clarity on the necessity of providing clear findings on the allocation of additions to ensure proper enforcement of tax liability.