2023 (2) TMI 263 - AT - Income Tax

Validity of reopening of assessment - necessity to have a valid approval under section 151 - addition being a part of money received from M/s. Rahul Enterprises by invoking provisions of section 68 - HELD THAT - Reasons states that M/s Rahul Enterprise is a proprietary concern ,from which the assessee has received money, has opened account no. 029005003254 on August, 2017 in Faizabad Branch, UP from ITO(Inv), Unit-1, Kolkata vide letter dated 4/8.3.2021. The instant assessment year before us is AY 2012-13 whereas the reasons state that account was opened in August, 2017 in Faizabad Branch, UP which is apparently wrong and contradictory and not practically possible. We note that there is a contradiction in the bank account and also the branch of the bank where the account was reopened. In other words, Para 2 states that account was opened in Faizabad Branch, UP whereas in page 5 of the PB stated that it has been opened in ICICI Bank, Kolkata. We are also failed to understand as to how the account could be reopened in August, 2017 as stated in Para 2 page 4 while the case at hand relates AY 2012-13. PCIT while according to approval for reopening the assessment has either not perused these reasons and merely given a mechanical approval by stating in Item no. 13 of the approval granted dated 30.03.2019 that Yes, I am satisfied case may be reopened . In our opinion such a casual approach on the part of the authorities cannot be appreciated and encouraged because by reopening the assessment, the settled assessment are being unsettled and authorities are supposed to exercise utmost care and caution while recording the reasons and also while granting the approval. On this count also, the reassessment proceeding as well as reassessment framed cannot be sustained. The case of the assessee find supports from the decision of Hon bleCalcutta High Court in the case of Harish GangjiDedhiya 2022 (4) TMI 1391 - BOMBAY HIGH COURT Thus reassessment proceedings as well as reassessment framed us/ 147 are liable to be quashed. On the issue reopening assessment beyond the period of four years where assessment is framed u/s 143(3), we are mindful of the condition as laid down by the first proviso to Section 147 of the Act which are required to be satisfied before reopening the assessment. The proviso states that there has to be failure on the part of the assessee to truly and fully disclose the material/ information which leads to escapement of income. In the present case, the assessment has been framed by the AO u/s 143(3) read with Section 153A and the assessee has provided details/information in the return of income as well as in the assessment proceedings. Therefore to draw inference that the assessee has failed to disclose truly and fully any material facts relating to assessment would be wrong. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of approval under section 151 of the Income Tax Act.
2. Service of notice under section 143(2) of the Income Tax Act.
3. Basis of issuance of notice under section 148 of the Income Tax Act.
4. Reassessment proceedings initiated on borrowed satisfaction.
5. Reassessment proceedings barred by limitation under the first proviso to section 147 of the Income Tax Act.
6. Rejection of objections to reopening of assessment on extraneous grounds.
7. Addition of Rs. 74,50,000/- under section 68 of the Income Tax Act.

Detailed Analysis:

1. Validity of Approval under Section 151:
The assessee challenged the reassessment proceedings on the grounds of invalid approval under section 151 of the Act. The Tribunal observed several mistakes and contradictions in the reasons recorded by the Assessing Officer (AO), indicating a lack of application of mind. The approval granted by the Principal Commissioner of Income Tax (PCIT) was deemed mechanical and without proper scrutiny. The Tribunal referenced the decision of the Hon'ble Calcutta High Court in Harish Gangji Dedhiya vs. Union of India, which emphasized the necessity for the approving authority to apply its mind meaningfully. The Tribunal concluded that the reassessment proceedings were invalid due to the mechanical approval process.

2. Service of Notice under Section 143(2):
The issue of the absence of service of notice under section 143(2) was raised. However, this specific issue was not elaborated upon in the judgment, as the primary focus was on the validity of the reassessment proceedings and the approval process.

3. Basis of Issuance of Notice under Section 148:
The Tribunal scrutinized the reasons recorded for the issuance of notice under section 148 and found multiple factual inaccuracies and contradictions, such as the incorrect mention of bank account details and the date of account opening. These errors indicated a lack of due diligence and non-application of mind by the AO. The Tribunal highlighted that the reasons recorded must have a rational connection with the belief of income escapement, which was not established in this case.

4. Reassessment Proceedings Initiated on Borrowed Satisfaction:
The Tribunal noted that the AO acted on borrowed satisfaction without independently verifying the information received from the Investigation Wing. The reasons recorded were found to be vague and mechanically drafted, lacking a live link between the material before the AO and the belief of income escapement. The Tribunal emphasized that the AO must independently apply his mind rather than merely relying on information from other sources.

5. Reassessment Proceedings Barred by Limitation:
The reassessment proceedings were initiated after four years from the end of the relevant assessment year. The Tribunal referred to the first proviso to section 147, which requires that income escapement must be due to the assessee's failure to disclose fully and truly all material facts. The Tribunal found that the AO did not establish such failure on the part of the assessee, rendering the reassessment proceedings invalid.

6. Rejection of Objections to Reopening of Assessment:
The Tribunal observed that the objections raised by the assessee against the reopening of the assessment were rejected on extraneous grounds without proper consideration. This further demonstrated the casual approach of the authorities in handling the reassessment process.

7. Addition of Rs. 74,50,000/- under Section 68:
The Tribunal did not specifically address the merits of the addition of Rs. 74,50,000/- under section 68, as the primary focus was on the procedural validity of the reassessment proceedings. However, the quashing of the reassessment proceedings implied that the addition could not be sustained.

Conclusion:
The Tribunal quashed the reassessment proceedings and the consequent assessment order due to the invalid approval process, lack of application of mind by the AO, and procedural lapses. The appeal of the assessee was allowed, setting aside the order of the Commissioner of Income Tax (Appeals).