2023 (2) TMI 592 - AT - Income Tax

Validity of reopening of assessment - non issue and service of notice u/s. 143 (2) - HELD THAT - Though there is a mention by the AO vide order sheet entry that there is a compliance by the assessee but again the entire assessment record were considered and we (alongwith DR) could not find any such compliance letter / details by the assessee since there is no evidence whatsoever in relation to the issue and service of notice u/s. 143 (2) of the Act. No hesitation to hold the entire assessment null and void for want of notice u/s. 143 (2) of the Act. The appeal is allowed on the additional ground. Since we have quashed the assessment order we do not find it necessary to dwell into the merits of the case. Appeal of the assessee is allowed.

Summary

Issues:
1. Validity of reopening proceedings under section 148 of the Income Tax Act, 1961
2. Invocation of Explanation - 3 of section 147 for assessment
3. Addition of unproved/unsubstantiated amount under section 68 of the Income Tax Act, 1961
4. Jurisdictional validity of reassessment proceedings
5. Lack of opportunity for cross-examination of accommodation providers

Analysis:

Issue 1: Validity of reopening proceedings under section 148 of the Income Tax Act, 1961
The appellant challenged the reopening proceedings under section 148, arguing that the information received was vague and non-specific, lacking prima facie evidence of income escapement. The Commissioner of Income Tax (Appeals) upheld the reopening without considering the validity challenge. The appellant contended that jurisdictional validity can be challenged at any stage, even during appellate proceedings. The Tribunal noted the lack of specific evidence supporting the reopening, leading to a finding in favor of the appellant due to the absence of concrete material indicating income escapement.

Issue 2: Invocation of Explanation - 3 of section 147 for assessment
The Assessing Officer invoked Explanation - 3 of section 147 to inquire into share capital contributions without independently assessing if income had escaped. The Tribunal found this invocation arbitrary and suspicious, as the Officer failed to establish a belief of income escapement before proceeding. Consequently, the addition made under section 68 was deemed unwarranted and legally flawed.

Issue 3: Addition of unproved/unsubstantiated amount under section 68 of the Income Tax Act, 1961
The Tribunal emphasized that unproved or unsubstantiated amounts towards share capital or share application money cannot be added under section 68. The Commissioner's failure to consider this legal principle led to the erroneous addition upheld by the lower authorities.

Issue 4: Jurisdictional validity of reassessment proceedings
The appellant raised concerns regarding the lack of a notice under section 143(2) after filing the return in response to the section 148 notice, questioning the jurisdiction of the Assessing Officer to complete the reassessment. The Tribunal found the absence of a crucial notice rendered the entire assessment null and void, leading to the allowance of the appeal on this ground.

Issue 5: Lack of opportunity for cross-examination of accommodation providers
The appellant contended that the additions made lacked support as they were confirmed without providing an opportunity for cross-examination of accommodation providers, violating principles of natural justice. This failure to allow cross-examination was deemed a procedural irregularity resulting in the quashing of the reassessment proceedings.

In conclusion, the Tribunal allowed the appeal, primarily due to procedural irregularities, lack of concrete evidence supporting the reopening, and arbitrary invocation of provisions for assessment, highlighting the importance of adherence to legal procedures and principles of natural justice in income tax assessments.