2023 (10) TMI 1318 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of approval granted u/s 151 - reason to believe - non filling of ROI - HELD THAT - On going through the reasons recorded, we are of the view that they are replete with various factual misstatement/inaccuracies and silly mistakes. Though, AO has reopened the assessment for assessment year 2013-14, however, the heading of the reasons recorded refers to assessment year 2014-15. Even, the name of the assessee has been wrongly mentioned. In paragraph 3 of the reasons recorded, the AO has very clearly and categorically stated that, though, the assessee had filed TDS return u/s 194E and u/s 195 however, it didn t file any return of income. As a result of which, genuineness of financial transaction business activities of the assessee could not be ascertained. In reasons recorded, AO has mentioned filing of return of income by M/s. Cricket Australia. Whereas, admitted facts are, the assessee has not filed any TDS returns whatsoever under Section 194E or section 195 of the Act. In fact, there is no reason for the assessee to file any TDS returns in India as it has not remitted any amount out of India to any other party. On the contrary, the assessment order itself would reveal, instead of making any payment, assessee had receipts from Taj Cricket Ltd., another non-resident entity. Thus, the reasons recorded by the Assessing Officer for reopening of assessment under Section 147 of the Act clearly reveals that the formation of belief has no live link or nexus with any tangible material available on record. Rather the reasons recorded are based on either non-existent or completely irrelevant facts. In fact, while disposing of the objections of the assessee questioning the validity of the reopening of the assessment, the Assessing Officer has clearly admitted/owned up various factual inaccuracies in the recorded reasons. Reasons recorded by the Assessing Officer certainly do not make out a case for reopening of assessment under Section 147 of the Act. Also without examining the facts on record, both the Additional CIT and CIT have granted approval under Section 151. Granting approval under Section 151 of the Act is not an empty formality. Approval has to be granted with caution and proper application of mind to the facts and material on record to prevent miscarriage of justice, as, reopening of assessment involves reopening of an already concluded assessment. Therefore, it should not be used as a tool for harassment to the assessee. Most unfortunate part in the entire exercise is the approach adopted by learned DRP. As could be seen from the observations of learned DRP, they have disposed of the objections of the assessee, being completely oblivious of the factual position, as, the DRP has referred to non-filing of TDS return and related transactions as the reasons for reopening. This, in our view, is totally unacceptable. When the Assessing Officer, while disposing of the objections of the assessee has admitted errors committed by him, it is surprising that learned DRP has fallen into the same error while referring to non-filing of TDS return and related transaction as the cause for reopening of assessment. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of assumption of jurisdiction under Section 147 of the Income-Tax Act.
2. Approval process under Section 151 of the Income-Tax Act.
3. Role and approach of the Dispute Resolution Panel (DRP).

Summary:

1. Validity of Assumption of Jurisdiction under Section 147:
The assessee, a non-resident corporate entity and tax-resident of South Africa, challenged the reopening of assessment under Section 147 of the Income-Tax Act for the assessment year 2013-14. The Assessing Officer (AO) reopened the assessment based on AIR information indicating that the assessee had generated income in India but did not file a return of income. The AO considered the license fee received from TAJ Television Ltd. as royalty taxable in India. The Tribunal found that the AO's reasons for reopening were replete with factual misstatements and inaccuracies, such as incorrect assessment year and name of the assessee, and irrelevant references to TDS returns and another entity, Cricket Australia. The Tribunal concluded that the AO's formation of belief had no live link or nexus with any tangible material on record, rendering the reopening invalid.

2. Approval Process under Section 151:
The Tribunal observed that the approval granted by the Additional CIT and CIT under Section 151 was mechanical and lacked proper application of mind. The purpose of approval under Section 151 is to safeguard against arbitrary exercise of power by the AO. The Tribunal emphasized that the approving authority must examine the facts and material on record to ensure a case for reopening is made out. In this case, the higher authorities failed to discharge their duties, leading to the Tribunal's conclusion that the reopening was invalid.

3. Role and Approach of the Dispute Resolution Panel (DRP):
The DRP rejected the assessee's objections regarding the validity of reopening, citing non-filing of TDS returns and related transactions. The Tribunal criticized the DRP for being oblivious to the factual position and for not effectively dealing with the issues. The Tribunal highlighted that the DRP, constituted by senior officers, must decide issues by considering both facts and law, as their directions leave no further opportunity for the assessee before the AO. The Tribunal found the DRP's handling of the case inadequate and unacceptable.

Conclusion:
The Tribunal declared the reopening of the assessment as void ab initio and quashed the assessment order. Consequently, other grounds, including those on the merits of additions, were deemed academic and not decided. The appeal was allowed, and the order was pronounced in the open court on 27.10.2023.