2024 (3) TMI 30 - AT - Income Tax

Revision u/s 263 - CIT setting aside the second reassessment order - time limit to take action u/s 263 - as submitted second reopening of the assessment is bad in the eyes of law because this notice was issued after expiry of four years - HELD THAT - AO has not highlighted which information or details was not declared by the assessee fully and truly in its accounts. Therefore, we are of the view that this reopening is not sustainable and if this reopening is not sustainable, then notice of 263 could not be issued. It is observed that since no addition was made by the ld. AO, therefore, there was no occasion to challenge its reopening before the higher appellate forum but once Commissioner took cognizance u/s 263, then, the assessee has every right to defend itself, even before the Commissioner for dropping of the 263 proceeding on the ground that reopening is bad in the eyes of law. Assessee has received a sum from the Bank Account - There is no dispute that assessment was reopened for escapement of income of Rs. 15,00,000/-. No addition was made of this item. Commissioner has not categorically recorded in the show-cause notice that acceptance of Rs. 15,00,000/- is erroneous at the end of the ld. Assessing Officer. His show-cause notice just reflects all narrative of facts. Nowhere analytical examination for forming belief that AO has failed to conduct a particular enquiry qua loan of Rs. 15,00,000/- from M/s. Rupali Financial Consultants (P) Ltd. He simply observed that apart from this loan, there are other unsecured loan transaction, which remained to be examined and if no error is being found qua acceptance and genuineness of the loan from M/s. Rupali Financial Consultants (P) Ltd., no other issue could be examined. The ld. Commissioner has erred in travelling in that area. Unsecured loan received from various loan creditors - Observation of the ld. Commissioner would reflect that he was taking note of the fact only from the accounts of the assessee. Thus such aspect should have been examined at the first step when scrutiny assessment was made. It cannot be put off for waiting reopening of assessment in 2019 so that exercise under section 263 would be carried out in 2022. In the present case original assessment was passed u/s 143(3) on 13.11.2014. The process of computation of income commenced when assessee has filed the return of income on 29.09.2012 and it attained finality on 13.11.2014 when scrutiny assessment was passed. Thereafter all reopening would be taken up qua any escaped income. In none of the notices of reopening issued, all unsecured loans were ever taken up by the ld. AO. Therefore, if any error has crept in the computation of income, then, it should be construed when the original assessment order u/s 143(3) was passed. Commissioner should find fault in this order and should take corrective measure qua this order under section 263, but he did not and by now the time limit to take action u/s 263 has expired. In sub-section (2) of section 263, it has been contemplated that no order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which orders sought to be revised, was passed. The original error crept in the assessment order dated 31.11.2014. The two years from end of March, 2015 ought to be calculated. Therefore, 263 notice is not sustainable. Taking into consideration all these three fold of contentions raised by the assessee, we are of the view that the impugned order passed under section 263 is not sustainable. Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of the second reopening of the assessment.
3. Legitimacy of the order under section 263 of the Income Tax Act, 1961.

Summary:

Condonation of Delay in Filing the Appeal:
The assessee filed an application for condonation of delay in filing the appeal against the order under section 263. The delay of 551 days was attributed to the advice of the assessee's regular tax consultant, who suggested contesting the subsequent assessment order before challenging the 263 order. The Tribunal, citing the liberal interpretation of "sufficient cause" as per various judicial precedents, condoned the delay, noting that the assessee was vigilant and the delay was not deliberate.

Validity of the Second Reopening of the Assessment:
The Tribunal examined the reasons for the second reopening of the assessment and found them to be vague and lacking specific allegations of failure by the assessee to disclose material facts fully and truly. The Tribunal held that the reopening was not sustainable as it did not meet the conditions stipulated in the first proviso to section 147. Consequently, the 263 notice issued based on this reopening was also deemed invalid.

Legitimacy of the Order under Section 263:
The Tribunal addressed the assessee's contention that the second reassessment order was erroneous and prejudicial to the interest of revenue. The Tribunal noted that the reassessment was initiated to examine a transaction of Rs. 15,00,000/- with M/s. Rupali Financial Consultants (P) Ltd., which was found genuine. The Tribunal held that if no addition was made on the issue for which the assessment was reopened, no other issues could be examined. Additionally, the Tribunal observed that any error in examining unsecured loans should have been corrected in the original scrutiny assessment, not in the reassessment. The Tribunal relied on the decision of the Hon'ble Supreme Court in CIT vs. Alagendran Finance Limited to conclude that the 263 notice was not sustainable.

Conclusion:
The Tribunal quashed the order under section 263 and the subsequent assessment order, allowing both appeals of the assessee.