2024 (3) TMI 574 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained credit u/s. 68 - discharge of initial onus or not? - Mandation to dispose off the assessee objections by AO - HELD THAT - As per order dated 07.11.2016 the copy of reasons recorded were supplied to the authorized representative of the assessee on 04.11.2016 and objections were filed on 03.11.2016. Thus what the A.O. is disposing as per order dated 07.11.2016 cannot be the objections raised in letter dated 03.11.2016 as the copy of the reasons according to own admissions of the A.O. was provided to the assessee only on 04.11.2016. It can be seen from the reply dated 31.10.2016 of the assessee it did not submit any objection with regard to reassessment proceedings initiated as per notice dated 29.03.2016 as by that time copy of reasons recorded in pursuance to notice dated 29.03.2016 were not supplied to the assessee. On these facts the disposal of objections for initiating reassessment proceedings by an order dated 07.11.2016 is a non-judicious attempt of the AO to dispose the proceedings in a manner not known in law. Therefore the reassessment proceedings are bad in law as the AO did not follow the mandatory procedure laid down in the case of GKN Driveshaft v. ITO 2002 (11) TMI 7 - SUPREME COURT Valid sanction u/s. 151 or not? - It can be seen that the sanction has been granted only as per letter dated 24.03.2016 which does not bear the signature of PCIT and it is only a letter wherein ACIT is informing the AO that he is directed to communicate the approval given by the PCIT. The Performa attached with the same also does not bear the signature of PCIT. Thus it is a case where no approval has been granted by PCIT u/s. 151 of the Act as approval should be given only after application of mind by the approving authority. It can be seen from the wording of letter the so called approval has been given subject to recording of reasons. The reasons are recorded after approval letter dated 24.03.2016. The reasons recorded and provided to the assessee also not bearing any date and there is only typed date in Performa which is 17.03.2016. No proper approval has been given by the approving authority which would render the initiation of reassessment proceedings as invalid in the eyes of law. Thus we hold that the reopening of assessment is bad in law.

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings.
2. Validity of reassessment proceedings based on non-culmination and pendency of earlier notice.
3. Validity of reassessment proceedings due to lack of mention of earlier notice in the reasons recorded.
4. Validity of reassessment proceedings due to lack of valid approval under section 151 of the Act.
5. Validity of reassessment proceedings due to non-disposal of objections by a speaking order.
6. Validity of reassessment proceedings based on incriminating material found during a search.
7. Justification of addition of Rs. 1,37,30,000 as unexplained credit under section 68 of the Act.
8. Violation of principles of natural justice due to lack of opportunity for cross-examination and non-provision of seized material.

Summary:

1. Validity of initiation of reassessment proceedings:
The Tribunal found that the reassessment proceedings were invalid due to the AO's failure to follow the mandatory procedure laid down in GKN Driveshaft v. ITO (2003) 259 ITR 19 (SC). The AO did not dispose of the objections raised by the assessee before proceeding with the assessment, which was a violation of the principles of natural justice as established by the Hon'ble jurisdictional High Court in Deepak Extrusions (P.) Ltd. v. DCIT (2017) 80 taxmann.com 77 (Karnataka).

2. Validity of reassessment proceedings based on non-culmination and pendency of earlier notice:
The Tribunal noted that the second notice issued on 29.03.2016 was invalid since the first notice dated 26.03.2013 had not culminated in an assessment. This indicated non-application of mind by the AO.

3. Validity of reassessment proceedings due to lack of mention of earlier notice in the reasons recorded:
The Tribunal observed that the reasons recorded for the second notice did not mention the earlier notice dated 26.03.2013, leading to the conclusion that the reassessment proceedings were based on non-application of mind.

4. Validity of reassessment proceedings due to lack of valid approval under section 151 of the Act:
The Tribunal held that the reassessment proceedings were invalid due to the absence of a valid approval under section 151 of the Act. The sanction letter dated 24.03.2016 did not bear the signature of the PCIT, and the reasons recorded were not properly dated. This was in violation of the mandatory provisions of section 151, as established by the Hon'ble Delhi High Court in Synfonia Tradelinks (P) Ltd. v. ITO (2021) 435 ITR 642 (Delhi) and the Hon'ble jurisdictional High Court in CIT v. H.M. Constructions (2014) 43 taxmann.com 105 (Karnataka).

5. Validity of reassessment proceedings due to non-disposal of objections by a speaking order:
The Tribunal found that the AO's order dated 07.11.2016 did not dispose of the objections raised by the assessee on 07.11.2016 but referred to objections dated 31.10.2016 (filed on 03.11.2016). This indicated a non-judicious attempt by the AO to dispose of the proceedings in a manner not known in law.

6. Validity of reassessment proceedings based on incriminating material found during a search:
The Tribunal noted that the assessment should have been completed under sections 153C/153A of the Act instead of section 148, as the reassessment was based on incriminating material found during a search conducted on 14.09.2010.

7. Justification of addition of Rs. 1,37,30,000 as unexplained credit under section 68 of the Act:
The Tribunal did not adjudicate the issue on merits due to the quashing of the reassessment on legal grounds. However, it was noted that the AO had concluded that the addition represented fictitious share allotment and share premium, chargeable to tax as unexplained credit under section 68 of the Act.

8. Violation of principles of natural justice due to lack of opportunity for cross-examination and non-provision of seized material:
The Tribunal observed that the assessee was not provided with the material relied on by the AO for rebutting the same and was not given the opportunity to cross-examine the persons from whom statements were recorded, which was a violation of the principles of natural justice.

Conclusion:
The Tribunal quashed the reassessment proceedings on legal grounds and allowed the appeal filed by the assessee. The reassessment was found to be invalid due to procedural lapses and lack of proper approval under section 151 of the Act. The Tribunal refrained from adjudicating the issue on merits due to the quashing of the reassessment.