2024 (3) TMI 734 - HC - Income Tax

Reopening of assessment - Notice issued after more than four years of the expiry of relevant assessment year - as alleged Cello Stationery Product (Firm) has deposited cash in its bank account - partnership firm was converted into a private limited company - HELD THAT - Reason to believe recorded that the firm M/s. Cello Stationery Products used to exist with effect from 1st April 2008 and in the year 2009, the partnership firm was converted into a private limited company. The entities were allotted different PANs due to which while filing AIR Report, bank has erroneously quoted PAN for the firm instead of the company. In the reasons, it is also recorded that in response to a notice under Section 133(6) of the Act, HDFC Bank, Malad (East) Branch has stated that the Account has cash deposits for AY 2013-2014 and the account was opened for CSPPL on 29th May 2008 and assessee has made total cash deposits of Rs. 1,87,39,187/- for FY 2012-2013. The HDFC Bank has also confirmed by its letter that there were nil cash deposits for firm Cello Stationery Products. Therefore, the AO should have recorded in the reasons to believe as to how he has come to the conclusion that apart from the amount of Rs. 1,87,39,187/- certified to have been deposited in cash by HDFC Bank, there is another deposit of Rs. 1,86,33,520/-, because admittedly there is only one bank account. Moreover, in the certificate which is annexed to the petition issued by the HDFC Bank giving details of cash deposited during the said financial year, the cash deposited is in two parts, i.e., more than Rs. 2,00,000/- and less than Rs. 2,00,000/-. The total deposit of more than Rs. 2,00,000/- comes to Rs. 1,86,33,520/- and cash deposit of less than Rs. 2,00,000/- is Rs. 1,05,667/- and the total of these two figures is Rs. 1,87,39,187/-. Therefore, the AO without examining these details has recorded the reasons to believe, which indicates non-application of mind. When these details have been brought to his notice admittedly in the objections filed by Petitioner, the AO instead of dealing with this duplicity has simply stated that those details will be considered during the reassessment proceedings. He has also not dealt with Petitioner s assertion in the objections that those amounts deposited in cash have been offered to tax. Strangely even in the affidavit-in-reply, Respondents after admitting that the bank has certified that only Rs. 1,87,39,187/- were deposited in cash during FY 2012-2013, has not explained as to how they proposed to reopen the assessment on the allegation that a sum of Rs. 3,73,72,707/- chargeable to tax has escaped assessment. It clearly shows that neither there was any independent application of mind by the AO while recording reasons nor application of mind by the sanctioning authority while giving approval. The reassessment proceeding was made on wrong and incorrect facts and therefore, makes the reopening null and void. The assessee has pointed out that there was only one bank account where only Rs. 1,87,39,187/- has been deposited in cash. HDFC bank also has issued such a certificate in response to notice that it received u/s 133(6) of the Act. The AO in his order disposing the objections does not deal with the factual position asserted by Petitioner. Therefore, there could be no reason for the AO to believe that income chargeable to tax has escaped assessment. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment notices under Section 148 of the Income Tax Act, 1961.
2. Alleged escapement of income chargeable to tax.
3. Application of mind by the Assessing Officer (AO) and sanctioning authority.
4. Fulfillment of conditions under Section 147 of the Act.
5. Jurisdiction of reassessment proceedings.

Summary:

Validity of Reassessment Notices:

The petitioner challenged the reassessment notices dated 30th March 2021 and 21st June 2021 issued under Section 148 of the Income Tax Act, 1961 for AY 2013-2014, and the impugned order dated 3rd February 2022 rejecting the objections to these notices. The reassessment notices were initiated in the petitioner's capacity as the successor of Cello Stationery Products Private Limited (CSPPL), which merged with the petitioner effective 1st April 2016. The AO issued the notices stating that there was a reason to believe that income chargeable to tax had escaped assessment.

Alleged Escapement of Income:

The AO's reasons for believing that income had escaped assessment were based on information from the ITBA System, which noted cash deposits totaling Rs. 3,73,72,707/- in CSPPL's bank account. However, the petitioner argued that there was a duplicity in the amount of cash deposits due to double counting, and the actual cash deposits were only Rs. 1,87,39,187/-. The petitioner provided evidence, including bank statements and a certificate from HDFC Bank, to support this claim.

Application of Mind by AO and Sanctioning Authority:

The court found that the AO and the Principal Commissioner of Income Tax did not apply their minds independently. The AO recorded reasons to believe without examining the details provided by the petitioner, and the sanctioning authority granted approval without proper consideration. The court noted that the AO's reasons reflected non-application of mind and were based on incorrect facts.

Fulfillment of Conditions under Section 147:

The court observed that the proviso to Section 147 of the Act applies since the notice for reopening the assessment was issued more than four years after the relevant assessment year. The court held that the conditions prescribed in Section 147 were not fulfilled, as there was no failure on the part of the assessee to fully and truly disclose necessary facts. The court emphasized that the AO must possess tangible material to form a prima facie belief of escapement of income, which was not present in this case.

Jurisdiction of Reassessment Proceedings:

The court concluded that the reassessment proceedings were initiated without jurisdiction due to the lack of independent application of mind and incorrect facts. The court quashed the impugned notices and the order rejecting the petitioner's objections, making the Rule absolute in terms of prayer clause (a) of the petition.

Conclusion:

The court quashed the reassessment notices and the impugned order, ruling in favor of the petitioner. The petition was disposed of with no order as to costs.