2023 (9) TMI 1499 - AT - Income Tax

Assessment u/s 147 - reasons to believe - addition as deemed income u/s 56(2)(vii)(b)(ii) - HELD THAT - Failure of the A.O to make available to the assessee a copy of the reasons to believe that formed the basis for reopening his case goes to the very root of the validity of jurisdiction that he assumed for framing the impugned assessment. We, say so for the reason that as the assessee, despite a specific request for a copy of the reasons to believe was not provided the same by the AO, thus, had remained divested of his statutory right of objecting to the very basis on which his case was reopened u/s 147 of the Act. As stated by the Ld. AR, and rightly so, as held in the case of GKN Driveshafts (India) Ltd 2002 (11) TMI 7 - SUPREME COURT the assessee, after obtaining a copy of the reasons to believe, is vested with a statutory right to file his objections before the A.O., which the latter is required to dispose of based on a speaking order. As in the case before me, there has been a complete violation of the applicable principle of law by the AO, who had, despite a specific request by the assessee, failed to communicate the reasons to believe that had formed the very basis for reopening of his assessment u/s. 147 therefore, the very assumption of jurisdiction by him and framing of the impugned assessment cannot be sustained and is liable to be struck down on the said count itself. My view above is supported by the judgment of Agarwal Metals and Alloys 2012 (8) TMI 612 - BOMBAY HIGH COURT after taking cognizance of the fact that the AO in the case before them had failed to communicate the reasons to believe based on which the case of the assessee was reopened, quashed the assessment by treating the same as having been passed in a brazen violation of the governing principles of law. A similar view had been taken in the case of Pr. CIT Vs. Jagat Talkies Distributors 2017 (9) TMI 192 - DELHI HIGH COURT held that on account of the failure of the A.O to make available to the assessee a copy of the reasons for reopening of the assessment u/s. 147 of the Act, the re-assessment proceedings would stand vitiated in law. Accordingly, as in the case before me, the AO despite the specific request of the assessee, had failed to provide him a copy of the reasons to believe based on which his case was reopened u/s. 147 therefore, as per the aforesaid settled position of law, the assessment framed by him being devoid and bereft of valid assumption of jurisdiction cannot be sustained and is herein quashed. As the assessment in the present case is quashed for want of valid assumption of jurisdiction by the A.O u/s. 147. Assessee appeal allowed.

Summary

Issues Involved:
1. Validity of the jurisdiction assumed by the Assessing Officer (A.O) under Section 147 of the Income-tax Act, 1961.
2. Legality of the assessment order passed without providing the reasons for reopening the assessment to the assessee.
3. Jurisdictional issue concerning the notices issued under Sections 148 and 143(2).
4. Addition of Rs. 29,34,000 as deemed income under Section 56(2)(vii)(b)(ii).
5. Applicability of Section 56(2) to the land held as stock in trade.

Detailed Analysis:

1. Validity of the Jurisdiction Assumed by the A.O under Section 147:
The primary issue revolves around the sustainability of the assessment framed by the A.O without making available a copy of the "reasons to believe" to the assessee. The assessee had specifically requested the A.O for a certified copy of the reasons based on which the proceedings under Section 147 were initiated. The A.O's failure to provide these reasons before the culmination of the assessment proceedings was deemed a significant procedural lapse. The Tribunal held that this failure deprived the assessee of the statutory right to object to the reopening of the assessment, thus invalidating the jurisdiction assumed by the A.O.

2. Legality of the Assessment Order Passed Without Providing Reasons:
The Tribunal emphasized that the failure to provide the "reasons to believe" goes to the root of the validity of the jurisdiction assumed by the A.O. Citing the Supreme Court's decision in GKN Driveshafts (India) Ltd. Vs. ITO, it was reiterated that the assessee has a statutory right to obtain these reasons and file objections, which the A.O is required to dispose of through a speaking order. The Tribunal found that the A.O's failure to communicate these reasons rendered the assessment void.

3. Jurisdictional Issue Concerning Notices Issued under Sections 148 and 143(2):
The assessee contended that the notices issued under Sections 148 and 143(2) were without jurisdiction as the jurisdiction over the assessee had already been transferred to another ward. However, this issue was not elaborated upon in the judgment, as the primary focus remained on the procedural lapse concerning the non-provision of reasons for reopening the assessment.

4. Addition of Rs. 29,34,000 as Deemed Income under Section 56(2)(vii)(b)(ii):
The CIT(Appeals) had confirmed the addition of Rs. 29,34,000 as deemed income under Section 56(2)(vii)(b)(ii), ignoring the assessee's claim that the land in question was agricultural land. The Tribunal did not delve into the merits of this addition due to the quashing of the assessment on procedural grounds.

5. Applicability of Section 56(2) to Land Held as Stock in Trade:
The assessee argued that the provisions of Section 56(2) were not applicable as the land was held as stock in trade. This issue, like the previous one, was left open by the Tribunal due to the quashing of the assessment on procedural grounds.

Conclusion:
The Tribunal quashed the assessment framed by the A.O under Section 147 due to the failure to provide the "reasons to believe" to the assessee, which is a procedural requirement. This failure invalidated the jurisdiction assumed by the A.O, rendering the assessment void. Consequently, the Tribunal did not address the merits of the additions made in the assessment. The appeal was allowed, and the assessment was quashed based on the procedural lapse.