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2023 (2) TMI 1348 - AT - Income TaxValidity of reopening of assessment u/s 147 - issuance of notice u/s 148 of the Act by a non jurisdictional officer - validity of reopening of the assessment by the DCIT - Usurping of jurisdiction - HELD THAT - As undispued that other than assessment for AY. 2009-10 (supra), in all other appeals, the assessee has filed return of income which is less than Rs. 30 Lacs. As per the CBDT instruction No. 01/2011, in case of an assessee which is a corporate assessee, the pecuniary jurisdiction if it is below Rs. 30 Lacs it lies before the Jurisdictional ITO; and if the return of income filed by a corporate assessee is above 30 Lacs it lies before the jurisdictional DCIT/ACIT. In these appeals for AY. 2006-07, AY, 2007-08 AY 2008-09 and AY 2010-11 respectively for both assessee s (of the assessee s) admittedly the reasons have been recorded by the DCIT and not by ITO which is in direct contravention of the CBDT instruction No. 01/2011 conferring/allocating the pecuniary jurisdiction. It is settled position of law that the CBDT instruction is binding on all Income Tax Authorities. Therefore, the income tax authorities ought to have followed the CBDT instruction in letter spirit and any contravention will be offending Article 14 of the Constitution of India which tantamount to arbitrary action of the authorities and also against the basic feature of the Constitution of India i.e. Rule of Law , which require all authorities of the Government to act in accordance to the law. The expression Rule of law requires the Government to act in accordance to law and so the AO had to act in accordance to law as prescribed by the CBDT in this case. And it should be borne in mind that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all. See RAO SHIV BAHADUR SINGH VERSUS STATE OF VINDHYA PRADESH 1954 (3) TMI 63 - SUPREME COURT Therefore, as per the CBDT instruction (supra) in the present cases, only the territorial ITO had the jurisdiction to re-open the cases of the assessee (except AY 2009-10); and the DCIT by usurping this jurisdiction to re-open the assessment has wrongly assumed jurisdiction which he didn t enjoy. Therefore, the action of the DCIT in these cases to have recorded the reason for re-opening the assessment and consequent issue of notice u/s 148 of the Act is bad in law, since the issuance of notice u/s 148 of the Act is a jurisdictional notice and this defect, goes to the root of re-opening itself; and is not a curable defect; therefore, the ground raised in Rule 27 applications of assessee are allowed. Validity of reasons to believe for re-opening the assessment - Assessee s books of account contain camouflage entries through bank statement which reveal high value transaction embedded with element of taxable income which assessee has not disclosed in the return of income - HELD THAT - We have analysed the reasons recorded by the AO for both the assessee s for AY 2009-10, first all we take up the case of assessee M/s W Financials Ltd. We have noted the original assessment in this case was done u/s 143(3) of the Act on 24.03.2011. And the AO had received information from some government agency (no name specified as which Agency) had alleged that the assessee company is controlled by the Shri Arun Dalmia and Shri Harsh Dalmia and they are providing accommodation entries and that they are also into money laundering. According to the AO by doing such activity the directors of the assessee company shows losses and thereby evade the income tax. We note that other than the bald allegation the AO has not spelt out any material/facts on the basis of which AO has made such allegation. Serious allegation have been leveled against the assessee (money laundering) by refereeing to the some unknown government investigation agency. As held in Hindustan Levers 2004 (2) TMI 41 - BOMBAY HIGH COURT the reasons recorded for reopening an assessment has to be examined on a stand-alone basis without adding or subtracting anything in it. The reasons recorded shows nonapplication of mind. Moreover, we note the main propose of reopening was to examine/verify the substantial expenditure made by the assessee. AO states that assessee books of account contain entries (camouflage) which reveal high value transactions, which he suspects must be embedded with the element of taxable income which according to him has escaped assessment and on the other hand he says that assessee is in to accommodation entry (which means only paper transactions for beneficiaries lieu of a small commission). Thus there is contradiction in the allegation itself. On a reading of the reasons recorded shows that the AO has resorted to reopening only for the purpose of roving inquiry which cannot be the ground (reason to believe escapement of income) rather it can be term as reason to suspect which is not the jurisdictional requirement for reopening an assessment. Therefore, re-opening is bad in law and the assessee succeeds in the legal challenge for reopening the assessment of M/s W Financials Ltd. Coming to the case of M/s W System it is noted from the analysis we had made about the reasons recorded by AO to re-open (supra) that again the AO has resorted to reopening the assessment for AY. 2009-10 for finding out the taxable income embedded in the transactions (accommodation entries) which also fall foul of the requirement of law for successfully reopening the assessee u/s 147 of the Act. At the most it (reason recorded) only gives rise to Right to Suspect and not Right to believe escapement of income, which is not sufficient to successfully re-open an assessment. Therefore, the reopening of assessment for AY. 2009-10 is bad in law - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) for reopening assessments. 2. Validity of reopening assessments under Section 147 and issuance of notices under Section 148 of the Income Tax Act. 3. Application of Rule 27 of the Income Tax Appellate Tribunal Rules by the assessee. 4. Sufficiency and adequacy of reasons recorded by the AO for reopening assessments. Issue-wise Detailed Analysis: 1. Jurisdiction of the Assessing Officer (AO): The primary issue revolves around the jurisdiction of the AO, specifically whether the Deputy Commissioner of Income Tax (DCIT) had the authority to reopen assessments for M/s. Watermark Financial Consultants Ltd. and M/s. Watermark Systems (India) Pvt. Ltd. The assessee argued that as per CBDT Instruction No. 01/2011, the pecuniary jurisdiction for corporate entities with a returned income below Rs. 30 Lakhs should lie with the Income Tax Officer (ITO), Ward-3(3), not the DCIT, Circle-3(3). The Tribunal found that except for AY 2009-10, the returned income was below Rs. 30 Lakhs, thus the jurisdiction was with the ITO. The DCIT's action to reopen assessments was deemed without authority, rendering the reopening actions for the relevant assessment years invalid. 2. Validity of Reopening Assessments: The Tribunal examined whether the AO had valid reasons to believe that income had escaped assessment, which is a prerequisite for reopening under Section 147. For AY 2009-10, the AO cited vague allegations of money laundering and accommodation entries without concrete evidence or specific details, which the Tribunal found insufficient to establish a "reason to believe." The Tribunal emphasized that reopening should not be based on mere suspicion or for conducting a roving inquiry. Consequently, the reopening actions for AY 2009-10 were quashed for both companies. 3. Application of Rule 27: The assessee, despite not filing a cross-appeal, supported the CIT(A)'s order through an application under Rule 27, challenging the AO's jurisdiction. The Tribunal, referencing various judicial precedents, including the Supreme Court's decision in NTPC vs. CIT, allowed the Rule 27 application. It held that legal issues affecting jurisdiction could be raised at any stage, even if not initially contested before the AO or CIT(A), as long as they go to the root of the jurisdiction. 4. Sufficiency and Adequacy of Reasons: The Tribunal scrutinized the reasons recorded by the AO for reopening assessments, emphasizing that they must be self-explanatory and provide a clear link between the conclusion and evidence. The reasons should not be vague or indefinite. The Tribunal found that the AO's reasons lacked specificity and were based on general allegations without concrete evidence, thus failing to meet the legal standards for reopening assessments. Conclusion: The Tribunal dismissed all appeals by the Revenue, holding that the DCIT lacked jurisdiction to reopen assessments for the years in question, except for AY 2009-10, where the reasons recorded by the AO were found inadequate to justify reopening. The Tribunal's decision underscores the importance of adhering to jurisdictional mandates and ensuring that reasons for reopening assessments are based on clear, specific, and concrete evidence.
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