2024 (4) TMI 645 - AT - Income Tax

Validity of reopening of assessment - reasons to believe - assessee has claimed huge amortization expenses on goodwill - HELD THAT - As undisputed fact that in the reasons AO has recorded the escapement of income on account of amortization of goodwill which was not claimed by the assessee in computation of normal provisions of the Act and with regard to adjustment in book profit computed u/s 115JB of the Act AO has not disturbed the same in the order passed u/s 143(3) r.w.s. 147 of the Act. So it is very clear that the reasons recorded are without verification of the records and accordingly without application of mind. AO has not bothered to even verify the information received with the assessment folder whether any such depreciation has been claimed by the assessee or not. It clearly reflects that the AO has mechanically recorded the reasons and issued the notice without applying his own mind. Ld. PCIT has also accorded approval u/s 151 of the Act based on the reasons recorded by the AO without ascertaining the actual facts of the case. Hon ble Bombay High Court in case of Sharvah Multitrade Compant P Ltd. 2022 (1) TMI 372 - BOMBAY HIGH COURT dealt with similar case and held that reassessment initiated based on reasons recorded on irrelevant facts and without application of mind cannot survive. This in our considered opinion it is against the settled principles of law as reopening of an assessment is an extraordinary power available to the ld AO and it should not be done in a cavalier manner. That is why the legislature in its wisdom had put lot of restrictions by imposing conditions for seeking approval and sanction from a superior officer in terms of section 151 of the Act. AO recorded wrong facts on many count in the reasons recorded for reopening of the assessment i.e. AO recorded incorrect fact that assessee has claimed huge amortization expenses on goodwill and disallowed the same in the assessment order u/s 32 of the Act which was deleted by Ld CIT(A) by stating that no such expenses actually claimed by the assessee. The AO in the reasons also recorded incorrect fact that no assessment has been completed in this case u/s 143(3) but assessment u/s 143(3) r.w.s. 153C completed on 29/12/2017 as recorded by the AO. AO also incorrectly stated that provisions of section 147(2)(b) are applicable whereas in the facts of the case provisions of section 147(2)(c) are applicable where the onus on AO is higher to prove escapement of income. The AO therefore recorded wrong incorrect and non-existing reasons for reopening of the assessment. It makes clear that there is a total non-application of mind on the part of the AO while recording the reasons for reopening of the assessment - Thus Reopening of the assessment is invalid and bad in law - Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves multiple issues including the validity of reassessment order u/s 147, the legality of reopening the assessment u/s 148, and the application of relevant provisions of the Income Tax Act.

Validity of Reassessment Order u/s 147:
The assessee challenged the action of the Assessing Officer in reopening the assessment u/s 143(3) r.w.s 153C of the Income Tax Act, 1961. The grounds of challenge included errors in confirming the action of the Assessing Officer, directing examination of exports realization, and restricting the addition u/s 69C of the Act. The Counsel for the assessee raised anomalies in the recorded reasons, highlighting that the reasons for reopening were based on incorrect facts regarding claimed expenses on amortization of goodwill. It was argued that the Assessing Officer failed to verify records and issued the notice without proper application of mind. The Tribunal found that the reasons recorded were without verification and lacked application of mind, rendering the reassessment proceedings illegal and without jurisdiction. The Tribunal referred to relevant case law to support its decision, emphasizing the importance of proper application of mind in reopening assessments.

Legality of Reopening Assessment u/s 148:
The Tribunal examined the legality of reopening the assessment based on the information received post a survey action, alleging evasion of taxes through amalgamation and claiming amortization expenses. The Tribunal noted that the Assessing Officer had not disturbed the book profit computed u/s 115JB of the Act in the original assessment order. The Counsel for the assessee pointed out that the AO had issued the notice without proper verification, ignoring previous assessment details. It was argued that even if the amortization of goodwill was considered as a deduction in book profit, the assessment order did not reflect any addition u/s 115JB. The Tribunal concluded that the reasons recorded for reopening were based on incorrect facts and lacked application of mind, leading to an invalid and legally unsustainable reassessment. The Tribunal highlighted the need for proper verification and application of mind in reopening assessments, as per the provisions of the Income Tax Act.

Merits of the Case - Revenue Appeal:
The issues raised in the revenue appeal were related to the merits of the case, which were deemed not maintainable as the assessee's appeal on legal grounds was allowed. The Tribunal dismissed the revenue appeals for AY 2014-15 to 2017-18 based on the decision in the assessee's appeal. The Tribunal emphasized that since the legal issue in the assessee's appeal was allowed, the revenue appeals on merits were not sustainable. Therefore, all the appeals of the assessee were allowed, while the appeals of the Revenue were dismissed.