2024 (6) TMI 208 - AT - Income Tax

Validity of reopening of assessment - Non disposal of objections of the assessee - assessee was reported to have received the accommodation entries - HELD THAT - The power of reopening of assessment is specifically vested with the AO only. It is the AO who has to form the belief that the income of the assessee has escaped assessment. The reopening of the assessment has to be bona fide. It cannot be a mere pretence of the AO. If the assessee files objections against the reopening of the assessment order, the AO is supposed to decide the objections. If the same are decided against the assessee, the Assessing Officer is supposed not to pass the final assessment order for a period of four weeks from the date of disposal of objections. Though the ld. CIT(A) has been given the power of enhancement and can look into the other issues by giving notice to the assessee during appellate proceedings, however, the power to reopen the assessment exclusively vests with the AO only. It is the AO who has to form the belief of escapement of income of the assessee and it is the Assessing Officer who has to decide the objections against the reopening of the assessment and further to give opportunity to the assessee to seek his legal remedy, if the objections are decided against the assessee and not to pass an assessment order for a period of four weeks from the rejection of objections. Therefore, the assessment framed by the AO without disposal of objections of the assessee cannot be held to be a valid assessment. Thus as the assessment framed by the AO held to be bad in law and therefore, the consequential additions made by the AO in the reopened assessment are not sustainable. Decided in favour of assessee.

Summary

Issues involved: Cross-appeals by assessee and Department against common order of CIT(A) u/s 250 of the Income Tax Act regarding reopening of assessment and additions made.

Reopening of Assessment:
The assessee received accommodation entries and the Assessing Officer reopened the assessment based on this information. The assessee objected to the reopening, but the Assessing Officer proceeded without deciding the objections. The CIT(A) held that the reopening was justified, but on merits, adjusted the GP margin resulting in reduced additions. The assessee challenged the addition, while the revenue challenged the deletion of another addition for a different assessment year.

Legal Validity of Reopening:
The assessee argued that the reopening was bad in law as the Assessing Officer did not apply his mind and did not decide the objections. Citing legal precedents, the assessee contended that the assessment was invalid without disposing of objections. The CIT(A) held that the violation was an irregularity but proceeded to reject the objections himself, claiming co-terminus powers with the Assessing Officer.

Judgment:
The Tribunal found the assessment to be bad in law due to the Assessing Officer's failure to decide the objections, rendering the additions unsustainable. As the legal issue was decided in favor of the assessee, other grounds on merits were deemed academic. Consequently, the assessee's appeals were allowed, and the revenue's appeals were dismissed.

*Note: Separate judgment delivered by the Tribunal, allowing assessee's appeals and dismissing revenue's appeals.*