2024 (6) TMI 1143 - AT - Income Tax

Validity of reopening of assessment u/s 147/148 - proceedings initiated after the end of four years - assessee has claimed long term capital gain from sale of a scrip and claimed exemption u/s 10(38) - whether the AO had a reasons to believe and not merely reason to suspect that any income chargeable to tax has escaped from levy of tax for the reasons of failure on the part of the assessee? HELD THAT - The records reveal that the assessee had already declared the transactions of purchase and sale of equity shares of VMS Industries Ltd., in its original return, it had earned short term capital gain of Rs. 57,46,787/- and duly offered tax u/s 112 of the Act. Further this return has already been scrutinised by the ld. Assessing Officer and all the details were available before him during the course of scrutiny proceedings. Now, examining these facts we find that firstly AO failed to record proper reasons to reopen the case as ld. Assessing Officer has not made any application of mind before issuing the notice and he ought to have examined the original return filed by the assessee before issuing the notice for reopening. No such exercise has been done at the end of the AO. The reasons to believe are not proper and it merely is a case of reason to support or merely change of opinion. Above all, the main allegation against the assessee as per the information received from the investigation wing that the assessee had claimed exemption u/s 10(38) of the Act is also incorrect. Since the AO failed to adhere to the conditions laid down u/s 147 for reopening of the proceedings, the assessment order in question is held to be void ab initio, illegal and, is hereby quashed. Accordingly, the re-opening proceedings carried out in the case of the assessee are quashed. Appeal of the assessee is allowed.

Summary

Issues:
1. Validity of re-assessment proceedings u/s 147/148 of the Income Tax Act, 1961.

Detailed Analysis:
The appeal was filed by the assessee against the order of the National Faceless Appeal Centre, challenging the re-assessment proceedings for the Assessment Year 2012-13. The assessee raised multiple grounds of appeal, including contentions that the lower authorities' orders were arbitrary, erroneous, and lacked proper reasons. The main legal issue raised was the validity of the re-assessment proceedings initiated under sections 147 and 148 of the Act after the lapse of four years from the end of the relevant assessment year. The primary argument was that the re-assessment proceedings were carried out without proper reasons to believe and were therefore illegal and should be quashed.

The Assessing Officer initiated re-assessment proceedings based on specific information received regarding the assessee's claim of exempt income under section 10(38) of the Act arising from the sale of shares. The original return filed by the assessee had already been scrutinized under section 143(3) of the Act, and the re-assessment proceedings were initiated after the lapse of four years. The key legal provision under Section 147 was analyzed, which requires the Assessing Officer to have a valid reason to believe that income has escaped assessment due to the assessee's failure to disclose material facts necessary for assessment.

Upon examination of the facts, it was found that the Assessing Officer failed to record proper reasons before initiating the re-assessment proceedings. The information provided as the basis for reopening was found to be incorrect, as the assessee had not claimed the exemption as alleged. The tribunal concluded that the Assessing Officer did not comply with the conditions specified under Section 147 for reopening proceedings, rendering the assessment order void ab initio and illegal. Consequently, the re-opening proceedings were quashed, and the appeal of the assessee was allowed based on this legal ground.

The tribunal's decision highlighted the importance of adhering to the statutory requirements for initiating re-assessment proceedings and emphasized the need for the Assessing Officer to have valid reasons to believe that income has escaped assessment. The judgment provided a detailed analysis of the legal provisions and factual circumstances to arrive at the conclusion that the re-assessment proceedings were invalid and warranted quashing.