2024 (12) TMI 1425 - AT - Income Tax

CIT(A) dismissed appeal ex-parte - validity of Reopening u/s 147 - addition @ 5% of the total credits appearing in the assessee company s bank account - borrowed satisfaction of escaped income on the count of deposits in HDFC bank - HELD THAT - We are unable to persuade ourselves to accept the manner in which the appeal of the assessee has been disposed off by the CIT(Appeals). In our considered view, once an appeal is preferred before the CIT(Appeals), it becomes obligatory on his part to dispose off the same on merit and it is not open for him to summarily dismiss the appeal on account of non-prosecution of the same by the assessee. In fact, a perusal of Sec.251(1)(a) and (b), as well as the Explanation to Sec.251(2) of the Act reveals that the CIT(Appeals) remains under a statutory obligation to apply his mind to all the issues which arises from the impugned order before him. As per the mandate of law the CIT(Appeals) is not vested with any power to summarily dismiss the appeal for non-prosecution. See PREMKUMAR ARJUNDAS LUTHRA (HUF) 2016 (5) TMI 290 - BOMBAY HIGH COURT . Not being able to persuade ourselves to subscribe to the dismissal of the appeal by the CIT(Appeals) for non-prosecution, therefore, set-aside his order with a direction to dispose off the same on merits. Appeal of assessee is allowed for its statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around several core issues:

Validity of the reopening of assessment under Sections 147/148 of the Income-tax Act, 1961, based on alleged "borrowed satisfaction" and lack of a live link between information and belief of escaped income.
The legality of reassessment under Section 147 when the addition made pertains to an issue not originally recorded as the reason for reopening.
The validity of the approval granted under Section 151(1) by the Principal Commissioner of Income Tax (PCIT) without proper application of mind.
The legitimacy of the addition sustained by the CIT(A) on an ad-hoc basis without proper substantiation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reopening under Sections 147/148

Relevant Legal Framework and Precedents: The reopening of assessment is governed by Sections 147 and 148 of the Income-tax Act, which require a "reason to believe" that income has escaped assessment. The appellant cited precedents like Lakhmani Mewaldas and others to argue against the reopening.
Court's Interpretation and Reasoning: The court noted that the reopening was based on information about unexplained bank deposits, which the assessee argued was insufficient for a valid reopening.
Key Evidence and Findings: The assessee's bank account showed credits and withdrawals, which the Assessing Officer (AO) used to justify reopening.
Application of Law to Facts: The court examined whether the AO had a valid "reason to believe" based on the information provided.
Treatment of Competing Arguments: The assessee argued that the reopening was based on mere suspicion, while the revenue maintained that it was justified.
Conclusions: The court found that the CIT(A) failed to address this issue adequately and remanded it for reconsideration.

Issue 2: Legality of Reassessment under Section 147

Relevant Legal Framework and Precedents: The issue concerns whether additions can be made on issues not originally cited as reasons for reopening, with references to cases like Shri Ram Singh.
Court's Interpretation and Reasoning: The court noted the discrepancy between the reasons recorded for reopening and the actual additions made.
Key Evidence and Findings: The AO added an amount as undisclosed business income, which was not the original reason for reopening.
Application of Law to Facts: The court considered whether such an addition was permissible under the law.
Treatment of Competing Arguments: The assessee argued against the legality of the addition, while the revenue defended it.
Conclusions: The court remanded the issue for further consideration by the CIT(A).

Issue 3: Validity of Approval under Section 151(1)

Relevant Legal Framework and Precedents: Section 151(1) requires proper approval for reopening, with precedents like Kalpana Shantilal Haria cited.
Court's Interpretation and Reasoning: The court examined whether the PCIT's approval was validly granted.
Key Evidence and Findings: The approval was allegedly given without proper verification of facts.
Application of Law to Facts: The court assessed the procedural compliance with Section 151(1).
Treatment of Competing Arguments: The assessee contended that the approval was mechanical, while the revenue argued otherwise.
Conclusions: The court found procedural lapses and remanded the issue for reconsideration.

Issue 4: Legitimacy of Ad-hoc Addition by CIT(A)

Relevant Legal Framework and Precedents: The addition was challenged as being made on presumptions without proper basis.
Court's Interpretation and Reasoning: The court found that the CIT(A) did not adequately address the grounds of appeal.
Key Evidence and Findings: The CIT(A) sustained an addition of 5% of bank credits without detailed analysis.
Application of Law to Facts: The court evaluated whether the addition was justified based on available records.
Treatment of Competing Arguments: The assessee argued that the addition was arbitrary, while the revenue supported it.
Conclusions: The court remanded the issue for a detailed examination by the CIT(A).

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The law does not empower the CIT(A) to dismiss the appeal for non-prosecution as is evident from the provisions of the Act."
Core Principles Established: The CIT(A) must dispose of appeals on merits and cannot summarily dismiss them for non-prosecution.
Final Determinations on Each Issue: The court set aside the CIT(A)'s order and remanded the case for a fresh adjudication on all issues, emphasizing the need for a detailed examination of the grounds of appeal.

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