2025 (2) TMI 403 - AT - Income Tax

Reopening of assessment - Assessment carried out without issuing any notice u/s 143(2) - Treating credits in the account of the assessee as income of the assessee from unexplained sources - HELD THAT - The assessment order in this case is totally cryptic. Even though the assessment order has been passed u/s 144 of the Act still AO was supposed to discuss as to the relevant transactions and should have also correlate the same with the books of account of the assessee as well as bank account of the assessee and should have mentioned at least as to from whom the assessee has received the unexplained cash credits etc. Even the most peculiar point is that on identical reasons the assessment for assessment year 2012-13 was reopened however in the assessment order no additions were made on this issue. Even the assessee had duly filed objections in this respect but the Assessing Officer failed to decide the objections and passed the impugned cryptic assessment order - reopening of the assessment in this case was bad in law and the same is liable to be quashed on this score alone. Even on merits the impugned additions are not sustainable. No notice u/s 143(2) has been issued before passing the impugned assessment order - DR could not bring out any evidence on the file to show that any notice u/s 143(2) of the Act was ever issued to the assessee. The assessee having duly taken the aforesaid plea that no notice u/s 143(2) of the Act was issued to the assessee and there is a complete silence about it in the assessment order which duly proves that no notice u/s 143(2) of the Act has ever been issued to the assessee in this case. The Hon ble Supreme Court in the case of ACIT vs. Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT held that the issue of notice u/s 143(2) is sine qua non to assume jurisdiction to proceed with the assessment in a case. The assessment carried out without issuing any notice u/s 143(2) of the Act in such cases will be bad in law. Assessee appeal allowed.

The judgment from the Income Tax Appellate Tribunal (ITAT) Kolkata addresses several core issues concerning the validity of an assessment order and the addition of income from unexplained sources. The appeal was made by the assessee against the order of the National Faceless Appeal Centre, which confirmed the addition made by the Assessing Officer (AO).

1. Issues Presented and Considered

The primary issues considered in this case are:

The validity of the reopening of the assessment under Section 147 of the Income Tax Act.
The validity of the assessment order due to the alleged failure to issue a notice under Section 143(2) of the Act.
The merits of the addition of Rs. 17,99,28,555/- as income from unexplained sources.

2. Issue-wise Detailed Analysis

Reopening of Assessment under Section 147

Legal Framework and Precedents: Section 147 of the Income Tax Act allows for the reopening of an assessment if the AO has reason to believe that income has escaped assessment. The proviso requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.
Court's Interpretation and Reasoning: The Tribunal noted that the reasons recorded by the AO for reopening were vague and based on borrowed satisfaction from the Investigation Wing without independent verification. The Tribunal highlighted that similar reasons were used for reopening the assessment for the previous year, where no additions were made.
Key Evidence and Findings: The assessee's objections to the reopening were not addressed by the AO, and the assessment order lacked any discussion of the objections or the nature of the transactions.
Application of Law to Facts: The Tribunal found that the reopening was not justified as the reasons lacked a live link to the alleged income escapement and were based on suspicion rather than concrete evidence.
Treatment of Competing Arguments: The Tribunal considered the assessee's argument that the reopening was based on borrowed satisfaction and lacked jurisdiction, which was not effectively countered by the Revenue.
Conclusions: The Tribunal concluded that the reopening of the assessment was bad in law and liable to be quashed.

Issuance of Notice under Section 143(2)

Legal Framework and Precedents: The issuance of a notice under Section 143(2) is mandatory for assuming jurisdiction to proceed with an assessment. The absence of such a notice renders the assessment invalid, as established by the Supreme Court in 'ACIT vs. Hotel Blue Moon' and other High Court rulings.
Court's Interpretation and Reasoning: The Tribunal noted the absence of any evidence that a notice under Section 143(2) was issued. The Tribunal emphasized that this notice is a sine qua non for jurisdiction.
Key Evidence and Findings: The assessee had repeatedly requested a copy of the notice, which was never provided. The assessment order did not mention the issuance of such a notice.
Application of Law to Facts: The Tribunal applied the legal requirement for issuing a notice under Section 143(2) and found the absence of such notice fatal to the jurisdiction of the assessment.
Treatment of Competing Arguments: The Revenue failed to demonstrate that the notice was issued, and the Tribunal sided with the assessee's contention.
Conclusions: The lack of a notice under Section 143(2) invalidated the assessment proceedings.

Merits of the Addition of Rs. 17,99,28,555/-

Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits and requires the assessee to satisfactorily explain the nature and source of such credits.
Court's Interpretation and Reasoning: The Tribunal found the assessment order cryptic and lacking in details regarding the nature of the transactions and the source of the alleged unexplained credits.
Key Evidence and Findings: The AO failed to correlate the credits with the assessee's books of accounts or identify the parties involved in the transactions.
Application of Law to Facts: The Tribunal determined that the AO did not meet the burden of proof required under Section 68 to justify the additions.
Treatment of Competing Arguments: The Tribunal accepted the assessee's argument that the transactions were genuine and recorded in the books of accounts, which the AO did not effectively refute.
Conclusions: The Tribunal held that the additions were not sustainable on merits.

3. Significant Holdings

Core Principles Established: The Tribunal reaffirmed the necessity of issuing a notice under Section 143(2) to validate assessment proceedings and the requirement for the AO to independently verify reasons for reopening assessments.
Final Determinations on Each Issue: The Tribunal quashed the reopening of the assessment and the assessment order itself due to procedural lapses and lack of merit in the additions.
Verbatim Quotes of Crucial Legal Reasoning: "The absence of notice, under Section 143(2), impregnates the proceedings with a jurisdictional defect and, hence, renders it invalid in the eyes of the law."

In conclusion, the Tribunal allowed the assessee's appeal, quashing the assessment order and the additions made therein, based on procedural deficiencies and lack of substantive evidence to support the Revenue's claims.

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