2012 (5) TMI 500 - AT - Income Tax

Reassessment - Validity of notice - Deduction u/s 80HHC - Undisclosed income - the AO in the block assessment has doubted the genuineness of the purchases from the parties mentioned in the 148 notice and also doubled the sales treating the same as bogus - Held that A.O. in his reasons recorded for re-opening of the assessment for the impugned assessment year has again referred to the block assessment order wherein it has been held that the assessee was not entitled to deduction u/s 80HHC as the entire purchase and sales are bogus in A.Y. 1999-2000 and 2000-01 - it as an attempt on the part of revenue to, somehow or other, re-open the proceedings and more particularly the block assessment proceeding which they could not successfully support and sustain right up the Tribunal - Decided in favor of the assessee Regarding reassessment proceeding - Held that A.O. re-opened the assessment on the ground that purchase of diamonds/jewellery from the sister concerns namely M/s Galaxy Exports, M/s Kunal Exports and M/s Prime Star Exports were found to be bogus, hence, he has reason to believe that income has escaped assessment - It has been held in a number of decisions that when there is no reason recorded or the reasons recorded are wrong/absurd or irrelevant the re-assessment proceedings based on such no reason or absurd or irrelevant reason is invalid - Appeal is allowed

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147/148 of the Income Tax Act.
2. Treatment of purchases and sales as bogus and the denial of deduction under Section 80HHC.
3. Jurisdiction of the Assessing Officer (A.O.) to reopen assessments based on the same material considered in a block assessment.

Detailed Analysis:

Issue 1: Validity of Reassessment Proceedings Initiated Under Section 147/148

The assessee challenged the reassessment proceedings initiated by the A.O. under Section 147/148 on the grounds that the same issues were already considered in the block assessment proceedings. The assessee argued that the reassessment proceedings were bad in law, void ab initio, and illegal. The A.O. had issued the notice under Section 148 based on the belief that income chargeable to tax had escaped assessment due to bogus purchases and sales.

The CIT(A) upheld the reassessment proceedings, noting that there is no clause in Sections 147 and 148 prohibiting the A.O. from reopening an assessment if there are genuine reasons to believe that income has escaped assessment. The CIT(A) emphasized that the reasons were duly recorded, and the A.O. had followed the necessary procedures.

However, the Tribunal found that the reasons recorded by the A.O. for reopening the assessment were based on the same materials considered in the block assessment, which had already been adjudicated upon. The Tribunal cited various judicial precedents, including the Hon'ble Bombay High Court's decision in Metro Auto Corporation vs. ITO, which held that during the pendency of an appeal, no notice under Section 148 could be issued. The Tribunal concluded that the notice issued under Section 148 was void ab initio.

Issue 2: Treatment of Purchases and Sales as Bogus and Denial of Deduction Under Section 80HHC

The A.O. treated the purchases from M/s Galaxy Exports, M/s Kunal Exports, and M/s Prime Star Exports as bogus and considered the entire sales as unaccounted income. Consequently, the A.O. disallowed the deduction under Section 80HHC claimed by the assessee.

The CIT(A) had earlier deleted the disallowance of Rs. 63,50,720/- under Section 80HHC, observing that the exports were genuine. The CIT(A) noted that the sales invoices and shipping bills were attested by Customs Officials, and the export proceeds were realized through proper banking channels. The Tribunal upheld the CIT(A)'s decision, stating that the A.O.'s findings were based on mere suspicion without any substantive evidence.

Issue 3: Jurisdiction of the A.O. to Reopen Assessments Based on the Same Material Considered in a Block Assessment

The Tribunal observed that the A.O. had no jurisdiction to reopen the assessment under Section 147 based on the same materials considered in the block assessment. The Tribunal referred to the Hon'ble Gujarat High Court's decision in Cargo Clearing Agency (Gujarat) v. JCIT, which held that once an assessment has been framed under Section 158BC for the block period, the A.O. cannot issue a notice under Section 148 for reopening such assessment. The Tribunal also cited the Hon'ble Kerala High Court's decision in CIT vs. C. Sivanandan, which held that the A.O. cannot proceed to make an assessment under Section 147 based on the same materials after the block assessment is canceled by the appellate authority.

The Tribunal concluded that the reassessment proceedings initiated by the A.O. were invalid and set aside the reassessment orders for both assessment years 1999-2000 and 2000-01.

Conclusion:

The Tribunal allowed the appeals filed by the assessee, holding that the reassessment proceedings were invalid as they were based on the same materials considered in the block assessment, which had already been adjudicated upon. The Tribunal emphasized that the A.O. had no jurisdiction to reopen the assessments under Section 147 based on the same materials and that the notice issued under Section 148 was void ab initio. The Tribunal did not address the other grounds raised by the assessee as they were academic in nature.

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