2012 (7) TMI 66 - AT - Income Tax

Validity of reopening of the assessment - CIT(A)canceled the reassessment order concluding that an issue on which reasons are not specifically recorded at the time of reopening of assessment, the said issue cannot be considered at all during the course of completing the reassessment proceedings - Held that - As the AO issued notice u/s 148 on the ground that the assessee had purchased an immovable property for a consideration for which the stamp valuation authority had fixed different value which was accepted by the assessee without any dispute. Therefore, income has escaped assessment to tax by difference in value. However, in the reassessment order made u/s 143(3) r.w.s. 147(a), no addition was made on account of undisclosed investment in the purchase of immovable property and the disallowance of bad debts originally allowed to the assessee was stated. Thus, when the reasons on which reassessment proceedings were initiated were not found to exist the assumption of jurisdiction under Section 148 r.w.s.147 becomes invalid and consequently, the reassessment order passed in pursuance thereto also becomes invalid. CIT Versus Jet Airways (I) Ltd. 2010 (4) TMI 431 (HC) clearly states that if after issuing a notice u/s.148 AO accepts the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, which has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a notice u/s.148 would be necessary in any event of challenge by the assessee - decided against revenue.

Summary

Issues Involved:
The only issue involved in this appeal is that Commissioner of Income Tax(A) erred in annulling the order passed by the Assessing Officer under Section 143(3) read with section 147 dated 26.12.2008.

Detailed Analysis:

1. Proper Recording of Reasons for Reopening Assessment:
The assessee contended that the Assessing Officer did not record proper reasons before issuing the notice under Section 148 of the Act, which is a statutory requirement. The basis for reopening the assessment was solely a communication from the Addl. Commissioner of Income Tax, and the Assessing Officer failed to apply his mind to the contents of the communication. The assessee relied on various decisions emphasizing the mandatory nature of recording cogent reasons for reopening assessments. The Commissioner of Income Tax(Appeals) annulled the reassessment order, stating that the Assessing Officer lacked jurisdiction due to the absence of valid grounds for initiating reassessment proceedings.

2. Jurisdiction of Assessing Officer in Reassessment Proceedings:
The Departmental Representative argued that even if no addition is made on the grounds for which the assessment was reopened, the Assessing Officer retains jurisdiction to make additions on other grounds. However, the Tribunal held that if the reasons for initiating reassessment do not exist, the jurisdiction under Section 148 read with Section 147 becomes invalid. The Tribunal cited a decision of the Hon'ble Bombay High Court to support this view, emphasizing that the Assessing Officer must assess or reassess the income that led to the belief of escapement, and any other income subsequently noticed during the proceedings.

3. Validity of Reassessment Order:
The Tribunal found that the reassessment order was invalid as no addition was made on the specific ground for which the assessment was reopened. Despite disallowing certain bad debts, the Assessing Officer did not address the primary reason for initiating the reassessment. Citing relevant legal interpretations, the Tribunal confirmed the decision of the Commissioner of Income Tax(Appeals) to annul the reassessment order. The Tribunal emphasized the importance of fulfilling the conditions set out in the substantive part of Section 147 and clarified the scope of reassessment proceedings.

4. Precedents and Legal Interpretations:
Throughout the analysis, the Tribunal referred to various legal precedents and decisions, including those from the Hon'ble Bombay High Court, Hon'ble Rajasthan High Court, and Hon'ble Delhi High Court. These references supported the Tribunal's conclusion regarding the invalidity of the reassessment order due to the lack of proper grounds and the necessity of fulfilling statutory conditions for reassessment.

In conclusion, the Tribunal dismissed the appeal of the Revenue, confirming the decision of the Commissioner of Income Tax(Appeals) to annul the reassessment order based on the absence of valid grounds for initiating reassessment proceedings.