2013 (1) TMI 235 - HC - Income Tax

Reopening of assessment - loss in shares has been fraudulently claimed - bogus transactions - Tribunal dismissed the appeal of the department on technical ground without going to the merit of the case - Held that - From a perusal of the reasons recorded by the AO it is found that he had simply recorded the finding in the assessment order passed for the assessment year 1996-97 and a vague reference was made that similar was the position in respect of the assessment year in question. Facts which have emerged from the assessment order for the A.Y.1995-96 are altogether different from those on the basis of which assessment has been reopened u/s 148 in A.Y.1996-97. Even after detailed investigation the A.O. has not been able to find out that the appellant has purchased or sold the shares within short span of time or that shares have been purchased at a rate higher than the market rate as has been found in the A.Y.1996-97. In fact in the order of the A.Y.1996-97 there is only vague reference of A.Y.1995-96. From the perusal of the order it is absolutely clear that there is no reference to any transaction for the assessment year 1995-96. CIT was therefore perfectly justified in holding that the reasons recorded by the AO were not honest reason and there is nothing to show from this reason that income has escaped assessment and assessment has been primarily reopened with a view to make enquiries and conduct examination of various expenses debited to profit and loss account. This order has been affirmed by the Tribunal. The reasons recorded by the Assessing Officer do not show that they are relevant to reopen the assessment proceedings - ITAT was justified in dismissing the appeal of the department on technical ground without going to the merit of the case - in favour of assessee.

Summary

Issues:
1. Appeal filed under Section 260-A of the Income Tax Act against the order dated 31.3.2005 passed by the Income Tax Appellate Tribunal.
2. Justification of the Income Tax Appellate Tribunal in dismissing the appeal filed by the department against the order of the CIT(A) in quashing the assessment.
3. Validity of dismissing the appeal of the department on technical grounds without going into the merit of the case.

Analysis:

Issue 1:
The appeal was filed against the order of the Income Tax Appellate Tribunal dated 31.3.2005. The respondent assessee derived income from running a flour mill and had filed the original return of income for the Assessment Year 1995-96. The Assessing Officer initiated proceedings under Sections 147 and 148 of the Income Tax Act due to suspected fraudulent claims and bogus transactions. The original return was filed on 31.10.1995, rectified under Section 154 of the Act, and further proceedings led to an assessment of income at Rs. 23,59,390/-. The Commissioner of Income Tax (Appeals) allowed the appeal but directed the Assessing Officer to take action under Section 148 of the Act. The Tribunal dismissed the appeal by the Revenue against the reassessment order.

Issue 2:
The department contended that the reassessment order should not have been set aside and the notice under Section 148 should not have been quashed, citing improper reasons. They argued that the modus operandi in the assessment year 1996-97 was similar to that of the current assessment year, justifying the reassessment. However, the Commissioner of Income Tax (Appeals) found discrepancies between the two assessment years, indicating that the reasons recorded by the Assessing Officer were not honest and did not demonstrate income escaping assessment. The Tribunal upheld this decision, stating that the reasons were not relevant to reopen the assessment proceedings.

Issue 3:
The court held that the order passed by the Commissioner of Income Tax (Appeals) and upheld by the Tribunal was legally sound. The reasons recorded by the Assessing Officer were deemed insufficient to justify reopening the assessment proceedings. Therefore, the Tribunal's decision to dismiss the appeal was upheld, as there was no legal infirmity in the order.

In conclusion, the court found that the reasons recorded by the Assessing Officer were not honest and did not establish that income had escaped assessment. The Tribunal's decision to dismiss the appeal was upheld, emphasizing the importance of valid reasons for initiating reassessment proceedings under the Income Tax Act.