2017 (4) TMI 715 - AT - Income Tax

Reopening of assessment - Held that - Reasons recorded in the instant case shows that there is no mention or allegation that there has been any failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. The contents of the reason fail to meet the statutory requirement. Respectfully following the ratio of the judgment in Haryana Acrylic Manufacturing Company vs. CIT (2008 (11) TMI 2 - DELHI HIGH COURT), we have no alternative but to quash the reassessment proceedings. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147/148.
2. Legality of the reassessment proceedings.
3. Justification of additions made during reassessment.
4. Compliance with statutory requirements and procedural fairness.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147/148:

The assessee challenged the reopening of assessment on multiple grounds, including procedural lapses and lack of proper reasons for reopening. The initial reasons recorded for reopening were based on alleged improper claims of expenditure and depreciation. However, it was clarified by the assessee that these claims were not made in the relevant assessment year, and the Assessing Officer (AO) accepted this clarification, indicating that the initiation of proceedings on these issues was not justified.

2. Legality of the Reassessment Proceedings:

The reassessment was initiated beyond the four-year period stipulated under Section 147, invoking the proviso which requires a failure on the part of the assessee to disclose fully and truly all material facts. The reasons recorded by the AO did not include any such allegation of failure by the assessee. The Tribunal referred to the judgment of the Hon'ble Delhi High Court in Haryana Acrylic Manufacturing Company vs. CIT, which emphasized that the absence of such an allegation renders the reopening beyond four years invalid. Consequently, the reassessment proceedings were quashed on this ground.

3. Justification of Additions Made During Reassessment:

The AO recorded a second set of reasons during the reassessment proceedings, alleging accommodation entries amounting to ?20 lakh, without issuing a fresh notice under Section 148. The Tribunal relied on the judgment of the Hon'ble Delhi High Court in CIT vs. Ranbaxy Laboratories Ltd., which held that any new issue discovered during reassessment requires a fresh notice under Section 148. Since no such notice was issued, the additions made on this new ground were deemed invalid.

4. Compliance with Statutory Requirements and Procedural Fairness:

The Tribunal noted that the AO did not make any additions based on the initial reasons recorded for reopening but instead made additions based on a new set of reasons recorded later. This approach was found to be procedurally flawed. The Tribunal cited several judgments, including CIT vs. Jet Airways (India) Ltd. and CIT vs. Ranbaxy Laboratories Ltd., which support the view that if no additions are made on the initial reasons for reopening, then no further additions can be made on new grounds discovered during reassessment without issuing a fresh notice.

Conclusion:

The Tribunal concluded that the reassessment proceedings were invalid due to the lack of proper reasons for reopening beyond the four-year period and the procedural lapses in recording new reasons without issuing a fresh notice. Consequently, the reassessment proceedings were quashed, and the appeal of the assessee was allowed.