2018 (9) TMI 277 - AT - Income Tax

Reopening of assessment - validity of notice - Held that - The direction issued by the CIT(A) is against the spirit and order of the Tribunal. Such type of directions should not have been given by the CIT(A) as there was no reference in the order of the Tribunal for issuing such type of direction. Therefore, the notice under section 148 was not properly issued. If I consider it to be the fresh notice under section 148, it is also time barred. Therefore, no hesitation of holding notice issued under section 148 as invalid. Assessment framed consequent thereto is also invalid assessment. The jurisdiction of the AO was only to pass order on merit consequent to the direction of the Tribunal which he did not do. It is of the opinion that assessment framed by the AO by issuing invalid notice is not sustainable in the eyes of the law. Accordingly, annul the assessment. - decided in favour of assessee

Issues Involved:
1. Legality of the second notice issued under section 148 of the Income-tax Act.
2. Sustenance of additions under section 69C and peak credit in bank accounts.
3. Levy of interest under sections 234A and 234B.
4. Validity of the assessment order passed under section 143(3) r.w.s. 147 r.w.s. 150(1) of the Act.

Issue-wise Detailed Analysis:

1. Legality of the Second Notice Issued Under Section 148:
The assessee contended that the second notice under section 148 issued on 21/11/2013 was bad in law as no fresh material was available to justify the belief that income had escaped assessment. The Tribunal noted that the original assessments were reopened without disposing of the objections filed by the assessee. The Tribunal had earlier directed the AO to dispose of these objections before proceeding with the assessment. However, the AO issued a fresh notice under section 148 based on directions from the CIT(A), which was beyond the period of limitation prescribed under section 149. The Tribunal held that the notice issued under section 148 was invalid and annulled the assessment framed consequent to the invalid notice.

2. Sustenance of Additions Under Section 69C and Peak Credit in Bank Accounts:
The assessee challenged the sustenance of ?40,000 under section 69C and ?11,32,200 as peak credit in the bank accounts. The Tribunal observed that the CIT(A) had previously accepted the explanation regarding the sources of payment and the nature of transactions involving second-hand vehicle dealings. The rejection of the explanation by the current CIT(A) was based on suspicion and surmise. The Tribunal found merit in the assessee's explanation and concluded that the additions were not justified. The Tribunal emphasized the need to telescope the peak amount with the reported income and other additions, thereby deleting the sustained additions.

3. Levy of Interest Under Sections 234A and 234B:
The assessee argued against the levy of interest under sections 234A and 234B, citing the payment of taxes pursuant to the original assessment and subsequent refunds. The Tribunal referred to the Supreme Court's decision in CIT v. Prannoy and the Board Circular No. 2/2015, which clarified that the levy of interest under these sections is compensatory. The Tribunal found that the levy of interest was not justified under the facts and circumstances of the case, and hence, it deserved to be cancelled.

4. Validity of the Assessment Order Passed Under Section 143(3) r.w.s. 147 r.w.s. 150(1):
The assessee raised additional grounds challenging the validity of the assessment order passed under section 143(3) r.w.s. 147 r.w.s. 150(1). The Tribunal noted that the CIT(A) had directed the AO to issue a fresh notice under section 148, which was not in line with the Tribunal's earlier directions. The Tribunal clarified that its earlier order did not mandate the issuance of a fresh notice but required the AO to pass an assessment order after disposing of the objections. The Tribunal found that the CIT(A)'s directions were against the spirit of the Tribunal's order, and the notice issued under section 148 was time-barred. Consequently, the assessment framed was invalid and unsustainable in law.

Conclusion:
The Tribunal concluded that the assessment framed by the AO was invalid due to the issuance of an invalid notice under section 148 and non-compliance with the Tribunal's earlier directions. The additions sustained by the CIT(A) were deleted, and the levy of interest under sections 234A and 234B was cancelled. The appeal of the assessee was allowed, and the assessment was annulled. The judgment was pronounced in the open court on 31st August 2018.

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