2019 (7) TMI 21 - AT - Income Tax

Reopening of assessment u/s 147 - approval of the higher authority u/s 151 - reason was recorded independently upon application of mind - HELD THAT - The relevant documents being the reason recorded by the AO or the issuance of notice u/s 148 does not give any indication of obtaining sanction from the ACIT/JCIT by the AO for reopening the assessment of the assessee u/s 148 of the Act though in terms of the provision of section 151 it is the pre-condition for initiating proceeding u/s 148. Non-compliance of the same remains a defect which is admittedly not curable. We find that the Learned DR failed to controvert this particular aspect of the matter at the time of argument advanced before us during hearing. In that view of the matter in the absence of the very basis or foundation of the reopening being the sanction of the higher authority renders the entire proceeding void in law and thus liable to be set aside. Thus in our considered view, the Learned AO has made reopening on the dictates of superior authority and not of his own and without any application of mind; the same was done in tutored manner. AO admittedly failed to comply with the provision of Section 151. It appears from the records that he himself has accepted in assessment year 2010-11 that income was chargeable at the time of execution of sale deed. When in the original assessment the AO accepted the matter, reassessment proceeding cannot be initiated indicating a mere change of opinion. There must be a tenable material on the basis of which an assessment is sought to be reopened even within a period of four years is now well established in view of the judgment passed by the Hon ble Supreme Court in the matter of CIT-vs-Kelvinator of India Ltd 2002 (4) TMI 37 - DELHI HIGH COURT . The reason for reopening also indicates that time limit for issuance of such notice u/s 148 for A.Y. 2007-08 expires on 31.03.2014 which strengthen the case of the assessee showing that in order to reopen the assessment by hook and crook without the approval and/or sanction of the higher authority in terms of the provision of Section 151 AO in hot haste issued such notice for reopening that too in absence of any evidence to be relied upon to form such belief relating to the particular issue involved. Such action is erroneous, arbitrary and without due process of law and hence the entire proceeding initiated without any solid foundation of law is vitiated. Further that on the basis of the above discussion and observation we find the entire proceeding is void ab initio i.e. invalid from the very outset and therefore is liable to be quashed and hence the entire proceeding under section 148 as initiated by the revenue against the assessee is hereby quashed. Thus, assessee s appeal is allowed.

Summary

Issues Involved:
1. Validity of the re-assessment proceeding under section 147 of the Income Tax Act.
2. Compliance with the provisions of section 151 regarding the sanction for issuing notice under section 148.
3. Adequacy and independence of the reasons to believe for reopening the assessment.

Issue-wise Detailed Analysis:

1. Validity of the Re-assessment Proceeding:
The assessee challenged the re-assessment proceeding initiated by the Assessing Officer (AO) under section 147 of the Income Tax Act, arguing that the notice issued under section 148 was invalid and the conditions specified to assume jurisdiction for re-assessment were not satisfied. The AO issued the notice based on revisionary proceedings under section 263 in another case, without independently recording reasons as required under section 148(2). The assessee contended that the re-assessment was based on a mere change of opinion and lacked material evidence suggesting concealment of income. The Tribunal found that the AO did not apply his mind independently and relied solely on the revisionary proceedings, making the re-assessment invalid.

2. Compliance with Section 151:
The Tribunal examined whether the AO obtained the necessary sanction from higher authorities before issuing the notice under section 148, as mandated by section 151. The relevant documents, including the reasons recorded by the AO and the notice issued, did not indicate any sanction from the ACIT/JCIT. The Tribunal emphasized that obtaining such sanction is a pre-condition for initiating re-assessment proceedings. The absence of this sanction rendered the entire proceeding void in law. The Tribunal noted that the Departmental Representative (DR) failed to controvert this aspect, leading to the conclusion that the re-assessment was invalid due to non-compliance with section 151.

3. Adequacy and Independence of Reasons to Believe:
The Tribunal scrutinized whether the AO had valid reasons to believe that income had escaped assessment. It is a well-established principle that the reasons must have a rational connection with the belief of income escapement and should not be based on suspicion or conjecture. The AO's reasons for reopening were found to be entirely dependent on the revisionary proceeding and lacked independent application of mind. The AO failed to provide specific details about the land transaction, such as the nature of the land, ownership proof, and registered conveyance deed. The Tribunal found no evidence or information on record to substantiate the AO's belief that the land sale occurred in the relevant assessment year, leading to capital gain escapement. The Tribunal concluded that the reopening was based on borrowed satisfaction and not on independent reasoning, making it invalid.

Conclusion:
The Tribunal allowed the assessee's appeals, quashing the re-assessment proceedings initiated under section 148 of the Income Tax Act due to the lack of independent reasons to believe, non-compliance with section 151, and reliance on borrowed satisfaction. The Tribunal emphasized that the entire proceeding was void ab initio and invalid from the outset. Consequently, the rest of the grounds became academic, and no further orders were necessary. The Tribunal's decision applied mutatis mutandis to the other appeals, resulting in all the assessee's appeals being allowed.