2020 (6) TMI 8 - AT - Income Tax

Reopening of assessment u/s 147 - No notice issued by the Jurisdictional AO - Non disposal of assessee's objection - addition u/s 68 - HELD THAT - Reasons recorded by the AO that the assessee was beneficiary by way of CCM in derivative transactions was factually incorrect. This shows non application of mind by the I.T.O to the information received by the AO from the ADIT (Inv.), Unit-1(3), Ahmedabad. The law requires that the Assessing Officer prima facie applies his mind to the information received, prior to forming a reasonable belief, that income subject to tax has escaped assessment and thereafter record reasons. When reasons are based on wrong facts, which were not verified, then it is a clear case of non-application of mind by the Assessing Officer to the material received. Thus, there is no direct nexus between the tangible material received and the formation of belief that income had escaped assessment and hence the reopening of assessment is bad in law.Admittedly, the Assessing Officer has not disposed off these objections by way of a speaking order, as mandated by the Hon ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT before the completion of assessment. No notice of reopening u/s 148 of the Act was given by the Assessing Officer having jurisdiction over the assessee. No reasons were recorded by the jurisdiction so that he believes that income subject to tax has escaped assessment. The notice issued u/s 148 of the Act was by an AO who had no jurisdiction. Hence it is null and void. It is not a legal notice in the eyes of law. Thus, on this count also, the assessment order passed u/s 143(3) of the Act on 13/12/2016, is bad in law. Addition u/s 68 - AO has not discharged the onus that lay on the revenue to prove that the assessee had earned the income in question. The letter from NSE states the facts which are not controverted by the Assessing Officer. When the NSE states that the assessee has not earned income from derivative transactions, the question of making addition on this ground does not arise. Thus, we delete the addition made. - Decided in favour of assessee. Order being pronounced after ninety (90) days of hearing - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Reopening of Assessment under Section 147.
2. Validity of Notice issued under Section 148.
3. Jurisdiction of Assessing Officer.
4. Addition made under Section 68 on merits.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under Section 147, arguing that the reasons recorded by the Assessing Officer (AO) showed non-application of mind to the material received. The AO's belief that income had escaped assessment was based on incorrect facts, as the assessee had not entered into any derivative transactions during the year. The assessee cited several case laws, including *PCIT vs. Meenakshi Overseas P. Ltd.*, *PCIT vs. RMG Polyvinyl (I) Ltd.*, and *PCIT vs. G & G Pharma India Ltd.*, to support the argument that reopening based on incorrect facts is invalid.

2. Validity of Notice issued under Section 148:
The assessee argued that the notice under Section 148 was issued before obtaining the mandatory approval from the Principal Commissioner of Income Tax (Pr. CIT), rendering it invalid. Additionally, the approval given by the Pr. CIT was general and did not satisfy the legal requirements. The assessee also contended that the AO did not dispose of the objections to the reopening before completing the assessment, violating the procedure laid down by the Supreme Court in *G.K.N. Driveshafts (India) Ltd. vs. ITO* and *Bayer Material Science P. Ltd. vs. DCIT*.

3. Jurisdiction of Assessing Officer:
The assessee claimed that the notice under Section 148 was issued by an AO who did not have jurisdiction over the case. The jurisdiction was with ITO, Ward-4(3), Kolkata, but the notice was issued by ITO, Ward-1(1), Kolkata. The Tribunal, relying on its decision in *M/s. Rungta Irrigation Limited vs. ACIT*, held that the AO who issued the notice did not have the jurisdiction, making the notice and subsequent assessment order invalid.

4. Addition made under Section 68 on merits:
On merits, the assessee argued that the addition made under Section 68 for cash credit was based on incorrect information. The National Stock Exchange (NSE) confirmed that there were no client code modifications (CCM) for the assessee during the relevant period. The Tribunal found that the AO did not discharge the onus to prove that the assessee earned the income in question, and the addition was made in contravention of the evidence provided by NSE.

Conclusion:
The Tribunal concluded that the reopening of assessment was invalid due to non-application of mind by the AO and the issuance of notice under Section 148 without proper jurisdiction. The objections raised by the assessee were not disposed of as required by law, further invalidating the assessment. On merits, the addition made under Section 68 was deleted as the AO failed to prove that the assessee earned the income in question. The appeal of the assessee was allowed.