2021 (3) TMI 510 - AT - Income Tax

Reopening of assessment u/s 147 - reassessment proceedings were initiated beyond the four years - approval granted under section 151 - HELD THAT - The reason to believe has to be that of the AO who is initiating the proceedings and in absence of any independent application of mind and satisfaction of the AO the reason to believe falls in the realm of conjectures. AO has to have tangible material with him and even if the information has come from Investigation wing the AO must perused the material which has been referred in the said information and examine what is the income which has escaped assessment. Recommendation may come from any person or authority but it is the AO who has to entertain reason to believe based on material before him that income chargeable to tax has escaped assessment. The most crucial material here in this case is that assessee has removed goods without payment of duty and there were invoices which were later shown to be cancelled but nowhere there is any whisper about the invoices nor they have been produced. AO simply appears to have reopened to examine the claim of section 10B and what was the basis and premise before him as to how the claim on examine u/s 10B has incorrect is not coming fore. Mere intimation received from any authority cannot lead to immediate presumption but it needs to be verified by the AO and to apply his mind. Here in this case even the documents pertaining to Custom Central Excise Authorities was not available with the AO at the time of initiation of proceedings which fact has been surfaced before us. Thus we hold that the reasons recorded by the AO do not give jurisdiction to reopen the assessment u/s 147 read with section 148. Sanction not been taken from the appropriate authority as provided u/s 151 - It is seen that in the case of CIT vs. SPL s Siddhartha Ltd 2011 (9) TMI 640 - DELHI HIGH COURT wherein approval was taken by the AO from superior authority i.e. CIT whereas the under the statutory provision approval was to be taken from JCIT/Addl CIT it was held that notice issued u/s 148 of the Act is invalid. The issue is squarely covered in favour of the assessee as for reopening of the assessment for the AY 2003-04 and 2004-05 the sanction has been taken from the learned Addl. CIT instead of CIT as such sanction granted for assumption of jurisdiction is not in accordance with the provisions of section 151 of the Act. Hence respectfully following the decision of the honourable Delhi High Court we hold that the notice issued by the AO u/s 148 of the Act for the AY 2003-04 and 2004-05 is bad in law on this ground also. Since we have already quashed the assessment being without jurisdiction under section 147 on the ground that approval granted is mechanical and also for the AY 2003-04 and 2004-05 even the so called approval is not from the competent authority therefore other grounds raised by the assessee challenging the assumption of jurisdiction.

Summary

Issues Involved:
1. Validity and legality of the initiation of reassessment proceedings under Section 147 of the Income Tax Act.
2. Validity of the notices issued under Section 148 of the Income Tax Act.
3. Legality of the additions made to the income of the assessee from undisclosed sources.
4. Adequacy of the material and evidence considered by the Assessing Officer (AO) for initiating reassessment proceedings.
5. Validity of the approval granted under Section 151 of the Income Tax Act.

Detailed Analysis:

1. Validity and Legality of the Initiation of Reassessment Proceedings under Section 147:
The assessee contended that the initiation of reassessment proceedings under Section 147 was invalid due to a lack of tangible material and jurisdiction. The Tribunal examined whether the AO had sufficient material to form a "reason to believe" that income had escaped assessment. The Tribunal found that the AO relied on information from the ADIT (Investigation), Ghaziabad, and a report from ADIT (Investigation), Noida, without verifying the underlying material or cancelled invoices. The Tribunal concluded that the AO did not independently apply his mind and initiated the proceedings based on mere recommendations, making the reassessment proceedings invalid.

2. Validity of the Notices Issued under Section 148:
The Tribunal noted that the AO issued notices under Section 148 based on vague and unverified information. The Tribunal highlighted that the AO did not have the alleged cancelled invoices or any supporting material at the time of recording the reasons for reopening the assessment. The Tribunal directed the revenue to produce the material, but the revenue failed to comply. Consequently, the Tribunal held that the notices issued under Section 148 were invalid.

3. Legality of the Additions Made to the Income of the Assessee from Undisclosed Sources:
The assessee challenged the additions made by the AO, arguing that all sales were duly recorded in the books of account and that no evidence of unaccounted sales was provided. The Tribunal found that the AO's additions were based on presumptions and unverified information. The Tribunal emphasized that the revenue could not produce the alleged cancelled invoices or any other material evidence to substantiate the additions. Therefore, the Tribunal held that the additions made to the income of the assessee were unfounded and uncalled for.

4. Adequacy of the Material and Evidence Considered by the AO for Initiating Reassessment Proceedings:
The Tribunal scrutinized the material and evidence available with the AO at the time of initiating the reassessment proceedings. It was found that the AO initiated the proceedings based on letters from the ADIT (Investigation) without any tangible material or cancelled invoices. The Tribunal concluded that the AO lacked adequate material to form a "reason to believe" that income had escaped assessment, rendering the initiation of reassessment proceedings invalid.

5. Validity of the Approval Granted under Section 151:
The Tribunal examined whether the approval for issuing notices under Section 148 was obtained from the competent authority as per Section 151. It was found that for AYs 2003-04 and 2004-05, the approval was taken from the Addl. CIT instead of the Chief Commissioner or Commissioner, as required by law. The Tribunal cited various judicial precedents, including the jurisdictional High Court's rulings, to emphasize that the approval must be from the specified authority. The Tribunal held that the approval granted was mechanical and not in accordance with the law, further invalidating the reassessment proceedings.

Conclusion:
The Tribunal quashed the reassessment proceedings for all three assessment years (2002-03, 2003-04, and 2004-05) on the grounds that the initiation of proceedings under Section 147 was invalid due to a lack of tangible material and independent application of mind by the AO. The notices issued under Section 148 were also held to be invalid. Additionally, the Tribunal found that the approval granted under Section 151 was not from the competent authority and was mechanical in nature. Consequently, the Tribunal allowed the appeals of the assessee and quashed the reassessment orders.