2021 (4) TMI 1002 - AT - Income Tax

Reopening of assessment u/s 147 - reasons for issue of notice u/s 148 were not supplied to the assessee - HELD THAT - We observe from perusal of the record that the A.O. in his remand report admitted that the assessee has demanded the reasons for issue of notice u/s 148 vide letter dated 24.05.2019, but since there was request in one line, therefore skipped from supply the same. The A.O. also submitted in his remand report that the letter dated 17.10.2019 is not served on to the A.O CIT(A) is of the opinion that mere mentioning a line is not a sufficient demand and about the letter dated 17.10.2019 he completely relied on the submission of the A.O. A.O. in his remand report stated that the letter dated 17.10.2019 was not served on him. In this connection it has been submitted by the ld AR that this letter was served on to the A.O., which is very well evident from the proof of service provided by the Courier agency, the copy of the same was also submitted by the assessee to the Ld. CIT(A) but the same was not appreciated. From the perusal of the courier record, the samw as served upon the A.O., we are of the view that the findings of the Ld. CIT(A) are unjustified and also not in accordance with the law as well as various judicial pronouncements. CIT(A) had not considered the evidences submitted by the assessee during the course of hearing. The assessee submitted the proof of receipt of the letter sent in by placing on record the copy of receipts provided by the courier company, but the Ld. CIT(A) has completely brushed aside the evidences so submitted by the assessee and ld. CIT(A) also approved the act of the A.O., which is unjustified and contrary to the law. A.O. has failed to provide the reasons despite the specific request of the assessee made to the A.O. twice, first just after filing of return u/s 148 and again during the course of assessment. It is needless to mention that without supply of reasons the entire assessment proceedings should be liable to be declared as illegal and bad in the eyes of law. Mandate of Section 151 - As the sanction was accorded by the ld. CIT in a purely mechanical manner without application of judicious mind, therefore, the sanction so accorded cannot be held to be a proper and valid sanction within the meaning of Section 151 of the Act and for this reason also, the impugned notice U/s 148 of the Act falls to the ground and proceedings for reopening of the assessee in absence of valid sanction of CIT cannot be initiated, therefore, in the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, we are of the considered view that proceedings initiated by invoking the provisions of Section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction, hence, the re-assessment is quashed.

Summary

Issues Involved:
1. Validity of proceedings under Section 147/148 due to non-supply of reasons for issuing notice.
2. Validity of proceedings under Section 147/148 due to lack of mandatory sanction/approval from the Commissioner of Income Tax.
3. Legality of additions made by the Assessing Officer (AO) after rejecting the books of accounts.
4. Specific additions challenged by the assessee:
- Anonymous donations.
- Difference in cost of construction.
- Payment for purchase of land.
- Bogus creditors.
- Difference in advertisement expenses.
- Disallowance of exemption under Section 10(23C)(iiiad).

Detailed Analysis:

1. Validity of proceedings under Section 147/148 due to non-supply of reasons for issuing notice:
The assessee argued that the reasons for issuing the notice under Section 148 were not supplied despite multiple requests. The Tribunal referenced the Supreme Court's ruling in *GKN Driveshafts (India) Ltd. v/s Income Tax Officer* (125 Taxman 963 (SC)), which mandates that the AO must furnish reasons within a reasonable time. The Tribunal found that the AO failed to supply these reasons, rendering the reassessment proceedings invalid.

2. Validity of proceedings under Section 147/148 due to lack of mandatory sanction/approval from the Commissioner of Income Tax:
The assessee contended that the notice under Section 148 was issued without the mandatory sanction of the Commissioner of Income Tax (Exemption). The Tribunal examined the timeline and found discrepancies in the approval process. The approval was granted on 26.03.2019, but the notice was issued on 25.03.2019. This procedural lapse led the Tribunal to conclude that the notice was issued without proper jurisdiction and sanction, thus invalidating the reassessment proceedings.

3. Legality of additions made by the Assessing Officer (AO) after rejecting the books of accounts:
The AO had rejected the books of accounts under Section 145(3) and made several additions. The Tribunal noted that the AO's actions were inconsistent, as the same set of books was used to make additions after being rejected. This inconsistency was deemed illegal and against the law.

4. Specific additions challenged by the assessee:

- Anonymous donations: The Tribunal upheld the addition of ?6,17,900 on account of anonymous donations, as the assessee failed to provide satisfactory explanations during the assessment.

- Difference in cost of construction: The Tribunal sustained the addition of ?4,24,205 due to the difference in the cost of construction, as the valuation report was not provided to the assessee for verification.

- Payment for purchase of land: The addition of ?4,45,000 was sustained as the payment for the purchase of land was not satisfactorily explained.

- Bogus creditors: The Tribunal upheld the addition of ?16,53,383 on account of bogus creditors.

- Difference in advertisement expenses: The addition of ?26,87,000 was sustained due to unexplained differences in advertisement expenses.

- Disallowance of exemption under Section 10(23C)(iiiad): The Tribunal did not specifically address this issue in detail, as the reassessment proceedings were already quashed.

Conclusion:
The Tribunal quashed the reassessment proceedings for both A.Y. 2012-13 and A.Y. 2013-14 due to procedural lapses in issuing the notice under Section 148 and failure to supply reasons to the assessee. Consequently, other grounds became academic and were not adjudicated. The assessee's appeals were partly allowed.