2021 (5) TMI 400 - AT - Income Tax

Reopening of assessment u/s 147 - notice u/s 143(2) was issued to the assessee on the very same day on which the assessee appeared and furnished copy of ITR in response to notice u/s 148 - HELD THAT - The notice u/s 143(2) was issued to the assessee on the very same day on which the assessee appeared and furnished copy of ITR in response to notice u/s 148 of the IT Act. As held in various decisions that when the notice u/s 143(2) is issued to the assessee on the very same day on which the assessee filed the return in response to notice u/s 148 stating that the return already filed may be treated as return in response to notice u/s 148, such notice issued u/s 143(2) on the very same day has to be treated as invalid and assessment is vitiated due to non-application of mind by the AO. Therefore, on all counts the reassessment proceedings initiated by the AO and upheld by the CIT(A) in my opinion is not in accordance with the law. Therefore, quash the reassessment proceedings and the grounds raised by the assessee are allowed.

Issues Involved:
1. Validity of reopening the assessment under section 147.
2. Validity of the approval given under section 151.
3. Legality of the ad hoc disallowance of expenses.
4. Proper opportunity for the assessee to present evidence.
5. Validity of the notice issued under section 143(2).
6. Charging of interest under section 234B and initiation of penalty proceedings under sections 271(1)(b), 271(1)(c), and 271F.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The reopening of the assessment was based on the premise that the assessee had not filed a return of income for the assessment year 2010-11 and had made cash deposits amounting to ?14,52,000/-. However, it was found that the assessee had indeed filed the return of income on 30th March 2011. This incorrect fact led to the reopening of the assessment being deemed invalid. The Tribunal relied on the case of PCIT vs. RMG Polyvinyl (I) Ltd., where it was held that reopening on wrong facts makes the assessment a nullity.

2. Validity of the Approval Given under Section 151:
The approval for reopening the assessment was given by the higher authorities in a mechanical manner without proper application of mind. The Joint Commissioner and PCIT merely concurred with the reasons recorded by the AO without independently verifying the facts. This was evident from their generic statements of satisfaction. The Tribunal cited the case of Yum! Restaurants Asia Pvt. Ltd. vs. DDIT(2), where it was held that mechanical approval without application of mind renders the reassessment invalid.

3. Legality of the Ad Hoc Disallowance of Expenses:
The AO made an ad hoc disallowance of 25% of the expenses claimed in the Profit & Loss Account, amounting to ?7,57,728/-. The Tribunal noted that the assessee had maintained proper books of accounts and supporting bills/vouchers, which were not duly considered. The disallowance was deemed unjustified, especially since similar expenses were allowed in earlier years. The Tribunal emphasized that disallowances should be based on cogent material and not on arbitrary estimates.

4. Proper Opportunity for the Assessee to Present Evidence:
The assessee argued that no proper opportunity was given to present the bills and vouchers. The Tribunal found merit in this argument, noting that the AO had not provided reasonable opportunity for the assessee to produce the necessary documents. This was against the principles of natural justice.

5. Validity of the Notice Issued under Section 143(2):
The notice under section 143(2) was issued on the same day the assessee filed the return in response to the notice under section 148. The Tribunal held that such a notice is invalid as it indicates non-application of mind by the AO. This was supported by various judicial precedents which state that a notice issued on the same day as the return filing lacks due consideration.

6. Charging of Interest under Section 234B and Initiation of Penalty Proceedings:
The Tribunal did not specifically address the issue of charging interest under section 234B and the initiation of penalty proceedings under sections 271(1)(b), 271(1)(c), and 271F, as the reassessment itself was quashed. However, it can be inferred that these actions would also be invalidated due to the quashing of the reassessment proceedings.

Conclusion:
The Tribunal quashed the reassessment proceedings on multiple grounds, including incorrect facts leading to reopening, mechanical approval by higher authorities, lack of proper opportunity for the assessee, and invalid notice under section 143(2). The appeal filed by the assessee was allowed, and the grounds challenging the addition on merit were not adjudicated as they became academic in nature.

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