2021 (5) TMI 522 - AT - Income Tax

Reopening of assessment u/s 147 - reassessment proceedings has been made by the AO by alleging that the return was processed u/s. 143(1)(a) of the Act but while processing, the assessee has not computed the income as per the provisions of section 115JB of the Act and paid tax accordingly - HELD THAT - It is ample clear that there was no fresh or new tangible material before the AO which was not before him during processing of return u/s. 143(1)(a) of the Act. We are in agreement with the contention of ld. CIT DR that in this case, the direction issued by ld. CIT(A) while deleting the addition and on procedural mistake, he has directed the AO to take suitable course available to him u/s. 147 of the Act. Therefore, the limitation as prescribed u/s. 149 of the Act for initiation of proceedings u/s. 147 of the Act and issuance of notice u/s. 148 of the Act does not apply but it is not the case of the appellant/assessee in the present appeal that the initiation of reassessment proceedings is time barred. Therefore, the proposition rendered by ITAT Delhi in the case of Hanemp Properties Pvt. Ltd. 2006 (3) TMI 212 - ITAT DELHI-A does not provide any fruitful support of the revenue in the peculiar facts and circumstances of the legal contention and grounds of the assessee in the present case. From the reasons recorded by the AO before initiating reassessment proceedings u/s. 147 of the Act and issuance of notice u/s. 148 of the Act, we are unable to see any tangible material in the hands of the AO which was not before him at the time of processing return of income u/s. 143(1)(a) of the Act. Therefore, the provisions rendered by Hon'ble Supreme Court in the case of Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT is applicable in favour of the assessee and consequently, we hold that the AO proceeded to initiate reassessment proceedings u/s. 147 of the Act and issuance of notice u/s. 148 of the Act without any new tangible material and without application of mind merely on the strength of direction of Ld. CIT(A) that the suitable course of action available to the AO under the Act is application of provisions of section 147 of the I.T. Act as the appellant has understated its income by not applying the provisions of section 115JB of the I.T. Act. But there was no new or tangible material before the AO to initiate reassessment proceedings u/s. 147 of the Act. We are unable to see application of mind by the AO of the materials available before him. The AO has not recorded any basis or factum gathered by him after application of mind of the assessment already completed which could reflect that before initiation of reassessment proceedings u/s. 147 of the Act, he applied his mind and thereafter reached to a conclusion that he had reasons to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act empowering him to issue notice u/s. 148 - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
3. Absence of fresh tangible material for reopening the assessment.
4. Application of mind by the Assessing Officer (AO) in initiating reassessment proceedings.

Issue-wise Detailed Analysis:

Condonation of Delay in Filing the Appeal:
The appeal was initially dismissed due to the assessee's non-appearance and a delay of 1415 days in filing. However, the delay was condoned as the assessee provided valid reasons, including financial stringency and liquidation status, for the shortfall in appeal fees. The Tribunal concluded that the appeal was filed within the prescribed time once the fee defect was rectified, thus there was no delay in filing.

Validity of Reassessment Proceedings under Section 147:
The assessee contended that the reassessment proceedings were initiated without an independent exercise of judicial mind by the AO, and that the CIT(A) merely suggested the reassessment. The Tribunal noted that the AO must have "reasons to believe" that income had escaped assessment, based on new tangible material, which was not present in this case. The reassessment was deemed an afterthought and not sustainable as per the provisions of the Act and relevant case laws.

Absence of Fresh Tangible Material for Reopening the Assessment:
The Tribunal emphasized that there was no new tangible material before the AO that was not available during the initial processing of the return. The AO's reasons for reopening were based solely on the CIT(A)'s procedural suggestions without any fresh evidence. This lack of new material rendered the reassessment proceedings invalid, aligning with the Supreme Court's rulings in Rajesh Jhaveri Stock Brokers Pvt. Ltd. and Kelvinator of India Ltd.

Application of Mind by the AO in Initiating Reassessment Proceedings:
The Tribunal found that the AO did not independently apply his mind or record any new basis or facts to justify the reassessment. The AO's satisfaction note lacked substantive reasoning and was merely a reproduction of the CIT(A)'s observations. This failure to demonstrate an independent application of mind and absence of tangible material led to the quashing of the reassessment proceedings.

Conclusion:
The Tribunal allowed the appeal, quashing the reassessment proceedings under Section 147 of the Income Tax Act due to the absence of new tangible material and lack of independent application of mind by the AO. Consequently, other grounds on merits became infructuous. The order was pronounced on 10/5/2021.