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2021 (11) TMI 404 - AT - Income TaxReopening of assessment u/s 147 - issuance of notice u/s 148 by non-jurisdictional Assessing officer - HELD THAT - In the instant case, the assessee has not filed any return of income earlier and even no return of income has been filed in response to notice u/s 148 of the Act forgot about filing the return of income prescribed in notice u/s 148 of the Act. Therefore, in such facts and circumstances of the case, where the assessee has not raised any objections as so provided in terms of section 124(3) thereby accepting and not objecting to the jurisdiction of the Assessing officer within the timelines as so prescribed in the statue, the assessee cannot plead and take a legal defence challenging the jurisdiction of the Assessing officer after completion of the assessment proceedings. Thus, we agree with contentions advanced by the ld DR and the contents so advanced by the ld AR in this regard cannot be accepted. Jurisdiction of AO in initiating the reassessment proceedings on the basis of reasons recorded on incorrect assumption of facts and non application of mind at the time of recording of the reasons and even the approval granted mechanically by the concerned sanctioning authority - On perusal of the reasons so recorded, it is noted that it talks about certain information available on record with the Assessing officer. What is the nature and the source of such information and what the contents of such information and more importantly, how the said information pertains to or connected with the assessee and whether such information forms a tangible material in possession of the Assessing officer for forming a reasonable belief that income has escaped assessment is not discernable from the reasons so recorded. We agree with the contentions of the ld AR that possession of ITS information that the assessee has received certain amount could be basis for making further enquiries and in absence of such enquiries being conducted prior to recording of the reasons, there is absence of tangible material in possession of the Assessing officer at the time of recording of reasons and subsequent enquiries after recording of the reasons could not be used to supplement the reasons so recorded by the AO. Reasons so recorded talks about the assessee receiving gross receipts of ₹ 21,60,840/- on which TDS of ₹ 2,17,807/- has been deducted. The assessee s PAN number is also mentioned while recording the said reasons and the PAN number carries the date of birth of the assessee and on perusal thereof, it is noted that the assessee was a minor during the financial year 2009-10 relevant to assessment year 2010-11. The nature of gross receipts is again not discernable from the reasons so recorded and in absence thereof, it would be taken and understood as any gross receipts which is received by the assessee, being a minor and on which there is deduction of tax at source. Whether receipts in hands of the minor can be brought to tax in her own hands or in the hands of either of her parents in terms of section 64(1A) and whether there is application of mind by the Assessing officer and whether there is a prima facie finding to this effect which is discernable from the reasons so recorded? - The applicability of section 64(1A) or the exclusion as so provided in the proviso to the said provisions have to be examined atleast prima facie at the time of recording of the reasons itself and not subsequent during the course of reassessment proceedings. Further, we find that the reasons so recorded were sent for recommendation to the Additional Commissioner of Income Tax, Range 6, Jaipur and then to the approving authority, the PCIT-II, Jaipur and we find that these two authorities have also recommended and approved the reasons so recorded by the Assessing officer without considering the fact that the AO while recording the reasons that income has escaped in the hands of the minor has not considered the impact and applicability of provisions of section 64(1A) - said act thus again reflect a mechanical approach on part of the sanctioning authority and non-application of mind before granting such approval and various authorities cited at the Bar regarding non-application of mind by the sanctioning authority at the time of granting the approval thus support the case of the assessee. The assumption of jurisdiction and initiation of the proceedings under Section 147 of the Act to reopen the assessment proceedings are vitiated in the instant case and does not satisfy the requirement of law and such action on the part of the Assessing Officer cannot be accepted and the notice under section 148 and consequent proceedings are thus set-aside. Where the reassessment proceedings have been quashed and set-aside appeal of assessee allowed.
Issues Involved:
1. Validity of the notice issued under Section 148 by a non-jurisdictional Assessing Officer. 2. Incorrect assumption of facts and non-application of mind by the Assessing Officer at the time of recording reasons for reopening the assessment. 3. Mechanical approval by the sanctioning authority. 4. Addition of commission income in the hands of the minor assessee. Detailed Analysis: 1. Validity of the Notice Issued Under Section 148 by a Non-Jurisdictional Assessing Officer: The assessee contended that the notice under Section 148 was issued by ITO, Ward 6(2), Jaipur, while the jurisdiction lay with ITO, Ward 6(3), Jaipur. The Tribunal noted that the assessee did not object to the jurisdiction of the Assessing Officer upon receipt of the notice or during the reassessment proceedings, as required under Section 124(3). Therefore, the Tribunal agreed with the Revenue's contention that the assessee cannot challenge the jurisdiction after the completion of the assessment proceedings. 2. Incorrect Assumption of Facts and Non-Application of Mind by the Assessing Officer: The Tribunal examined whether the Assessing Officer had tangible material to form a reasonable belief that income had escaped assessment. It was found that the reasons recorded for reopening were based on an ITS report showing gross receipts and TDS but lacked specific details about the nature of the receipts or any concrete evidence linking the income to the assessee. The Tribunal emphasized that the reasons must show a link between the information and the belief that income has escaped assessment. The Tribunal concluded that the Assessing Officer had not conducted sufficient inquiries before recording the reasons and had relied solely on the ITS report, which is insufficient for reopening the assessment. 3. Mechanical Approval by the Sanctioning Authority: The Tribunal scrutinized the approval process by the sanctioning authority, PCIT-II, Jaipur, and found that the approval was granted mechanically without proper application of mind. The approval letter merely stated "Yes" to the query about satisfaction on the reasons recorded by the Assessing Officer. The Tribunal cited several case laws where such mechanical approvals were deemed invalid. It was held that the sanctioning authority must record proper satisfaction and cannot merely append a formal approval. 4. Addition of Commission Income in the Hands of the Minor Assessee: The Tribunal examined the addition of ?21,75,286 as commission income in the hands of the minor assessee. The assessee argued that she was a minor and studying in Class 12 during the relevant period, making it improbable for her to earn commission income. The Tribunal noted that the nature of the income required an agency contract, which a minor could not legally enter into under Section 11 of the Indian Contract Act, 1872. The Tribunal found that the Assessing Officer and CIT(A) had not provided evidence that the minor had provided any services to earn the commission. The Tribunal concluded that the addition was unjustified and contrary to the law and facts. Conclusion: The Tribunal quashed the reassessment proceedings due to the invalid assumption of jurisdiction, incorrect assumption of facts, non-application of mind by the Assessing Officer, and mechanical approval by the sanctioning authority. Consequently, the addition of commission income in the hands of the minor assessee was also set aside. The appeal of the assessee was allowed, and the reassessment proceedings were declared void.
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