2022 (4) TMI 618 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - absence of sanction from the appropriate authority - reopening after a period of four years from the end of the relevant assessment year - Whether proceedings have been initiated by the AO without application of independent mind on the material? - HELD THAT - A perusal of clause (b) of explanation-2 clearly shows that the same is applicable in a case where a return has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return - perusal of the paper book filed on behalf of the assessee shows that the original assessment has been completed u/s 143(3) on 03.12.2010 by the Income Tax Officer, Ward-13, New Delhi for the impugned assessment year. Therefore, it is clear that the AO without application of mind and on the basis of report of the Investigation Wing and without verifying the assessment records wherein, the original assessment was completed u/s 143(3), has reopened the assessment. Therefore, the very initiation of proceedings by invoking clause (b) of Explanation-2 of section 147 renders the reassessment proceedings invalid and consequently, such reassessment proceedings have to be quashed on account of non-application of mind before reopening of the assessment. AO after analyzing the various details filed by the assessee, passed the order u/s 143(3) of the Act without drawing any adverse inference in respect of amount of ₹ 15 lakhs brought from M/s Shalini Holdings Ltd. find the AO in the reasons recorded had merely stated that there is failure to disclose fully and truly all material facts necessary for the completion of the assessment for the AY 2008-09, However, he has not specifically mentioned which particular has not been disclosed by the assessee. This in our opinion does not satisfy the statutory pre-conditions provided in section 147 of the Act. As held in various decisions that the reasons must indicate how and why the assessee has failed to make the full and true disclosure of all material facts necessary for completion of assessment and mere repetition or quoting the language of the proviso is not sufficient. The basis of the averment or statement should be either stated or should be apparent or explained from the record. However, in the instant case, as mentioned earlier, the reasons do not satisfy which material facts the assessee failed to disclose during the original proceedings. AO has invoked clause (b) of Explanation-2 of section 147 of the Act, which is not applicable in the instant case and further considering the fact that the AO has merely stated that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment without specifying which material, the assessee has not disclosed, especially when every issue was examined during the course of original assessment u/s 143(3) by calling information u/s 133(6), which was complied with by the investing company, thus hold that the reassessment proceedings initiated by the AO and upheld by the Ld. CIT(A) is not in accordance with law - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act.
2. Appropriateness of the sanction obtained under Section 151 of the Income Tax Act.
3. Application of clause (b) of Explanation 2 to Section 147 of the Income Tax Act.
4. Compliance with the proviso to Section 147 of the Income Tax Act.
5. Issuance of notice under Section 143(2) of the Income Tax Act.
6. Jurisdiction of assessment under Section 147/148 versus Section 153C.
7. Validity of the assessment order based on the period of limitation under Section 153(1).
8. Addition of ?15,00,000 under Section 68 of the Income Tax Act.
9. Principles of natural justice in reliance on adverse material.
10. Addition of ?27,000 as arbitrary and without basis.

Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated Under Section 147:
The Tribunal found that the Assessing Officer (AO) reopened the assessment based on information from the Investigation Wing, which indicated that the assessee had received accommodation entries from entities controlled by a known entry provider. However, the AO did not independently verify this information or specify which material facts were not disclosed by the assessee. The Tribunal concluded that the reassessment proceedings were invalid due to non-application of mind by the AO.

2. Appropriateness of the Sanction Obtained Under Section 151:
The Tribunal noted that the AO obtained approval from the Additional Commissioner of Income Tax instead of the Commissioner of Income Tax as required under Section 151(1). Citing various judicial precedents, the Tribunal held that the sanction obtained from an inappropriate authority rendered the reassessment proceedings invalid.

3. Application of Clause (b) of Explanation 2 to Section 147:
The AO invoked clause (b) of Explanation 2 to Section 147, which is applicable when no assessment has been made. However, the original assessment in this case was completed under Section 143(3). The Tribunal found that the AO's reliance on this clause was misplaced and indicated a lack of application of mind, thereby invalidating the reassessment proceedings.

4. Compliance with the Proviso to Section 147:
The Tribunal observed that the AO did not specify how the assessee failed to disclose fully and truly all material facts necessary for the assessment. The reasons recorded by the AO were found to be insufficient and did not meet the statutory requirements, leading to the quashing of the reassessment proceedings.

5. Issuance of Notice Under Section 143(2):
The Tribunal noted that the AO failed to issue a notice under Section 143(2) after the assessee filed its return in response to the notice under Section 148. Citing the Supreme Court's decision in CIT vs Laxman Das Khandelwal, the Tribunal held that the absence of a notice under Section 143(2) rendered the reassessment proceedings void.

6. Jurisdiction of Assessment Under Section 147/148 Versus Section 153C:
The Tribunal found that the AO initiated reassessment proceedings based on documents seized during a search on a third party. According to the Tribunal, the appropriate course of action should have been to invoke Section 153C, which deals with assessments based on seized material. The Tribunal held that the AO lacked jurisdiction to initiate reassessment under Section 147/148 in this context.

7. Validity of the Assessment Order Based on the Period of Limitation:
The Tribunal did not specifically address the issue of the period of limitation under Section 153(1), as the reassessment proceedings were already found to be invalid on other grounds.

8. Addition of ?15,00,000 Under Section 68:
The Tribunal did not adjudicate on the merits of the addition under Section 68, as the reassessment proceedings were quashed on legal grounds.

9. Principles of Natural Justice in Reliance on Adverse Material:
The Tribunal did not specifically address this issue, as the reassessment proceedings were quashed on other legal grounds.

10. Addition of ?27,000 as Arbitrary and Without Basis:
Similarly, the Tribunal did not adjudicate on the merits of the addition of ?27,000, as the reassessment proceedings were quashed on legal grounds.

Conclusion:
The Tribunal quashed the reassessment proceedings on multiple legal grounds, including the inappropriate application of Section 147, failure to obtain proper sanction under Section 151, non-issuance of notice under Section 143(2), and lack of jurisdiction under Section 147/148. Consequently, the appeal filed by the assessee was allowed.

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