2022 (8) TMI 288 - AT - Income Tax

Reopening of assessment u/s 147 - purchase of property - PAN of the firm was fake, so the entire deposit in the bank account of the firm is added back as per the profit-sharing ratio of the partners and added back in the partner's hand - HELD THAT - AO made gross violation of natural justice in this case. Without the assessment of the firm how the amount deposited in account of the firm was added back in the partner's hand. Further, the Ld. AO fully deviated from reason recorded the addition made in assessment. The Ld. CIT(A) had not adjudicated the issue in his order. AO recorded the reason which warranted him to hold the belief that the income chargeable to tax has escaped assessment thereafter the Ld. AO usurped the jurisdiction to reopen the assessment. When the income is foundation on which he based his belief of escapement of income is absent, so AO's usurpation of jurisdiction to reopen of assessment is legally untenable so, null in the eyes of law. So, we quash the reassessment made by the Ld. AO without jurisdiction. The addition to amount be deleted accordingly. - Decided in favour of assessee.

Summary

Issues:
1. Validity of proceedings under section 147/148 against the individual appellant in a partnership firm.
2. Initiation of proceedings against the partnership firm or A.O.P. in case of alleged firm's bogus nature.
3. Addition of unexplained investment in the bank account of the firm.
4. Rejection of explanation and evidence by the Assessing Officer.
5. Legal and factual errors in assessment order by lower authorities.
6. Jurisdictional validity of reassessment by the Ld. AO.

Analysis:
1. The appeal challenged the initiation of proceedings under section 147/148 against the individual appellant in a partnership firm. The appellant contended that the proceedings should have been against the firm or A.O.P. instead. The appellant argued that the assessment order was void ab initio due to factual inaccuracies.

2. The appellant provided evidence of the firm's constitution, capital contributions, bank transactions, and property investments to support their case. The appellant claimed that the lower authorities erred in not recognizing the defined share of the appellant in the firm's registration deed, thereby disputing the need for profit-sharing ratios.

3. The Assessing Officer added Rs. 7,70,385 to the appellant's income, alleging unexplained investment based on a percentage of total bank deposits by the firm. The appellant contested this addition, arguing that the deposit should not have been added to their individual income but assessed separately in the firm's account.

4. The appellant's counsel submitted written arguments challenging the Assessing Officer's decision to include the firm's cash deposit in the appellant's total income. The appellant emphasized the need for a separate assessment of the firm's finances and objected to the addition without proper assessment of the firm.

5. Upon careful consideration, the Tribunal found that the reassessment under section 148 was unjustified. The Assessing Officer's decision to add the firm's deposit to the appellant's income lacked legal basis and deviated from the recorded reasons for reassessment. The Tribunal cited a relevant judgment to support its conclusion and nullified the reassessment, ordering the deletion of the added amount.

6. The Tribunal held that the reassessment made by the Assessing Officer lacked jurisdiction and was legally untenable. The Tribunal quashed the reassessment, ruling in favor of the appellant and ordering the deletion of the added amount from the appellant's income.

This comprehensive analysis covers the key issues raised in the legal judgment, detailing the arguments presented by the parties and the Tribunal's decision on each issue.