2023 (2) TMI 922 - AT - Income Tax

Reopening of assessment u/s 147 - corrigendum issued to make changes in reaosns to belive - Wrongful assumption of jurisdiction u/s 147 as alleged - Impermissibility of substantive modification of Reasons recorded by issuing of corrigendum - HELD THAT - By the Corrigendum, two important changes have been carried out; firstly, the name of broker was amended from S.S. Corporate Services Ltd. to broker namely A to Z Stock Trade Pvt. Ltd. ; secondly, the amount of alleged escapement was modified from Rs.15,78,004.95 to Rs.21,31,154/-. We find the action of the AO to be wholly untenable in law. By issue of corrigendum, the Assessing Officer has attempted to rectify the very fulcrum of believe derived qua the broker, i.e., S.S. Corporate Securities Ltd. The name of the broker was substituted in the corrigendum which has changed the tone of the entire basis for assumption of jurisdiction u/s 147 - The amount earlier computed and determined precisely at Rs.15,78,004.95 was also substituted by improved figure of Rs.21,31,154/- in the corrigendum. The whole basis for deriving the belief from the information is thus substantially changed. AO, in the instant case, has formed the belief qua the material attributable to transactions with S.S. Corporate Securities Ltd., if it is to be assumed that the action was taken with application of mind. The assessee however pointed out in the course of the assessment that no transactions have been carried out in the capital market segment or in the currency derivative segment through the said broker. Thus, at the stage of recording reason, the Assessing Officer was not privy to the exact nature of information at all for alleged formation of believe or in the alternative he has casually and perfunctorily exercised power of reopening dehors the material supplied to him. Both the situations disempowers the Assessing Officer to exercise the drastic powers conferred under Section 147 of the Act. Reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. While the Revenue is entitled to elaborate on briefly recorded reasons, the Revenue cannot give new ground for reopening, genesis of which is not traceable to such recorded reasons. Hence, the supplementation made by the AO by way of corrigendum is totally contrary to the plethora of judicial pronouncement holding the field in this regard. Applicability of Section 292B to change the basis of reopening a case - The instant case is the case of the jurisdictional defect which cannot be rectified by invoking the provisions of Section 292B of the Act. Thus, on a nuanced analysis of fact situation, we find traction in the plea of the assessee. The reasons cited for forming belief in the instant case are wholly incongruent and at odds with actual facts. The Assessing Officer apparently has not applied his mind. The corrigendum issued with the aid of Section 292B is thus also not sustainable in law for the reasons noted above. Thus, the action of the Assessing Officer suffers from multifaceted defects of cardinal nature in serious transgression of statutory requirements. The reasons were not recorded qua the transactions in relation to broker M/s. A to Z Stock Trade Pvt. Ltd. Such fundamental infirmity of substantive nature while usurping jurisdiction cannot be called a mere technical defect or procedural irregularity. Such vital infirmity, in our considered view cannot be cured or obliterated by taking shelter of Section 292B of the Act. We hold that impugned notice issued under Section 148 suffers from inherent fundamental defects and does not meet the requirement contemplated under Section 147 of the Act. The notice issued under Section 148 is thus null and void and as a sequel thereto, re- assessment proceedings carried out in the instant case is without jurisdiction. Hence, in our considered opinion, the Assessing Officer has misdirected himself in law in initiating the re-assessment proceedings without any legal foundation. Appeal of the assessee is allowed

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 by issuing a notice under Section 148.
2. Legality of issuing undated reasons for reopening the assessment and subsequent corrigendum.
3. Non-passing of a speaking order against the objections raised by the assessee.
4. Sustaining the addition of Rs. 21,31,154 based on client code modification.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated Under Section 147 by Issuing a Notice Under Section 148:
The assessee challenged the jurisdiction of the Assessing Officer (AO) under Section 147/148, asserting that the AO initiated reassessment without proper application of mind and based on suspicion. The Tribunal noted that the AO received information from the Principal Director of Income Tax (Inv.) Ahmedabad about the assessee under-reporting taxable income by misusing the client code modification (CCM) facility. The AO issued a notice under Section 147 after recording reasons and obtaining necessary approval. However, the Tribunal found that the reasons for reopening were undated and the corrigendum issued to rectify mistakes in the original reasons was beyond the limitation period. The Tribunal held that the corrigendum substantially changed the basis for reopening, which is impermissible and renders the notice under Section 148 and the reassessment proceedings void.

2. Legality of Issuing Undated Reasons for Reopening the Assessment and Subsequent Corrigendum:
The assessee argued that the AO issued undated reasons for reopening and later issued a corrigendum to rectify fundamental issues in the original reasons. The Tribunal observed that the corrigendum changed the broker's name and the amount of alleged escapement, which altered the entire basis for the AO's belief of income escapement. The Tribunal stated that reasons recorded for reopening cannot be supplemented or altered by a corrigendum, as per judicial precedents. The Tribunal concluded that the corrigendum issued by the AO was not sustainable in law, and the reasons recorded initially were not in accordance with the statutory requirements, making the reassessment proceedings invalid.

3. Non-passing of a Speaking Order Against the Objections Raised by the Assessee:
The assessee contended that the AO did not pass a speaking order against the objections raised, as required by law. The Tribunal did not delve deeply into this issue, as it had already found the reassessment proceedings to be invalid based on the jurisdictional issues. However, the Tribunal's decision to set aside the reassessment implicitly addresses the procedural lapse in not passing a speaking order.

4. Sustaining the Addition of Rs. 21,31,154 Based on Client Code Modification:
The assessee challenged the addition of Rs. 21,31,154, alleging that the AO made the addition based on suspicion and without material evidence. The Tribunal noted that the AO's action was based on information received about the misuse of the CCM facility. However, since the Tribunal found the reassessment proceedings to be void due to jurisdictional defects, it did not specifically adjudicate on the merits of the addition. The Tribunal's decision to set aside the reassessment rendered this ground infructuous and academic.

Conclusion:
The Tribunal concluded that the reassessment proceedings initiated by the AO were invalid due to fundamental defects in the reasons recorded for reopening and the impermissible issuance of a corrigendum. Consequently, the notice under Section 148 and the reassessment order under Section 147 were set aside and cancelled. All other grounds raised by the assessee were rendered infructuous and academic. The appeal of the assessee was allowed.

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