2024 (7) TMI 1145 - HC - Income Tax

Validity of reassessment proceeding u/s 147/148 - difference between lack of jurisdiction and irregular exercise of power/jurisdiction by the AO -reassessment triggered when the CBI search was made at others premises, not the assessee and certain documents were found at the place of one J.K. Jain - whether the AO has passed the final order in reassessment on the dictates/directions of the superior authority? - ITAT in its judgment has arrived to the finding considering various material available on record that the AO has passed the order against the assessee on the dictates of his superiors. HELD THAT - It is quite pertinent to mention that how these proceedings against the assessee has been conducted the series of event started on 03.05.91 when the CBI has conducted the search in premises of J.K. Jain. After it the Income Tax Department in exercise of its power under Section 132A of the IT Act, called for these documents and material seized from the CBI. The assesee was asessesed at Bhilai, therefore, the said material was handed over to the AO sitting at Bhilai on 20.03.95. AO issued notice to assesee for reopening. The return of income was filled by the assesee on 06.06.95 however, the AO did not do anything till 20.12.95. On 20.12.95 the AO went to Delhi on receipt of some message of the DDIT (Inv.), amazingly the purpose of visit was for discussion about the case. The records of the proceedings clearly shows that the AO was taking instructions on each and every hearing and dictates was clearly given to him. Letter dated 30.01.96 which was written to the Commissioner of Income Tax, Central Revenue Building, Napier Town Jabalpur clearly shows that even the questionnaire was prepared on instruction of his superiors and same was even sent to Delhi for confirmation this clearly shows how far the AO was taking directions from his superior and not acted independently. In the said letter the AO has clearly written that though he has drafted the skeleton of the order but he want guidance of the higher authorities so that legal infirmity in the assessment can be taken care of these phrases speaks a dozen about how far the AO was conducting the proceedings independently and with open mind. Tribunal has given the detail account of the series of event which has various instances how these proceedings were influenced by the superior authorities sitting at Delhi and Jabalpur. The proceedings before the AO gets vitiated when he start discussing about the merits of the case or in which manner he should conduct the proceedings. As decided in M/S GREENWORLD CORPORATION AND M/S THE GREEN WORLD CORPORATION VERSUS ITO, PARWANOO ANR. 2009 (5) TMI 14 - SUPREME COURT while making the orders of assessment the assessing officer shall be bound by the statutory circulars issued by CBDT but it is another thing to say that the assessing authority exercising quasi-judicial function keeping in view the scheme contained in the Act, would lose its independence to pass an independent order of assessment. AO has duty to act judicially and independently and its judgment cannot be controlled by the superior authority - The officers sitting at Delhi and Jabalpur has even interfered in the order especially the guidance has been sought by the AO to deal with the grounds raised by the assessee. Thus, the tribunal has rightly concluded that the AO has passed the order of reassessment on the dictates of the higher authorities sitting at Delhi and Jabalpur. Once having held that the reassessment started at the dictation of the higher authorities and thereafter, during reassessment process too continuous instructions were imparted and even the AO obtained instructions, therefore, the end result would be same as the bias would exist. Decision of reassessment, reassessment thereafter is at the dictation of higher authorities then the order itself would be outcome of bias and authority having original jurisdiction would not be able to come to save them under the shell. The entirety of facts cannot be fragmented in peace meal and entire state of affairs are to be considered as a whole. Even otherwise the court cannot condone the delay of the proceedings which is not before it as limitation for framing of reassessment order section 147/143 (3) which, in terms of section 153 of the Act (as then applicable) lapsed on 31.03.1997. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the IT Act.
2. Whether the order of the Assessing Officer (AO) was passed on the dictates/directions of superior authorities.
3. Whether the Tribunal was justified in not remanding the case back to the AO for fresh assessment.

Issue-wise Analysis:

1. Validity of Reassessment Proceedings under Section 147/148 of the IT Act:
The reassessment proceedings were initiated based on documents seized by the CBI from J.K. Jain's premises, which were later handed over to the Income Tax Department. The AO at Bhilai received these documents beyond the statutory period of fifteen days as mandated by Section 132 (9A) of the IT Act. The Supreme Court in K.V. Krishnaswamy Naidu held that the authorized officer could not retain seized documents beyond 15 days. Consequently, the reassessment proceedings were deemed invalid as they were initiated based on documents received after the statutory period, and the AO did not exercise independent judgment but acted under the influence of superior authorities.

2. Whether the Order of the AO was Passed on the Dictates/Directions of Superior Authorities:
The ITAT found that the AO acted under the influence of superior authorities based on various correspondences and instructions received from higher authorities, including the DDIT (Inv.), Delhi, and the CIT, Jabalpur. The AO's actions were dictated by these authorities, as evidenced by the detailed records of proceedings and communications. The Supreme Court in Sirpur Paper Mill Ltd. and Pancham Chand emphasized that a statutory authority must act independently and not under the influence of others. The ITAT concluded that the AO's reassessment order was not an independent decision but was influenced by higher authorities, rendering it invalid.

3. Whether the Tribunal was Justified in Not Remanding the Case Back to the AO for Fresh Assessment:
The Tribunal held that since the initiation of reassessment proceedings was void, there was no basis for remanding the case back to the AO for fresh assessment. The Supreme Court in Popat Bahiru Govardhane emphasized that the law of limitation must be applied rigorously, and the court cannot extend the period of limitation on equitable grounds. The reassessment proceedings were time-barred as the limitation period for framing the reassessment order had lapsed on 31.03.1997. Therefore, the Tribunal was justified in not remanding the case back to the AO.

Conclusion:
The reassessment proceedings initiated under Section 147/148 of the IT Act were invalid as they were based on documents received beyond the statutory period and influenced by superior authorities. The AO did not exercise independent judgment, and the reassessment order was passed under the dictates of higher authorities. The Tribunal was justified in not remanding the case back to the AO for fresh assessment as the reassessment proceedings were time-barred. The appeals by the Revenue were dismissed, and the cross-appeals by the assessee were allowed.