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April 22, 2022

ITAT suspends reassessment proceeding that was initiated solely on the basis of an Investigation Wing report without applying Mind

by CA Shivam Jaiswal in Income Tax

ITAT suspends reassessment proceeding that was initiated solely on the basis of an Investigation Wing report without applying Mind.

Facts and Issue of the case

This appeal filed by the assessee is directed against the order dated 27/04/2021 of the CIT(A) National Faceless Appeal Centre (NFAC) for Assessment Year 2008-09.

The grounds raised by the assessee are as under:-

  • The Ld. CIT(A) has erred both in law and circumstances of the case in upholding the reassessment proceedings initiated u/s 147 of the IT Act ignoring the contention of appellant that the proceedings have been initiated by the AO without application of independent mind on the material, if any, provided by the Inv. Wing of the department. In view of the above defects in the compliances the resultant reassessment proceedings  are required to  be set aside.
  • The Ld. CIT(A) has erred both in  law and  in facts of the case in upholding the impugned reassessment proceedings ignoring the fact that the sanction u/s 151 of IT Act has been obtained from inappropriate  authority  i.e the Addl. CIT, Range-18, New Delhi instead of correct authority i.e. Pr.  CIT  /Pr  CCIT/  CCIT/ CIT,  New Delhi  and in the absence of sanction from the  appropriate  authority the consequent reassessment proceedings are not valid
  • The Ld. CIT(A) has erred both in  law and  in facts of the case in upholding the impugned reassessment proceedings ignoring the fact that the sanction u/s 151 of IT Act has been mechanically accorded by the sanctioning authority which is evident from the application of clause (b) of the Explanation 2 to section 147 of the Act  initiating action u/s 147 implying that the AO failed to  consider the fact that the appellant  is  already  assessed  u/s  143(3)  of the Act and in such a case that the said clause has no application.
  • The Ld. CIT(A) has erred both in law and circumstances of the case in upholding the reassessment proceedings u/s 147 of the IT Act which is not properly initiated and therefore need be quashed as the appellants case is covered by proviso to section 147 of the IT  Act and that being the case the AO has failed to give a finding as which material facts the appellant failed  to  disclose  fully and truly during original proceedings and in the absence of any such finding, the initiation of reassessment proceedings and the impugned assessment order both  are bad in law because such proceedings are as a result  of change of mind by  the  successor  incumbent  on  the  same set of facts.
  • The Assessing Officer has erred in law in completing the assessment u/s 144 r.w.s 147  without issuing  a notice u/s 143(2) of the Act against the return of income filed on 16.11.2015 in response  to  notice  u/s  148 of  IT  Act issued by the AO and such non- compliance of the above mandatory requirement of law to issue notice u/s 143(2) of IT Act against return of income filed makes the resultant assessment order in appeal null and void- ab-initio.
  • The impugned assessment is invalid and without jurisdiction as the said assessment is completed without complying with legal requirements of the provisions of section 147/148 of the Income Tax Act therefore such assessment is void ab initio and liable to be quashed.
  • The Ld. CIT(A) on the facts and circumstances of the case has erred in upholding the validity of impugned assessment order passed u/s 143(3)/147 of the Act on the ground that the AO  was not entitled to  take cognizance of the material seized from the third party by invoking provisions of sec 147/148 of the Act ignoring the specific provision u/s 153C of the Act dealing with such material.
  • The Ld CIT(A) has erred in law  and  in  facts  of  the case in upholding the legality of the order of assessment as the same has been passed beyond the period of limitation prescribed u/s 153(1) of the IT Act.
  • The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs. 15,00,000/- u/s 68 of the  IT  Act holding  the  share  capital as unexplained cash credit ignoring the fact that the assessee has discharged  its  initial  onus  u/s  68  of  the  IT Act explaining nature and source of the credits by filing requisite documents during assessment proceedings.
  • The Ld. CIT(A) has erred both in law and circumstances of the cases in reliance on the  material  to take view adverse to the appellant without confronting the same and therefore action of the  AO is  in contravention of the principals of natural justice.
  • The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the assessing officer in making an addition of Rs.27,000/- being 1.8% of the alleged accommodation entries of Rs. 15,00,000/- is arbitrary and without basis and  therefore need be quashed.

Subsequently, the AO reopened the case u/s 147 of the Act. Notice u/s 148 of the  Act  was also issued and served upon the assessee. The assessee vide letter dated 16.11.2015 submitted that the return of income already filed u/s 139 may be treated as  return  filed in  response  to notice u/s 148 of the Act. Subsequently, the AO issued a detailed questionnaire to the assessee. Rejecting the various explanations given by the assessee, the AO made addition of Rs.15 Lakhs to the total income of assessee being the amount of Rs.15 lakhs received by the assessee from M/s Shalini Holdings Ltd. as income u/s 68 of the Act.  Similarly, the AO made addition of Rs.27,000/- being expenses incurred for obtaining the accommodation entries of Rs.15 lakhs.

Before the ld. CIT(A), the assessee apart from challenging the addition on merit, challenged the validity of the reassessment proceedings. However, the ld.  CIT(A)  was  also not satisfied with the arguments advanced by the assessee and upheld the validity of the reassessment proceedings. Similarly, he also upheld the additions made by the AO on merit.

Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. The assessee has filed a condonation application stating therein that the appeal was required to be filed on or before 31.05.2021. However,  the  same  has  been filed on 11.10.2021, due to the death of the director of the company Sh. Vimal Bhageria on 25.04.2021 and the prevailing corona situation in the country. The  ld.  Counsel  for  the assessee submitted that the Hon’ble Supreme Court, vide its order dated 23rd March, 2020 in Cognizance for Extension of Limitation, Suo Moto Writ (Civil) No.3 of 2020, has extended the period of limitation in all cases in proceedings, in all Courts/Tribunals throughout the country with effect from 15th March 2020 till further orders (‘Limitation Extension Order’). The Court had exercised its power under Article 142 read with Article 141 of the  Constitution of India and declared that the said order is a binding order within the meaning of Article  141 of the Constitution of all Courts, Tribunals and authorities. Further, the Hon’ble Apex Court in the final order dated 23.09.2021 in MA No.655/2021 in SMW(C) No.3/2020 held that the period from 15.03.2020 till 02.10.2021 shall stand excluded in computing periods of limitation prescribed under various laws for instituting proceedings under respective laws. Relying on various decisions, he submitted that the delay  in filing the present appeal of 133 days is not intentional and the same was beyond the control of the assessee and therefore the delay in filing the appeal should be condoned. After hearing both the sides and considering the totality of the facts of the case, the delay in filing the appeal is condoned.

Referring to the decision of the co-ordinate Bench of the Tribunal in the case of GM Overseas vs ACIT in ITA No.1891/Del/2020, dated 21.03.2022, he submitted that the reassessment proceeding has been quashed on failure of compliance of first proviso to section 147 on identical facts. Referring to the decision of the Tribunal in assessee’s own case for AY 2007-08 in ITA No.2323/Del/2017 order dated 16.09.2020 he submitted that under  identical  circumstances, the reassessment proceedings were quashed by the Tribunal.

The ld. Counsel for the assessee in his another plank of argument submitted that the assessee vide letter dated 16.11.2015 (paper book pages 55 to 56) submitted before the AO that the return of income filed u/s 139 may be treated as return filed in response to notice u/s 148 of the Act. Although, this facts has been accepted by the AO, however no notice u/s 143(2) has been issued by the AO after 16.11.2015 before completion of the reassessment proceedings.  Although,  this legal ground was raised before the ld. CIT(A), however, he rejected the  same on the ground that the assessee did not file any objection to notice u/s 148 of the Act and therefore the assessee loses its right to raise this issue in appellate proceedings. He submitted that  the  assessee  in  the  instant case has raised objections challenging the validity of reassessment proceedings vide letter dated 18.12.2015 (paper book pages 44 to 46) and the AO had disposed of the objection vide order dated 03.03.2016 (paper book pages 47 to 49). Therefore, the observation of the Ld. CIT(A) on this issue is factually incorrect. Even otherwise also he submitted that the AO cannot be absolved from his duty to  issue  and  serve  a notice u/s 143(2) as per provisions of the Act as there is no saving clause given in section 143(3) of the Act. Relying on various decisions including the decision  of  the  Hon’ble Supreme Court in the case of CIT vs Laxman Das Khandelwal, reported in 417 ITR 325 (SC), he submitted that the failure to issue a notice u/s 143(2) renders the assessment order void even if the assessee has participated in the proceedings and the provisions of section 292BB does not save complete absence of notice. He submitted that the provisions of section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the section seeks to cure. The section is not intended to cure complete absence of notice itself.

Observation of the court

The court has considered the rival arguments made by both the sides, perused the orders of  the  Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before  me. I find the assessee has filed the return of income in the instant case on 28.09.2008 declaring total income of Rs.18,230/-. The original assessment was completed u/s 143(3) on 03.12.2010 determining the total income at Rs.48,360/-. I find the assessment in this case was reopened on the basis  of information obtained from the Investigation Wing, according to which, during the search and seizure operations u/s 132/133A in the case of Mr. Surender Kumar Jain and group of cases and post search enquiries/verification, it is established that the Sh.S.K. Jain, who is known  entry  provider  and  also  in  the business of providing accommodation entries to various beneficiaries companies, had given accommodation entry of Rs.15 lakhs from his company namely M/s Shalini Holdings Ltd. to the assessee. Accordingly, the case of the assessee was reopened by recording reasons which have been already reproduced in the preceding paragraph. A perusal of  the reasons so recorded shows that the AO has reopened the assessment by invoking the provision of clause (b) of Explanation-2 of section 147 of the Act. Before proceeding further, it is necessary to reproduce the clause  (b)  of explanation 2 of section 147.

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.   However, a 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.

Even otherwise also, court  finds the 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 Rs.15 lakhs brought from M/s Shalini Holdings Ltd. I 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 my opinion does not satisfy the statutory pre-conditions provided in section 147 of the Act. It has been 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.

In view of the above discussion and considering the fact that the 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, court hold that the reassessment proceedings initiated by the AO  and  upheld  by the Ld. CIT(A) is not in accordance with law. I, therefore, quash the same. Since, the assessee succeeds  on  this  legal  ground, the other grounds challenging the addition on  merit  is  not being adjudicated being academic in nature.

Conclusion     

In the result, the appeal filed by the assessee is allowed.

Nishit-Fincap-Private-Limited-Vs-ITO-ITAT-Delhi

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