Reassessment Proceedings Are Null and Void Absent New Tangible Information
Fact and issue of the case
Aforesaid appeal by assessee for Assessment Year (AY) 2004-05 arises out of first appellate order passed by learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] on 30-07-2018 in the matter of an assessment framed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 147 on 31-12-2018. The grounds taken by the assessee read as under: –
The order of the Commissioner of lncome-tax(Appeals) in so far as it is against the assessee is contrary to law, erroneous and unsustainable on the facts of the case.
Reopening of Assessment :
The CIT(A) erred in upholding the reopening of assessment under sec.147 of the Act.
The CIT(A) failed to appreciate that the reopening was based only on change of opinion by the officer since the credits in the names of M/s. Jaya Printers and Dr.Namadhu MGR are part of the regular books that was considered by the officer in the assessment uls.143(3) and hence the reopening is untenable in law.
The CIT(A) further failed to appreciate that there was no reason to believe that income had escaped assessment and in the absence of any fresh material pointing to failure on the part of assessee to disclose particulars of income, the reopening is not in accordance with law and needs to be annulled.
The CIT(A) further failed to appreciate that there was no reason to believe that income had escaped assessment, since the credits in M/s. Jaya Printers and Dr. Namadhu MGR had been considered in the assessment uls.143(3) and hence the reopening is untenable in law.
The CIT(A) ought to have duly considered a catena of judicial decisions holding the assessment u/s. 147 as invalid, where there was no fresh material or where there was no failure of the assessee to disclose material facts and thus annulled the reopening of assessment. MERITS:-
The CIT(A) erred in confirming the addition of Rs.1,40,000, being the credits in the books of M/s Jaya Printers.
The CIT(A) failed to appreciate that the entire credits are duly reflected in the books of M/s. Kodanad Estate and hence the confirming the addition is unjust and unwarranted on facts of case.
The CIT(A) further failed to appreciate that the withdrawals from M/s. Kodanad Estate, in which the assessee is a partner, was credited in M/s. Jaya Printers and utilized for making tax payments and hence considering the books of both the concerns, and hence considering the same, the addition needs to be deleted.
The CIT(A) erred in confirming the addition of Rs.1,50,000 as rent received from property in Thiru Vi Ka Industrial Estate.
The CIT(A) failed to appreciate that the assessee does not own any property in the Industrial Estate fetching any rent and is also evident from the IT and WT statements for other asst. years and hence the addition made on mere surmises is unjustified and needs to be deleted.
The CIT(A) erred in confirming the addition of Rs.94,12,899, received by assessee as advertisement advance under sec.68 of the Act.
The CIT(A) failed to appreciate that the amount was received as advance from various parties for publication of Tamil New Year Malar/ souvenir by Dr. Namadhu MGR and credited in the books as advance and hence there was no basis to confirm the trade advance received by assessee as unexplained credits.
The CIT(A) further failed to appreciate that the ledger a/c copies filed clearly show that the amount remained as advance in the books until 31.3.2008, and transferred to advertisement charges collected and offered as income in the assessment year 2008-09 and lncome tax was also paid on that amount(Rs.94,1 2,899/-), hence the addition u/s.68 needs to be deleted.
The CIT(A) further failed to appreciate that the bonafide of receipt is evident from the fact that Rs.20,84,799 was received by cheques and so confirming the addition merely on conjectures and surmises is unjustified and warranted.
The CIT(A), in any view of the matter ought to have duly considered contentions of the assessee in the proper perspective deleted additions and allowed the appeal. As is evident, the assessee assails the validity of reassessment proceedings. The issues on merits are –
Addition of unexplained credit of Rs.1.40 Lacs;
Rent in respect of Thiru-vi-ka industrial estate;
unexplained credit in Dr. Namadhu MGR.
Observation of the court
Having heard rival submissions, the appeal is disposed-off as under. The assessee being resident individual is stated to be engaged in publication of newspapers etc.
The original return of income filed by the assessee was scrutinized u/s 143(3) on 18-12-2006 determining the income at Rs.529.40 Lacs. Subsequently, it was noted by Ld. AO that the assessee had furnished the statement of accounts without incorporating the opening balances. On the liability side of Balance Sheet, the details of Sundry Creditors for Rs.94.12 Lacs were not furnished. Besides, the assessee was found to have made investments during the year in various firms for which the sources were not furnished. Accordingly, the case was reopened and notice u/s 148 was issued within 4 years from the end of relevant assessment year. The assessee objected to proceedings on the ground that present proceeding tantamount to review of the concluded proceedings. However, Ld. AO referred to Explanation-1 to Sec.147 which specifically provides that production of accounts books or material evidences will not necessarily amount to disclosure within the meaning of Sec.147. Finally, the assessment proceedings were completed after making impugned additions. The Ld. CIT(A) upheld the action of Ld. AO against which the assessee is in further appeal before us.
Since legal issue raised by Ld. AR goes to the root of the assessment and contest very validity of reassessment proceedings, we take up the same first. We find that the original return of income was already scrutinized u/s 143(3). The case was reopened within 4 years. Accordingly, Explanation-1 to Sec.147 as referred to by Ld. AO would not apply in such a case. The perusal of assessment order would show that Ld. AO has not referred to any tangible material coming into his possession which would lead to formation of a belief that certain income escaped assessment in the hands of the assessee. Apparently, reassessment has been initiated on the same set of material as available before Ld. AO during the course of original assessment proceedings. This being so, the reassessment proceedings would be nothing would review of the order which is impermissible. The case law of Hon’ble Supreme Court in the case of Kelvinator of India Ltd. (2010; 320 ITR 561) support the case of the assessee wherein it was held that in the absence of any new tangible material, the case could not be reopened on mere change of opinion. The Hon’ble Court held that after 01-04-1989, Ld. AO has power to reopen the case of the assessee provided there is ‘tangible material’ to come to conclusion that there is escapement of income from assessment. Further, reasons must have a live link with formation of belief. Respectfully following the same, we would hold that the reassessment proceedings were nothing but the review exercise undertaken by Ld. AO which is impermissible. Therefore, the reassessment proceedings are bad in law and hence, liable to be quashed. We order so. The case law of Hon’ble High Court of Madras in Cognizant Technology Solutions India (P.) Ltd. vs. ACIT (129 Taxmann.com 327), as referred to by revenue, is distinguishable on facts. In that case, the reasons recorded by Ld. AO revealed that certain relevant information and materials were not considered by Assessing Officer which would have to be taken into consideration while passing assessment order. The same is not the case here and there is no such allegation by Ld. AO in the present case. Accordingly, this case law renders no assistance to the case of the revenue.
Since the assessment order is held to be invalid, delving into the merits of the case has been rendered infructuous.
The appeal stand allowed in terms of our above order.
Order pronounced on 23rd June, 2023
In the result, appeal of the assessee is allowed and ruled in favour of the assessee