2018 (11) TMI 1702 - AT - Income Tax

Reassessment invalidated for procedural errors, Sales Tax findings void; assessee's appeal allowed.

The ITAT invalidated the reassessment proceedings due to non-issuance of notice under Section 143(2), improper initiation under Section 148, and reliance ... Validity of reassessment under section 147/148 - Mandatory issuance of notice under section 143(2) in reassessment proceedings - Formation of belief based on survey report and requirement of verification - Reassessment void for failure to satisfy pre-conditionsValidity of reassessment under section 147/148 - Formation of belief based on survey report and requirement of verification - Reopening of assessment under section 147/148 was invalid for failure to satisfy the statutory pre-conditions and for formation of belief based solely on the Sales Tax survey report without appropriate verification. - HELD THAT: - The Tribunal examined the chronology and materials relied upon by the Assessing Officer and found that the reasons recorded for reopening were based primarily on the Sales Tax Department's survey report which had been the subject of divergent outcomes in Sales Tax proceedings. The AO did not make any independent verification or apply his mind to the subsequent orders and proceedings in the Sales Tax forum which cast doubt on the reliability of the information. The Tribunal held that the provisions of section 147 do not confer unfettered power to reopen assessments and require the AO to satisfy the pre-conditions for forming a belief of escapement of income; such pre-conditions were lacking in the present case and the reassessment therefore could not be sustained. [Paras 8]Reassessment under section 147/148 quashed as invalid for failure to satisfy statutory pre-conditions and for relying on unverified survey information.Mandatory issuance of notice under section 143(2) in reassessment proceedings - Reassessment void for failure to satisfy pre-conditions - Absence of service/issuance of notice under section 143(2) rendered the reassessment proceedings void. - HELD THAT: - The Tribunal noted that the CIT(A) had recorded that no notice under section 143(2) was issued or found on record, and yet proceeded to sustain additions without adjudicating the legal consequence of that omission. Having considered binding and persuasive authorities on the mandate to issue notice under section 143(2) in reassessment proceedings (subject to specified exceptions), the Tribunal held that issuance of notice under section 143(2) is mandatory and failure to do so vitiates the reassessment. The Tribunal followed the reasoning of the jurisdictional decisions which quashed reassessments where no section 143(2) notice was served within the statutory framework and applied that principle to set aside the reassessment in the present case. [Paras 9, 10, 11]Assessment completed without issuance of notice under section 143(2) is void; impugned reassessment quashed on this ground.Final Conclusion: The assessee's appeal is allowed: the reassessment framed under sections 147/148 for AY 2005-06 is quashed as invalid because the AO failed to satisfy statutory pre-conditions (relying on unverified survey material) and no notice under section 143(2) was issued, rendering the reassessment void. Issues Involved:1. Validity of the assessment due to non-issuance and non-service of notice under Section 143(2).2. Confirmation of the addition of Rs. 3,82,55,045 based on the Sales Tax Authorities' findings.3. Enhancement of the addition under Section 69C without notice and opportunity for the assessee to be heard.4. Jurisdictional validity of the assessment framed under Section 143(3)/147.5. Validity of the initiation of proceedings and assessment under Section 148.6. Basis of reassessment being set aside by the Delhi High Court.Issue-wise Detailed Analysis:1. Validity of the Assessment due to Non-issuance and Non-service of Notice under Section 143(2):The assessee argued that the reassessment was invalid because no notice under Section 143(2) was issued and served, which is a sine qua non for making an assessment under Section 143(3). The CIT(A) acknowledged that no such notice was found in the assessment records, yet upheld the assessment. The ITAT referenced the Delhi Tribunal decision in Mohinder Kumar Chhabra, which emphasized that the issuance of notice under Section 143(2) is mandatory. The ITAT concluded that the failure to issue this notice rendered the reassessment void, aligning with decisions from the Bombay High Court and the Supreme Court.2. Confirmation of the Addition of Rs. 3,82,55,045 Based on Sales Tax Authorities' Findings:The assessee contested the addition of Rs. 3,82,55,045 upheld by the CIT(A), arguing that the Sales Tax Authorities' findings were not substantiated by evidence and had been set aside by VAT Appellate Authorities. The ITAT noted that the reassessment was based on a survey by the Sales Tax Department, which was subsequently quashed by higher authorities. The ITAT found that the Assessing Officer (AO) did not verify or apply independent judgment to the information received, making the reassessment improper.3. Enhancement of the Addition under Section 69C without Notice and Opportunity for the Assessee to be Heard:The assessee argued that the AO enhanced the addition under Section 69C by Rs. 62,89,918 without issuing a notice of enhancement or providing an opportunity to be heard. The CIT(A) upheld this addition. The ITAT did not specifically address this issue in detail due to the overall invalidation of the reassessment proceedings.4. Jurisdictional Validity of the Assessment Framed under Section 143(3)/147:The assessee raised additional grounds challenging the jurisdictional validity of the assessment framed under Section 143(3)/147, arguing that the initiation of proceedings and the assessment were without satisfying the preconditions of Section 148. The ITAT admitted these additional grounds, citing the Supreme Court decisions in National Thermal Power Corporation Limited vs. CIT and CIT vs. Varas International (P) Ltd., which allow legal questions to be raised at any stage.5. Validity of the Initiation of Proceedings and Assessment under Section 148:The assessee argued that the initiation of proceedings and the assessment under Section 148 were invalid because the preconditions for invoking Section 148 were not satisfied. The ITAT observed that the AO relied solely on the Sales Tax Department's survey report without independent verification. The ITAT concluded that the reasons recorded for reopening the assessment were not proper, as the information was neither well-founded nor verified by the AO, rendering the reassessment invalid.6. Basis of Reassessment Being Set Aside by the Delhi High Court:The assessee contended that the basis of reassessment, being the Sales Tax Department's survey and subsequent assessment order, had been set aside by the Delhi High Court prior to the issuance of the Section 148 notice. The ITAT noted that the AO did not consider the subsequent orders from higher authorities of the Sales Tax Department, which quashed the initial findings. This lack of consideration further invalidated the reassessment proceedings.Conclusion:The ITAT concluded that the reassessment proceedings were invalid due to the non-issuance of notice under Section 143(2), improper initiation of proceedings under Section 148, and reliance on quashed findings from the Sales Tax Department without independent verification. Consequently, the ITAT allowed the appeal of the assessee, rendering the reassessment and the additions therein void. The merits of the additions were not addressed as they became academic due to the invalidation of the reassessment.