2020 (8) TMI 8 - AT - Income Tax

Tribunal directs re-examination of assessment validity, stresses importance of fair adjudication

Tulip Global Private Limited Versus The DCIT, Circle-3, Jaipur.

The Tribunal partially allowed the appeal challenging the validity of reopening the assessment under Section 147/144 for the assessment year 2010-11. The ... Validity of reopening of the assessment - appeal of the assessee was dismissed ex-parte due to non appearance - HELD THAT:- Once, the assessee has filed an appeal and raised this issue before the ld. CIT(A) then the matter ought to have been decided by the first appellate authority. Therefore, the non adjudication of this issue by the ld. CIT(A) due to non appearance of the assessee would not give an absolute right to the assessee to raise these issued before the Tribunal without having benefit of finding of the first appellate authority. This is a mixed question law and facts. The legal issue can be decided only after considering the factual aspect of the transactions. The assessee has not produced the relevant record and evidence to show that the transactions carried out by the assessee in the commodity exchange have no linked with the persons who were found to be indulged in providing commodity entries of bogus speculative profit and loss. AO given a finding that the transactions of the assessee has a nexus with those persons being counter party providing these transactions however, in the absence of the relevant record we cannot examine and give a conclusive finding on this issue which is factual in nature to the extent whether the finding of the AO is factual correct or not. Though the assessee claimed to have produced the relevant record before the AO however, in the absence of the same produce before us we cannot give a finding that the decision of the AO is perversed. Approval granted u/s 151 - Proforma proposal send by the AO for approval contains all the details as well as the reasons recorded by the AO which were also examined by the JCIT and recommended the proposal of the AO for issuing notice u/s 148 of the Act and thereafter the Ld. Pr.CIT has granted the approval. Therefore, we do not find any infirmity on the face of it however, the ld. CIT(A) has not decided this issue on merits and dismissed the appeal of the assessee summarily. Appeal of the assessee was dismissed ex-parte due to non appearance of the assessee we set aside this issue to the record of the ld. CIT(A) for granting one more opportunities to the assessee of hearing and then decide the same on merits. Appeal of the assessee is partly allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether initiation of reopening proceedings under section 148/147 was legally valid where reasons recorded relied on information from the Investigation Wing (section 133A) regarding brokers allegedly providing bogus speculative commodity entries and where assessee's transactions were routed through different brokers. 2. Whether the approval for issuance of notice under section 151 (prerequisite approval for reopening) was vitiated as being mechanical or without application of mind. 3. Whether the Tribunal should entertain the validity of reopening when the first appellate authority dismissed the appeal ex parte for non-appearance, and the effect of such dismissal on the Tribunal's power to adjudicate the reopening issue. ISSUE-WISE DETAILED ANALYSIS - 1. Validity of Reopening under section 148/147 Legal framework: Reopening under section 148/147 requires formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment, based on material which demonstrates a prima facie case; the AO's satisfaction must not be merely a borrowed or collateral satisfaction and must have a live link with the reasons recorded. Precedent treatment: The judgment refers to established principles that reopening must be founded on tangible material and a direct connection between the information and the assessee's escapement of income; prior authorities (relied upon by parties) require independent application of mind by the AO and disallow reopening founded solely on generalized information about third parties. Interpretation and reasoning: The Tribunal notes the AO recorded information from the Investigation Wing (section 133A searches at a commodity exchange) indicating certain brokers provided bogus accommodation entries of speculative profit/loss. The AO correlated those findings with the assessee's speculative segment transactions and treated alleged speculative profit as escapement. The Tribunal observes (a) the AO accepted the assessee transacted through other brokers (Prakash Chand Jain and Ratan Lal Somani) rather than directly with the named brokers, and (b) the reasons recorded do not expressly demonstrate the assessee's direct involvement with the brokers found in the investigation. The Tribunal finds the question whether the AO's linkage between the assessee's transactions and the alleged bogus entries is factually correct requires examination of records and evidence which the assessee did not produce before the Tribunal. Ratio vs. Obiter: It is ratio that reopening must be supported by material showing a nexus between the information and the assessee's affairs and that in absence of production of relevant records, the Tribunal cannot conclusively overturn factual findings of the AO. It is obiter that generalized information about brokers alone cannot sustain reopening without prima facie linkage to the assessee. Conclusions: The Tribunal refrains from finally deciding the factual correctness of the AO's belief due to lack of record before it; because the issue involves mixed questions of law and fact and factual material was not produced by the assessee, a conclusive finding that reopening was invalid is not warranted at this stage. The matter is remitted for fresh adjudication on merits to permit the assessee to place evidence before the first appellate authority. ISSUE-WISE DETAILED ANALYSIS - 2. Validity of Approval under section 151 Legal framework: Prior approval by the Commissioner (as required by the scheme governing reopening) must reflect application of mind to the reasons recorded; procedural approval must be accorded after consideration of AO's proposal and, where required, recommendation by superior officers. Precedent treatment: Authorities require that approval should not be a mere formality or mechanical endorsement and must correspond to the statutory provision applicable to the assessment stage (correct section referenced in proposal form). Interpretation and reasoning: The Tribunal examined the approval proforma and noted it contained the AO's reasons examined by JCIT and recommended, and that the Pr.CIT granted approval. The Tribunal found no manifest infirmity on the face of the approval documents and treated a typographical reference to an incorrect sub-section in the AO's proposal as immaterial where the approval process otherwise reflected consideration and recommendation by the JCIT and satisfaction by the Pr.CIT. However, because the first appellate authority did not decide the point on merits (having dismissed the appeal ex parte), the Tribunal declined to make a final pronouncement on the sufficiency of application of mind and remitted the matter for fresh consideration. Ratio vs. Obiter: It is ratio that prima facie the approval document, showing recommendation and approval, did not on its face exhibit illegality; it is obiter that mere typographical error in citing a sub-section does not vitiate approval where substantive consideration occurred. Conclusions: No patent infirmity in the approval on the record before the Tribunal; nevertheless, substantive adjudication of whether the approval was mechanical is left to the first appellate authority on remand because the issue was not decided on merits below and requires factual examination. ISSUE-WISE DETAILED ANALYSIS - 3. Effect of Ex-parte Dismissal by First Appellate Authority and Tribunal's Power Legal framework: Appellate process contemplates that issues raised before the first appellate authority ought to be adjudicated on merits; dismissal for non-appearance generally results in the first appellate authority deciding the appeal on the basis of available record, but does not extinguish the right of the assessee to raise legal issues subsequently before the Tribunal in appropriate circumstances. Precedent treatment: Prior decisions recognize that legal questions may be raised at later stages, but ordinarily the Tribunal should not supplant findings of fact which the first appellate authority was given an opportunity to decide on merits. Interpretation and reasoning: The Tribunal emphasises that the assessee cannot deliberately bypass the first appellate authority by not appearing and thereafter claim the right to have the Tribunal decide factual questions never adjudicated below. The Tribunal treated the ex-parte dismissal as leaving the issue undecided on merit and therefore remitted the matter to the first appellate authority to afford the assessee an opportunity of hearing and to decide the reopening and approval issues on their factual and legal merits. Ratio vs. Obiter: It is ratio that an ex-parte dismissal due to non-appearance does not preclude remand for fresh adjudication where the Tribunal considers merits require factual examination and opportunity to the assessee; it is obiter that the right to raise legal issues at the Tribunal remains limited where the first appeal was not meaningfully contested. Conclusions: The Tribunal set aside only grounds challenging reopening and approval (grounds 1 and 2) to the record of the first appellate authority for fresh adjudication with an opportunity of hearing to the assessee; other grounds not pressed by the assessee were not remitted. The appeal is partly allowed for statistical purposes and the issues remitted for fresh decision on merits.