2020 (11) TMI 814 - AT - Income Tax

Tribunal invalidates assessment order citing lack of valid reasons for reopening, dismissal of Revenue's appeal

DCIT, Central Cir-1 (1), Kolkata Versus M/s. Alembic Merchants Pvt. Ltd

The Tribunal upheld the CIT(A)'s decision to quash the assessment order dated 11.12.2017 due to invalid reasons recorded by the AO for reopening the ... Reopening of assessment - legality of issuance of notice u/s. 148 - Period of limitation - CIT(A) was of the opinion that issuance / serving of notice for reopening u/s 148 of the Act and subsequent framing of re-assessment order was not as per Section 149 and 153 - Time limit prescribed for completion of assessment / re-assessment / re-computation after re-opening - HELD THAT:- in the present case, we note that the limitation period for issuing notice of reopening u/s. 148 of the Act as prescribed in Section149 of the Act gives the outer limit of six years from the end of the relevant assessment year which in this case for AY 2009-10 is admittedly on 31.03.2016. So by issuing notice even though on the last day as prescribed by Section 149 of the Act, the AO gets the jurisdiction to reopen the assessment of the assessee for AY 2009-10. Further, it can be noted that section 153 prescribes the “Time Limit for completion of assessment, re-assessment and re-computation”. Therefore, in the case of reopening of assessment u/s 147 of the Act, the time limit to frame the assessment or reassessment starts only after serving of notice u/s 148 of the Act i.e. nine (9) months from the end of financial year in which the notice u/s 148 of the Act was served upon the assessee. Therefore, admittedly in this case, the notice u/s. 148 of the Act was served upon the assessee by e-mail on 22.09.2016, so the limitation time of nine months starts from the end of financial year, so in this case the end of financial year after serving notice is 31.03.2017, so as per Section 153 of the Act, the Assessing Officer should frame the assessment before the expiry of nine months from the end of the financial year in which the notice u/s. 148 of the Act was served, therefore, in this case, the Assessing Officer has time to frame the assessment till 31.12.2017 and the Assessing Officer in the instant case has framed the assessment on 11.12.2017 that is well within the time prescribed by section 153(2) of the Act and, therefore, his framing of assessment after reopening is legal as per the statute. We reverse the order of ld. CIT(A) and we hold that Assessing Officer after issuing the notice u/s 148 for AY 2009-10 within the limitation period on 31.03.2016, had got jurisdiction to re-open the assessment for AY 2009-10 and after having served the assessee notice u/s 148 on 22.09.2016 has passed the assessment order within the prescribed time u/s. 153(2) of the Act on 11.12.2017, so these actions of Assessing Officer are legal and valid in the eyes of law. Validity of reopening of assessment - reason to believe - information given by Investigation Wing - whether on the basis of the reasons recorded by the AO, he could have validly reopened the assessment? - unaccounted cash - HELD THAT:- Reasons recorded by AO it is evident that other than the general information given by Investigation Wing there is no other material the AO collected himself after preliminary enquiry which could have enabled him at the time of recording reasons to come to a conscious independent conclusion that “income of the assessee has escaped assessment”. According to us, the information given by the Investigation Wing can only be at the best be a basis to ignite/trigger [ though we have our reservation on it ] and be the starting point to enquire; and at that stage the information of Investigation Wing can be termed as a foundation only to form “reason to suspect” and not reason to believe escapement of income which is the jurisdictional fact & law required to enable the AO to successfully assume jurisdiction to reopen as envisaged u/s. 147. And the reason to suspect cannot be the basis for usurping jurisdiction to reopen u/s. 147 of the Act, for conducting roving/further examination cannot be resorted by him in order to strengthen the suspicion to an extent which can later transform the suspicion to create the belief in his mind that income chargeable to tax has escaped assessment. Merely on a study by Investigation Wing ,as in this case explaining the general modus operandi carried out by un-scrupulous persons in suspected transactions to convert the unaccounted cash of beneficiaries which were transferred to the bank accounts of the beneficiaries through the dubious bank accounts of fake entities can only raise suspicion in the mind of the AO (which fact we have pointed out earlier) which is not sufficient/requirement of law for unscrupulous persons in suspected transactions to convert the unaccounted cash of beneficiaries which were transferred to the bank accounts of the beneficiaries through the dubious bank accounts of fake entities can only raise suspicion in the mind of the AO (which fact we have pointed out earlier) which is not sufficient/requirement of law for reopening of assessment. We find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee falls. - Decided in favour of assessee. Issues Involved:1. Interpretation of the terms 'issue' and 'serve' in the context of notice under Section 148 of the Income Tax Act.2. Validity of the assessment made under Section 147/144 concerning the time limitation as per Section 153(2).3. Reliance on Supreme Court decisions and their applicability.4. Jurisdiction of the Assessing Officer (AO) in reopening the assessment based on information from the Investigation Wing.Detailed Analysis:1. Interpretation of the Terms 'Issue' and 'Serve':The Revenue contended that the terms 'issue' and 'serve' should not be used interchangeably, relying on the Supreme Court's decision in R.K. Upadhyay Vs. Shanbhai P. Patel, which distinguished the earlier judgment in Benarasi Debi Vs. ITO. The CIT(A) had relied on the Benarasi Debi case, interpreting that 'issue' and 'serve' are interchangeable, which the Revenue argued was incorrect.The Tribunal noted that the AO issued a notice under Section 148 on 31.03.2016, but it was served through email only on 22.09.2016. The Tribunal referred to the Supreme Court's decision in R.K. Upadhyay, which clarified that the issuance of notice within the prescribed period is sufficient for jurisdiction, and the service of notice can occur later. Therefore, the Tribunal concluded that the AO had validly issued the notice within the statutory period, and the assessment was not barred by limitation.2. Validity of Assessment under Section 147/144:The CIT(A) had held that the assessment order dated 11.12.2017 was barred by limitation, as per Section 153(2), which mandates completion of reassessment within nine months from the end of the financial year in which the notice under Section 148 was served. Since the notice was served on 22.09.2016, the reassessment should have been completed by 31.12.2017.The Tribunal found that the AO completed the assessment on 11.12.2017, within the prescribed time limit. Therefore, the assessment was valid and not barred by limitation.3. Reliance on Supreme Court Decisions:The CIT(A) had relied on the Benarasi Debi case, which was distinguished by the Supreme Court in R.K. Upadhyay. The Tribunal noted that the CIT(A)'s reliance on Benarasi Debi was erroneous, and the correct interpretation was provided in R.K. Upadhyay, which allowed the issuance of notice within the prescribed period, with service occurring later.4. Jurisdiction of AO in Reopening Assessment:The Tribunal examined the reasons recorded by the AO for reopening the assessment, which were based on information from the Investigation Wing about bogus accommodation entries. The Tribunal noted that the AO's reasons were vague and lacked specific details linking the assessee to the alleged bogus entries. The AO had not conducted any independent verification or preliminary enquiry to substantiate the information received from the Investigation Wing.The Tribunal referred to several judicial precedents, including decisions from the Delhi High Court and the Supreme Court, emphasizing that the AO must have tangible material and a rational basis for forming a belief that income has escaped assessment. The reasons must demonstrate a live link between the information and the formation of the belief.The Tribunal concluded that the AO's reasons were based on borrowed satisfaction from the Investigation Wing and did not constitute a valid reason to believe that income had escaped assessment. Therefore, the reopening of the assessment was invalid, and the reassessment order was quashed.Conclusion:The Tribunal upheld the action of the CIT(A) in quashing the assessment order dated 11.12.2017, based on the alternate legal issue raised by the assessee regarding the validity of the reasons recorded by the AO for reopening the assessment. The Tribunal found that the AO did not have a valid reason to believe that income had escaped assessment, and the reopening was based on borrowed satisfaction from the Investigation Wing. Consequently, the appeal of the Revenue was dismissed.