2022 (11) TMI 18 - AT - Income Tax

Invalid Income Tax Reassessment Set Aside for Non-Compliance

The Tribunal set aside the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, as they were found to be invalid due to ... Reassessment under section 147 - Notice under section 148 - Time limit and condition under section 149(1)(b) - Reasons recorded requirement for reopening - Nullity of reassessment notice for non compliance with recorded reasonsReassessment under section 147 - Notice under section 148 - Time limit and condition under section 149(1)(b) - Reasons recorded requirement for reopening - Nullity of reassessment notice for non compliance with recorded reasons - Validity of reassessment proceedings initiated after four years where reasons recorded do not state that escaped income amounts to or is likely to amount to Rs.1,00,000 or more - HELD THAT: - The Assessing Officer issued notice under section 148 after more than four years on the basis of information from CBI/ACB alleging bogus accommodation entries, but the reasons recorded did not state the amount of escaped income or that it amounted to or was likely to amount to Rs.1,00,000 or more as required when reopening after four but within six years. The Tribunal applied the settled principle that reasons must disclose the AO's mind clearly and cannot be supplemented by inference or later material, relying on the decisions cited by it to hold that omission of the material particular required by section 149(1)(b) renders the notice and consequent proceedings unsustainable. Following those authorities and noting that the statutory condition precedent for invoking the extended period was not fulfilled on the face of the recorded reasons, the reassessment was held to be not in conformity with section 149(1)(b) and therefore void. [Paras 14, 15]Reassessment proceedings set aside as bad in law for non compliance with the requirement in section 149(1)(b); notice under section 148 quashed and consequent order framed under section 143(3) r/w section 147 set aside.Final Conclusion: Reassessment proceedings initiated by notice under section 148 were quashed for failure to record the statutory condition required by section 149(1)(b); Revenue's appeal on merits rendered academic and dismissed, and the assessee's petition under Rule 27 allowed. Issues Involved:1. Deletion of addition of Rs. 13,64,200/- under Section 68 of the Income Tax Act, 1961.2. Deletion of addition of Rs. 9,08,799/- on account of devaluation of share price.3. Deletion of addition of Rs. 1,50,692/- on account of disallowance of salary and traveling expenses.4. Computation of disallowance under Section 14A of the Income Tax Act, 1961 as per Rule 8D of the Income Tax Rules, 1962.5. Deletion of disallowance of Rs. 37,46,945/- made under Section 36(1)(iii) of the Income Tax Act, 1961.6. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.Detailed Analysis:1. Deletion of Addition under Section 68:The Revenue challenged the deletion of Rs. 13,64,200/- made under Section 68 of the Income Tax Act, 1961. The learned Commissioner of Income Tax (Appeals) [CIT(A)] had deleted this addition, which was contested by the Revenue on the grounds that the unsecured loans obtained were not genuine. However, the Tribunal did not provide a separate analysis on this issue as the reassessment proceedings were found invalid.2. Deletion of Addition on Account of Devaluation of Share Price:The Revenue disputed the deletion of Rs. 9,08,799/- on account of devaluation of share price. The CIT(A) had deleted this addition, but the Tribunal did not delve into this issue independently due to the overarching decision on the reassessment's validity.3. Deletion of Disallowance of Salary and Traveling Expenses:The Revenue also contested the deletion of Rs. 1,50,692/- on account of disallowance of salary and traveling expenses. The CIT(A) had provided relief to the assessee, which was challenged by the Revenue. Similar to other issues, this was not separately analyzed by the Tribunal due to the primary decision on reassessment proceedings.4. Computation of Disallowance under Section 14A:The Revenue argued that the CIT(A) erred in not appreciating that the disallowance under Section 14A of the Income Tax Act, 1961 should be computed as per Rule 8D of the Income Tax Rules, 1962. The Tribunal did not address this issue independently as the reassessment proceedings were deemed invalid.5. Deletion of Disallowance under Section 36(1)(iii):The Revenue challenged the deletion of Rs. 37,46,945/- made under Section 36(1)(iii) of the Income Tax Act, 1961. The CIT(A) had deleted this disallowance, but the Tribunal did not provide a separate analysis due to the invalidity of the reassessment proceedings.6. Validity of Reassessment Proceedings:The primary issue was the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961. The Tribunal found that the reassessment proceedings were initiated based on information from the CBI, Anti-Corruption Bureau, indicating that the assessee was involved in providing accommodation entries and operating dummy concerns. However, the Tribunal noted that the reasons recorded by the Assessing Officer (AO) did not comply with Section 149(1)(b) of the Act, which mandates that the income chargeable to tax, which has escaped assessment, should be Rs. 1 lakh or more. The Tribunal cited various judicial precedents, including decisions from the Karnataka High Court and the Allahabad High Court, emphasizing that the AO must clearly state the amount of income that has escaped assessment.The Tribunal concluded that the reassessment proceedings were not in conformity with the provisions of Section 149(1)(b) and, therefore, were invalid. Consequently, the reassessment proceedings and the order passed under Section 143(3) read with Section 147 were set aside.Conclusion:The Tribunal allowed the petition under Rule 27 of ITAT Rules, 1963, filed by the assessee, and set aside the reassessment proceedings as being bad in law. As a result, the grounds raised by the Revenue on merits were dismissed as academic in nature. The appeal by the Revenue was dismissed, and the petition by the assessee was allowed.