2022 (12) TMI 77 - AT - Income Tax

Appeal allowed for reassessment case emphasizing legal procedures & 'reasons to believe.' Order invalidated if reasons not provided.

The Tribunal allowed the appeal for statistical purposes, emphasizing the importance of adhering to legal procedures in reassessment cases. The matter was ... Reopening of assessment u/s 147 - reason to believe - sustainability of the assessment framed by the A.O without making available a copy of the “reasons to believe” to the assessee who after duly complying with the notice u/s 148 of the Act is stated to have specifically requested for the same - HELD THAT:- As it transpires that not only the assessee had in unequivocal terms brought to the notice of the CIT(A) that he had after complying with the notice u/s.148 requested the AO for a copy of the “reasons to believe” that formed the very basis for reopening of its case u/s.147 but in fact had relied on a plethora of judicial pronouncements wherein various Courts had held that framing of an assessment by the A.O without providing to the assessee a copy of the “reasons to believe” would render the assessment order as bad in law. Admittedly, though the assessee had categorically assailed before the CIT(Appeals) the validity of the assessment order passed by the A.O u/s.147/143(3) on the ground that the same having been framed de-hors making available a copy of the “reasons to believe” forming the very basis for reopening of the case of the assessee could not be sustained for want of valid assumption of jurisdiction, however, we find that the same had not been disposed off by the CIT(Appeals). Considering all the matter requires to be revisited by the CIT(Appeals), who shall in the course of the set-aside proceedings deal with the claim of the assessee qua the validity of the order passed by the A.O u/s.147/143(3) of the Act without making available a copy of the “reasons to believe” on the basis of which proceeding u/s.147 of the Act were initiated in the case of the assessee, specifically when a request for the same was made by the assessee after complying with the notice u/s.148. Thus principally concur with the position of law canvassed by him qua the validity of the assessment order passed by the A.O u/ss.147/143(3), without making available to the assessee a copy of the “reasons to believe” that had formed the very basis for reopening of its case u/s.147. Thus the failure on the part of the A.O to make available to the assessee a copy of the “reasons to believe”, which forms the very basis for reopening of his case goes to the root of the validity of jurisdiction that was assumed by him for framing the assessment. For the reason that when an assessee despite a specific request for a copy of the “reasons to believe” is not provided with the same by the A.O, then, he remains divested of his statutory right of objecting to the very basis on which proceedings u/s.147 of the Act were initiated in his case. In a case where there is a complete violation of the applicable principle of law by the A.O, who despite a specific request by the assessee had failed to communicate to him the “reasons to believe” that had formed the very basis for reopening of his assessment u/s.147 of the Act, then, the very assumption of jurisdiction by him and framing of the impugned assessment cannot be sustained and is liable to be struck down on the said count itself. The aforesaid view is supported by the judgment in the case of Agarwal Metals and Alloys [2012 (8) TMI 612 - BOMBAY HIGH COURT]. Thus restore the matter to the file of the CIT(Appeals) for the limited purpose of verifying the veracity of the assessee’s claim that despite his specific request no copy of the “reasons to believe” were made available to him by the A.O, and in case the same is found to be in order, then, pass an order in terms of aforesaid observations. Appeal of the assessee is allowed for statistical purposes. Issues Involved:1. Legality of the order passed under Sections 147/143(3) of the Income-tax Act, 1961.2. Validity of reliance on the estimated report of the registered valuer by the CIT(A).3. Reference to the DVO without rejecting the books of account.4. Sustaining estimated addition of Rs.2,00,290/- without corroborative evidence.5. Proper procedure for initiation of proceedings under Section 147 of the Act.Detailed Analysis:1. Legality of the Order Passed Under Sections 147/143(3) of the Income-tax Act, 1961:The assessee challenged the order passed by the CIT(A) under Sections 147/143(3) of the Act, arguing that it was flawed both in law and on facts. The Tribunal admitted the additional ground of appeal raised by the assessee, which questioned the initiation and completion of the assessment proceedings under Section 147 without the A.O communicating the 'reasons to believe' for reopening the case. The Tribunal highlighted the importance of providing these reasons, referencing the Hon'ble Supreme Court's decision in the case of National Thermal Power Company Ltd. Vs. CIT, which supports the admission of additional grounds involving purely legal questions.2. Validity of Reliance on the Estimated Report of the Registered Valuer by the CIT(A):The assessee contended that the CIT(A) erred by relying on an estimated report from a registered valuer, which was obtained by the survey team without any statutory provision authorizing such an action. The Tribunal noted that the CIT(A) had previously held the reference to the DVO as contrary to law in an earlier assessment order, making the reliance on the registered valuer's report legally questionable.3. Reference to the DVO Without Rejecting the Books of Account:The assessee argued that the reference to the DVO was made without rejecting the books of account, which is contrary to legal principles. The Tribunal acknowledged this contention, emphasizing that reliance on the estimated report without detecting any suppression in the investment recorded in the books of account was legally unsound.4. Sustaining Estimated Addition of Rs.2,00,290/- Without Corroborative Evidence:The assessee challenged the addition of Rs.2,00,290/- sustained by the CIT(A) as it was based purely on estimations without any corroborative evidence. The Tribunal found merit in this argument, noting the lack of justification for ignoring the investment recorded in the books of account.5. Proper Procedure for Initiation of Proceedings Under Section 147 of the Act:The Tribunal focused on whether the A.O had provided the 'reasons to believe' for reopening the assessment to the assessee, as requested. The Tribunal found that the A.O's failure to provide these reasons deprived the assessee of the right to object to the reopening of the case. This failure was seen as a violation of the principles laid down by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. Vs. ITO & Ors., which mandates that the assessee must be provided with the reasons for reopening and given an opportunity to file objections.The Tribunal referred to various judicial pronouncements, including the Hon'ble High Court of Bombay's decision in Agarwal Metals and Alloys Vs. ACIT & Ors., which quashed an assessment order due to the A.O's failure to communicate the reasons for reopening. Similarly, the Hon'ble High Court of Delhi in Pr. CIT Vs. Jagat Talkies Distributors held that the reassessment proceedings would be vitiated if the A.O failed to provide the reasons for reopening.Conclusion:The Tribunal restored the matter to the file of the CIT(A) to verify whether the A.O had failed to provide the 'reasons to believe' to the assessee. If the CIT(A) finds this claim to be true, the assessment order would be invalidated. The appeal was allowed for statistical purposes, and the Tribunal emphasized the necessity of adhering to legal procedures in reassessment cases.Order Pronouncement:The order was pronounced in open court on 30th November 2022.