2022 (12) TMI 231 - AT - Income Tax

Appeal success: Procedural flaws in re-opening assessment under Income Tax Act

The appeal challenged the legality of re-opening the assessment for AY 2007-08 under section 147 of the Income Tax Act. The AO's failure to comply with ... Reopening of assessment u/s 147 - reasons recorded for reopening - disposal Objection against reopening - according to the Ld. AR, the AO did not follow the binding order Asian Paint Ltd.[2007 (1) TMI 159 - BOMBAY HIGH COURT] wherein held that if the assessee objects to AO regarding his action of reopening the assessment, and if the AO over-rules the objection, then the AO should not proceed further in the matter for a period of four (4) weeks from the date of receipt of service of the said order [rejecting the objections] - HELD THAT:- Pursuant to a request by assessee the reasons recorded [for re-opening] was given to assessee wherein there was apparent mistake on face of the letter in the “reasons recorded” spells out the figure/sum escaped is alleged as Rs.5,20,00,200/- whereas at page 19-20 PB, another reasons recorded (no date) it alleges escapement of income to the tune of Rs.2,87,50,000/- which mistakes according to Ld AR exposes the non-application of mind of AO while recording reasons about the escapement of income. Four (4) weeks time, after AO disposes of the objection raised by assessee against re-opening - One of the other issue brought to our notice is regarding violation of the order of the Hon’ble High Court’s binding direction (supra) to give assessee at least four (4) weeks time, after AO disposes of the objection raised by assesse against re-opening of assessment. In this case, we note that AO has disposed/rejected the objection raised by assessee by order dated 05.03.2015 (refer page 35 PB) and passed the re-assessment order dated 20.03.2015, which clearly shows that AO did not give time of four (4) weeks for assessee to avail the extra-ordinary jurisdiction under Article 226 of the Constitution of India. It is noted that Assessee received said with letter rejecting the objection on 10.03.2015 and the AO passed the re-assessment order on 20.03.2015 which is against the binding direction of Hon’ble High Court in Asian Paints [2007 (1) TMI 159 - BOMBAY HIGH COURT]. Therefore on this score alone, we cancel the order of re-assessment passed by AO. - Decided in favour of assessee. Issues:1. Validity of re-opening assessment for AY 2007-08 u/s 147 of the Income Tax Act.2. Jurisdictional requirement for re-opening an assessment based on 'reason to believe escapement of income.'3. Amendment of reasons for re-opening assessment by the AO.4. Compliance with the binding order of the Hon'ble Jurisdictional High Court in Asian Paints Ltd. Vs. DCIT.5. Failure to provide the assessee with the required time after disposing of objections against re-opening assessment.Analysis:1. The appeal challenged the legality of re-opening the assessment for AY 2007-08 under section 147 of the Income Tax Act. The Ld. AR argued that the AO lacked the jurisdiction to re-open the assessment due to discrepancies in the reasons recorded for re-opening, indicating a lack of application of mind.2. The fundamental jurisdictional requirement for re-opening an assessment is the AO having a 'reason to believe escapement of income.' The Ld. AR contended that the AO's conclusion of income escapement was based on borrowed satisfaction from the DGIT(Inv.) without conducting a reasonable inquiry, thus failing to meet the legal requirement.3. The AO's amendment of the reasons for re-opening the assessment was challenged by the Ld. AR, citing the Hon'ble Bombay High Court's ruling that no additions or deletions can be made to the reasons recorded. The AO's correction of the sum alleged to have escaped assessment was deemed impermissible in assessing the validity of re-opening.4. The AO's non-compliance with the binding order of the Hon'ble Jurisdictional High Court in Asian Paints Ltd. Vs. DCIT was highlighted. The Ld. AR pointed out that the AO did not wait for the mandated four weeks after rejecting the objections raised by the assessee against the re-opening, leading to a violation of the court's directive.5. The AO's failure to provide the assessee with the required time after disposing of objections against re-opening the assessment was noted. The AO passed the re-assessment order within two weeks of rejecting the objections, contrary to the court's directive, depriving the assessee of the opportunity to seek legal recourse. Consequently, the re-assessment order was canceled based on this violation, rendering the merits of the addition academic as the assessee succeeded in the legal issue.This detailed analysis of the judgment addresses the various legal issues raised in the appeal, focusing on the procedural and jurisdictional aspects of re-opening the assessment for the specified assessment year.