2023 (4) TMI 63 - AT - Income Tax

Tribunal invalidates tax notice, rules against Assessing Officer in jurisdictional dispute.

M/s. Gokaldas Exports (presently Gokaldas Exports Ltd.) Versus DCIT, Circle - 11 (2) Bengaluru

M/s. Gokaldas Exports (presently Gokaldas Exports Ltd.) Versus DCIT, Circle - 11 (2) Bengaluru - TMI Issues Involved:The issues involved in the judgment include the validity of notice issued under section 148 of the Income Tax Act, jurisdiction under section 147, assessment based on audit objection, treatment of capital gains, valuation of assets, and legality of the proceedings.Validity of Notice under Section 148:The appeal by the assessee challenged the validity of the notice issued under section 148 of the Act. The reasons recorded for the notice did not allege that the appellant had failed to disclose all material facts necessary for assessment, as required by the proviso to section 147 of the Act. The Tribunal found that the reasons recorded by the Assessing Officer did not fulfill the necessary ingredients for exercising jurisdiction under Sections 147/148 of the Act. The Tribunal upheld that the notice was not in conformity with the provisions of the Act, and therefore, the order passed by the AO was deemed bad in law.Jurisdiction under Section 147:The Assessing Officer reopened the case under Section 147/148 of the Act based on the belief that capital gains had escaped assessment due to the transfer of land and assets by the firm. The appellant argued that the reopening was done beyond the prescribed period and that the AO did not make any allegation regarding the non-disclosure of material facts by the assessee. The Tribunal agreed with the appellant, stating that the AO failed to mention necessary ingredients for reopening beyond the period of 4 years, as required by the Act. Consequently, the Tribunal found the AO's exercise of jurisdiction under Section 147 to be illegal.Assessment Based on Audit Objection:The assessment was reopened based on an audit objection regarding the reduction of land value without offering the difference as capital gains. The AO believed that capital gains had escaped assessment due to the transfer of assets after the firm was dissolved and converted into a company. The Tribunal found that the audit objection did not constitute relevant information for the validity of reopening under Section 147. The Tribunal concluded that the AO's decision to reopen the assessment was not justified under the provisions of the Act.Treatment of Capital Gains and Valuation of Assets:The case involved the treatment of capital gains arising from the transfer of assets and land by the firm. The AO alleged that the firm had evaded capital gains tax by reducing the land value without offering the difference as capital gains. The Tribunal noted discrepancies in the valuation and treatment of assets by the AO. The appellant argued that the firm's conversion into a company and subsequent transfer of assets did not warrant the assessment of capital gains. The Tribunal found that the AO's valuation and assessment were not in line with the facts of the case, leading to a partial allowance of the appeal in favor of the assessee.Legality of the Proceedings:The appellant contended that the proceedings initiated by the AO suffered from various illegalities, including a change of opinion, lack of proper disclosure, and vague reasons recorded for reopening. The Tribunal agreed with the appellant that the AO's actions were not in accordance with the law, particularly regarding the lack of necessary allegations for reopening and the absence of full disclosure by the assessee. The Tribunal cited relevant judgments to support its decision to declare the AO's order as bad in law. The Tribunal partially allowed the appeal based on the legal grounds upheld in favor of the assessee.