2023 (10) TMI 1277 - AT - Income Tax

Reopening assessment under section 147 invalid without tangible material showing income escaped assessment

The Assistant Commissioner of Income Tax, Circle-1 (1), Raipur (C.G.) Versus Shri Akshay Lodha

ITAT Raipur held that reopening of assessment under section 147 was invalid as the AO lacked tangible material to form bonafide belief that income escaped ... Reopening of assessment u/s 147 - “reasons to believe” - unaccounted cash purchases - Non issue of valid notice u/s. 143(2) - HELD THAT:- We concur with the view taken by the CIT(Appeals) that the same clearly reveals non-application of mind on the part of the A.O who had initiated proceedings for making fishing and roving inquiries which cannot be justified to be drawn in the garb of proceedings u/s. 147 of the Act. Apart from that, as the A.O had neither in the “reasons to believe” nor in the assessment order as well as in the course of proceedings before the CIT(A) placed on record any material/evidence which would evidence that the assessee had made the impugned unaccounted cash purchases from/through Shri Ramesh Kundanani therefore, as observed by the CIT(Appeals) and, rightly so, it can safely or in fact inescapably be inferred that there was no tangible material available with the A.O, on the basis of which, he could have arrived at a belief that the income of the assessee chargeable to tax had escaped assessment. We concur with the view taken by the CIT(Appeals) that as the A.O had neither in the “reasons to believe” or in the body of the assessment order or in the course of the proceedings before the CIT(Appeals) placed on record any material/ evidence which would reveal that he had any tangible material available before him to arrive at a bonafide believe that income of the assessee chargeable to tax had escaped assessment, therefore, in absence of any such tangible material justifying the formation of bonafide belief, the very jurisdiction assumed by him u/s. 147 of the Act cannot be sustained. No infirmity in the view taken by the CIT(Appeals), who had rightly observed that in the absence of any tangible material that would have justified the formation of a bonafide belief on the part of the A.O that the income of the assessee chargeable to tax had escaped assessment, the assumption of jurisdiction by the A.O u/s. 147 of the Act was devoid and bereft of any force of law. Admittedly, the notice u/s. 143(2) of the Act could have been issued to the assessee by 30.09.2016. As observed by us hereinabove, the Ld. DR, on being confronted with the aforesaid claim of the assessee’s counsel, could not rebut the same. As the impugned assessment in the case of the assessee had been framed in the absence of any valid notice u/s. 143(2) of the Act, which is the foundation for passing a valid assessment order, we find substance in the claim of the Ld. AR that the impugned order passed by the A.O u/s. 147 r.w.s. 143(3) of the Act dated 28.10.2016 could not be sustained on the said count itself and was liable to be struck down - Appeal of assessee allowed. Issues Involved:1. Deletion of addition on account of unaccounted purchases.2. Quashing of the reopening of the assessment order.3. Condonation of delay in filing the appeal by the revenue.Summary:Condonation of Delay:The revenue's appeal was time-barred by 53 days. The delay was attributed to the voluminous orders received from NFAC through the online portal and a shortage of staff. The Tribunal found the reasons to be bona fide and condoned the delay of 53 days.Deletion of Addition on Account of Unaccounted Purchases:The assessee, engaged in the wholesale trading business of cloth, saree, and textiles, had his case reopened by the A.O. under Sec. 147 based on information that he made unaccounted cash payments for sarees amounting to Rs. 2,32,24,493/-. The A.O. added this amount to the assessee's income. However, the CIT(A) found that the 'reasons to believe' did not indicate how the purchases pertained to the assessee. The CIT(A) observed that the assessment order did not provide any documentary evidence or specific statement linking the purchases to the assessee. The CIT(A) quashed the reopening of the assessment, stating that the A.O. had no tangible material to justify the belief that the income had escaped assessment.Quashing of the Reopening of the Assessment Order:The CIT(A) held that the A.O. had no tangible material to form a bona fide belief for reopening the assessment. The Tribunal concurred with this view, noting that the A.O. had not placed any material/evidence on record to substantiate the claim of unaccounted cash purchases. The Tribunal found that the reopening was based on non-application of mind and was merely for fishing and roving inquiries, which is not permissible by law.Validity of Notice Under Sec. 143(2):The Tribunal also addressed the issue of the notice under Sec. 143(2), which was issued beyond the stipulated period. The Tribunal held that the assessment order passed in the absence of a valid notice under Sec. 143(2) was not sustainable. The Tribunal's view was supported by the judgments of the Hon'ble Supreme Court in ACIT & Anr. Vs. Hotel Blue Moon and CIT v. Laxman Das Khandelwal.Conclusion:The Tribunal dismissed the revenue's appeal and allowed the cross-objection filed by the assessee, thereby quashing the assessment order passed under Sec. 147 r.w.s. 143(3) for want of valid assumption of jurisdiction and absence of a valid notice under Sec. 143(2).