2018 (9) TMI 2154 - AT - Income Tax

Reassessment notice invalid without mandatory JCIT approval under section 151(2) for cases beyond four years

ITAT Mumbai held that reassessment proceedings u/s 147 were invalid as the AO failed to obtain mandatory approval from JCIT before issuing notice u/s 148, ... Validity of proceedings u/s. 147 - Addition on account of on money paid in cash by the assessee - as argued no necessary approval for issuance of notice u/s 148 was obtained as mandated by Section 151(2) - HELD THAT:- In the case of the present assessee, prior to the reopening of assessment u/s. 147 of the Act, there was no assessment completed u/s.143(3) of the Act. Therefore, the provisions of section 151(2) of the Act, as it existed during the relevant assessment year would apply. As per the said provision, in a case where four years have expired from the end of the relevant assessment year, no notice u/s. 148 of the Act can be issued by the AO without obtaining the sanction of the Joint Commissioner of Income Tax (JCIT). Thus, as per the statutory mandate contained u/s. 151(2) of the Act, the appropriate authority from whom the AO should have obtained sanction/approval before issuing notice u/s. 148 is the JCIT and not the CIT. Therefore, the notice issued u/s.148 of the Act, in the present case, does not satisfy the condition of section 151(2) of the Act as the Department has failed to bring any material before the Bench to demonstrate that sanction/approval for issuance of notice u/s 148 of the Act was obtained from the JCIT. That being the case, the mandatory requirement of section 151(2) of the Act having not being fulfilled, the assessment order passed u/s. 143 read with section 147 of the Act is invalid. It is relevant to observe, in course of assessment proceedings, the assessee has specifically objected to the validity of the proceedings initiated u/s. 147 of the Act. However, before completion of assessment, the Assessing Officer has not disposed of the objections of the assessee. For that reason also the assessment order passed u/s. 143(3) read with section 147 of the Act has to be declared as invalid, hence, deserves to be quashed. AO rejected assessee’s claim of non-payment of on money - As evident, in course of assessment proceedings the assessee has repeatedly requested the AO to communicate and bring to his notice the adverse materials in his possession for effective rebuttal. AO has refused to divulge any information available with him which were ultimately utilized against the assessee. Even though the statements of third parties were utilized for making the addition, no opportunity for cross-examination was offered to the assessee. This, in our view, is in gross violation of rules of natural justice. It is further relevant to observe, the AO has not conducted any enquiry worth its name independently to ascertain the fact whether the assessee has actually paid on money in cash or not. Non-furnishing of details by the assessee as alleged by the Assessing Officer certainly cannot prevent him from making any further enquiry and investigation to ascertain the truth. Simply relying upon the statement of third parties, the Assessing Officer cannot make the addition purely on conjectures and surmises and in the process ignore the evidence brought on record by the assessee by way of payment made through banking channel and the documentary evidence thereof. CIT(A) was justified in deleting the addition made by the Assessing Officer - Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment were:1. The validity of the reopening of assessment under Section 147 of the Income Tax Act, particularly focusing on whether the necessary approval for issuance of notice under Section 148 was obtained as mandated by Section 151(2).2. The legitimacy of the addition of Rs. 79,26,400/- to the assessee's income on account of alleged 'on money' paid in cash for the purchase of a flat, based on evidence gathered during a search operation.ISSUE-WISE DETAILED ANALYSIS1. Validity of Reopening of Assessment under Section 147Relevant Legal Framework and Precedents: The reopening of an assessment under Section 147 requires compliance with procedural safeguards, including obtaining sanction from the appropriate authority as specified under Section 151(2). According to this provision, if four years have passed since the end of the relevant assessment year, the Assessing Officer must obtain approval from the Joint Commissioner of Income Tax (JCIT) before issuing a notice under Section 148.Court's Interpretation and Reasoning: The Tribunal found that the Assessing Officer had obtained approval from the Commissioner of Income Tax (CIT) instead of the JCIT, as required by Section 151(2). The Tribunal emphasized that statutory requirements must be strictly adhered to, and obtaining approval from a higher authority does not substitute for the mandated procedure.Key Evidence and Findings: The notice issued under Section 148 indicated that approval was obtained from the CIT, not the JCIT. The Department failed to provide evidence of obtaining the necessary sanction from the JCIT.Application of Law to Facts: The Tribunal applied the statutory mandate of Section 151(2) and concluded that the failure to obtain the correct approval rendered the notice under Section 148 invalid, thereby invalidating the subsequent assessment proceedings.Treatment of Competing Arguments: The Department argued that approval from a higher authority sufficed, but the Tribunal rejected this, emphasizing the necessity of following statutory procedures.Conclusions: The Tribunal held that the assessment order was invalid due to non-compliance with Section 151(2), as the requisite approval from the JCIT was not obtained.2. Legitimacy of Addition on Account of 'On Money'Relevant Legal Framework and Precedents: The addition of income based on 'on money' payments requires substantive evidence. The principles of natural justice, including the right to cross-examine witnesses whose statements are used against an assessee, must be upheld.Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer relied on third-party statements obtained during a search operation without providing the assessee an opportunity to cross-examine those parties. The Tribunal emphasized the lack of independent inquiry by the Assessing Officer and the reliance on uncorroborated statements.Key Evidence and Findings: The Assessing Officer's addition was based on statements from the Hiranandani Group admitting receipt of 'on money.' However, the payments for the flat were made through banking channels, and no direct evidence of cash payments by the assessee was presented.Application of Law to Facts: The Tribunal found that the addition was based on conjecture and lacked substantive evidence. The assessee's inability to cross-examine the witnesses and the absence of independent verification by the Assessing Officer were critical in determining the addition's unsustainability.Treatment of Competing Arguments: The Department contended that the assessee failed to provide all requested details, but the Tribunal highlighted the lack of disclosure of adverse materials to the assessee and the absence of any direct evidence of cash payments.Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition, finding that the addition was made without cogent evidence and in violation of natural justice principles.SIGNIFICANT HOLDINGSCore Principles Established: The Tribunal reinforced the necessity of adhering to statutory procedures for reopening assessments and the importance of providing assessees the opportunity to rebut evidence used against them, including the right to cross-examine witnesses.Final Determinations on Each Issue: The Tribunal declared the assessment proceedings invalid due to procedural lapses in obtaining the necessary approval under Section 151(2). On the merits, the Tribunal found the addition for 'on money' unsustainable due to lack of evidence and procedural fairness.The Tribunal dismissed the departmental appeal and allowed the cross-objection, thereby upholding the CIT(A)'s order in favor of the assessee.