2019 (1) TMI 2076 - AT - Income Tax

Reopening under s.148 invalidated where belief relied solely on unsubstantiated departmental information without supporting documents or third-party confirmation

Trilok Chand Versus ITO, Ward 2 (3), Faridabad

ITAT (Delhi - AT) held that reopening under s.148 was not justified where the belief rested solely on unsubstantiated information from another wing of the ... Reopening of assessment - validity of notice of section 148 - case was reopened only on the basis of information received from other wing of the Income Tax Department -HELD THAT:- The information received was not substantiated by any material like any document, third party confirmation etc. reaching a conclusion that the assessee has actually made bogus purchases of the party M/s Maa Durga Trading Co. Merely on the ground that information received from other party cannot be the basis of reaching a conclusion that there is no escapement of income and it was mentioned in the said letter that if there is any additional material available on record in support of the belief, it should be provided before advancing proceedings u/s. 147 of the Act. Appeal of the assessee stands partly allowed for statistical purposes. AO has not decided the objection neither by a separate order nor in the final assessment order dated 21.3.2016, which is very essential to decide the same before completing the assessment. Therefore, in the interest of justice, remitting back the issue to the file of the Assessing Officer with the directions to first decide the objections of the Assessee and then decide the ground. ISSUES PRESENTED AND CONSIDERED 1. Whether the notice issued under section 148 was valid in the absence of the Assessing Officer having disposed of the assessee's objections to reopening by a speaking order or otherwise dealing with those objections before completing reassessment. 2. Whether the failure of the Assessing Officer to decide the assessee's objections to the reopening vitiates proceedings under section 147/148 and requires remand for disposal of objections and fresh consideration. 3. Ancillary: disposition of grounds expressly not pressed before the Tribunal (treatment of same). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notice under section 148 where objections to reopening were filed but not disposed of Legal framework: The statutory scheme requires that a notice under section 148 be preceded by reasons recorded by the AO and that on demand the AO furnish reasons within a reasonable time; once reasons are furnished, the assessee is entitled to file objections to the issuance of the notice and the AO is required to dispose of those objections by passing a reasoned/speaking order before proceeding with reassessment under section 147. Precedent treatment: The Tribunal relied on the controlling Supreme Court authority establishing that an Assessing Officer must furnish reasons and must dispose of objections to the reopening by a speaking order before completing assessment proceedings; where reasons are disclosed and objections are filed, the AO must decide the objections before proceeding. Interpretation and reasoning: The record showed that the assessee filed a written objection to the reopening pointing out that the recorded reasons were based only on information from another wing of the Department and that no supporting material (documents, third-party confirmation) was produced to substantiate the belief of escapement. The Assessing Officer neither issued a separate order disposing of those objections nor addressed them in the final assessment order. The Tribunal reasoned that proceeding to complete reassessment without first disposing of the objections deprived the assessee of a statutory and procedural right and contravened the requirement that objections be considered and answered by the AO. Ratio vs. Obiter: Ratio - Where the assessee raises objections to the reasons for reopening, the AO must decide those objections by passing a speaking order (or otherwise deal with them) before completing reassessment; failure to do so renders the exercise of reopening procedurally defective. Obiter - Observations on the sufficiency of the underlying information (e.g., whether information from another wing can constitute sufficient material) are ancillary and not finally adjudicated on the merits but indicate the need for AO's assessment of material if any. Conclusion: The Tribunal remitted the matter to the file of the Assessing Officer with directions to first decide the assessee's objections and then reconsider the validity of the notice and any consequent proceedings under section 147/148, after affording the assessee adequate opportunity of being heard. Issue 2 - Effect of non-disposal of objections on the reassessment and need for remand Legal framework: Procedural fairness and statutory mandate require the AO to consider and dispose of objections to reopening; disposal must be before the completion of reassessment so that the legality of the notice is adjudicated in the administrative record. Precedent treatment: The Tribunal applied the principle from the higher court authority that disposal of objections is a precondition to valid reassessment where reasons have been furnished and objections filed. Interpretation and reasoning: Given the absence of any separate order or express discussion of the objections in the assessment order, the Tribunal held that the AO failed to meet the procedural requirement. The Tribunal emphasized that mere reliance on information from another wing without documenting supporting material requires AO's consideration when objections are raised; in the present case, the AO did not respond to the assessee's specific request that any additional material be shown and objections disposed of. Ratio vs. Obiter: Ratio - Failure to decide objections to reopening before concluding reassessment vitiates the reassessment process and necessitates remand for disposal of objections and fresh decision on reopening. Obiter - The Tribunal did not finally determine whether the underlying purchases were bogus; such appraisal was left to the AO upon remand. Conclusion: The reassessment was held to be procedurally defective for want of disposal of objections; appropriate remedy is remand for the AO to pass a speaking order on objections and thereafter proceed consistently with law, with opportunity to the assessee. Issue 3 - Grounds not pressed before the Tribunal and their treatment Legal framework: Issues not pressed by the appellant at hearing are ordinarily treated as abandoned and may be dismissed as not pressed; the Tribunal need not adjudicate on abandoned grounds. Precedent treatment: The Tribunal noted that certain grounds were not pressed by the assessee's counsel and accordingly treated them as not pressed. Interpretation and reasoning: Grounds challenging the characterization of purchases as bogus, the quantum addition on an ad hoc basis, and the alleged misimpression about motive were expressly not pursued at the hearing; in light of abandonment, the Tribunal dismissed those grounds as not pressed without addressing their merits. Ratio vs. Obiter: Ratio - Unpressed grounds may be dismissed as not pressed; they do not form part of the Tribunal's adjudication. Obiter - No inference was drawn on the substantive correctness of the assessments underlying those abandoned grounds. Conclusion: Grounds not pressed before the Tribunal stand dismissed as not pressed; the remand does not revive or adjudicate those abandoned contentions. Cross-references and practical directions Where an assessee files objections to reasons for reopening after reasons are furnished, the AO must (i) furnish reasons within a reasonable time if not already given, (ii) consider and dispose of objections by a speaking order before completing reassessment, and (iii) afford the assessee adequate opportunity of being heard; failure to do so warrants remand for fresh administrative action. The Tribunal directed remand for disposal of objections and fresh decision on the validity of the notice and reassessment, for further adjudication consistent with the above principles.