2024 (11) TMI 1299 - AT - Income Tax

AO's reopening under section 147 invalid due to failure to specify escaped income quantum and procedural violations

ACIT 4 (1) (1), Mumbai Versus Ankur Agrawal

ITAT Mumbai held that reopening of assessment under section 147 was invalid due to multiple procedural defects. The AO failed to specify the quantum of ... Reopening of assessment u/s 147 - Addition u/s 68 - unexplained cash credits - objection raised by the assessee (Respondent) under Rule 27 of the Income Tax Appellate Tribunal Rules 1963 - HELD THAT:- In the Forms for recording the reasons for initiating proceedings u/s 147 of the Act at Column No.6 it is required to specify the quantum of income escaped assessment. However, without specifying the amount of income escaped, the assessing officer has only mentioned more than Rs. 1 lakh. Therefore, it is evident that the AO has not complied with the mandatory requirement of quantifying the escaped assessment and merely stated that income escaping assessment was more than Rs. 1 lakh. Similarly, in the other column i.e. 9 in the Form For recording the Reasons the AO considered that assessment in the case of the assessee to be made for the first time as no prescribed information specified by the AO against the required particulars. It is also evident that noticed u/s 148 was issued in the case of the assessee on 03.03.2017 pertaining to the A.Y. 2011-12 after the expiry of four years from the end of relevant assessment year. As per section 147 no action can be initiated under section 147 of the Act after the expiry of 4 years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment for the reason of failure on the part of the tax payer to disclose fully all material facts necessary for assessment. Nowhere the AO has brought on record in the reasons recorded the fault of the assessee in not disclosing the true and full facts of the case. During the original assessment order passed u/s 143(3) AO has also made verification on the issue of exemption claimed by the assessee in respect of long term capital gain. We consider that in the case of the assessee the assessing officer has failed to establish that there was any failure on the part of the assessee to disclose fully and truly any material fact in the case before reopening of the completed assessment after the 4 years from the end of the relevant assessment year. We have also gone through the decision in the case of Tanhee Heights [2023 (2) TMI 596 - BOMBAY HIGH COURT] wherein held that for reopening of the assessment beyond 4 years from the end of the relevant assessment year, the assessing officer has to additionally satisfied that in a case where assessment u/s 143(3) of the Act had been completed, the assessee had failed to disclose fully and truly of material fact necessary for assessment during the original assessment proceedings. As perused the decision of ITAT, Mumbai in the case of Ankur Power Projects Pvt. Ltd. [2023 (11) TMI 1313 - ITAT MUMBAI] wherein the reopening of assessment held as bad in law because of various defects in the reasons recorded i.e. the assessment had earlier been completed u/s 143(3) but the AO referred only to the intimation issued u/s 143(1) in the reasons recorded, in the application submitted to JCIT seeking his approval, the AO has stated that assessment was proposed as first assessment etc. We find that in the case of the assessee, it is evident from the material and information as discussed above in this case that there is no application of mind at the level of assessing officer as in the reasons recorded the assessing officer has stated that assessment is proposed for the first time whereas the case of the assessee was already originally assessed u/s 143(3) of the Act. Further the AO has also not specified the amount of escapement of income in the form for recording the reasons as discussed supra in the order. Even the case of the assessee was reopened after end of 4 years from the relevant assessment year however as required in the provisions of Act, the assessing officer has failed to specify how the assessee has failed to disclose fully and truly the material facts in the original assessment proceedings. Thus, reopening of assessment is not valid because of various defects and irregularities evident in the reassessment proceedings initiated in the case of the assessee as demonstrated from the material facts discussed supra in this order. As a result, the objection raised by the assessee (Respondent) under Rule 27 of the Income Tax Appellate Tribunal Rules 1963 is allowed. As a consequence thereto, the appeal of the Revenue is dismissed and issues raised on merit are left open. Decided in favour of assessee. Issues Involved:1. Justification for deleting the addition made under Section 68 of the Income-tax Act for shares of certain companies.2. Alleged pre-arranged transaction to evade taxes.3. Application of Section 68 regarding unexplained cash credits.4. Consideration of documentary evidence submitted by the assessee.5. Alignment of AO's findings with statements from directors and entry providers.6. Deletion of penalty initiated under Section 271(1)(c).7. Validity of reopening the assessment under Section 147.Detailed Analysis:1. Justification for Deleting Addition under Section 68:The primary issue was whether the CIT(A) was justified in deleting the addition made under Section 68 of the Income-tax Act for shares of Splash Media & Infra Ltd. and M/s JMD Telefilms Ltd. amounting to Rs. 26,70,49,716/-. The Tribunal noted that the CIT(A) had relied on various judgments from the Supreme Court and High Courts, emphasizing that mere reliance on investigation reports without further corroboration does not justify treating transactions as bogus. The CIT(A) found that the assessee had successfully discharged the initial onus under Section 68 by providing adequate documentation, including purchase and sale records through banking channels, and there was no evidence to suggest that the transactions were fictitious or sham.2. Alleged Pre-arranged Transaction to Evade Taxes:The Revenue contended that the long-term capital gains (LTCG) on the sale of shares were pre-arranged transactions to evade taxes. However, the Tribunal upheld the CIT(A)'s decision, which found no substantive evidence to support this claim. The CIT(A) observed that the AO's conclusions were based on assumptions and conjectures without any concrete evidence linking the assessee to any fraudulent activity or agreement to convert unaccounted money.3. Application of Section 68 Regarding Unexplained Cash Credits:The Tribunal analyzed whether the AO was justified in invoking Section 68 for unexplained cash credits. It was highlighted that the AO failed to provide any evidence of cash transactions or any link between the assessee and alleged entry providers. The CIT(A) had noted that the AO did not conduct a thorough investigation to substantiate the claims of bogus transactions, and thus the addition under Section 68 was not sustainable.4. Consideration of Documentary Evidence Submitted by the Assessee:The Tribunal considered whether the CIT(A) erred in considering the documentary evidence submitted by the assessee. The CIT(A) had accepted the documentary evidence, including contract notes, demat account statements, and banking records, which supported the genuineness of the transactions. The Tribunal found no error in the CIT(A)'s reliance on these documents, as the AO did not provide any contrary evidence to dispute their authenticity.5. Alignment of AO's Findings with Statements from Directors and Entry Providers:The Revenue argued that the AO's findings were consistent with statements from directors and entry providers. However, the Tribunal noted that these statements did not specifically implicate the assessee or prove any wrongdoing. The CIT(A) had concluded that the AO's reliance on such statements was insufficient to justify the additions, as they lacked direct evidence against the assessee.6. Deletion of Penalty Initiated under Section 271(1)(c):The Tribunal examined whether the CIT(A) was justified in deleting the penalty initiated under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) had found that there was no concealment of income or furnishing of inaccurate particulars by the assessee, as the transactions were adequately documented and explained. The Tribunal upheld this finding, noting the absence of any evidence of deliberate concealment or misrepresentation by the assessee.7. Validity of Reopening the Assessment under Section 147:The Tribunal addressed the validity of reopening the assessment under Section 147. The assessee had challenged the reopening on the grounds of lack of jurisdiction and inadequate reasons recorded by the AO. The Tribunal found merit in the assessee's objections, noting that the AO had not specified the quantum of income that had escaped assessment and had based the reopening on incorrect facts. The Tribunal concluded that the reopening was not valid, as it was initiated without proper application of mind and in violation of the statutory requirements.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions and penalties, and found the reopening of the assessment to be invalid.