2025 (5) TMI 208 - AT - Income Tax

Reassessment Order Invalidated: Tax Authority Overstepped Statutory Limits Under Section 148, Violating Natural Justice Principles

The Tribunal found the reassessment proceedings invalid due to jurisdictional and procedural defects. The AO exceeded the scope of the section 148 notice ... Reopening of assessment u/s 147 - cash deposits made by the assessee during the year - HELD THAT:- Assessee as submitted the relevant information and explained the source of cash deposits made by the assessee during the year. AO has accepted the same and proceeded to observe that assessee has large credit and debit entries in his books of account and proceeded to estimate the income of the assessee considering only the credit entries recorded in the books of account. As per the facts available on record, it is clear that AO has initiated the proceedings for the reason of cash deposits, however he proceeded to complete the assessment on some other issues for which no reasons were recorded and notice u/s 148 was not issued. Therefore, the facts of the case clearly apply the decision in the case of Jet Airways (I) Ltd [2010 (4) TMI 431 - BOMBAY HIGH COURT] and case of Ranbaxy Laboratories Ltd [2011 (6) TMI 4 - DELHI HIGH COURT] Since the decision of Ranbaxy Laboratories Ltd. (supra) is squarely covered in the present case, to allow the additional grounds raised by the assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:Whether the impugned order passed under section 250 of the Income Tax Act, 1961, sustaining additions to the assessee's income, is valid and lawful.Whether the Commissioner of Income-tax Appeals (CIT(A)) erred in confirming additions made by the Assessing Officer (AO) without appreciating the assessee's submissions and without providing an opportunity of hearing, including via video conferencing as requested.Whether the assessment order passed by the AO was valid, particularly regarding jurisdiction, adherence to due process, and provision of corroborative evidence or prior approval.Whether additions upheld by the CIT(A) were based on issues not raised during assessment proceedings, thereby violating principles of natural justice by denying the assessee an opportunity to explain.Whether the notice issued under section 148 of the Income Tax Act was valid, within jurisdiction, and not barred by limitation.Whether the reassessment proceedings initiated under sections 147 to 151 of the Act complied with statutory provisions.Whether the additions made by the AO, specifically an addition of Rs. 23,46,256/-, were beyond the scope of the reassessment notice and thus liable to be quashed.2. ISSUE-WISE DETAILED ANALYSISValidity and Jurisdiction of Reassessment Notice under Section 148Relevant legal framework and precedents: Sections 147 to 151 of the Income Tax Act govern reassessment proceedings. The Supreme Court in NTPC Ltd. vs. CIT (1998) 229 ITR 383 (SC) emphasized the strict adherence to jurisdictional requirements and limitation periods for issuing reassessment notices. The Bombay High Court in CIT vs. Jet Airways (I) Ltd. (2010) 331 ITR 236 (Bom.) and the Delhi High Court in Ranbaxy Laboratories Ltd. vs. CIT (2011) 335 ITR 136 (Del.) held that reassessment proceedings must be confined to the reasons recorded in the section 148 notice and cannot be extended to unrelated issues.Court's interpretation and reasoning: The Tribunal noted that the reassessment notice was issued on the basis of cash deposits of Rs. 15,56,000/- made by the assessee in Canara Bank, questioning the source of these deposits as unexplained cash credits. The assessee submitted explanations and source details for these deposits, which were accepted by the AO. However, the AO proceeded to make additions based on other issues, such as large credit and debit entries in the books of account, estimating income at 8% of total business receipts, which were unrelated to the original reasons recorded in the notice under section 148.Key evidence and findings: The show-cause notice and section 148 notice were confined to unexplained cash credits. The AO's assessment order introduced new grounds for addition without issuing fresh notice or recording reasons for reassessment on those grounds. The assessee was not given an opportunity to explain these new issues.Application of law to facts: The Tribunal applied the principle from Jet Airways and Ranbaxy Laboratories that reassessment must be strictly restricted to the reasons recorded in the section 148 notice. Since the AO deviated from the stated reasons without fresh notice or opportunity to the assessee, the reassessment was held to be invalid.Treatment of competing arguments: The Revenue relied on the lower authorities' orders confirming the additions. The assessee pressed the additional grounds challenging jurisdiction and limitation, relying on the above precedents. The Tribunal found the assessee's arguments more compelling and consistent with settled law.Conclusion: The reassessment proceedings initiated were without jurisdiction and barred by limitation, making the notice and consequent assessment order liable to be quashed.Validity of Additions Made by AO and Confirmed by CIT(A)Relevant legal framework and precedents: Principles of natural justice require that additions to income be made based on evidence and after providing the assessee an opportunity to explain. The CIT(A) must appreciate the assessee's submissions and provide reasons for confirming additions. The AO must record reasons and provide corroborative evidence for additions.Court's interpretation and reasoning: The Tribunal observed that the CIT(A) confirmed additions made by the AO without appreciating the assessee's submissions and without providing the opportunity of hearing via video conferencing despite specific requests. Further, additions were upheld on issues not raised during assessment proceedings, denying the assessee the right to explain. The AO did not provide corroborative evidence or prior approval for the additions.Key evidence and findings: The assessee's grounds of appeal highlighted procedural lapses, including failure to provide hearing, lack of jurisdiction, absence of corroborative evidence, and additions on new issues. The Tribunal noted these procedural infirmities and the violation of principles of natural justice.Application of law to facts: The Tribunal held that the CIT(A) erred in confirming additions without proper appreciation of submissions and without affording the assessee a fair hearing. Additions made on issues not part of the reassessment notice violated statutory requirements and natural justice.Treatment of competing arguments: The Revenue defended the orders of lower authorities. The assessee's submissions on procedural lapses and jurisdictional defects were accepted by the Tribunal.Conclusion: The additions confirmed by the CIT(A) were not sustainable due to procedural irregularities and jurisdictional defects.Opportunity of Hearing and Procedural FairnessRelevant legal framework and precedents: The principles of natural justice mandate that an assessee be given an opportunity of being heard before passing any adverse order. The right to be heard includes the mode of hearing, such as video conferencing when requested, especially in faceless appeal proceedings.Court's interpretation and reasoning: The Tribunal found that despite the assessee's specific request for hearing via video conferencing, the CIT(A) failed to provide such opportunity before passing the impugned order.Key evidence and findings: The grounds of appeal and record showed the assessee's request for video conferencing was not granted. No opportunity was given to explain or rebut the additions.Application of law to facts: The failure to provide opportunity of hearing violated principles of natural justice and rendered the impugned order liable to be set aside.Treatment of competing arguments: The Revenue did not contest this procedural lapse effectively.Conclusion: The CIT(A)'s order was flawed for failure to provide opportunity of hearing as requested by the assessee.3. SIGNIFICANT HOLDINGSThe Tribunal held that:'The Assessing Officer has initiated the proceedings for the reason of cash deposits, however he proceeded to complete the assessment on some other issues for which no reasons were recorded and notice u/s 148 was not issued. Therefore, the facts of the case clearly apply the decision of Hon'ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. and Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd.'The reassessment proceedings initiated were without jurisdiction and barred by limitation, rendering the notice and assessment order liable to be quashed.The CIT(A) erred in confirming additions made by the AO without appreciating the assessee's submissions, without providing opportunity of hearing via video conferencing despite request, and without corroborative evidence or prior approval.Additions were made on issues not raised during assessment proceedings, violating principles of natural justice by denying the assessee an opportunity to explain.Since the issue was decided on legal grounds, other grounds raised by the assessee were not adjudicated.The core principle established is that reassessment proceedings must strictly adhere to the reasons recorded in the section 148 notice and must comply with statutory requirements of jurisdiction, limitation, and procedural fairness including the right to be heard. Additions made beyond the scope of the notice or without opportunity to explain are liable to be quashed.Accordingly, the appeal was partly allowed, setting aside the reassessment and additions made beyond the scope of the notice.