Reassessment is bad in law if no notice under section 143(2) issued

 

Where in terms of section 151(2), competent authority to sanction reassessment proceedings was Principal Chief Commissioner, approval of Additional Commissioner could not be taken as substantial compliance of section 151. Further, as no evidence was brought on record by Revenue that any notice under section 143(2) was issued or because of the failure of the assessee to furnish fully and truly all material facts necessary for the assessment, there was escapement of income; reassessment proceedings were bad in law.

Assessee preferred appeal against the quantum additions contending that the case squarely falls within the proviso to section 151(1), as such, approval of Chief Commissioner or Commissioner was necessary and for want of which the proceedings were bad in law and were liable to be quashed.

Further, it contended that no notice under section 143(2) was issued before making the additions and AO failed to record that there was failure on part of assessee to disclose fully and truly all material facts necessary for assessment. AO contended that approval of Additional Commissioner was obtained under section 151(2).

It  was held that Where notice under section 148 was proposed to be issued after the expiry of four years from the end of the relevant assessment year, section 151(1) is applicable and not section 151(2). A plain reading of section 151 makes it amply clear that the AO misread the same and did not follow the mandate of the proviso to section 151(1), in as much as the case in hand relates to the proposed notice under section 148 after the expiry of four years from the end of the relevant assessment year.

Further, as no evidence was brought on record by Revenue that any notice under section 143(2) was issued before the conclusion of the assessment or because of the failure of the assessee to furnish fully and truly all material facts necessary for the assessment, there was escapement of income; reassessment proceedings were bad in law.

Decision: In assessee’s favour.

IN THE ITAT, DELHI BENCH

G.D. AGARWAL, PRESIDENT & K. NARASIMHA CHARY, J.M.

ITO v. Kuber Fertilizers (P) Ltd.

ITA Nos. 6628 And 6629/Del/2014

23 October, 2018

Assessee by: Rajiv Saxena, Advocate & Shyam Sunder, Advocate

Revenue by: Naina Soin Kapil, Sr. Departmental Representative

Per Bench

Challenging the Order, dt. 23-9-2014 in Appeal Nos. 0267/2014-15 and 0301/2013-14 passed by the learned Commissioner (Appeals)-VIII, New Delhi (in short “Commissioner (Appeals)) in relation to the assessment years 2007-08 and 2006-07 respectively, assessee preferred both these appeals.

2. Briefly stated facts are that the assessment was completed in both the years under section 143(3) of the Income Tax Act, 1961 (“the Act”). However, subsequently, there were search operations conducted on the premises of one Shri Surendra Kumar Jain group of companies and after further enquiries, it was found that Surender Kumar Jain group provided accommodation entries to various beneficiaries with the help of several bank accounts opened in the name of several proprietary concerns and companies in which either he himself or his employees were directors/proprietor. After receiving information from the Directorate of Income Tax (Investigation) Unit-VI(2) to the effect that the assessee’s name also appeared in the list of beneficiaries who had taken accommodation entries in the garb of share application money, loan, gifts, bogus sales/purchases or some other ostensible business transaction through the bank accounts existing in the name of the paper dummy concerns/entities operated by the entry operators, learned assessing officer formed an opinion that there are reasons to believe that income of the assessee company to the extent of Rs. 25 lacs had escaped assessment.

3. Learned assessing officer recorded the reasons and issued notice under section 148 of the Act on 21-3-2013 and 6-3-2014 respectively for assessment years 2006-07 and 2007-08 after obtaining the approval under section 151(2) of the Additional Commissioner, Range-V, New Delhi. Learned assessing officer concluded the assessment proceedings by making an addition of Rs. 65,10,000 on account of bogus accommodation entries taken by the assessee under section 68 of the Act and a sum of Rs. 1,30,200 towards the expenditure incurred to arrange accommodation entries under section 69C of the Act in respect of assessment year 2006-07 and Rs. 90 lacs on account of bogus entries under section 68 of the Act and a sum of Rs. 1,80,000 under section 69C of the Act towards the expenditure incurred to arrange the accommodation entries in respect of assessment year 2007-08.

4. Assessee preferred the appeals against the quantum additions both on facts and law contending that this case squarely falls under proviso to section 151(1) of the Act, as such, approval or satisfaction of the Chief Commissioner or Commissioner was necessary and for want of which the proceedings are bad in law and were liable to be quashed. By way of impugned order, the learned Commissioner (Appeals) accepted the contention of the assessee on the question of law and allowed the same on three grounds, namely, firstly, the proceedings are bad for want of the approval or satisfaction of the Chief Commissioner or Commissioner as required under proviso (1) to section 151 of the Act; secondly, no notice under section 143(2) of the Act was issued before making the additions, as such, such defect being incurable, proceedings were liable to be quashed; and lastly, learned Commissioner (Appeals) recorded that in cases of the reopening of the concluded assessment beyond the period of four years, the learned assessing officer has to record a finding that because of the reason of the failure on the part of the assessee to disclose fully and truly all material facts for the assessment. However, there is no such allegation against the assessee in this matter, as such, reopening of the assessment cannot be sustained and the reopening is on the basis of change of opinion.

5. In so far as the merits of the case are concerned, learned Commissioner (Appeals) recorded that there is a failure on the part of the assessing officer to make any enquiries from the investors whose money is said to have invested by the assessee and further, the amendment in section 68 of the Act to explain the source of the source of the share applicant with effect from 1-4-2013 and had no application to the earlier assessment years, as such, because assessing officer did not make any efforts to brought on record any such material which show that investment made by the shareholders is not their money, the addition is not sustainable. Learned Commissioner (Appeals), therefore, both on law and merits reached a conclusion that reopening of the assessment was bad in law and addition cannot be sustained. Hence, the revenue is in these appeals before us.

6. It is submitted by the learned Departmental Representative that the learned recorded in his order that after perusal and considering the information received from the Investigation Wing, reason to believe that income of the assessee company had escaped assessment was recorded and notice under section 148 of the Act was issued after obtaining the approval under section 151(2) of the Act of the learned Additional Commissioner. She, therefore, submits that the revenue had a very strong case on merits and prayed to dismiss the plea of the assessee basing on technical grounds. Learned Departmental Representative heavily relied on the order of the learned assessing officer.

7. Per contra, it is the argument of the learned AR that admittedly, the assessment years are 2006-07 and 2007-08 whereas the notices under section 148 were issued on 21-3-2013 and 6-3-2014 respectively, clearly beyond the period of four years, thereby taking the case within the mischief of the proviso to section 151(1) of the Act. He further submitted that no evidence is produced to show that the notice under section 143(2) was issued nor is there any finding of the learned assessing officer that because of the failure on the part of the assessee to disclose fully and truly all material facts for the assessment, there was escapement of some income from assessment.

8. We have gone through the record. The dates admitted. There is no dispute that the notice under section 148 was issued to the assessee in respect of assessment years, beyond the period of four years from the end of the relevant assessment years as contemplated under the proviso to sub section (1) of section 151 of the Act, which stipulates that after the expiry of four years from the end of the relevant assessment year, no notice under section 148 of the Act shall be issued unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the assessing officer, that it is a fit case for the issue of such notice. Learned assessing officer himself recorded in the order that the approval of the Additional Commissioner Range-V, New Delhi was obtained and stated that it was so under section 151(2) of the Act. As a matter of fact in respect of the cases where notice under section 148 was proposed to be issued after the expiry of four years from the end of the relevant assessment year, section 151(1) is applicable but not section 151(2) of the Act. Section 151(2) clearly states that it is applicable to the cases other than the cases falling under sub-section (1). A plain reading of section 151 makes it amply clear that the learned assessing officer misread the same and did not follow the mandate of the proviso to section 151(1) of the Act inasmuch as the case in hand relates to the proposed notice under section 148 of the Act after the expiry of four years from the end of the relevant assessment year. On this ground, assessee succeeds.

9. Be that as it may, it is not the case of the revenue that any evidence is there on record to establish that any notice under section 143(2) was issued before the conclusion of the assessment after its reopening, nor did the learned assessing officer record finding that because of the failure of the assessee to furnish fully and truly all material facts necessary for the assessment, there was escapement of income from assessment. In these circumstances, we find it difficult to hold that the impugned order suffers any illegality or irregularity warranting interference by the Tribunal. The reasons recorded by the learned Commissioner (Appeals) are perfect and there is no ground for us to interfere with the same.

10. Since we uphold the order of the learned Commissioner (Appeals) on the question of law, we do not deem it necessary to delve deeper into the merits of the case. We, therefore, while upholding the order of the Commissioner (Appeals), dismiss the appeals of the revenue.

11. In the result, both the appeals of the revenue are dismissed.