Non supplying “reasons to believe” to assessee made the assessment lacking valid assumption of jurisdiction – ITAT
In a recent judgment, ITAT Raipur has held that when the Assessing Officer (AO) despite specific request of the assessee failed to provide to him a copy of the “reasons to believe” on the basis of which his case was reopened u/s 147 of the Act, the assessment framed was devoid and bereft of valid assumption of jurisdiction.
ABCAUS Case Law Citation:
4281 (2024) (10) abcaus.in ITAT
In the instant case, the Income Tax Department had challenged the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC) in terming the notice u/s 148 of of the Income Tax Act, 1961 (the Act) as barred by limitation by stating that no new information was in the possession of the Assessing Officer to re-open the case.
The assessee was engaged in the business of rice milling and trading and had filed his return of income for AY 2011-12. The return was selected for scrutiny assessment and order u/s. 143(3) of the Act was passed by making lumpsum addition of transportation and hamali expenses.
Subsequently, on the basis of information received from the Commercial Tax Department, the AO observed that the assessee had taken bogus purchase bills from the following bogus/non-existent parties. Accordingly, the A.O after recording “reasons to believe” initiated proceedings u/s 147 of the Act and Notice u/s.148 of the Act was issued to the assessee.
In re-assessment proceedings, the AO held the entire amount of the impugned purchases as bogus and added the same to the income of the assessee that was originally assessed u/s.143(3) of the Act.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). The CIT(A) observed that the assessee had submitted details of purchase during original assessment proceedings. These details had been verified by the AO during original assessment proceedings before making lumpsum addition of transportation and hamali expenses.
The CIT(A) held that as no new information was in the possession of the Assessing Officer, no action could have been taken under section 147 after the expiry of four years from the end of relevant assessment year as the assessee had disclosed all details of purchase during original assessment. Therefore, the the notice u/s 148 was barred by limitation and was invalid.
The revenue being aggrieved with the order of the CIT(Appeals) had carried the matter in appeal before the tribunal.
The respondent assessee at the threshold raised a preliminary objection as regards the validity of the jurisdiction that was assumed by the A.O for framing the impugned assessment. It was submitted that though the assessee vide letter requested for a copy of “reasons to believe” that were recorded by the AO for reopening his case, but the A.O without providing the same had proceeded with and framed the assessment vide his order u/s. 143(3) r.w.s.147 of the Act. It was submitted that the copy of the “reasons to believe” had been made available to the assessee for the first time in the course of the appellate proceedings before the tribunal.
The Bench, in order to verify the correct factual position directed the Revenue to obtain a report from the A.O. It came to light that during the course proceedings u/s 147, the assessee had requested the copy of “reasons to believe”. However no reply was received as to whether or not a copy of the “reasons to believe” were provided to the assessee prior to the framing of the assessment u/s 147 of the Act.
The assessee submitted that as he despite a specific request for a copy of the “reasons to believe” was not provided the same by the A.O, he remained divested of his statutory right of objecting to the very basis on which his case was reopened u/s 147 of the Act. The assessee in support of his contention had relied on the various judicial pronouncements.
The Tribunal found that as per available record, the A.O in the course of the reassessment proceedings, had failed to accede to the aforesaid request of the assessee and had not made available to him a copy of the “reasons to believe”, based on which, his concluded assessment was reopened.
The Tribunal noted that CIT(Appeals) had upheld the validity of the jurisdiction assumed by the AO for framing the assessment observing that no failure could be attributed to the A.O for making available copy of the “reasons to believe” to the assessee for the reason that the latter had requested the same after 6 months from the date of issuance of notice u/s 148 of the Act.
The Tribunal rejected the reasoning of the CIT(A) and observed that though the assessee had
after filing his return of income in compliance to the notice u/s. 148 applied for a copy of “reasons to believe” after a time gap of 6 months, but considering the fact that the A.O had framed the assessment vide his order u/s. 143(3) r.w.s. 147 after lapse of a period more than 2 months from the date, on which, the assessee had made the aforesaid request, there was no justifiable reason for the A.O in not providing a copy of the same to the assessee.
Further, the Tribunal observed that the CIT(Appeals) had observed that not only the AO in his notices/SCNs discussed the reasons, based on which, the case of the assessee was reopened u/s 147 of the Act, but also, as the assessee in his letter had discussed the same, therefore, the assessee cannot claim that he had remained unaware/oblivion as to why his case was reopened.
The Tribunal rejected the above reasoning of the CIT(A) and observed that the failure on the part of the AO to make available a copy of the “reasons to believe”, which formed the basis for reopening of the assessee’s concluded assessment goes to the very root of the validity of the jurisdiction assumed by the AO for framing the impugned assessment.
The Tribunal observed that the Hon’ble Supreme Court had observed that the assessee after obtaining a copy of the “reasons to believe” is vested with a statutory right to file his objections before the AO, which the latter is required to dispose off on the basis of a speaking order. The Tribunal opined that in the instant case there had been a complete violation of the applicable principle of law by the A.O, who had despite a specific request by the assessee failed to communicate to him the “reasons to believe” that had formed the very basis for reopening of his concluded assessment u/s 147 of the Act. The assessee had remained divested of his statutory right of raising objection to the very basis on which his case was reopened u/s.147 of the Act.
The Tribunal opined that failure of the AO to make available a copy of the “reasons to believe” to the assessee, who had specifically requested for the same after filing his return of income in response to notice u/s.148 of the Act is nothing short of a brazen violation of the governing principles of law.
The Tribunal opined that the failure on the part of the A.O to make available copy of the “reasons to believe” to the assessee who after complying with the notice u/s. 148 of the Act had specifically requested for the same, therein goes to the very root of the validity of the jurisdiction assumed by the A.O for framing the impugned assessment u/s. 143(3) r.w.s. 147 of the Act.
The Tribunal further noted that the Hon’ble Bombay High Court had held that where reasons for reopening of the assessment were not furnished to the assessee despite the same were sought for by the latter, the reassessment order being bad in law was liable to be quashed.
The Tribunal again observed that the Hon’ble High Court had approved the view of the Tribunal which held that where the reasons recorded for reopening of the assessment were not furnished to the assessee till completion of the assessment, the reassessment order could not be upheld. The Hon’ble High Court while concluding had observed that the Special Leave Petition (SLP) that was filed by the revenue against its order was dismissed by the Hon’ble Apex Court. A similar view had been taken by the Hon’ble High Court of Delhi.
The Tribunal further noted that a similar issue had been adjudicated by a division bench of the ITAT in favour of the assessee quashing the assessment where AO despite specific request failed to make available a copy of the “reasons to believe” on the basis of which his case was reopened u/s.147 of the Act.
Accordingly, the Tribunal held that AO despite specific request of the assessee failed to provide to him a copy of the “reasons to believe” on the basis of which his case was reopened u/s.147 of the Act, therefore, as per settled position of law, the assessment framed by him being devoid and bereft of any valid assumption of jurisdiction cannot be sustained and was quashed.
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