Reopening on incorrect reasons recorded that assessee not filed return of income quashed by ITAT
In a recent judgment, ITAT Guwahati has quashed the reopening done on the factually incorrect reasons recorded by the AO that assessee had not filed return of income.
ABCAUS Case Law Citation:
4195 (2024) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) NFAC in confirming the re-opening of assessment u/s 147 read with Section 148 of the Income Tax Act, 1961 (the Act) by the AO without satisfying the necessary pre conditions.
The assessee filed return of income declaring derived income by way of salary income, capital gain and income from other sources. The assessee had shown long term capital gain on sale of equity shares which was claimed as exemption u/s 10(38) of the Act.
As per the information available on record a search and survey action was conducted on syndicate of persons by the Investigation Wing which revealed a network of providing accommodation entries in the form of LTCG/losses in several scrips to various beneficiaries across the country.
The Assessing Officer (AO) reopened the assessment u/s 147 of the Act after perusing the information available on record revealing that as per the insight portal the assessee had entered into high risk transactions during the instant year. Accordingly, a notice u/s 148 of the Act was issued after recording the reasons to believe and after obtaining the approval from the competent authority.
The assessee complied with the said notice by filing return of income which was followed by notice u/s 142(1) along with questionnaire which was also complied by the assessee by furnishing the details/clarifications as sought by the AO. Beside the assessee also raised objection to the reopening of assessment which was also disposed of by the AO by rejecting it.
Finally, the AO rejected the contentions of the assessee as regards long term capital gain and made inter alia an addition u/s 68 of the Act being the entire sale consideration received from sale of scrip namely M/s Monotype India Pvt. Ltd. and u/s 69C of the Act by presuming the brokerage and commission on these bogus entries.
Before the Tribunal the assessee submitted that the reopening of assessment u/s 147 of the Act had been invalidly made by the AO without satisfying the conditions as laid down therein because there has been no application of mind at the time of recording the reasons to believe u/s 148(2) of the Act.
The assessee drew attention to the reasons recorded u/s 148(2) of the Act wherein AO had noted that the Income tax profiling in the case of the assesse had been done and it had been found that the assessee had not filed return of income for the relevant Assessment Year. The AO stated that as per the Insight Portal of the assessee there were high risk transactions in the instant financial year and since the assessee had failed on his part to prepare and submit a return of income offering his true and complete income to tax for the assessment year under consideration, the income had escaped assessment.
Thus, it was submitted that formation of reason to believe by the AO was based upon wrong facts and accordingly the initiation of re-assessment u/s 147 of the Act was invalid. It was submitted that the very premise of the reopening was based upon wrong facts as the AO had stated that the assessee had not filed any return of income in the instant financial year whereas as a matter of fact the assessee had duly filed the return of income for the impugned assessment year and so much so the said return had been processed by CPC, Bengaluru u/s 143(1) of the Act.
The assessee vehemently submitted that the reasons recorded by the AO, wherein it had been stated that the assessee has not filed any return of income, suffered from complete non-application of mind at the time of recording the reasons which is not permissible under the Act and therefore reopening on the basis of such defective and wrong reasons is liable to be quashed.
On the other hand, the Revenue contended that mere mentioning of the said fact in the reasons recorded for re-opening would not render the reopening of assessment nullity and invalid as the AO had specific information in his position that in terms of insight portal the assessee had done high risk transactions during the year.
It was submitted that the reopening of assessment has validly made and the legal objections taken by the assessee were hyper-technical in nature and may be brushed aside. The reveue stated that mis-statement occurred due to intense pressure on the AO because of tremendous pressure of work at the fag end of the time period when the proceedings or issuance of notices were getting time barred. The Revenue relied on the provisions of Section 292BB of the Act which state that where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provisions of this Act, which is required to be served upon him, had been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act.
The Tribunal observed that the AO had not applied his mind while recording the reasons to believe before reopening of assessment and had proceeded on the wrong premise that the assessee had not filed any return of income whereas as a matter of fact the return of the income was duly filed and was also processed u/s 143(1) of the Act. In the said return of income the income of capital gain was duly disclosed and claimed u/s 10(38) of the Act as exempt.
The Tribunal found merit in the contentions of the assessee that reopening of assessment made on the basis of reasons to believe based upon wrong facts would render the reopening of assessment u/s 147 of the Act as nullity and invalid and so is the assessment order.
The Tribunal noted that case of the assessee is supported from the decision of Hon’ble Delhi High Court in which the reason for the reopening of the assessment was belief that the assessee had changed the system of accounting from the mercantile to the cash system. However, the assessee had consistently followed the mercantile system of accounting. Since the action of the Revenue was based on a factually erroneous premise, the reopening of the assessments for the assessment year was held not sustainable in law.
Further, the Tribunal stated that the reason have to be read as were recorded by the AO and no substitution or addition or deletion are allowed at a later stage for the reasons that the AO by reopening the assessment is unsettling the already settled assessment of the assessee. As held by the Bombay High Court, the AO is supposed to exercise utmost care and caution in the matter of exercising the jurisdiction us u/s 147 of the Act.
Accordingly, the Tribunal quashed the reopening of assessment as well as consequent order passed u/s 147 of the Act as invalid and nullity.
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