2019 (4) TMI 2080 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe OR reason to suspect - Whether assessee has duly filed return of income for the assessment year under consideration? - Assessee has alleged that the AO in his reason record for reopening of assessment stated that the assessee has not filed any return of income for the assessment year under consideration whereas the assessee has duly filed return of income for the assessment year under consideration - HELD THAT - Respectfully following the ratio of judgement of Hon ble Jurisdictional High Court in the case of Sunrise Education Trust v. Income Tax Officer 2018 (2) TMI 1471 - GUJARAT HIGH COURT wherein it was held that when the AO in the reasons recorded proceeded on the erroneous footing that the assessee has not filed return of income at all and when it is not in dispute that the assessee did file the return of income for the assessment year under consideration which was duly acknowledged by the department then it has to be held that the entire reasoning thus proceeded on the wrong premises that the assessee had never filed the return. This itself would be sufficient to annual the notice of reopening the assessment. In view of the above and in the light of ratio laid down by the Hon ble High Courts of Gujarat as quoted above and respectfully following the same we hold that entire reasoning recorded by the AO for initiation of reassessment proceeding and issuance of notice under section 148 of the Act was on the wrong and incorrect facts that the assessee has never filed the return of income and in fact it was filed. This view is further supported by decision of Co-ordinate Bench of Surat Tribunal in the case of Vishal Dilip Rai 2018 (9) TMI 2022 - ITAT SURAT in which following the decision of Hon ble High Court of Gujarat in the case of Sunrise Education Trust 2018 (2) TMI 1471 - GUJARAT HIGH COURT quashed the reopening of assessment as the reasons mentioned that the assessee has not filed return whereas the assessee did file the return of income. We are inclined to hold that the initiation of reassessment proceeding u/s.147 of the Act and notice under section 148 of the Act of the Act and all subsequent proceedings and orders have been issued conducted passed without having valid jurisdiction and therefore the same are bad-in-law and hence we quash the same. Accordingly legal ground no. 1 above of the assessee is allowed and notice under section 148 of the Act with impugned reassessment proceeding of the AO /CIT (A) are quashed.

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act.
2. Addition of Rs. 80,77,695 on account of undisclosed turnover.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 of the Income Tax Act:

The primary issue was whether the reopening of the assessment under Section 147 of the Income Tax Act was valid. The Assessee argued that the reopening was based on incorrect facts and without proper verification. The AO had received AIR information about substantial cash deposits in the Assessee's bank accounts and issued a notice under Section 148. However, the Assessee contended that the AO did not have the details of these deposits at the time of reopening and issued the notice mechanically.

The Tribunal noted that the AO's reasons for reopening the assessment were based on the incorrect assumption that the Assessee had not filed a return of income for the relevant year. The Assessee had indeed filed a return on 21.11.2007, declaring an income of Rs. 1,10,940. The Tribunal found that the AO's assumption was factually incorrect and that the reopening was based on wrong premises.

The Tribunal referred to several judicial precedents, including the Hon'ble Supreme Court's decision in ITO & Ors v. Lakshmani Mewal Das [1976] 103 ITR 437 (SC), which held that the AO's power to reopen assessments is not plenary and must be based on "reason to believe" rather than "reason to suspect." Additionally, the Tribunal cited the Hon'ble Gujarat High Court's decision in Sunrise Education Trust v. Income Tax Officer [2018] 92 Taxman 74 (Gujarat), which quashed reopening of assessments based on incorrect facts.

The Tribunal concluded that the AO issued the notice for reopening without verifying the Assessee's records and based on incorrect facts. Therefore, the initiation of reassessment proceedings and the notice under Section 148 were quashed as invalid.

2. Addition of Rs. 80,77,695 on Account of Undisclosed Turnover:

Given that the Tribunal quashed the reassessment proceedings, the issue of the addition of Rs. 80,77,695 on account of undisclosed turnover became infructuous. The Tribunal did not adjudicate on this ground as it was rendered moot by the quashing of the reassessment proceedings.

Conclusion:

The Tribunal allowed the Assessee's appeal on the legal ground, quashing the initiation of reassessment proceedings and the notice under Section 148. Consequently, the addition of Rs. 80,77,695 on account of undisclosed turnover was not adjudicated as it became infructuous. The order was pronounced in the open Court on 30.04.2019.