2025 (6) TMI 1536 - AT - Income Tax

Validity of reopening of assessment - as argued no notice u/s 143(2) was issued by assessing officer before passing assessment order - HELD THAT - We find neither the assessee raised non-issuance of notice during the assessment nor such issue was raised before the Ld. CIT(A) while filing first appeal. Similarly no grounds of appeal was raised before the CIT(A) against validity of reopening. Both such legal issues are raised for the first time before the Tribunal. The assessee has not filed any application for seeking permission to the raise grounds of appeal either on validity of re-opening or notice under section 143(2). Even while filing additional ground on non issuance of notice the assessee in its application dated 26.08.2024 simply contended that they are attaching additional ground of appeal the same being purely legal and goes to root of the case. No basis of filing such application is disclosed whether it requires the investigation of fact or not. We find that the assessee has is challenging assessment proceeding for the first time before the Tribunal on the ground of issuance of notice under section 143(2). Thus considering the overall facts of the present case the additional ground of appeal on non-issuance of notices as well as validity of reopening are admitted and matter is remitted back to the file of the Ld. CIT(A) for considering and adjudication of both the grounds of appeal in accordance with law. On merit we find that the addition in account of business income as well as unexplained credit u/s 68 by lowers authorities for the want of evidence. Thus on merit the appeal is restored back to the file of the CIT(A) to adjudication both the issue afresh. Appeal of the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the reassessment initiated under section 148 of the Income Tax Act was valid, particularly addressing the grounds of (i) incorrect reasons for reassessment based on the appellant being a non-filer, (ii) reassessment initiated merely for inquiry without independent application of mind, and (iii) reassessment based on borrowed satisfaction.

(b) Whether the addition of Rs. 82,967/- on account of business income, computed at 30% of Rs. 2,76,558/- based on entries in Form 26AS, was justified.

(c) Whether the addition of Rs. 26,19,911/- on account of unexplained cash deposited in bank accounts under section 68 of the Act was justified, considering that such cash deposits were part of normal business operations and already reflected in the revenue.

(d) Whether the reassessment was valid in the absence of issuance of statutory notice under section 143(2) of the Income Tax Act, and whether the assessment order passed without such notice was bad in law.

(e) Additional issue raised relates to the validity of reopening of assessment and whether the reassessment was initiated without proper independent satisfaction.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of Reassessment under Section 148

Legal Framework and Precedents: The reassessment under section 148 requires the Assessing Officer to record reasons to believe that income has escaped assessment. The satisfaction must be independent and not borrowed. The Supreme Court in cases such as Raymond Woollen Mills v. ITO has held that a prima facie view is sufficient at the time of reopening.

Court's Interpretation and Reasoning: The Assessing Officer recorded reasons for reopening on the basis of information regarding financial transactions and non-filing of return by the assessee. The Tribunal noted that the reassessment was initiated after obtaining approval under section 151 and issuing notice under section 148. However, the assessee challenged the reopening on grounds of borrowed satisfaction and incorrect reasons.

Key Evidence and Findings: The Assessing Officer had specific information about financial transactions and non-filing of return before initiating reassessment. The assessee did not challenge the validity of reopening before the Commissioner of Income Tax (Appeals) (CIT(A)) but raised it for the first time before the Tribunal.

Application of Law to Facts: The Tribunal observed that the issue of validity of reopening and non-issuance of notice under section 143(2) were raised for the first time before it and not before the CIT(A). The assessee did not seek permission to raise these grounds earlier. The Tribunal admitted these additional grounds but remitted the matter back to the CIT(A) for fresh adjudication in accordance with law, emphasizing the need for opportunity to the assessee.

Treatment of Competing Arguments: The Revenue relied on the principle that a prima facie satisfaction is sufficient for reopening and that the Assessing Officer had recorded reasons and issued notices. The assessee argued the reassessment was invalid due to borrowed satisfaction and incorrect reasons. The Tribunal found merit in allowing the assessee to raise these issues before the CIT(A) for proper adjudication.

Conclusion: The Tribunal held that the validity of reopening and issuance of notice under section 143(2) are legal issues that require adjudication by the CIT(A) and thus remitted the matter for fresh consideration with due opportunity to the assessee.

(b) Addition of Rs. 82,967/- on Account of Business Income

Legal Framework and Precedents: Additions on estimated basis are permissible under the Income Tax Act when the assessee fails to provide satisfactory evidence to explain entries appearing in Form 26AS or similar documents. The burden lies on the assessee to prove correctness of income declared.

Court's Interpretation and Reasoning: The Assessing Officer made an addition of Rs. 82,967/- computed at 30% of Rs. 2,76,558/- on the basis that the amount was reflected as professional and technical fees in Form 26AS but no supporting details were furnished by the assessee. The CIT(A) confirmed this addition due to lack of evidence.

Key Evidence and Findings: The assessee contended that the amount was already considered as part of revenue and thus no further addition was warranted. However, the lower authorities found that no specific details or evidence were provided to substantiate the nature of the receipts.

Application of Law to Facts: The Tribunal noted that the additions were made due to absence of evidence despite repeated opportunities. The assessee filed voluminous documents only before the Tribunal and did not participate in video conferencing before the CIT(A).

Treatment of Competing Arguments: The assessee argued that the amount was included in total turnover and that TDS was deducted on professional fees. The Revenue maintained that in absence of evidence, the addition was justified. The Tribunal did not decide on merits but remitted the issue to the CIT(A) for fresh adjudication with opportunity to the assessee.

Conclusion: The issue of addition on account of business income is restored to the CIT(A) for fresh consideration after allowing the assessee to file evidence and make submissions.

(c) Addition of Rs. 26,19,911/- on Account of Cash Deposited in Bank under Section 68

Legal Framework and Precedents: Section 68 provides that unexplained cash credits are to be added to income if the assessee fails to satisfactorily explain the nature and source of such credits. The assessee must provide credible evidence to establish genuineness.

Court's Interpretation and Reasoning: The Assessing Officer treated the cash deposits as unexplained cash credits under section 68, as the assessee failed to provide satisfactory evidence. The CIT(A) confirmed this addition for want of evidence.

Key Evidence and Findings: The assessee submitted that cash deposits were out of normal business operations, representing payments received from students for courses offered, and were reflected in audited accounts. The assessee also contended that the amount was already included in revenue, thus addition would amount to double taxation.

Application of Law to Facts: The Tribunal observed that despite the assessee's submissions, no evidence was furnished before the lower authorities. The assessee's failure to participate in proceedings and to provide evidence at the appropriate stage weighed against it.

Treatment of Competing Arguments: The assessee argued the cash deposits were genuine business receipts and already accounted for, while the Revenue insisted on addition due to lack of evidence. The Tribunal did not decide the merits but remitted the matter to the CIT(A) for fresh adjudication with opportunity to the assessee.

Conclusion: The addition under section 68 is set aside for fresh consideration by the CIT(A) after allowing the assessee to produce evidence and participate in proceedings.

(d) Validity of Assessment without Issuance of Notice under Section 143(2)

Legal Framework and Precedents: Section 143(2) requires the Assessing Officer to issue a notice to the assessee before making an assessment or reassessment, allowing the assessee to present their case. Non-issuance of such notice renders the assessment void and liable to be quashed.

Court's Interpretation and Reasoning: The assessee contended that no notice under section 143(2) was issued before passing the assessment order under section 144, thus depriving the assessee of opportunity to be heard. The Tribunal examined the assessment record and found no postal receipt for notice under section 143(2), though notices under sections 148 and 133(6) were on record.

Key Evidence and Findings: The assessee did not raise this issue before the CIT(A) but raised it first before the Tribunal. The Tribunal admitted the ground but remitted the matter to the CIT(A) for fresh adjudication in accordance with law.

Application of Law to Facts: The Tribunal emphasized the importance of procedural compliance and the right of the assessee to be heard. It noted that the absence of notice under section 143(2) is a serious procedural lapse, but since the issue was not raised earlier, the matter requires fresh consideration.

Treatment of Competing Arguments: The Revenue contended that the assessment was valid and that the assessee had opportunity to file return and respond to notices. The Tribunal found that procedural safeguards must be observed and remitted the issue for fresh adjudication.

Conclusion: The Tribunal held that the question of non-issuance of notice under section 143(2) requires fresh adjudication by the CIT(A) with due opportunity to the assessee.

(e) Validity of Reopening on Grounds of Borrowed Satisfaction and Merits of Additions

Legal Framework and Precedents: Reopening must be based on independent satisfaction of the Assessing Officer. Additions must be supported by evidence and not based on surmises. The Supreme Court and various Tribunals have emphasized the need for independent application of mind.

Court's Interpretation and Reasoning: The assessee contended that reassessment was initiated on borrowed satisfaction and merely for inquiry. The Tribunal noted that these grounds were not raised before the CIT(A) but admitted them for consideration and remitted for fresh adjudication.

Key Evidence and Findings: The Assessing Officer recorded reasons and obtained approval before reopening. The assessee failed to participate in proceedings at CIT(A) level and filed voluminous evidence only before the Tribunal.

Application of Law to Facts: The Tribunal emphasized the need for the Assessing Officer to demonstrate independent satisfaction and for the assessee to participate in proceedings to contest additions.

Treatment of Competing Arguments: The Revenue relied on the presence of recorded reasons and approval. The assessee argued lack of independent application of mind and double additions. The Tribunal remitted the issue to the CIT(A) for fresh adjudication.

Conclusion: The validity of reopening and merits of additions require fresh consideration by the CIT(A) with opportunity to the assessee.

3. SIGNIFICANT HOLDINGS

"The additional ground of appeal on non-issuance of notices as well as validity of reopening are admitted and matter is remitted back to the file of the Ld. CIT(A) for considering and adjudication of both the grounds of appeal in accordance with law."

"On merit the appeal is restored back to the file of the Ld. CIT(A) to adjudicate both the issues afresh. Needless to direct that before passing the order of Ld. CIT(A) shall allow opportunity to the assessee. The assessee is also directed to file all the return and evidence and to participate in the proceeding before the Ld. CIT(A)."

The Tribunal established the principle that procedural compliance, including issuance of notice under section 143(2), is mandatory and non-compliance renders assessment liable to be quashed. It also emphasized that grounds not raised before the CIT(A) cannot be entertained for the first time before the Tribunal without remitting the matter for fresh adjudication.

Final determinations on each issue were deferred, with all issues remitted to the CIT(A) for fresh adjudication after allowing the assessee full opportunity to participate and produce evidence. The appeal was allowed for statistical purposes, signifying no final decision on merits but procedural directions for re-hearing.