Case Law Details
Before the issue concerning validity of reopening of assessment is taken up for consideration, the brief facts relevant for disposal of this appeal needs to be noticed. The assessee is a Doctor by profession. She has also purchased and sold shares. For the year under consideration the assessee declared total income of 2,55,066/- on 27.10.2005 and it was processed After a lapse of more than four years, i.e. on 15.03.2011 the AO issued notice under section 148 of the Act on the ground that the assessee has received an income of 1 ,7 1,465/- from M/s. Gold Star Finvest Pvt. Ltd., which was not offered for tax and thus there is escapement of income.
During the course of assessment proceedings the assessee asked the AO to furnish reasons for reopening of assessment though, in response to notice issued under section 148 it was submitted that the return originally filed on 27.10.2005 should be considered as return in response to the said notice. As per section 151(2) of the Act if an assessment is sought to be reopened after the expiry of four years from the end of the assessment year the prerequisite for issuance of notice is the satisfaction recorded by the Joint Commissioner. Section 151(2) states that ‘unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is fit case for issue of such notice, no notice shall be issued under section 148 of the Act by an Assessing Officer’. In the instant case, as can be seen from the assessment order, notice was issued on 15.03.2011 whereas the approval of the Joint Commissioner was obtained on 23.04.2011 which in itself shows that the notice preceded the authorisation/satisfaction reached by the Joint Commissioner. Though the assessee challenged the reopening of assessment in general before the CIT(A) in vain, before the Tribunal the learned counsel for the assessee specifically contended that the notice issued under section 148 of the Act is not in accordance with law because the preliminary condition of recording satisfaction by the Joint Commissioner was not satisfied prior to the issue of notice and further submitted that the reasons recorded clearly indicate that neither the AO nor the Joint Commissioner has applied their mind to the issue on hand because in the instant case the assessee has entered into total purchase transactions of 2 1,88,997/- and sale transactions of 20,17,522/- which implies that the assessee has to pay the differential amount of 1,71,465/- to the concerned broker, which was reflected in the Balance Sheet; according to the AO it was reflected in the Balance Sheet of the assessee as amount payable to M/s. Gold Star Finvest P. Ltd. whereas page 4(a) as well as page 21 onwards of the paper book clearly reflects that it was shown as amount payable to M/s. Mahasagar Securities P. Ltd. and there is no connection, whatsoever, with M/s. Gold Star Finvest P. Ltd. and it can never be treated as income because the purchase price is more than the sale price and the assessee is liable to pay the differential amount to M/s. Mahasagar Securities P. Ltd. whereas the AO, merely based on some reports concerning Choksi Group, assumed that it is an income. Thus, the reopening of assessment is bad in law because there is no satisfaction reached either by the AO or by the Joint Commissioner. He also submitted that even the CIT(A) referred to provisions of section 69 of the Act and observed that though the addition cannot be made under section 69 of the Act but by virtue of creation of assets, the corresponding unproved liability is to be taxed independently under the Income Tax Act, without specifying as to under which provision it has to be assessed to tax. He thus strongly submitted that reopening of assessment is bad in law.
When the same was put to the learned D.R. he submitted that these are curable defects. It deserves to be maintained that the date of reopening of the assessment, i.e. issuance of notice and obtaining the satisfaction of the Joint Commissioner is not in dispute. It also deserved to be noticed that the reason recorded by the AO is that the assessee received income of ~1,71,465/- from M/s. Gold Star Finvest P. Ltd. whereas in the instant case the assessee has not dealt with that entity at all. If at all there is any transaction it only results in payment to be made by the assessee, i.e. liability of the assessee towards M/s. Mahasagar Securities P. Ltd. and it can never be treated, for the year under consideration, as income from unexplained investments, much less an addition that could have been made under section 69 of the Act.
I have considered the rival submissions carefully. In my opinion the reassessment proceedings are bad in law in as much as the AO sought to reopen the assessment beyond a period of four years and not followed the procedures laid down in section 151(2) of the Act for issuing notice under section 148 of the Act. Even the reason recorded by the AO shows that the AO has not applied his mind and consequently, based on the wrong reasons provided by the AO, the Joint Commissioner has recorded his satisfaction in which case it has to be held that the satisfaction recorded by the tax authorities is not in accordance with law, which is mandatory for the purpose of issuance of notice under section 148 of the Act. Under these circumstances the proceedings are quashed and the orders passed by the AO as well as the CIT(A) are set aside.
An ordinary assessee cannot be expected to keep all records for so many years, unless he has done something to avoid tax, in which case he will take double care to keep the logic of his (self) assessment submission.!