CA Suraj R. Agrawal
Facts of the case:
a. Assessee had filed return of income on 27-10-2006 u/s 139(1) and original assessment was done by AO u/s 143(3) vide order dated 15.12.2008.
b. Subsequently, this case was reopened u/s 147 and AO framed re-assessment order dated 31.12.2012 u/s 143 read with 147 of the Income Tax Act 1961.
c. Against this, the Assessee filed an appeal before Ld. CIT (A), wherein he challenged the action of the AO of re-opening of assessment u/s 147 and also challenged additions made by the AO on merits.
d. Ld. CIT (A) did not accept the submissions of the assessee with respect to re-opening and therefore, re-opening was upheld by the Ld. CIT (A). On merits also, no relief was given by the Ld. CIT (A) to the assessee.
Issue put before (ITAT Mumbai):
The learned CIT (Appeals) erred in confirming action of the A.O. for reopening the assessment without properly appreciating the fact of the case and laws applicable thereto.
The learned CIT (Appeals) erred in confirming action of the A.O. for reopening the assessment on the basis of audit objection which is not permissible in law.
Contentions of Appellant:
a. The reopening was bad in law.
b. Reasons have been recorded without there being any fresh tangible material coming into the possession of the AO.
c. AO has recorded the Reasons on the basis of same set of material and records which were available at the time of framing of original assessment u/s 143(3).
d. There was change of opinion on the part of AO while recording impugned Reasons and therefore reopening of the case was invalid on this ground also.
Contention by Revenue:
a. Reopening has been done within the period of four years from the end of the impugned assessment year.
b. There was no change of opinion, because in the original proceedings, various aspects were over-looked by the AO and after reconsidering the material available on record, it was noticed by the AO that income has escaped from assessment.
Ruling of Honorable (ITAT Mumbai):
a. ‘Reasons’ have been recorded by the AO on the basis of records available with him since the time of framing of original assessment proceedings u/s 143(3) vide order dated 15.12.2008.
b. There was no fresh tangible material in the possession of AO at the time of recording of impugned reasons.
c. Thus, assertion of the assessee that there was no fresh material with AO for reopening of this case remained uncontroverted.
d. It was held that even in the case of original assessment order having been passed u/s 143(1), it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case.
e. Reopening done by Ld. AO in the absence of fresh tangible material is invalid and bad in law.
f. Therefore, the initiation of reassessment proceedings was not valid. Thus, re-assessment order framed in pursuance to invalid reopening is illegal; the same is hereby quashed. Since assessment order has been quashed on jurisdictional ground itself, other grounds are not being adjudicated.
g. The appeal of the assessee is partly allowed.
Key Take Away
Relevant provisions of law, fixing obligations upon the AO for making mandatory compliances, in a step-wise manner, for valid assumption of jurisdiction for reopening and reframing of reassessment order, can be summarized as under:
i. Availability of the new tangible material indicating escaped income of the assessee, which should have come into possession of the AO, after the passing of original assessment order, whether u/s 143(3) or 143(1),
ii. ‘Reasons’ recorded should not be based upon the change of opinion of the Assessing Officer.
iii. Failure on the part of the assessee in disclosure of material of facts, as has been envisaged in first proviso to section 147.
iv. Before issuing notice u/s 148, the AO has to obtain, on the reasons recorded by him, sanction for reopening of the case, from the competent authority as envisaged u/s 151 viz. Additional Commissioner or the Commissioner of Income Tax, as the case may be.
v. After obtaining the sanction, the AO is required to issue and serve notice u/s 148 upon the assessee, within the time limit as prescribed u/s 149, to enable him to assume jurisdiction to reopen the assessment.
vi. The assessee is required to file to return of income, in response to notice u/s 148 and may request for the copy of reasons.
vii. The AO is bound, as per law, to provide a certified and verbatim copy of Reasons to the assessee.
viii. The assessee may file its objections before the AO, to the Reasons recorded, if any.
ix. AO is obliged to dispose of these objections and intimate the same to the assessee, before proceeding further with the reassessment proceedings.
x. AO is obliged under the law to issue and serve notice u/s 143(2) to enable him to make assessment of the return filed by the assessee in response to notice issued under section 148.
The aforesaid compliances have to be made by the AO u/s 147 to 151 of Income Tax Act, 1961 read with other relevant provisions of the Act, in a step-wise and chronological manner.