If Assessing Officer fails to provide the reasons for reopening, the reassessment order is unsustainable in law

The ITAT, Delhi Bench, New Delhi in the case of in Sri Inderjeet Sachdeva having PAN: ALFPS8175E vs. DCIT, Range-1, C/o M/s Shubham Nursing Home, Moradabad, Civil Lines, Moradabad, ITA No. 6611/Del/2013 has held that if AO fails to provide to the assessee the reasons for reopening the assessment within a reasonable time, the reassessment order becomes unsustainable in law.

Pleaders engaged:

Sh. Piyush Kaushik, Advocate appeared on behalf of the Appellant. On the other hand Mr. Amit Jain, Sr. DR appeared on behalf of the Respondent.

Date of Hearing:

The hearing was concluded on 18.05. 2016.

Date of judgment:

The judgement was delivered on3.6. 2016.

Backgrounds of the appeal:

The Assessee filed the Appeal against the impugned order dated 26.9.2013 passed by the Ld. CIT(A)-II, New Delhi in connection with the assessment year 2001-02.

Grounds of appeal:

The grounds of the Assessee were as follows:

1. That the CIT (A) erred in confirming the assumption of the assessment order under section 148/144 as framed by the AO;
2. That the CIT (A) s grossly erred in confirming the addition of Rs.12, 00,000/- as made by the Assessing Officer.
The appellant also craved leave to add to and / or change or withdraw the grounds stated above before or at the time of hearing of the appeal.

Facts of the case:

The brief facts of the case are that the assessee filed return of income on 31.7.2001 wherein he declared that his income from salary and other sources was Rs. 2,47,000/-.

The return was processed under section 143(1) of the Income Tax Act, 1961 on 11.7.2002 creating a demand of jurisdiction under section 148 by the AO which was bad in law.

The order under section 143(1) of the Act was revised under section 154 and the demand was reduced to zero.

Thereafter a notice dated 28.3.2008 under section 148 of the Act was issued to the assessee on the basis of information from the DIT, New Delhi for the fact that the gifts received by the assessee were not gifts but accommodation entries given by the persons who gave the gifts.

The notice was issued after due approval from the Addl. CIT. The assessee has shown gifts amounting to Rs. 12, 00,000/-. In response to the notices nobody turned up on behalf of the assessee. Further notice was sent in view of the fact that the notice was not complied with.

Thereafter notice under section 144 of the Act was issued which was too not responded. The assessee was required to furnish evidence in support of the gift worthiness of the donors and other proof which the assessee would rely upon.

However nothing was produced by the assessee. The case was taken up on merit under section 144 of the Act and it was observed that as the assessee was required to prove the creditworthiness of the donors which was not proved due to the fact that no explanation was provided by the assessee nor any evidence supporting the contentions of the assessee followed.

The onus to prove the genuineness of the gifts lay with the assessee and he failed to discharge it.
It was further observed that as the case was being decided ex-parte, the onus to prove the genuineness of the gifts was upon the assessee who failed to discharge it.

In consideration of the fact that the findings of the DIT (Inv.) that the gifts were nothing but accommodation entries the total amount was considered as income of the assessee.

The AO assessed the income of the assessee at Rs. 14, 47,000/- and also made addition of Rs. 12 lacs vide by an order dated 30.12.2008 passed under section 148/144 of the Act.

Against the order of the Ld. AO, assessee filed an appeal before the Ld. CIT (A), who by an impugned order dated 26.9.2013, has dismissed the appeal of the assessee.

Aggrieved with the aforesaid order passed by the Ld. CIT (A), the assessee filed an Appeal before the Tribunal.

Arguments of the parties:

The Ld. Counsel of the assessee only argued the legal ground challenging the jurisdiction under section 148 of the Act. He contended that AO issued notice under the provisions of 148 of the Act on 28.3.2008 asking the assessee to file Return of Income for the Assessment Year 2001-02, which was served on 31.3.2008.

He further argued that the Assessee by letter dated 9.4.2008 submitted before the AO that the return of income can be treated as return of income for the purpose of section 148 of the Act.

The Assessee also requested in the letter that reasons recorded for issuing of such a notice may also be supplied to him, which was in fact not supplied to him till the completion of assessment.

Thereafter the AO completed the assessment on 30.12.2008 under section 148/144 without giving the copy of the reasons recorded to the assessee. This point was also raised before the CIT (A) and the Ld. CIT (A).

Ld. Counsel stated that non-supply of reasons recorded is contrary to the provisions of law as has been laid down by the Hon’ble Apex Court in the case of GNK Driveshafts (India) ltd. vs.ITO , 259 ITR 19 (SC).

It was requested that by following the decision of the Hon’ble Apex Court, the assessment may be set aside being bad in law.
In support of his contention he relied upon the case law of CIT vs. Trend Electronics, 2015, TIOL, 2393(High Court-Mum).

On the contrary, Ld. DR in accordance with the order passed by the CIT (A) stated that the impugned order is a well reasoned order, which should be upheld.

The judgment:

Both the parties were heard. The Tribunal also perused the relevant records, especially the orders of the revenue authorities and the case law of the assesee’s counsel on the matter in dispute.

It was held it was very much necessary to reproduce the contents of the notice dated 28.3.2008 issued by the Assessing Officer.
After going through the Notice dated 28.3.2008 it became clear that the completion of assessment was done without furnishing the reasons for initiation of proceedings under section 147/148 of the Act is not sustainable in law as the AO was under an obligation to supply them within reasonable time.

Therefore, the reopening was not sustainable in the eyes of law. The appeal of the assessee was allowed.