Assessment u/s 147 of Income Tax Act cannot be made without a Substantive Assessment: ITAT [Read Order]

The Cuttack Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that assessment under Section 147 of the Income Tax Act,1961 cannot be made without a substantive assessment.

Birat Chandra Dagara, the respondent assessee, was a mining contractor. The assessment was reopened under Section 147 of the Act, following the findings of the Justice M.B. Shah Commission Report on illegal mining in Odisha. The report raised concerns over alleged illegal activities, prompting the authorities to invoke Section 147 to reassess income for previous years.

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As a result, income additions were made under Section 145(3), which allows for assessment of income based on best judgment in the absence of proper records.

The assessing officer (AO) made protective additions, assuming that the assessee had transferred mining leases in violation of Rule 37 of the Mineral Concession Rules, 1960. However, these protective assessments were challenged on the grounds that no substantive assessment had been made against other entities or individuals regarding the alleged illegal mining income.

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The tribunal reviewing the case, noted that the protective additions made under Section 147 were without merit as no substantive assessment had been conducted. It also observed that a protective assessment is only valid if a substantive assessment has been made in another case. In the absence of such a substantive finding, the protective addition becomes invalid.

The bench cited precedents, including the Supreme Court's judgment in Lalji Hira Das v. ITO, which emphasized that a protective assessment must be accompanied by substantive action against the alleged income holder. The ITAT also pointed out that no mining lease had been transferred by the respondent to any other party in violation of the Mineral Concession Rules, confirming that there was no basis for the additions made.

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In conclusion, it ruled that the reassessment order was illegal and bad in law, as there was no substantive addition made against any other party.

The two member bench comprising George Mathan (Judicial Member) and Manish Agarwal (Accountant Member) consequently, dismissed  the appeal of the revenue, and the protective additions made against the assessee were deleted.

To Read the full text of the Order CLICK HERE

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