The Delhi Bench of Income Tax Appellate Tribunal(ITAT) quashed the reassessment order under Section 147 of the Income Tax Act,1961 due to lack of jurisdiction and procedural defects.
Montreaux Resorts Pvt. Ltd,the appellant assessee challenged the orders of the National Faceless Appeal Centre (NFAC), concerning the assessment year(AY) 2007-08, which included an assessment order dated March 27, 2015, issued under Section 147/144 of the Act. The assessee contended that the assumptions made under Section 147 were flawed and did not meet the prerequisites stipulated in the Act.
During the hearing, the Counsel for the assessee argued that the notice issued under Section 148(1) was invalid as it was addressed to “Principal Officer, M/s. Monteaux Resorts Pvt. Ltd.”—an incorrect designation that did not match the assessee’s official name. The notice also omitted the PAN number and failed to accurately reflect the company’s name.
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Additionally, the Counsel highlighted that the reasons recorded by the Assessing Officer (AO) demonstrated a lack of due diligence, particularly since the approval under Section 151 was erroneously based on a non-existent provision of Section 147(b), which had been repealed in 1989.
The counsel argued that the allegation regarding the escapement of Rs. 15 lakhs for the purchase of land was baseless because the AO acknowledged that the payment had been made through “accounted income/cash.” This contradiction undermined the justification for claiming that income had escaped assessment. Moreover, they stated that the reasoning for reopening the case lacked any meaningful application of mind by the AO and the sanctioning authority.
In contrast, the Departmental Representative(DR) for the Revenue supported the AO’s actions. However, the tribunal found that the reasons recorded did not substantiate the AO’s belief that income had escaped assessment.
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The tribunal observed that the AO failed to independently apply his mind to the information received from the DDIT (Investigation), Shimla, and did not conduct any inquiries to conclude that income assessable to tax had escaped assessment.
The bench noted that the approval process by the Additional Commissioner of Income Tax (Addl. CIT) was fundamentally flawed, as it was based on a non-existent provision (Section 147(b)), reflecting a mechanical approval lacking proper scrutiny.
The appellate tribunal referenced previous judgments, such as the one from the Bombay High Court in the case of Kalpana Shantilal Haria vs. ACIT and the Co-ordinate Bench in Bhaijee Commodities (P.) Ltd. vs. ACIT, which stated that approvals based on non-existent provisions are not sustainable in law.
Furthermore, the tribunal concluded that the defects in the recorded reasons were of a critical nature and were incurable under Section 292B of the Act, which addresses the validity of assessments and proceedings in the case of defects, errors, or omissions. Thus, it emphasized that such defects rendered the reassessment proceedings bad in law.
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The two member bench comprising Yogesh Kumar US(Judicial Member) and Pradip Kumar Kedia(Accountant Member) quashed the reassessment thereby allowing the appeal of the assessee without needing to delve into the merits of the additions made.
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