ITAT quashes Reopening of Assessment as there was Absence of Valid Assumption of Jurisdiction by AO

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The Income Tax Appellate Tribunal (ITAT), Mumbai Bench quashed the reassessment as there was absence of valid assumption of jurisdiction by the AO.

The assessee company, M/s Shradha Tradelinks Pvt. Ltd. is engaged in the business of trading in shares and derivatives and filed its return of income declaring a total income. Original assessment was framed by the A.O vide his order passed under Section 143(3), at an income of Rs. 4,14,25,800/-.

The A.O reopened the case of the assessee under Section 147 of the Act. Notice under Section 148, was issued and served upon the assessee. In compliance, the assessee e-filed its return of income declaring an income of Rs. 3,69,05,065/-. After filing the return of income the assessee requested for a copy of the “reasons to believe” on the basis of which its case was reopened under Section 147 of the Act. Objecting to the reasons on the basis of which the AO had assumed jurisdiction under Section 147 of the Act the assessee assailed the validity of the reassessment proceedings vide its letter. However, not finding favour with the objections raised by the assessee the AO rejected the same vide his order.

The assessee assailed the assessment framed by the AO under Section143(3) read with section 147, in appeal before the CIT(A). Before the CIT(A) the assessee assailed the validity of the jurisdiction that was assumed by the AO under Section 147 of the Act, as well as the disallowance of its F&O loss of Rs.11,97,47,626/- on merits. Although, the CIT(A) did not find favour with the claim of the assessee that the AO had wrongly assumed jurisdiction and rejected the same, but on merits he accepted the claim of the assessee that in the absence of any material proving to the contrary its claim of F&O loss of Rs.11,97,47,626/- could not have been rejected. Accordingly, the CIT(A) partly allowed the appeal and vacated the disallowance of F&O loss of Rs.11,97,47,626/-.

It was submitted by the assessee that no infirmity did emerge from the order of the CIT(A) who after duly appreciating the aforesaid facts had vacated the addition/disallowance made in the case of the assessee. At the same time, it was averred by the assessee that the CIT(A) had erred in upholding the jurisdiction assumed by the A.O under section 147 of the Act.

On the other hand, the Departmental Representative relied on the order of the AO. It was submitted that as it was proved that the assessee had booked bogus F&O loss, the same, thus, was rightly disallowed by the AO. Rebutting the claim of the assessee’s counsel as regards the invalid assumption of jurisdiction by the AO for reopening the case of the assessee, it was submitted by the department that as observed by the CIT(A) no infirmity did therein emerge.

The coram of Shamim Yahya and Ravish Sood observed that as the AO had failed to independently apply his mind to the „material‟ available on his record and mechanically acting on the information supplied by the Directorate of Income Tax had on the basis of incomplete and incorrect facts reopened the case of the assessee under section 147 of the Act.

“We, thus, not being able to persuade ourselves to subscribe to the view taken by the CIT(A) that the A.O had validly assumed jurisdiction u/s 147 of the Act therein „set aside‟ his order to the said extent. Accordingly, in the absence of valid assumption of jurisdiction by the A.O u/s 147 of the Act, the consequential assessment framed by him u/s 143(3) r.w.s 147, dated 29.03.2015 cannot be sustained and is quashed,” the ITAT said.

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