The Income Tax Appellate Tribunal (ITAT), Kolkata Bench held that the reopening of assessment void if condition precedent prescribed under section 147 of the Income Tax Act is not fulfilled.
The assessee company, Excel Financial Consultants Pvt. Ltd. filed its return of income for the assessment year 2011-12 declaring total income of Rs.3,410/ as business income. According to the A.O, no scrutiny assessment was made against the assessee. The A.O noted that he received credible Information from the ADIT in respect of M/s. DRS Enterprises Pvt. Ltd, cash deposit of Rs.6,60,57,000/- and M/s. Hanuman Traders Pvt. Ltd. , cash deposit of Rs.59,16,68,000/-.
According to the AO, he issued summons to these two companies. However, it could not be served due to non-existence of the concerns at their respective given address. According to the AO, as per the database available with department, these two concerns are interlinked and existing merely on paper having no real existence and are controlled and managed by well-known entry operators of Kolkata for the purpose of providing accommodation entries in the form of bogus share capital/share premium, pre-arrange bogus LTCG/STCL & unsecured loans etc.
The AO reopened the assessment of the assessee by issuing notice under section 148 of the Act and the reasons were furnished to the assessee vide letter.
The assessee contended that the condition precedent as prescribed under section 147 of the Act. According to assessee as per section 147 of the Act, the AO can validly re-open an assessment, only if he has reason to believe escapement of income.
The coram consisting of Judicial Member, A.T. Varkey noted that before the AO assumes jurisdiction to re-open it is necessary that the conditions laid down in the said section 147 has to be satisfied viz., AO should record “reason to believe” that the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied at the first place, then it cannot be said the AO has validly assumed jurisdiction under section 147 of the Act.
“The Parliament in its wisdom has provided safeguards for exercise of the reopening of assessment jurisdiction to AO; and revisional jurisdiction of CIT by providing condition precedent which is sine qua non for assumption/usurpation of jurisdiction. In the case of reopening of assessment, the reason to believe escapement of income is the jurisdictional fact and law (mixed question of fact and law) and for revisional jurisdiction the order of the AO should be erroneous as well as prejudicial to the revenue. Unless the condition precedent is not satisfied, the AO or the CIT can exercise their reopening jurisdiction or revisional jurisdiction respectively,” the ITAT said.
Therefore, the Tribunal said that the condition precedent for reopening the assessment under section 147 of the Act is found to be absent and, therefore, the reopening itself is bad in law and therefore, the impugned notice under section 148 of the Act is quashed and therefore, the consequent action of making addition of Rs.9,80,494/- is null in the eyes of law.
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