The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) ordered that a reassessment of an already closed assessment must be substantiated with valid reasons. If such reasons or a productive outcome has not arisen from such reassessment proceedings, then such reopening of an assessment is bad in law.
In this instant case, the Revenue appellant filed an appeal of an order passed by the Commissioner of Income Tax (Appeals)[CIT(A)] dated 14-06-2022. The order was for a reassessment passed under Section 143(3), read with Sections 147 and 142(2A) of the Income Tax relating to the assessment year 2009-10. The assessee, N K Proteins Pvt Ltd., runs a business that manufactures edible and non-edible oil products and by-products. The assessee was served an order by the assessing officer, under Section 148 of the Act, for a reassessment of the 2009-10 accounts on the grounds of a wrongly worked out disallowance and an income that allegedly came from the National Stock Exchange (NSEL).
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In the appeal by the revenue against the CIT(A) order invalidating such reasseement, the assessee representative submitted that since the issue of disallowance under s.14A was initially considered during the regular assessment stage, it is illegal to reopen the assessment after four years for reworking, even in cases where the assessee did not fail to disclose the income and the ITAT had already deleted the disallowance under Section 14A since the assessee earned no dividend income during the discussed year.
For the second reason, since the assessee has not transacted with NSEL during this fiscal year, and even the figure of alleged income evasion of Rs. 244.98 crores relates to an addition made by AO for the Fiscal Year 2011–12, the second issue of reopening the assessment is also illegal. The departmental representative for revenue could not counter these arguments.
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The ITAT held that Section 147 of the Act is open for the Assessing Officer to assess or reassess any income which had escaped assessment which comes to his light during his assessment proceedings, which was not mentioned in the reason for issuing notice under Section 148 of the Act. In a notice for reassessment which has been issued beyond four years from the end of the relevant assessment year, the AO is liable to provide all materials and facts to show why such reassessment is essential unless in the case of non-filing of return.
ITAT further held that in the instant case, the primary reason put forth by the AO is the Income from NSEL. The assessee proved that such a transaction had not occurred in 2009-10, and a special auditor also accepted this. The assessee also proved that such income was taxed in the year 2011-12; therefore, no income escaped the assessment mentioned by the AO. Hence, such a reason is invalid.
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The Division bench, consisting of T.R Senthil Kumar (Judicial Member) and Narendra Prasad Sinha( Accountant Member), further discussed whether an AO can proceed with reassessment when no addition is made on account of the reasons for reassessment. The bench relied on the case of Mohmed Juned Dadani, where it was held that when the AO establishes specific grounds for reassessment, and no addition is made on such reasons, the AO could not make additions on some other grounds which did not form part of the original reasons for reassessment.
In light of such submissions, the bench held that the reasons for CIT(A) to quash such reassessment are accurate, and the addition made by AO under Section 43(5) is unreasonable and should be deleted. The bench held that the reassessment was invalid in the eyes of the law.
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