Facts of the Case

The assessee, a partnership firm, was subjected to reassessment proceedings for Assessment Year 2013-14 based on information received from the DDIT (Investigation), Karnal regarding alleged accommodation entries provided by certain entities controlled by an entry operator. The Assessing Officer issued notice under Section 148 and completed reassessment by making an addition of ₹6,96,000 on account of alleged bogus purchases/accommodation entries. The CIT(A), NFAC observed a contradiction between the assessment year mentioned in the reasons recorded (AY 2012-13) and the year for which reassessment was initiated (AY 2013-14). Instead of adjudicating the legal issue, the CIT(A) set aside the matter to the Assessing Officer for fresh verification. Aggrieved, the assessee appealed before the Tribunal.

Issues Involved

Whether the reassessment proceedings under Section 147 were valid when the reasons recorded for reopening pertained to a different assessment year, whether the CIT(A) was justified in remanding the legal jurisdictional issue to the Assessing Officer instead of deciding it on merits, and whether the resultant addition could survive once the reopening itself was invalid.

Petitioner’s Arguments

The assessee contended that the Assessing Officer recorded reasons referring to return filed and transactions undertaken in Financial Year 2011-12 relevant to Assessment Year 2012-13, whereas the reassessment proceedings were initiated for Assessment Year 2013-14. It was argued that there was complete non-application of mind and absence of any tangible material relating to the impugned assessment year, rendering the assumption of jurisdiction invalid. The assessee further contended that since all facts were already on record, the CIT(A) erred in remanding the legal issue instead of quashing the reassessment.

Respondent’s Arguments

The Revenue supported the order of the CIT(A) and contended that under Section 251, the CIT(A) has the power to set aside and remand matters to the Assessing Officer for fresh adjudication and that the remand was therefore valid.

Court Order / Findings

The ITAT Jaipur examined the reasons recorded for reopening and held that they unequivocally referred to the return of income filed for Assessment Year 2012-13 and to transactions in Financial Year 2011-12. The Tribunal held that there was no material before the Assessing Officer to form a belief of escapement of income for Assessment Year 2013-14. The Tribunal concluded that jurisdiction under Section 147 was assumed on the basis of information pertaining to a different assessment year, which is impermissible in law. The Tribunal further held that since the issue was purely legal and all facts were already available on record, the CIT(A) ought to have adjudicated the jurisdictional issue instead of remanding it. Accordingly, the reassessment proceedings were held to be invalid and the assessment order was quashed. Consequently, the addition made on merits did not survive.

Important Clarification

The Tribunal clarified that reassessment jurisdiction must be founded on reasons and information relatable to the very assessment year sought to be reopened. Assumption of jurisdiction based on material pertaining to another assessment year reflects non-application of mind and renders the reopening void ab initio. Legal jurisdictional issues must be decided at the appellate stage when facts are already on record.

Final Outcome

The appeal filed by the assessee was allowed in full. The reassessment proceedings initiated under Section 147 for Assessment Year 2013-14 were quashed as invalid, and the consequential addition of ₹6,96,000 was deleted.

Link to download order- https://www.mytaxexpert.co.in/uploads/1768993437_KANHAIYALALHARINARAYANNEEMKATHANAVS.INCOMETAXOFFICERWARDNEEM.pdf  

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