R KESHAVLAL TRADERS PVT LTD ,DAHISAR MUMBAI vs. DY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 8 2 MUMBAI , MUMBAI

Ground Nos. 1 and 2 raised by the assessee are interrelated and interconnected relates to challenging the order of the Ld. CIT(A) in upholding the additions made by the AO. In this regard, we have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. We found that the only grievance raised by the assessee, in this two grounds, is that the Ld. CIT(A) failed to provide adequate opportunity of being heard.

From the records, we noticed that the Ld. CIT(A), while adjudicating the appeal in question, had provided adequate opportunity of hearing and, in his elaborate order, also mentioned the facts of the case and the submissions filed by the assessee and duly adjudicated the same. Thus, it cannot be said that adequate and appropriate opportunity of being heard was not afforded to the assessee. Therefore, these grounds raised by the assessee stand dismissed.

Ground No. 3 raised by the assessee relates to challenging the order of the Ld. CIT(A) on the issuance of notice under Section 148 of the Act to reopen the assessment beyond four years from the relevant assessment year without any failure on the part of the assessee to disclose the material facts. 4

In this regard, we have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that, undisputedly, the notice for reopening of the assessment in the present case was issued beyond four years from the relevant assessment year. On the basis of the reasons recorded and the same are reproduced herein below:

In this regard, it was submitted by the assessee that for the AY under consideration, i.e., AY 2009-10, the assessment was completed under Section 143(3) of the Act vide order dated 29.11.2011. Thus, as per the first proviso to Section 147 of the Act, as applicable at the relevant time, no notice under Section 148 of the Act could be issued beyond the period of four years in the absence of any new tangible material or any failure on the part of the assessee to truly and fully disclose the necessary material 5 facts required for assessment. As per the said proviso, four years from the end of Assessment Year 2009-10 expired on 31.03.2014. Thus, no notice could have been issued after 31.03.2014 if there was no failure on the part of the assessee to disclose fully and truly the necessary facts required for completion of the assessment.

In this regard, it was also submitted that the assessee filed detailed submissions explaining that the assessee had made a share application to M/s. Heramb Finvest Services Pvt. Ltd. on 10.08.2006 amounting to Rs. 50,00,000/-, which was reflected in AY 2007-08, and a copy of the relevant ledger had been placed on record. It was also submitted that the said application was partly rejected by the company and, therefore, the balance amount of Rs. 25,00,000/- was refunded by the said company on 01.10.2008, which was duly recorded in the audited balance sheet and placed on record for AY 2009-10.

In this regard, copies of the ledger account and audited balance sheet had also been placed on record in the Paper Book. Whereas, on the contrary, in the reasons recorded, it has been specifically mentioned that Rs. 25 lakhs represented receipt on sale of shares of M/s. Heramb Finvest Services Pvt. Ltd., which is factually incorrect. All these facts were pointed out by the assessee while filing objections to the reopening vide letter dated 31.07.2015, which is placed at Paper Book Pages 9 and 10.

Having gone through the entire reasons recorded and evaluated the documents placed on record, more particularly the audited balance sheet, we find that the reasons recorded are factually incorrect. Moreover, it is an undisputed fact that the notice in question was issued beyond 4 years, without any failure on the part of the assessee to disclose material facts.

In our view, the reasons recorded must be based on evidence, and the AO, in the event of a challenge to the reasons, must be able to justify that the same were recorded on the basis of such evidence.

Further, the AO must disclose in the reasons itself as to which material fact or facts were not disclosed by the assessee fully and truly, which were necessary for the assessment of that AY, thereby establishing the vital link between the reasons and the evidence.

That vital link is the safeguard against the arbitrary reopening of a concluded assessment. Admittedly, while recording the reasons for reopening, it has nowhere been mentioned by the AO as to which fact or material was not disclosed by the assessee that was necessary for the assessment of that assessment year.

In this regard, reliance is being placed upon the decision of the Jurisdictional Hon’ble Bombay High Court in the case of Punia Capital (P.) Ltd. v. ACIT and also in the case of Hindustan Lever Ltd. v. R.B. Wadkar, ACIT (137 Taxman 479/268 ITR 332), wherein the Hon’ble Court set aside the impugned notice under Section 148 on this ground alone.

The Hon’ble Court had noticed that the AO had nowhere noted that there was any failure on the part of the assessee to disclose truly and fully the material facts necessary for the assessment of that assessment year. Thus, without touching upon any other ground and while following the principles laid down by the Jurisdictional Hon’ble High Court, we also find that in the reasons recorded, it is nowhere mentioned or stated that the assessee had failed to disclose fully and truly the material facts necessary for the assessment year under consideration so as to establish the vital link between the reasons and the evidence. In our view, that vital link is the safeguard against the arbitrary reopening of a concluded assessment.

Therefore, considering the totality of the facts and circumstances as discussed above, and also considering the decisions of the Jurisdictional Hon’ble High Court, we allow this ground raised by the assessee. Thus, the impugned reopening notice and the consequential orders stand quashed.

Since we have already recorded detailed findings thereby quashing the notice under Section 148 of the Act and the consequential order thereof, the other grounds raised by the assessee become infructuous in view of our detailed findings with regard to Ground No. 3.

Consequently, the appeal filed by the assessee stands partly allowed.