INCOME TAX OFFICER, WARD-2(3), VIJAYAWADA vs. SREELAKSHMI MUSUNURU, PENAMALURU

Without prejudice to Ground No. i and ii the notice U/s. 148 of the Act dated 31/03/2021 by the ITO, Ward-2(3), Vijayawada is barred by time considering the provisions of section 149(1)(b) of the IT Act consequently the order passed U/s. 147 r.w.s 144B of the Act dated 24/03/2022 is invalid and void-ab-initio.

Succinctly stated, the AO based on the information that the assessee, who had filed his return of income for the year under consideration declaring an income of Rs. 2,23,030/-, had during the subject year purchased agricultural land admeasuring 2.80 Acres located at Ganguru from Sri Velivela Venkata Krishna for a consideration of Rs. 70,65,150/- vide Document No. 2683/2013, initiated proceedings under Section 147 of the Act. Notice under Section 148 of the Act, dated 31/03/2021 was issued to the assessee.

Ostensibly, the CIT(A) rejected the assessee’s contention wherein she had assailed the validity of the jurisdiction that was assumed by the AO for initiating proceedings under Section 147 of the Act. On merits, we find that the CIT(A) had vacated all three additions that were made by the AO. For the sake of clarity, the observations of the CIT(A) are culled out as under:

The Revenue, being aggrieved by the order of the CIT(A), has carried the matter in appeal before us.

As the assessee has assailed the validity of the jurisdiction that was assumed by the AO for framing the impugned assessment vide order passed U/s. 147 r.w.s 144B of the Act, dated 24/03/2022, based on multi-facet grounds, we deem it fit to first deal with the same.

Sri C. Subrahmanyam, Chartered Accountant, the Learned Authorized Representative (for short “Ld. AR”) for the assessee, at the threshold of the hearing of the appeal, submitted that the AO had grossly erred in law and facts of the case in assuming jurisdiction and reopening the concluded assessment of the assessee based on misconceived facts. Elaborating on his contention, the Ld. AR submitted that though the assessment in the case of the assessee was originally framed vide order U/s. 143(3) of the Act, dated 16/12/2015, Pages 174-175 of the APB, wherein the subject issues involved in the present appeal were looked into by the AO, but the latter, without taking cognizance of the fact that the assessee had already been subjected to an assessment vide order passed U/s. 143(3) of the Act dated 16/12/2015, had initiated proceedings under Section 147of the Act. The Ld. AR to buttress his aforesaid contention had drawn our attention to the copy of the “reasons to believe” based on which proceedings were initiated in her case under Section 147 of the Act, Page 182 – 183 of the APB. Elaborating further on his contention, the Ld. AR submitted that the AO had at “Sl. No. 07” of the “reasons to believe” wrongly observed that ‘the case of the assessee was not subjected to scrutiny earlier for the year under consideration i.e., AY 2013-14’. The Ld. AR submitted, that as the AO had based on misconceived facts and without consulting the assessment record, initiated proceedings in the case of the assessee under Section 147 of the Act, therefore, the order so passed by him in the absence of a valid assumption of jurisdiction cannot be sustained.

Elaborating further, the Ld. AR submitted that even otherwise, as the assessee had earlier been assessed by the A.O, vide his order passed under Section 143(3) of the Act, dated 16/12/2015, therefore, as per the “1st proviso” to section 147 of the Act”, in the absence of any failure on her part to fully and truly disclose all the relevant facts necessary for framing of the assessment, her concluded assessment could not have been reopened beyond the period of four Years from the end of the relevant Assessment Year, i.e., beyond 31/03/2018.

Apart from that, the Ld. AR submitted that as the assessee in the course of the original assessment proceedings had furnished with the AO the requisite details, therefore, it was clearly a case of reopening of the concluded assessment based on a mere “change of opinion’, which is not permissible as per the mandate of law.

The Ld. AR to buttress his contention that the case of the assessee had been reopened based on a “change of opinion”, had taken us through the notice that was issued by the AO in the course of the original assessment proceedings U/s. 142(1) of the Act, dated 23/01/2015, Page 130-131 of the APB (Query No.6); reply filed by the assessee in the course of the regular assessment proceedings on 02/12/2015, Page 132 of the APB; reply filed by the assessee dated 23.11.2015, wherein she had, inter alia, furnished the details of the agricultural lands purchased by her during the subject at Gangur, Pages 133-135 of the APB. The Ld. AR submitted that as the AO in the present case had wrongly assumed jurisdiction and reopened the concluded assessment of the assessee, therefore, the assessment order passed by him U/s. 147 r.w.s 144B of the Act, dated 24/03/2022 cannot be sustained and is liable to be struck down.

Per contra, Dr. Aparna Villuri, the Learned Departmental Representative (for short “Ld. DR”) relied on the assessment order. The Ld. DR submitted that as the Ld. AO had validly assumed jurisdiction and initiated proceedings u/s 147 of the Act, therefore, no infirmity emanates from the order passed by him under Section 147 r.w.s 144B of the Act, dated 24/03/2022. Apart from that, the Ld. DR submitted that as the CIT(A) had, without any basis, vacated the additions made by the AO based on a well-reasoned order, therefore, the order of the said first appellate authority cannot be sustained and is liable to be set aside.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the lower authorities, and the material available on record.

As the assessee has assailed the validity of the jurisdiction assumed by the AO for framing the impugned assessment order vide his order passed under Section 147 r.w.s 144B of the Act, dated 24/03/2022, based on his multi-facet contentions, therefore, we deem it apposite to first deal with the same.

Before proceeding further, we deem it fit to cull out the “reasons to believe” based on which proceedings in the case of the assessee were initiated by the AO U/s. 147 of the Act, which reads as under:

As stated by the Ld. AR and rightly so, we find that the assessee was originally assessed by the AO vide his order passed under Section 143(3) of the Act, dated 16/12/2015, wherein his returned income was accepted as such, Page 174-175 of APB.

Considering the fact that the assessee was originally assessed by the AO under Section 143(3) of the Act, dated 16/12/2015, we are unable to comprehend the observation of the AO in the “reasons to believe” (Sl. No.7) wherein he had observed that the case of the assessee was not subjected to scrutiny assessment earlier for the year under consideration, i.e., AY 2013- 14. We are of the considered view that the AO, without consulting the assessment record of the assessee, had initiated the impugned proceedings under Section 147 of the Act based on his misconceived and wrong observations. As the very basis for initiating the proceedings under Section 147 of the Act, i.e., the AO’s observation that the assessee was not earlier subjected to scrutiny assessment for the year under consideration, i.e., AY 2013-14 is in itself found to be glaringly incorrect, therefore, we have no hesitation to observe that the “reasons to believe” based on which the impugned assessment proceedings had been initiated by him under Section 147 of the Act have no nexus with the material available on record.

Apart from that, we find that as the case of the assessee was earlier assessed by the AO vide his order passed U/s. 143(3) of the Act, dated 16/12/2015, therefore, the reopening of her concluded assessment is also hit by the “1st proviso” to Sec. 147 of the Act. Admittedly, the original assessment was framed in the case of the assessee for the year under consideration, i.e., A.Y 2013-14 vide order passed under Sec. 143(3) of the Act, dated 16.12.2015. The concluded assessment of the assessee was thereafter reopened vide notice issued under Sec. 148 of the Act, dated 31.03.2021. It is the claim of the ld. A.R. that the A.O. had exceeded his jurisdiction and framed the order U/s. 147 r.w.s 144B of the Act, dated 24/03/2022, inter alia, for the reason that the same had been passed in violation of the mandate of the “1st proviso” of Sec. 147 of the Act. Admittedly, as stated by the Ld. A.R and, rightly so, in a case where an assessment had earlier been made under Section 143(3) of the Act, and action thereafter is sought to be taken for the reopening of the case u/s.147 after the expiry of four years from the end of the relevant assessment year, then, it would be necessary that the twin conditions contemplated in the statutory provision are satisfied, i.e. (i). the AO must have reason to believe that income chargeable to tax has escaped assessment; AND (ii). he must also have a reason to believe that such escapement had occurred by reason of failure on the part of the assessee for either of the two conditions, viz. (a). to make a return of income under Section 139 or in response to notice issued under sub-section (1) of Section 142 or Section 148; or (b). to disclose fully and truly all material facts necessary for his assessment for that purpose.

Coming back to the two conditions carved out in the “1st proviso” to Sec. 147 of the Act, as it is neither the case of the department nor a fact discernible from the record that the income of the assessee chargeable to tax had escaped assessment for the reason that there was any failure on her part to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148, therefore, the first condition contemplated in the “1st proviso” to Sec. 147 is not satisfied by the assessee.

We shall now advert to the second condition contemplated in the “1st proviso” to Sec. 147 of the Act, i.e., as to whether or not there has been any failure on the part of the assessee to disclose fully and truly all material facts as were necessary for her assessment for the year under consideration, i.e., A.Y. 2013-14. On a perusal of the record, it transpires that the assessee had disclosed fully and truly all the material facts regarding the purchase of agricultural land admeasuring 2.80 acres at Ganguru. We may herein observe that the Hon’ble Supreme Court in the case of New Delhi Television Ltd. vs. Deputy Commissioner of Income Tax (2020) 116 Taxmann.com 151 (SC), had, inter alia, held that though the assessee is obligated to disclose the “primary facts” but it is neither required to disclose the “secondary facts” nor required to give any assistance to the A.O by disclosure of the other facts and it is for the A.O to decide what inferences are to be drawn from the facts before him. It was observed by the Hon’ble Apex Court that the extended period of limitation for initiating proceedings under the “1st proviso” of Section 147 of the Act would only get triggered where the assessee had failed to disclose fully and truly all material facts necessary for its assessment. Now, in the case before us, we are unable to comprehend what facts the assessee had failed to disclose which would have otherwise justified bringing her case within the realm of the extended time period contemplated in the “1st proviso” of section 147 of the Act. As the assessee had disclosed fully and truly all the material facts regarding the aforesaid issue, i.e., the purchase of agricultural land admeasuring 2.80 acres at Ganguru as was necessary for her assessment for the year under consideration in the course of the original assessment proceedings for the subject year, i.e., AY 2013-14; therefore, she could by no means be held to be in default for the purpose of bringing her within the sweep of “1st proviso” of Section 147 of the Act. Rather, we are of the view that as observed by the Hon’ble Supreme Court in the case of New Delhi Television Ltd. vs. Deputy Commissioner of Income Tax (supra), now when the assessee in the present case before us, had in reply to notice issued u/s 142(1) of the Act, dated 15.10.2015 - Query No. 6 (Page 129 to 131 of APB), vide her letter dated 23.11.2015 filed with the A.O in the course of the original assessment proceedings, disclosed all the primary facts regarding the purchase of agricultural land at Gangur (Page 133- 135 of APB), she was not required to give any further assistance to the AO by disclosure of other facts. Rather, it was for the AO at the stage of the original assessment proceedings to decide what inference should be drawn from the primary facts disclosed by the assessee before him. Accordingly, we are of the firm conviction that in case the AO who had the primary facts regarding the purchase of the agricultural land at Gangur before him in the course of the original assessment proceedings, had any query regarding the source of the investment made by the assesse, then, he could have queried about the same at that stage. We, thus, based on the aforesaid facts, are of a firm conviction that as the assessee had in the course of the original assessment proceedings fully and truly disclosed all the material facts necessary for her assessment, therefore, the A.O, as per the mandate of the “1st proviso” to Section 147 of the Act after having framed the regular assessment in her case vide order passed under Section 143(3) of the Act, dated 16.12.2015 could not have sought to dislodge her concluded assessment after the expiry of a period of four years from the end of the relevant assessment year, i.e., beyond 31.03.2018.

Analyzing the scope of the “1st proviso” to Sec. 147 of the Act, which contemplates that where assessment in the assesse's case had been framed u/s 143(3) of the Act, then no action under Sec. 147 shall be taken in its case after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax had escaped assessment for such assessment year for failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, the Hon’ble Supreme Court had dismissed the Special Leave Petition (SLP) filed by the revenue in ACIT Vs. Marico Limited, 117 taxmann.com 244 (SC), and impliedly approved the decision of the Hon’ble High Court of Bombay in the case of Marico Limited Vs. ACIT, WP NO.1917 of 2019 dated 21.08.2009. The Hon’ble High Court of Bombay in Marico Limited Vs. CIT (supra) [as approved by the Hon’ble Apex Court] had observed as follows:

As is well known, in an instance where the Assessing Officer exercises power of reassessment beyond the period of four years from the end of relevant assessment year, an essential requirement is that the escapement of income chargeable to tax is due to the failure on the part of the assessee to disclose truly and fully all material facts. This is part of section 147 of the Act itself and is on number of occasions by various judgments of High Court and Supreme Court held to be mandatory pre-requirement. In view of such settled law, it is not necessary to refer to any judgment. Revenue is unable to bring to our notice any aspect or element which did not form part of the record and on the basis of which from the reasons recorded, it can be culled out that the Assessing Officer had formed a belief that income chargeable to tax had escaped assessment. In clear terms therefore, there was no failure on the part of the assessee to disclose truly and fully all material facts.

Counsel for the revenue however submitted that one of the issues raised by the Assessing Officer is that the activity carried on by the assessee does not amount to manufacturing activity. In the present petition, it is not necessary for us to comment on this aspect of the matter. What is important however is such belief also the Assessing Officer has formed on the basis of material already on record. Looked from any angle, the Assessing Officer cannot justify issuing the notice of reopening of assessment beyond the period of four years from the end of relevant assessment year.

Under the circumstances, impugned notice is quashed. Petition allowed and disposed of accordingly.

We, thus, based on our aforesaid deliberations, find no infirmity in the Ld. AR’s claim that the A.O had wrongly assumed jurisdiction and reopened the concluded assessment of the assessee on two fold reasons, viz. (i). that the case of the assesee had been reopened based on glaringly incorrect and misconceived facts without consulting the assessment record, i.e., by wrongly observing in the “reasons to believe” that the assessee was not earlier subjected to scrutiny assessment for the year under consideration, i.e., AY 2013-14; and (ii). that the concluded assessment of the assessee for the year under consideration, i.e., A.Y 2013-14, had been reopened, vide notice u/s 148, dated 31.03.2021, i.e., beyond 4 years from the end of the relevant assessment year, not for any failure of the assessee to fully and truly disclose all material facts necessary for her assessment; therefore, the order passed by him U/s. 147 r.w.s 144B of the Act, dated 24/03/2022, cannot be sustained for want of valid assumption of jurisdiction.

We thus, in terms of our aforesaid deliberations, quash the assessment framed by the AO under Section 147 r.w.s 144B of the Act, dated 24/03/2022, for want of valid assumption of jurisdiction on his part.

As we have quashed the assessment order passed by the AO in terms of our aforesaid deliberations, therefore, we refrain from adverting to and dealing with the remaining grounds based on which the assessee has assailed the validity of the assessment order, which, thus, are left open. Also, as we have quashed the impugned assessment framed by the AO, therefore, the appeal filed by the Revenue, wherein the order passed by the CIT(A) vacating the additions made by the AO has been assailed before us having been rendered as merely academic in nature is left open.

Resultantly, the Cross Objection filed by the assessee is allowed, and the appeal filed by the Revenue is dismissed as having been rendered as academic in nature.