MUMBAI, APR 03, 2013: THE issues before the Bench are - Whether when the reassessment proceedings are cancelled because of incorrect reasons recorded by the AO, nothing prevents the Revenue for initiating re-assessment again if it has adequate materials on record - Whether the order of CIT(A) can be treated as a bar for initiating fresh proceedings u/s 148 and Whether the order of CIT(A) can be treated as a bar for initiating fresh proceedings u/s 148. The HC verdict finally goes against the assessee.

Facts of the case

Assessee, an individual has filed a ROI for A.Y. 2006-07 declaring an income of Rs.1,05,275/-. A notice was issued u/s 148 seeking to reopen the assessment on basis that the assessee had not filed its ROI for AY 2006-07. Further it was also observed that there were accommodation entries passed in the books of the assessee and its firm. During reassessment, the AO had passed an order of assessment, determining the total income of the Petitioner at Rs.40,11,390/-. On appeal, CIT (A) had allowed the appeal and held that the reassessment proceedings were cancelled only because of the incorrect statement recorded by the AO and shall be free to initiate reassessment again if adequate material was available on the record. On further appeal before Tribunal, the issue was pending. Subsequently, a fresh notice was issued to the Petitioner seeking to reopen the assessment on the basis that there was a huge sum payable by the assessee to M/s. Pratik Sales Corporation in respect of current year transactions. These transactions were merely accommodation entries. Thus the assessment was reopened u/s 148. The assessee had filed objections to the reopening of the assessment which have been disposed of by the AO. It was contended by the assessee that the fresh notice had been issued on the same ground as the earlier notice. It was also argued that since the assessment proceedings were dropped on the earlier occasion by the CIT(A) and the Revenue was in appeal before the Tribunal, a fresh notice u/s 148 could not be issued.

Having heard the matter, the HC held that,

++ the submission of the Petitioner is misconceived. The ground on which the AO had issued the earlier notice dated 24 April 2008 was that the assessee had not filed his return of income for A.Y. 2006-07 for which the time limit had expired. The AO stated that further he was in possession of information which suggested that the Petitioner had obtained accommodation entries from one Bhavesh Lakhani, proprietor of Pratik Sales Corporation. When the appeal was carried to the CIT(A) against the order of assessment, the appellate authority specifically referred to the extract from the reasons furnished to the assessee and stated that the AO had proceeded on the basis that the assessee had not filed his return of income though he has taxable income. The CIT(A) was of the view that once it was brought to his notice that the assessee had filed his return of income, he ought to have dropped the proceedings u/s 148 and if necessary could have initiated reassessment proceedings again by recording correct reasons. It was held by the CIT(A) that it is made clear that the reassessment proceedings have been cancelled only because of incorrect reasons recorded by the AO and he shall be free to initiate re-assessment proceedings again if there are adequate material available on record, after recording proper and correct reasons;

++ consequently, the order of the CIT(A) (which in any event has not attained finality) did not bar fresh proceedings u/s 148. Though the reopening has taken place beyond the period of four years, the reasons which have been indicated to the assessee have a sufficient nexus with the proviso to Section 147 so as to justify the reopening. This is not a case involving a change of opinion since the AO has come in possession of material which would indicate that there has been an escapement of income. For these reasons we do not find any reason to interfere in these proceedings under Article 226 of the Constitution. The Petition shall stand dismissed.

(See 2013-TIOL-257-HC-MUM-IT)