ITAT Chandigarh annuls reassessment where reasons relied on incorrect return particulars

Background of the dispute

The Chandigarh Bench of the Income Tax Appellate Tribunal dealt with two separate appeals for Assessment Year 2011-12 involving different assessees, including Kissan Fats Limited Vs DCIT. Since both matters arose from the same legal controversy and substantially identical facts, the Tribunal issued a consolidated order.

The central controversy in both appeals was whether reassessment initiated under Section 147/Section 148 of the Income Tax Act 1961 could be sustained when the recorded reasons for reopening were demonstrably based on wrong facts concerning:

  • the date of filing of the return of income, and
  • the quantum and nature of income declared in that return.

The assessees argued that these factual inaccuracies went to the root of the AO’s “reason to believe” and rendered the entire reassessment exercise void ab initio. The Department, on the other hand, attempted to treat these mistakes as mere typographical errors that did not vitiate the jurisdiction assumed under Section 147.

Facts of the first appeal – Kissan Fats Limited

Assessment and reopening details

  1. The assessee, a private limited company engaged in manufacturing Vanaspati ghee and refined oils, had originally filed its return of income for AY 2011-12 through e-filing on 28.09.2011, declaring ‘Nil’ income.
  2. An earlier year’s return (AY 2010-11) had been filed on 30.09.2010, disclosing income of Rs. 1,62,28,910/-.
  3. The original assessment for AY 2011-12 had been completed. Thereafter, the case was reopened under Section 147, with notice issued under Section 148.
  4. In the recorded reasons for reopening, the Assessing Officer stated in paragraph 1 that the assessee had:
    • filed its return for AY 2011-12 on 30.09.2010, and
    • declared income of Rs. 1,62,28,910/-.

Both these particulars clearly related to AY 2010-11 and not to AY 2011-12. In fact, for the year under consideration, the assessee’s return reflected ‘Nil’ income and was filed on 28.09.2011, as evidenced by the return acknowledgement placed on record.

Challenge before the CIT(A) and ITAT

The assessee raised a preliminary legal ground that the reassessment was without jurisdiction because:

  • the reasons for reopening were recorded on non-existent and incorrect foundational facts,
  • such fundamentally wrong assumptions could not lead to a legally sustainable “reason to believe” that income had escaped assessment, and
  • consequently, the notice under Section 148 and all proceedings pursuant thereto were invalid.

In addition, the assessee also challenged the additions made by the AO and enhanced by the CIT(A) relating to:

  • treating certain sales as deemed income under Section 68, and
  • an enhancement by the CIT(A) and addition under Section 69C on account of alleged unexplained expenditure.

However, the assessee specifically urged that once the reassessment itself was held invalid, the merits of these additions would become academic.

The CIT(A) rejected the jurisdictional challenge and upheld the reassessment, as well as the substantive additions (with enhancement). This led the assessee to approach the Tribunal.

Department’s stand on the factual errors

During the hearing, the Departmental Representative placed before the Tribunal a communication dated 21.02.2024 from the office of the Addl. Commissioner of Income Tax (Sr. DR)-2, ITAT, Chandigarh, enclosing comments received from the concerned AO, DCIT, Central Circle-1, Ludhiana.

In that letter, the AO admitted that: