Facts of the Case:
The assessee filed its return of income under section 139(1) of the Act on 05.08.2013 declaring total income of Rs.3,84,310/-. This return of income was processed under section 143(1) of the Act. Subsequently, the AO issued notice under section 148 of the Act on 31.03.2021 on the basis that, the assessee had advanced an unsecured loan of Rs. One crore to M/s C.J. Solutions Pvt. Ltd., which appeared disproportionate to the income declared by the assessee. The AO passed an ex-parte assessment order.
The ld. CIT(A), by exercising powers under section 251(1)(a) of the Act set aside the impugned order and directed the AO to decide the issues on merit and pass fresh assessment order. Being aggrieved by the said order the assessee preferred an appeal before tribunal, contending that the CIT(A) failed to adjudicate the legality of reassessment under section 147 before setting aside the assessment.
Contention of Assessee:
The assessee contended that, the AO did not possess any tangible material to form belief that income of Rs. 1 Crore had escaped assessment.
The assessee had advanced only Rs.30 lakh and therefore, reopening of assessment lacked proper foundation.
The assessee further contended that, the CIT(A) erred in not adjudicating the jurisdictional issue of reopening before setting aside the assessment
Contention of Revenue:
The Revenue contended that w.e.f 01.10.2024, the ld. CIT(A) has power to set aside ex-parte assessment orders under the proviso to Section 251(1)(a).
The Revenue further contended that, since the assessee failed to submit any evidence before the AO, CIT(A) rightly remanded the matter for fresh adjudication.
Ruling:
The Hon’ble Chandigarh Tribunal held that although the CIT(A) has the power to set aside an ex-parte assessment, such power cannot be exercised without first adjudicating the jurisdictional issue regarding the validity of reassessment under Section 147. Reopening of assessment requires the AO to have “reasons to believe” based on tangible material indicating escapement of income, and portal-based information alone can only act as a trigger and cannot justify reopening. In the present case, the AO had not verified the complete bank statements or other evidence to substantiate the alleged loan of Rs. 1 crore. Therefore, the CIT(A) ought to have first examined the legality of reopening before remanding the matter. Accordingly, the Tribunal set aside the order of the CIT(A) and restored the matter to him to first adjudicate the validity of reassessment proceedings.
Citation: Shri Rajbirinder Singh Chahal v The ITO-Ward 5(5) (ITA Nos. 1157/VHD/2025) of Hon’ble Chandigarh Tribunal