2013 (4) TMI 479 - AT - Income Tax

Reassessment - reopening of assessment under Section 147 - whether the instruction or office note given by the CIT(A) can justify the reopening in this case. - deemed dividend u/s 2(22)(e) - in deductions under Section 80M - Held that - any instruction by CIT(A) or by higher authorities cannot give jurisdiction to the Assessing Officer to reopen the case under Section 147, unless the conditions given in section 147 is satisfied. The Assessing Officer has to apply his own mind in entertaining his reasons to believe . It cannot be substituted by anyone else. Here in this case, office note by CIT(A) per se cannot be the ground or reason to reopen the case. The reasons recorded do not meet the requirement of law and, therefore, the entire proceedings as have been commenced by issuance of notice under section 148 and consequently the assessment order dated, passed under Section 143(3) read with section 147 is quashed, being void ab initio. - Decided in favor of assessee.

Issues Involved:
1. Validity of reopening under Section 147.
2. Confirmation of addition under Section 2(22)(e).
3. Disallowance of deductions under Section 80M.

Detailed Analysis:

1. Validity of Reopening under Section 147:
The primary issue addressed was the validity of the reopening of the assessment under Section 147, which was fundamental to the jurisdiction of the 148 proceedings. The assessee had initially filed a return of income under Section 139(1) declaring 'Nil' income, which was processed under Section 143(1)(a). The case was reopened under Section 147 based on the belief that loans taken from Virtuous Finance Ltd. during the relevant period attracted provisions of Section 2(22)(e). The assessment was completed with additions under Section 2(22)(e) and disallowance under Section 80M.

The first appeal quashed the assessment on the grounds of incorrect assumptions of facts. A second reopening notice was issued beyond the four-year period, citing loans from three group companies as deemed dividends under Section 2(22)(e). The assessee objected, arguing that the reopening was based on the CIT(A)'s office note and lacked the Assessing Officer's independent satisfaction.

The Tribunal emphasized that for reopening beyond four years, the Assessing Officer must explicitly record the assessee's failure to disclose fully and truly all material facts. The reasons recorded in this case did not meet this requirement, rendering the reopening invalid. The Tribunal cited several case laws, including the Supreme Court's decision in Calcutta Discount Co. Ltd. vs. ITO, to affirm that the duty of the assessee is limited to disclosing primary facts, and any failure must be explicitly recorded in the reasons for reopening.

2. Confirmation of Addition under Section 2(22)(e):
The Tribunal noted that the issue of deemed dividend under Section 2(22)(e) was covered by the Bombay High Court's decision in CIT Vs. Universal Medicare Private Limited. It was held that if the person receiving advances and loans is not a registered and beneficial shareholder, the provisions of deemed dividend do not apply. In this case, the assessee was neither a beneficial nor a registered shareholder in the other group companies, making the addition under Section 2(22)(e) inapplicable.

3. Disallowance of Deductions under Section 80M:
The Tribunal did not specifically address the merits of the disallowance under Section 80M, as the primary issue of reopening under Section 147 was found to be invalid. Consequently, the assessment order itself was quashed, rendering the other arguments academic.

Conclusion:
The Tribunal concluded that the reopening under Section 147 did not meet the legal requirements, particularly the failure to record the assessee's failure to disclose fully and truly all material facts. The assessment order dated 26-3-2004 was quashed as void ab initio. The appeal filed by the assessee was allowed, and the other arguments on merits were not adjudicated as they became academic.

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