2014 (1) TMI 1128 - AT - Income Tax

Validity of re-opening of assessment u/s 147 - Unexplained cash credit - power of ITAT to entertain new Ground - Held that - Following ITO vs. Smt. Gurinder Kaur 2006 (6) TMI 144 - ITAT DELHI-A - Even de hors Rule 27 of the ITAT Rules, it is open to the respondent in an appeal before the Tribunal to raise a new ground in defence of the Order appealed against - Even assuming that Rule 27 is not strictly applicable, the Tribunal has inherent powers u/s 254 (1) of the Act to entertain the argument of the Respondent which amounted to a new ground; that Rule 27 is not exhaustive of the powers of the Tribunal; and that it is merely not procedural in character and does not, in any way, circumscribe or control the powers of the Tribunal under the Act - The application of the assessee under Rule 27 is maintainable. There was no tangible material with the Assessing Officer to conclude that there was escapement of income from assessment - The reasons recorded do not have any link, much less any live link with the formation of belief of escapement of income - The reopening of the completed assessment, in view of the full disclosure of the material facts relevant to the assessment of the assessee for Assessment Year 2004-05, was nothing other than a mere change of opinion, which is impermissible in lawThe reasons recorded do not lay out any failure on the part of the assessee to disclose fully and truly any material fact necessary for its assessment for Assessment Year 2004-05 For reopening the assessment, the proviso to Section 147 comes into play - Once the assessee had duly disclosed all material facts necessary for its assessment fully and truly before the Assessing Officer in the scrutiny assessment proceedings, for Assessment Year 2004-05, no action ought to have been taken u/s 147 of the Act, as envisaged by the proviso to Section 147 Decided against Revenue.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under Section 68 of the I.T. Act, 1961.
2. Deletion of disallowance on account of short-term capital loss.
3. Deletion of addition on account of unpaid liability under Section 43B.
4. Legality and jurisdiction of the notice issued under Section 148 read with Section 147 of the I.T. Act.

Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Cash Credit under Section 68 of the I.T. Act, 1961:
The department contended that the CIT (A) erred in deleting the addition of Rs. 10,00,000 made by the Assessing Officer (A.O.) on account of unexplained cash credit. The A.O. had argued that the identity of the share applicants was disproved as no such share applicants existed at the given address. The CIT (A) had relied on the Supreme Court judgment in CIT vs. Lovely Exports (P) Ltd., which the department argued was not applicable.

2. Deletion of Disallowance on Account of Short-Term Capital Loss:
The department challenged the CIT (A)'s decision to delete the disallowance of Rs. 3,69,972 made by the A.O. on account of short-term capital loss, asserting that the CIT (A) did not appreciate the full facts of the case.

3. Deletion of Addition on Account of Unpaid Liability under Section 43B:
The department argued that the CIT (A) erred in deleting the addition of Rs. 96,065 made by the A.O. on account of unpaid liability under Section 43B, without appreciating the full facts of the case.

4. Legality and Jurisdiction of the Notice Issued under Section 148 Read with Section 147 of the I.T. Act:
The assessee filed an application under Rule 27 of the ITAT Rules, contending that the notice issued under Section 148 read with Section 147 was illegal, barred by limitation, and without jurisdiction. The assessee argued that the notice was issued after the expiry of four years from the end of the relevant assessment year, which is against the proviso to Section 147 of the Act. The assessee claimed full disclosure of all material facts necessary for its assessment, and the reopening of the assessment was merely a change of opinion, which is impermissible in law.

Tribunal's Findings:

On the Application under Rule 27:
The Tribunal held that under Rule 27 of the ITAT Rules, the assessee is entitled to support the CIT (A)'s order on any of the grounds decided against them, even if no appeal or cross-objection was filed. The Tribunal cited various case laws, including 'CIT-IV vs. Jamnadas Virji Shares & Stock Brokers (P) Ltd.' and 'D.R. Bamasi vs. CIT', to support this position.

On the Merits of the Application:
The Tribunal observed that the proviso to Section 147 stipulates that no action shall be taken after four years from the end of the relevant assessment year unless there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal found that the assessee had disclosed all material facts during the original assessment proceedings, and the reopening of the assessment was based on a mere change of opinion, which is not permissible.

On the Grounds Raised by the Department:
Given the Tribunal's decision to allow the assessee's application under Rule 27, the grounds raised by the department were rendered moot and were not required to be addressed.

Conclusion:
The Tribunal dismissed the department's appeal and allowed the assessee's application under Rule 27, maintaining the order passed by the CIT (A). The Tribunal pronounced the order in the open court on 05.12.2013.