2018 (9) TMI 1890 - AT - Income Tax

Reopening of assessment u/s 147 - HELD THAT - With respect to the scope and ambit of reassessment proceedings u/s.148 of the Act, we deem it appropriate to remand the matter to the file of the CIT (A), as the CIT(A) had not decided these issues, with a direction to decide the ground no.1 and 2 raised before him on the basis of the legal proposition mentioned hereinabove by the assessee as well as the Revenue, as also any other judgment which comes to his notice and decide the issue in accordance with law. Needless to say it is for the assessee to establish that there is no live connection with the reasons for reopen and with the additions made by the AO. We are in agreement with the Ld. AR that if the foundation (reasons to believe/ grounds referred therein ) on which the whole structure of additions were made is itself not sustainable in the eyes of law or it (reasons to believe/ grounds referred therein ) does not have any live connection with the additions made, in that eventuality no such additions is sustainable. However if the CIT (A) comes to the conclusion that there is a live connection and the reasons to reopen is interdependent and interwoven with the addition made then said additions are sustainable in the eyes of law.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148 of the Income Tax Act.
2. Legality of additions made by the Assessing Officer (AO) on grounds not mentioned in the reopening notice.
3. Examination of the claim of exemption under Section 10A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148:

The assessee, a company, filed a return of income for the assessment year 2005-06. The case was reopened, and a notice under Section 148 was issued. The AO mentioned broad reasons for reopening the assessment, but the assessee neither asked for the reasons nor filed objections to the reopening. The AO proceeded to reassess the income based on the available material.

The assessee contended that the AO should have provided the reasons for reopening and should have called for objections from the assessee before passing the reassessment order. However, this plea was neither raised before the Tribunal nor before the CIT (A). Hence, this issue was not adjudicated by the Tribunal.

2. Legality of Additions Made by the AO on Grounds Not Mentioned in the Reopening Notice:

The AO issued the notice for reopening based on the reason that the assessee had not excluded expenses incurred in foreign currency for the delivery of software from the export turnover for computing the deduction under Section 10A. However, the AO made the disallowance under Section 10A on the premise that there was no infrastructure available with the assessee for claiming the exemption and that the so-called export was merely a transfer of money between branches.

The assessee argued that the reasons for reopening and the grounds for additions/disallowance were different. The Tribunal noted that the CIT (A) did not adjudicate these grounds while passing the impugned order. The Tribunal referred to judgments from the Bombay High Court (CIT v. Jet Airways India P. Ltd) and the Delhi High Court (Ranbaxy Laboratories Ltd v. CIT), which held that if reassessment proceedings do not culminate in making an addition on the ground mentioned for reopening, then the entire addition is liable to be quashed.

Conversely, the Revenue cited the jurisdictional High Court judgment in N. Govindaraju v. ITO, which held that once the satisfaction of reasons for the notice is found sufficient, the AO can make additions on all grounds or issues that come to notice during reassessment, even if the initial reason does not survive.

3. Examination of the Claim of Exemption under Section 10A:

During the reassessment, the AO disallowed the exemption claimed under Section 10A, concluding that the assessee did not have the necessary infrastructure to export software or render software consultancy services. The AO inferred that the remittances were merely transfers of money between branches, not actual export revenue.

The Tribunal decided to remand the matter to the CIT (A) to decide on the preliminary grounds raised by the assessee, particularly regarding the live connection between the reasons for reopening and the additions made. The Tribunal emphasized that if the reasons for reopening do not have a live connection with the additions made, then the additions are not sustainable. However, if the CIT (A) finds a live connection, the additions are sustainable.

Conclusion:

The Tribunal remanded the matter to the CIT (A) to decide the preliminary grounds afresh, emphasizing the need for a live connection between the reasons for reopening and the additions made. The remaining grounds were not adjudicated, as they depended on the outcome of the preliminary grounds. The appeal was partly allowed, and the matter was sent back to the CIT (A) for fresh consideration.