2015 (2) TMI 1334 - AT - Income Tax

Re-opening u/s.147 - Review v/s reopening - return was processed u/s. 143(1) - unexplained cash credit - bogus expenditure - HELD THAT - In the case in hand the return was processed u/s. 143(1) of the Act but the same had attained finality due to the expiry of limitation period of twelve months from the end of the month in which the return was filed. Hence the assessment is deemed to be completed. Merely because assessment was framed u/s.143(1) it will not lead to the conclusion that the requirement of Section 147 with regard to reasons to believe can be dispensed with when the finality of intimation u/s.143(1) is sought to be disturbed as held in the case of Orient Craft Ltd. 2013 (1) TMI 177 - DELHI HIGH COURT and Kelvinator (I) Ltd. 2010 (1) TMI 11 - SUPREME COURT Assessing Officer has no power to review; he has the power to re-assess. As observed above the reopening and reassessment in this case was nothing but the review u/s 143(3) of the Act in the garb of the provisions of section 147 of the Act which was not permissible in view of the law laid down by the Hon ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (supra). Even otherwise in the case in hand the issue upon which the reopening was done and the issue on which the addition was made were diagonally opposite to each other. The reopening was done on the suspicion of bogus billing allegedly arranged from Suryodaya Company i.e. the issue of bogus expenditure which otherwise was proved to be wrong however the addition has been made in respect of Share application money received i.e. in respect of unexplained cash credits. We annul the reopening of assessment u/s.147 of the Act. - Decided in favour of assessee.

Issues Involved:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Legality of the reassessment made after four years.
3. Appropriateness of the addition of Rs. 5 crores under Section 68 instead of Section 69A.
4. Opportunity to establish identity, genuineness, and creditworthiness of the share applicant.
5. Reliance on the statement of a Chartered Accountant who was neither a director nor an employee.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:

The assessee contended that the reassessment proceedings under Section 147 were invalid as there was no tangible material or information to establish that the share application money declared and assessed as a capital receipt had escaped assessment. The Tribunal observed that the assessment could only be reopened if the Assessing Officer (AO) had "reason to believe" based on tangible material that income had escaped assessment. The Tribunal noted that the AO's belief was based on suspicion rather than concrete evidence, as the assessee had no business dealings with Suryodaya Engineering Ltd., and the share application money was genuine. The Tribunal concluded that the reopening of the assessment was unjustified and annulled it.

2. Legality of the Reassessment Made After Four Years:

The assessee argued that the reopening was made after four years, which is against the proviso to Section 147. The Tribunal noted that the original assessment under Section 143(1) had attained finality due to the expiry of the limitation period. The Tribunal emphasized that the AO's power to reassess is not plenary and must be based on "reason to believe" rather than mere suspicion. Since the reopening was based on incorrect assumptions and without tangible material, it was deemed invalid.

3. Appropriateness of the Addition of Rs. 5 Crores under Section 68 Instead of Section 69A:

The CIT(A) confirmed the addition of Rs. 5 crores under Section 68, although the AO had made the addition under Section 69A. The Tribunal noted that the reopening was done on the suspicion of bogus billing, which was later proved wrong. The Tribunal highlighted that the issue on which the reopening was done and the issue on which the addition was made were diagonally opposite. The Tribunal referred to the jurisdictional High Court's decision in "CIT vs. Jet Airways (I) Ltd." and concluded that the addition was unsustainable and void.

4. Opportunity to Establish Identity, Genuineness, and Creditworthiness of the Share Applicant:

The assessee contended that the CIT(A) did not provide an opportunity to establish the identity, genuineness, and creditworthiness of the share applicant. The Tribunal observed that all necessary documents, including the application for allotment of shares, Company Board Resolution, and return of allotment filed with ROC, were provided to the AO. The Tribunal noted that the identity of the share applicant was established and not in doubt, referring to the Supreme Court's decision in "Lovely Exports (P) Ltd." The Tribunal concluded that no addition was warranted in the assessee's hands.

5. Reliance on the Statement of a Chartered Accountant:

The assessee argued that the CIT(A) relied on the statement of Parag Mehta, a Chartered Accountant who was neither a director nor an employee, and who did not allege that the payments received by the assessee were not genuine. The Tribunal observed that the AO's belief was primarily based on Parag Mehta's statement, which did not directly implicate the assessee. The Tribunal emphasized that the reopening and reassessment were based on incorrect assumptions and without tangible material, rendering them invalid.

Conclusion:

The Tribunal annulled the reopening of the assessment under Section 147, concluding that it was based on suspicion rather than tangible material. The Tribunal also found that the addition of Rs. 5 crores was unsustainable and void. Consequently, the appeal of the assessee was allowed.

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