2016 (7) TMI 310 - AT - Income Tax

Reopening of assessment - Held that - Reopening of assessment in the impugned AY is bad in law. The issues considering the merits are purely academic in nature and therefore it is not necessary to consider the disallowance/ addition made by the AO in the assessment. Considering the above facts and the law on the issue, the orders of AO and CIT(A) are set aside. Assessee s grounds on reopening is accepted and appeal is accordingly allowed in favour of assessee

Issues Involved:
1. Jurisdiction under Section 147 for reopening assessments.
2. Validity of additions made based on differences in closing capital and opening balance.
3. Protective assessment of interest accrued on fixed deposits.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 147 for Reopening Assessments:
The primary issue contested by the assessees is the reopening of assessments under Section 147 after four years from the end of the relevant assessment year. The reopening was based on a confessional statement by the ex-Chairman of Satyam Technologies Ltd., which indicated fraudulent transactions. The assessees argued that the reasons for reopening were general and not specific to their cases, and that the original assessments had already scrutinized these issues under Section 143(3). They cited case laws such as Ranbaxy Laboratories Ltd Vs CIT and CIT Vs Jet Airways (I) Ltd to support their contention that the reopening was bad in law.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the reopening, stating that the Assessing Officer (AO) had a bona fide belief of income escapement, which was sufficient for initiating proceedings under Section 147. The CIT(A) referenced several case laws to support this view, including United Electrical Co (P) Ltd Vs CIT and Raymond Woolen Mills Ltd Vs ITO.

However, the Tribunal found that there was no live link between the reasons recorded for reopening and the additions made. The Tribunal emphasized that the original assessments had already examined these issues, and there was no tangible material to justify the reopening. The Tribunal cited previous decisions in similar cases within the Satyam Group, such as M/s SRSR Advisory Services Pvt. Ltd., where it was held that reopening based on the statement of Shri Ramalinga Raju was unwarranted. The Tribunal concluded that the reopening was bad in law and quashed the orders of the AO and CIT(A).

2. Validity of Additions Made Based on Differences in Closing Capital and Opening Balance:
The AO made additions based on discrepancies in the closing capital as of 31-03-2003 and the opening balance as of 01-04-2004, amounting to ?75,62,083/-. The assessee argued that the differences were due to the seizure of records by investigating agencies, which made it difficult to produce complete records. The assessee contended that the original assessment under Section 143(3) had already examined these issues, and the AO should have considered the seized records.

The CIT(A) rejected these contentions, stating that the assessee failed to reconcile the differences in balances disclosed in different returns. The Tribunal, however, did not delve into the merits of the additions, as it found the reopening itself to be bad in law, making the discussion on merits academic.

3. Protective Assessment of Interest Accrued on Fixed Deposits:
The AO assessed protectively the interest accrued on fixed deposits held in the names of others but offered to tax by the assessee herself. This was originally offered by the assessee and was not contested in the appeal, hence not discussed further.

Conclusion:
The Tribunal allowed the appeals of the assessees, holding that the reopening of assessments under Section 147 was bad in law due to the lack of a live link between the reasons recorded and the additions made. The Tribunal set aside the orders of the AO and CIT(A), making the discussion on the merits of the additions academic.

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