2018 (4) TMI 514 - AT - Income Tax

Reopening of assessment - reasons to believe - Held that - No fresh material or additional information on record which could lead the Assessing Officer to believe that income chargeable to tax had escaped assessment. Thus, there was no valid reason for reopening the assessment u/s 148 of the Act on a second occasion on similar ground. A perusal of the second re-assessment order shows that the Assessing Officer has not brought out any facts which would clearly indicate that the assessee had not disclosed full material facts on the earlier occasion. Therefore, on overall facts and circumstances of the case and considering the findings of the Ld. Commissioner of Income Tax (A), which could not be negated before us thus to agree with the action of the Ld. Commissioner of Income Tax (A) in quashing the reassessment proceedings - action of the Assessing Officer with regard to the reopening of the case u/s 147/148 was not justified and the re-assessment, therefore, deserved to be annulled Treatment of agricultural income as income from other sources and addition on account of alleged personal expenses - Held that - These two additions do not pertain to the second reassessment proceedings but to first reassessment proceedings. However, as per the doctrine of merger, the earlier assessment order gets merged with the subsequent assessment order and, accordingly, the first assessment order dated 10.06.2005 merges with the second re-assessment order which has been annulled. Since the second reassessment order has been annulled, the first reassessment order dated 10.06.2005 gets and attains finality. Therefore, since the assessee had earlier accepted these two additions made in the first re-assessment order, we are afraid we cannot adjudicate on the appropriateness of these two additions at this stage.

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147/148 of the Income Tax Act.
2. Deletion of addition of ?70,77,000 as unexplained investment under Section 69B of the Income Tax Act.
3. Addition of ?4,23,374 as deemed dividend under Section 2(22)(e) of the Income Tax Act.
4. Treatment of agricultural income as income from other sources.
5. Addition of ?5,00,000 on account of alleged personal expenses.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary issue was whether the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147/148 were justified. The original return declared an income of ?14,40,000. The AO issued a notice under Section 148, leading to reassessment at ?21,90,000. A subsequent notice under Section 148 was issued due to discrepancies in the equity shares held by the assessee, resulting in a reassessment at ?96,99,370. The Commissioner of Income Tax (Appeals) [CIT(A)] quashed this second reassessment, noting that the AO had already examined the issue of shares in the first reassessment and found no discrepancies. The CIT(A) observed that there was no new information or fresh facts to justify reopening the assessment. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had not provided any additional evidence or material facts to support the reopening. Thus, the reassessment proceedings were deemed invalid.

2. Deletion of Addition of ?70,77,000 as Unexplained Investment:
The department challenged the deletion of ?70,77,000 added as unexplained investment under Section 69B. Since the Tribunal upheld the quashing of the reassessment proceedings, this ground became infructuous. The Tribunal agreed with the CIT(A) that the reassessment proceedings were invalid, and thus, any additions made therein could not be sustained.

3. Addition of ?4,23,374 as Deemed Dividend:
The assessee's cross-objection challenged the addition of ?4,23,374 as deemed dividend under Section 2(22)(e). This addition was made during the second reassessment, which was annulled by the CIT(A). The Tribunal concurred, stating that since the reassessment proceedings were invalid, any additions made therein, including the deemed dividend, could not stand. Therefore, the addition was deleted.

4. Treatment of Agricultural Income as Income from Other Sources:
The assessee also contested the CIT(A)'s decision to treat agricultural income as income from other sources. This addition was part of the original reassessment order, which the assessee had not appealed. The Tribunal noted that the original reassessment order had attained finality and merged with the second reassessment order. Since the second reassessment was annulled, the original order stood. The Tribunal could not adjudicate on this issue as it had been accepted by the assessee in the first reassessment.

5. Addition of ?5,00,000 on Account of Alleged Personal Expenses:
Similar to the agricultural income issue, the addition of ?5,00,000 for personal expenses was part of the original reassessment and had attained finality. The Tribunal held that since the first reassessment order merged with the annulled second reassessment order, they could not re-examine this addition. The assessee had accepted this addition in the first reassessment, and thus, it stood as final.

Conclusion:
The Tribunal dismissed the department's appeal, upholding the CIT(A)'s decision to quash the reassessment proceedings and delete the addition of ?70,77,000. The assessee's cross-objection was partly allowed, deleting the addition of ?4,23,374 as deemed dividend but upholding the additions related to agricultural income and personal expenses due to the finality of the original reassessment order. The order was pronounced in the open court on 6.4.2018.

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