2020 (6) TMI 312 - AT - Income Tax

Validity of re-assessment proceeding initiated u/s 147 - unexplained share application money - information received consequent to search and seizure operations carried out at the residential and business premises of accommodation entry providers - HELD THAT - Applying the principle laid down in Jet Airways (I) Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY and in Ranbaxy Laboratories Ltd. 2011 (6) TMI 4 - DELHI HIGH COURT we hold that in the facts and circumstances of the case where the basis for issuing the notice u/s 148 was, on account of reasons recorded for re-opening the reassessment u/s 147 i.e. share application money received from VPC Financial Services Ltd. of ₹ 10 Lakhs and no addition on this account has been made in the hands of the assessee, then any other addition made in the case of the assessee would not survive. Accordingly, we hold so. Thus, we decide the preliminary issue raised before us i.e. one of the aspect of the preliminary issue raised before us, where no addition has been made on account of the reasons recorded for re-opening the assessment under the provisions of section 147/148 of the Act, then no addition can be made in the hands of the assessee on any other account. Hence, the order passed u/s 147 r.w.s. 143(3) of the Act is invalid. - Decided in favour of assessee.

Issues Involved:
1. Validity of re-assessment proceedings initiated under section 147/148 of the Income Tax Act, 1961.
2. Independent verification by the Assessing Officer (AO) before forming 'reason to believe.'
3. Re-assessment barred by limitation.
4. Re-assessment based on a change of opinion.
5. Addition of unexplained cash credit under section 68 of the Act.
6. Addition of inter-corporate deposits and accrued interest under section 68 of the Act.
7. Validity of re-assessment order without issuing and serving jurisdictional notice under section 143(2) of the Act.

Detailed Analysis:

1. Validity of Re-assessment Proceedings Initiated Under Section 147/148 of the Act:
The primary issue raised was the validity of the re-assessment proceedings. The re-assessment was initiated based on information received from the Investigation Wing regarding alleged accommodation entries from VPC Financial Services Pvt. Ltd. amounting to ?10,00,000. The Tribunal noted that the reasons for re-opening the assessment were solely based on this information. However, no addition was made on this account in the final re-assessment order. The Tribunal referred to the judgments in Ranbaxy Laboratories Ltd. vs CIT and CIT vs Jet Airways (I) Ltd., which held that if no addition is made on the ground for which the re-assessment was initiated, then no other additions can be made. Hence, the re-assessment proceedings were held to be invalid.

2. Independent Verification by the Assessing Officer:
The assessee contended that the AO did not independently verify the information received from the Investigation Wing before forming a 'reason to believe.' The Tribunal observed that the reasons recorded for re-opening the assessment did not show any independent application of mind by the AO. This lack of independent verification further invalidated the re-assessment proceedings.

3. Re-assessment Barred by Limitation:
The assessee argued that the re-assessment was initiated after the expiry of four years from the end of the relevant assessment year, and there was no failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal did not delve deeply into this issue, as the re-assessment was already held invalid on other grounds.

4. Re-assessment Based on Change of Opinion:
The assessee claimed that the re-assessment was merely based on a change of opinion formed during the original assessment. The Tribunal did not specifically address this issue, given the invalidity of the re-assessment proceedings on other grounds.

5. Addition of Unexplained Cash Credit Under Section 68 of the Act:
The CIT(A) had upheld the addition of ?10,00,000 as unexplained cash credit under section 68 of the Act. However, since no addition was made on this account in the final re-assessment order, this issue became academic.

6. Addition of Inter-corporate Deposits and Accrued Interest Under Section 68 of the Act:
The CIT(A) upheld the addition of ?1,77,00,000 on account of inter-corporate deposits and ?25,05,424 as interest accrued thereon. The Tribunal observed that these additions were not related to the reasons recorded for re-opening the assessment. Following the principle laid down in the cited judgments, these additions could not survive as the primary reason for re-opening the assessment was not upheld.

7. Validity of Re-assessment Order Without Issuing and Serving Jurisdictional Notice Under Section 143(2) of the Act:
The assessee raised an additional ground that the re-assessment order was void as no notice under section 143(2) was issued. The Tribunal did not address this issue separately, as the re-assessment proceedings were already held invalid.

Conclusion:
The Tribunal concluded that the re-assessment proceedings initiated under section 147/148 were invalid as no addition was made on the ground for which the re-assessment was initiated. Consequently, all other additions made in the re-assessment order were also invalid. The appeal of the assessee was allowed, and the order passed under section 147 r.w.s. 143(3) was declared invalid.

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