2022 (5) TMI 1323 - AT - Income Tax

Reopening of assessment u/s 147 - deemed dividend under section 2(22)(e) - HELD THAT - The very beginning of the first line the AO has started with the words that upon verification of the case records it is seen that assessee has received loans and advances from Vananchal Infrastructure Pvt. Ltd. during the year ended 31.03.2012 and thereafter in the second para it was mentioned that there was no deliberation on this issue in the assessment framed u/s 143(3) and thus the AO has not formed any opinion about the deemed dividend and finally the AO noted that he has reason to believe that income has escaped assessment within the meaning of section 147. In our view, this is nothing but the reopening of assessment on the basis of material which was available before the AO in the original assessment proceedings as there was no tangible material before the AO and therefore this is a patent case of review of the earlier assessment framed on the basis of same materials which is not permissible under the Act. The case of the assessee finds support from the decision of CIT Vs Kelvinatpor India Ltd. 2010 (1) TMI 11 - SUPREME COURT wherein it has been held that the re-opening can be made on the basis of tangible materials before the AO and not otherwise. Therefore, we are inclined to set aside the order of Ld. CIT(A) and the reopening of assessment is quashed as being invalid and contrary to law. Appeal of assessee allowed.

Summary

Issues:
1. Validity of reopening of assessment under section 147 read with section 148 of the Income Tax Act.
2. Addition of Rs.87,91,502/- under section 2(22)(e) of the Act.

Analysis:
1. The first issue revolves around the validity of the reopening of assessment under section 147 read with section 148 of the Income Tax Act. The assessee challenged the reopening, arguing that it was done without tangible new material. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld the reopening, stating that the reasons were properly recorded and a belief was formed that income had escaped assessment. The Accountant Member (AM) of the Appellate Tribunal noted that the reasons for reopening were based on material available during the original assessment, which is not permissible under the Act. The AM referred to a Supreme Court decision to support the argument that reopening should be based on tangible materials. Consequently, the AM set aside the CIT(A)'s order and quashed the reopening of assessment as invalid and contrary to the law.

2. The second issue pertains to the addition of Rs.87,91,502/- under section 2(22)(e) of the Act. The assessment was reopened based on the company receiving unsecured loans and advances from a sister concern, leading to the treatment of the amount as deemed dividend. The AM's decision to quash the reopening of assessment renders the addition invalid as well. Therefore, the appeal of the assessee was allowed, indicating that the addition made by the Assessing Officer was not sustainable due to the invalid reopening of assessment.

In conclusion, the Appellate Tribunal held that the reopening of assessment was invalid as it was based on existing material from the original assessment, contrary to the requirement of tangible new material. Consequently, the addition made under section 2(22)(e) of the Act was deemed unsustainable. The decision favored the assessee, leading to the allowance of the appeal.