2022 (10) TMI 946 - AT - Income Tax

Reopening of assessment u/s 147 - validity of reopening of assessment - addition u/s 68 - notice after expiry of 4 years from the end of the relevant assessment year - HELD THAT - We find no merit in the submission of learned DR that allegation of failure to disclose fully and truly all material facts can be reasonably inferred from the perusal of reasons recorded for reopening the assessment, when the said allegation was nowhere made by the AO in the said reasons. We find that in appeal before the CIT(A), the assessee specifically raised grounds challenging initiation of reassessment proceedings. CIT(A), during the course of appellate proceedings, sought remand report from the AO and only after consideration of said report and assessee s reply thereto, adjudicated on the ground challenging the reassessment proceedings. Once initiation of reassessment proceedings has been challenged by the assessee, all the grounds incidental thereto are available to the assessee to challenge the validity of impugned reassessment proceedings. Therefore, respectfully following the aforesaid decision 2004 (2) TMI 41 - BOMBAY HIGH COURT we are of the considered view that reassessment proceedings initiated by the AO are not in conformity with the provisions of 1st proviso to section 147 of the Act. Where 4 years, but not more than 6 years, have elapsed, no notice under section 148 can be issued unless the income chargeable to tax which has escaped assessment is Rs. 1 lakh or more. We find that while dealing with the issue whether failure on the part of the AO to mention the amount of income which has escaped assessment will result in nullifying the notice issued under 148 of the Act, the Hon‟ble Karnataka High Court in Novo Nordisk India (P) Ltd 2018 (9) TMI 352 - KARNATAKA HIGH COURT as held material aspect for invoking the extended period of limitation under Section 149 (1)(b) not being forthcoming, further proceedings in pursuance to the said notice cannot be sustained. The notice issued being not in conformity with the provisions of the Act, it being the base or the foundation, edifice built upon it, has to fall. As noted above, it is for the AO to record the reasons clearly and unambiguously and no inference can be drawn there from, thus, respectfully following the aforesaid decisions, we are of the considered view that the impugned reassessment proceedings are also not in conformity with the provisions of section 149(1)(b) of the Act. Since the requirement of provisions of 1st proviso to section 147 as well as section 149(1)(b) of the Act are not fulfilled in the present case, therefore, the reassessment proceedings under section 147 of the Act are set aside being bad in law. Accordingly, the impugned order passed by the learned CIT(A), inter-alia, upholding the order passed under section 143(3) r/w section 147 of the Act is set aside. As relief has been granted to the assessee on above aspects, other submissions made by learned AR, pertaining to this ground, are rendered academic in nature. As a result, ground no.1 raised in assessee s appeal is allowed.

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Addition under section 68 of the Act regarding loan creditors.
3. Disallowance of expenses related to a flat at Cuffe Parade, Mumbai.
4. Disallowance of rent paid for a flat at Kandivli, Mumbai.
5. Disallowance under section 40A(3) of the Act.
6. Deletion of addition made under section 68 by the CIT(A).
7. Deletion of addition on account of devaluation of share price.
8. Deletion of addition on account of salary and traveling expenses.
9. Disallowance under section 14A of the Act.

Issue-wise
Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The primary issue was whether the notice under section 148 was valid. The Tribunal noted that the assessment was reopened after four years from the end of the relevant assessment year. The Tribunal scrutinized the reasons recorded by the Assessing Officer (AO) and found no allegation of failure on the part of the assessee to disclose fully and truly all material facts. Citing the jurisdictional High Court's decision in Hindustan Lever Ltd vs R.B.Wadkar, the Tribunal emphasized that the reasons must clearly state the failure to disclose material facts. Since the AO's reasons lacked this allegation, the reassessment proceedings were deemed not in conformity with the first proviso to section 147.

2. Addition Under Section 68 of the Act Regarding Loan Creditors:
The assessee contested the addition of Rs. 1,50,00,000 under section 68, arguing that all relevant details were furnished and the principles of natural justice were violated. The Tribunal, having set aside the reassessment proceedings, rendered this issue academic and did not delve into the merits of the addition.

3. Disallowance of Expenses Related to a Flat at Cuffe Parade, Mumbai:
The assessee challenged the disallowance of depreciation, maintenance, and electricity charges for a flat at Cuffe Parade, arguing these were business expenses. The Tribunal did not address this issue on merits due to the annulment of the reassessment proceedings.

4. Disallowance of Rent Paid for a Flat at Kandivli, Mumbai:
The disallowance of Rs. 1,30,000 for rent was contested on the grounds that it was a business expense and not personal in nature for a corporate entity. This issue was also left open due to the primary relief granted on the reassessment notice's validity.

5. Disallowance Under Section 40A(3) of the Act:
The assessee disputed the disallowance of Rs. 98,940, being 20% of Rs. 4,94,700 paid to Bidhan Resources Pvt. Ltd. The Tribunal did not address this due to the annulment of the reassessment proceedings.

6. Deletion of Addition Made Under Section 68 by the CIT(A):
The Revenue's appeal included the issue of the CIT(A) deleting an addition of Rs. 6,70,95,982 under section 68. The Tribunal did not address this on merits, as the reassessment proceedings were set aside.

7. Deletion of Addition on Account of Devaluation of Share Price:
The Revenue also contested the CIT(A)'s deletion of an addition of Rs. 69,84,311 on account of devaluation of share price. This issue was rendered academic due to the setting aside of the reassessment proceedings.

8. Deletion of Addition on Account of Salary and Traveling Expenses:
The Revenue's appeal included the deletion of an addition of Rs. 1,99,365 on account of salary and traveling expenses. This issue was not addressed on merits due to the annulment of the reassessment proceedings.

9. Disallowance Under Section 14A of the Act:
The Revenue contested the CIT(A)'s decision regarding the computation of disallowance under section 14A as per Rule 8D. The Tribunal did not address this due to the primary relief granted on the reassessment notice's validity.

Conclusion:
The Tribunal set aside the reassessment proceedings initiated under section 147, finding them not in conformity with the provisions of the first proviso to section 147 and section 149(1)(b) of the Act. Consequently, all other issues raised in both the assessee's and the Revenue's appeals were rendered academic and were not adjudicated on merits. The assessee's appeal was allowed, and the Revenue's appeal was dismissed.

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