2024 (5) TMI 1009 - AT - Income Tax

Validity of reopening of assessment u/s 147 - information received from DDIT (Inv.)-Unit 2(2), Kolkata which showed that the assessee had entered into sham transactions with shell company - it is a consistent submission of assessee right from beginning that it has not entered into any transaction with any shell company - HELD THAT - The revenue is not able to show any such transaction having been entered by assessee with M/s Bhagya. Therefore, we safely presume that the assessee has in fact not entered into any transaction with M/s Bhagya as alleged in the reasons. That means, the re-assessment proceeding has been done on the basis of an invalid reason. Once it is so, the entire proceeding becomes invalid on this very premise itself. Revenue/AO authority to make newer additions even if they did not form part of original reasons and such authority comes from 3rd Proviso to section 147 - If the AO does not assess or reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice u/s 148, it is not open to AO to assess or reassess independently any other income which does not form the subject-matter of the notice. As far as 3rd Proviso to section 147 is concerned, in our considered interpretation, it does not give any authority to AO to assessee independent incomes, rather it places one more restriction upon AO that under the provisions of section 147, he can only assessee or reassess those matters which are not subject-matters of any appeal, reference or revision. The AO s understanding that it gives authority to him to assess only independent or newer items, even if the original items forming part of reasons do not survive, is not correct. Therefore, respectfully following the decision of Jet Airways which is very much applicable to the facts of present case, we are inclined to quash the order of re-assessment passed by AO. The assessee succeeds in this appeal.

Summary

Issues Involved:
1. Validity of reassessment order u/s 144/147.
2. Jurisdiction and compliance with statutory conditions u/s 147 to 151.
3. Addition of Rs. 124,39,76,000/- as unexplained cash credit u/s 68.
4. Addition of Rs. 4,57,21,842/- as unexplained income u/s 68.
5. Disallowance of Rs. 4,33,05,189/- u/s 37.
6. Charging of interest u/s 234A, 234B, and 234C.

Summary:

1. Validity of Reassessment Order u/s 144/147:
The assessee challenged the reassessment order dated 26.12.2019, arguing that the AO did not assume jurisdiction as per law and failed to comply with statutory conditions u/s 147 to 151. The Tribunal found that the AO acted on an invalid reason, as the alleged sham transactions with M/s Bhagya Laxmi Electronics were not substantiated. Consequently, the reassessment proceedings were deemed invalid.

2. Jurisdiction and Compliance with Statutory Conditions u/s 147 to 151:
The AO reopened the assessment based on information from DDIT (Inv.)-Unit 2(2), Kolkata, alleging sham transactions of Rs. 5,11,00,000/-. The Tribunal noted that the assessee consistently denied any transactions with M/s Bhagya, and the revenue failed to prove otherwise. Thus, the reassessment was based on an invalid reason, rendering the proceedings void.

3. Addition of Rs. 124,39,76,000/- as Unexplained Cash Credit u/s 68:
The AO made an addition of Rs. 124,39,76,000/- on account of bogus share capital/share premium based on statements from Shri Sharad Darak and other corroborative materials. The Tribunal observed that these additions were not part of the original reasons for reopening the assessment and thus could not be sustained.

4. Addition of Rs. 4,57,21,842/- as Unexplained Income u/s 68:
The AO added Rs. 4,57,21,842/- as unexplained income from sundry creditors, arguing that the assessee had no business activity. The Tribunal found that this addition was also not part of the original reasons for reopening and thus invalid.

5. Disallowance of Rs. 4,33,05,189/- u/s 37:
The AO disallowed Rs. 4,33,05,189/- of expenses claimed by the assessee u/s 37, citing lack of business activity. The Tribunal ruled that this disallowance was not part of the original reasons for reopening and thus could not be upheld.

6. Charging of Interest u/s 234A, 234B, and 234C:
The assessee contested the charging of interest u/s 234A, 234B, and 234C. The Tribunal's decision to quash the reassessment order rendered this issue moot.

Conclusion:
The Tribunal quashed the reassessment order on the grounds that the AO's reasons for reopening were invalid and the subsequent additions were not part of the original reasons. The appeal was allowed, and the reassessment order was set aside. The Tribunal clarified that this decision does not affect the pending appeal before the ITAT Kolkata Bench regarding the original assessment.