2024 (8) TMI 38 - AT - Income Tax

Validity of reopening of assessment u/s 147 - addition u/s 68 - notice after expiry of four years - eligibility of reasons to believe - reopening of the assessment for the second time - HELD THAT - Since the assessee had filed return of income, the conditions relating to failure on the part of the assessee to make a return u/s 139 or in response to a notice issued u/s 142(1) or 148 of the Act will not apply to the facts of the present case. The remaining condition is that, it is necessary for the AO to demonstrate that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. We notice that, in the reasons recorded by the AO for reopening of assessment, he did not mention that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It has been held by the Honourable High Courts that non-mentioning of the failure of the assessee in the reasons recorded for reopening would make the reopening invalid. In case, viz., Titanor Components Ltd. 2011 (6) TMI 138 - BOMBAY HIGH COURT held that the AO cannot proceed with reassessment u/s 147 of the Act unless he records in the reasons that there was failure on the part of the assessee to disclose fully and truly all material facts. Since the assessing officer has not recorded in the reasons that there was failure on the part of the assessee to disclose fully and truly all material facts, the impugned reopening is bad in law and accordingly the impugned assessment order is liable to be quashed. Second round of reassessment proceedings - share premium received by the assessee company - The first reopening was completed by the AO by passing assessment order on 17-03-2015, wherein the AO accepted the receipt of share capital along with share premium and did not make any addition. Thereafter, on the basis of information from investigation wing and survey report, the AO again reopened the assessment in order to assess share capital/share premium. In view of the fact that the share capital/share premium received by the assessee was examined and accepted twice by the AO, the second reopening is on account of change in opinion only, which is not permitted. It is well settled proposition of law that the statement taken during the course of survey operations conducted u/s 133A of the Act does not have evidentiary value. It was stated that the assessee did not make any surrender in the return of income filed in response to the notice issued u/s 148 of the Act, meaning thereby, the assessee did not accept the version of the investigation wing of the department. Since share capital/share premium are capital receipts, the AO should have in his possession some tangible material to show that the said receipts constituted income in the hands of the assessee. The AO did not have any tangible material except the report of the investigation wing, which was only allegation of the investigation wing. In the absence of any new tangible material, the impugned reopening of assessment is bad in law. We notice that the Ld CIT(A) has expressed the view that the failure of the assessee to disclose the details of survey operations in the first round of reopening of assessment results in the failure contemplated in the first proviso to sec. 147 of the Act. In our view, the above said interpretation of the Ld CIT(A) is not correct. The failure should occur during the original assessment proceedings completed u/s 143(3) of the Act, which is not the case here. The Ld CIT(A) also referred to the surrender made in the survey statement and this issue was addressed by us in the earlier paragraph. In view of the foregoing discussions, we hold that the impugned reopening of assessment is bad in law - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment.
2. Addition of Rs. 7.65 crores under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment:
The assessee challenged the reopening of the assessment for the second time, arguing that it was invalid as per the first proviso to Section 147 of the Income Tax Act. The original assessment was completed under Section 143(3) on 19-11-2011, and the first reassessment was completed on 17-03-2015 without any addition. The second reopening notice was issued on 16-09-2016, after the expiry of four years from the end of the assessment year. The assessee contended that the Assessing Officer (AO) did not demonstrate any failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment, which is a mandatory requirement under the first proviso to Section 147.

The Tribunal noted that the AO did not mention any failure on the part of the assessee to disclose all material facts in the reasons recorded for reopening the assessment. Citing various judicial precedents, including the decisions of the Bombay High Court in *Everest Kanto Cylinder Ltd* and *Titanor Components Ltd*, the Tribunal held that the non-mentioning of the failure to disclose material facts in the reasons recorded would make the reopening invalid.

Additionally, the Tribunal observed that the AO had already examined and accepted the share capital and share premium transactions during the first reassessment. Therefore, the second reopening was based on a change of opinion, which is not permissible. The Tribunal also noted that the statement taken during the survey operations under Section 133A does not have evidentiary value, as held by the Supreme Court in *CIT vs. S Khader Khan*.

2. Addition of Rs. 7.65 Crores under Section 68:
The AO made an addition of Rs. 7.65 crores as unexplained cash credit under Section 68 during the second reassessment. The assessee argued that the share application money was received in the preceding year, and the shares were allotted in the current year. Therefore, the AO could not have made the addition under Section 68 for the year under consideration.

The Tribunal did not delve into the merits of the addition, as it had already decided the appeal on the legal issue of the validity of reopening the assessment. The Tribunal quashed the orders passed by the tax authorities, holding that the impugned reopening of assessment was bad in law.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the orders passed by the tax authorities on the grounds that the reopening of the assessment was invalid. The Tribunal did not address the merits of the addition under Section 68, as the appeal was decided based on the legal issue of the validity of the reopening. The order was pronounced in the open court on 30th May, 2024.