2024 (10) TMI 471 - AT - Income Tax

Validity of reopening of assessment u/s 147 - reason to believe - notice issued after the expiry of 4 years - addition of deemed dividend u/s 2(22)(e) - as per AO deemed dividend was not considered/discussed during the scrutiny assessment proceedings u/s 143(3) - HELD THAT - It is settled law that reason to believe can never be the outcome of a change of opinion. It is essential that before any action is taken by the AO he should substantiate his satisfaction. Thus, where the reasons recorded by the AO disclose no more than a mere change of opinion, the reassessment proceedings and assessment order pursuant thereto are liable to be quashed. The existence of a valid reason to believe is a sine qua non to exercise the jurisdiction under Section 147 of the Act. The expression reason to believe imports the cumulative presence of the following four elements viz. some tangible material or materials to establish that income has escaped assessment; nexus between such material and the belief of escapement of income from assessment as envisaged under section 147; application of mind by the AO to such material; and an inference, based on reason drawn tentatively by the officer that income has escaped assessment. As is evident from the facts available on record, no new information was received by the AO at the time of initiation of reassessment proceedings, and it was merely a fresh application of mind to the same set of facts as were available at the time of original scrutiny assessment proceedings. Thus, reopening of assessment under section 147 in the present case, is bad in law and therefore is set aside. Decided in favour of assessee.

Issues Involved:

1. Validity of the reopening of the assessment under section 147 of the Income Tax Act, 1961.
2. Legitimacy of the addition of Rs. 29,76,508 as deemed dividend under section 2(22)(e) and its inclusion under section 56(2)(i) of the Act.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147:

The primary issue in this case was the validity of the reopening of the assessment under section 147 of the Income Tax Act, 1961. The assessee challenged the reopening, arguing that it was based on a change of opinion regarding facts already examined during the original assessment under section 143(3). The original assessment was completed on 29/12/2011, and the reassessment proceedings were initiated on 31/03/2016, after more than four years from the end of the assessment year 2009-10.

The Tribunal noted that the reassessment was based on the receipt of unsecured loans from M/s Zojwalla Housing and Properties Private Ltd., which the Assessing Officer (AO) treated as deemed dividend under section 2(22)(e). The Tribunal found that the issue of deemed dividend had already been considered during the original assessment proceedings, as evidenced by the assessee's written submissions and financial statements, which disclosed the transaction.

The Tribunal emphasized that the reopening was based solely on a reappraisal of existing records without any new or tangible material, thereby constituting a mere change of opinion. Citing the legal principle that "reason to believe" cannot be the result of a change of opinion, the Tribunal held that the reopening was invalid. The absence of any failure on the part of the assessee to disclose fully and truly all material facts further invalidated the reassessment proceedings, especially given the lapse of four years since the original assessment.

2. Legitimacy of the Addition as Deemed Dividend:

Although the Tribunal primarily focused on the jurisdictional aspect of the reassessment, it also addressed the merits of the addition of Rs. 29,76,508 as deemed dividend under section 2(22)(e). The assessee contended that the amount was received as an advance for a business transaction related to the proposed sale of commercial premises and was not a deemed dividend. The Tribunal noted that the AO had previously accepted the assessee's explanation during the original assessment proceedings, suggesting that the issue had been duly considered.

The Tribunal concluded that the reassessment proceedings were initiated without any new evidence or material, thus reinforcing the view that the addition was unjustified. As the reassessment was quashed on jurisdictional grounds, the Tribunal did not find it necessary to delve further into the merits of the addition.

Conclusion:

The Tribunal allowed the appeal by the assessee, setting aside the reassessment proceedings and the order passed by the learned CIT(A). The reopening of the assessment under section 147 was deemed invalid due to the absence of new material and the presence of a mere change of opinion. Consequently, the addition of Rs. 29,76,508 as deemed dividend was also set aside, rendering the other issues raised in the appeal academic and infructuous.

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