2025 (3) TMI 615 - AT - Income Tax

Reopening of assessment u/s 147 - notice u/s. 148 sent prior to the end of the limitation period to issue notice u/s.143(2) - addition u/s. 68 by treating the share capital and share premium received by the assessee as income of the assessee from unexplained sources - HELD THAT - Issue has been directly dealt with by the Hon ble Supreme Court in the case of HHE The Nizam s Supplemental Family Trust 2000 (2) TMI 4 - SUPREME COURT wherein as held that unless the return of income already filed is disposed of notice for reassessment u/s. 148 cannot be issued i.e. no reassessment proceedings could be initiated as long as assessment proceedings pending on the basis of the return already filed are not terminated. Further the Hon ble Delhi High Court in the case of KLM Dutch Airlines 2007 (1) TMI 138 - DELHI HIGH COURT by following the decision of the Hon ble Supreme Court has categorically held that the recourse can be taken to section 147 after the expiry of the limitation fixed for framing the original assessment. It has been held in the case of CIT vs Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT that if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. In view of this the reopening of the assessment by issue of notice u/s. 148 of the Act in this case was not valid and therefore consequential assessment framed u/s. 147 of the Act is not sustainable - Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment include:

Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, were valid given that the notice under Section 148 was issued before the expiration of the limitation period for issuing a notice under Section 143(2).
The validity of the addition of Rs. 14,40,00,000/- to the assessee's income under Section 68, treating the share capital and share premium as income from unexplained sources.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Reassessment Proceedings

Relevant legal framework and precedents: The court examined the provisions of Sections 147, 148, and 143(2) of the Income Tax Act, 1961. The precedents considered include the Supreme Court's decision in "H.H.E The Nizam's Supplemental Family Trust Vs. CIT" and the Delhi High Court's ruling in "KLM Royal Dutch Airlines Vs. Asstt. Director of Income Tax". These cases established that reassessment proceedings cannot commence if the original assessment proceedings are still pending.
Court's interpretation and reasoning: The Tribunal noted that the Supreme Court's decision in "Rajesh Javeri Stock Brokers Pvt. Ltd." clarified that the Assessing Officer (AO) must have a reason to believe that income has escaped assessment to reopen under Section 147. However, the Tribunal emphasized that the Supreme Court in "H.H.E The Nizam's Supplemental Family Trust" ruled that reassessment cannot be initiated when the original assessment is pending.
Key evidence and findings: The Tribunal found that the notice under Section 148 was issued while the return filed under Section 139(4) was still pending, making the reassessment invalid.
Application of law to facts: The Tribunal applied the legal principles from the Supreme Court and High Court decisions to determine that the reassessment proceedings initiated before the expiration of the limitation period for issuing a notice under Section 143(2) were invalid.
Treatment of competing arguments: The Tribunal considered the argument from the Department relying on the Allahabad High Court's decision in "CIT Vs. Jora Singh" but found it less persuasive compared to the Supreme Court's ruling in "H.H.E The Nizam's Supplemental Family Trust".
Conclusions: The Tribunal concluded that the reassessment proceedings were not valid, thereby rendering the consequential assessment unsustainable.

Addition under Section 68

Relevant legal framework and precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The Tribunal analyzed whether the share capital and share premium could be treated as income from unexplained sources.
Court's interpretation and reasoning: Given the invalidity of the reassessment proceedings, the Tribunal did not delve into the merits of the addition under Section 68, as the reassessment itself was quashed.
Key evidence and findings: The Tribunal focused on the procedural invalidity rather than the substantive evidence regarding the share capital and share premium.
Application of law to facts: Since the reassessment was quashed, the Tribunal did not apply Section 68 to the facts of the case.
Treatment of competing arguments: The Tribunal did not address competing arguments on the merits of the addition under Section 68 due to the procedural outcome.
Conclusions: The addition under Section 68 was not upheld due to the quashing of the reassessment proceedings.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "It is settled law that unless the return of income already filed is disposed of, notice for reassessment under section 148 cannot be issued, i.e., no reassessment proceedings can be initiated so long as assessment proceedings pending on the basis of the return already filed are not terminated."
Core principles established: The Tribunal reinforced the principle that reassessment proceedings cannot be initiated while the original assessment is pending. This aligns with the Supreme Court's interpretation that the return must be disposed of before reassessment notices can be issued.
Final determinations on each issue: The Tribunal quashed the reassessment proceedings, rendering the assessment under Section 147 invalid and unsustainable. Consequently, the appeal of the assessee was allowed.