2016 (6) TMI 375 - AT - Income Tax

Reopening of assessment - reason to believe - time barred - Held that - We have perused the reasons recorded by the AO and we find that the AO issued notice u/s. 148 of the Act on 30.3.2010 for the assessment year in dispute i.e. 2003-04 which is after the expiry of 4 years from the end of the relevant assessment year. We are of the view that the case of the assessee is governed by the first proviso to section 147 of the Act and in the original assessment made u/s. 143(3) vide assessment order dated 30.3.2006 the AO had made detailed enquiry of the share application money received by the assessee company. We find that there is no omission or failure on the part of the assessee to disclose fully and truly all material facts relating to share application money because the assessee had submitted details of share application money in initial assessment proceedings which was verified by the AO by way of issue of summons to the share applicant who duly responded to the summons. We further find that in the reasons recorded the AO has nowhere alleged that escapement of income has occurred by reason of either omission on the part of the assessee to disclose fully and truly all material facts for assessment. It is a settled law that in the absence of omission or failure on the part of the assessee to disclose fully and truly all material facts, the time limit to issue notice u/s. 148 expired on 31.3.2008, therefore, the notice u/s. 148 dated 30.3.2010 is time barred. Therefore, we are of the considered view that Notice issued u/s. 148 of the Act is illegal and deserve to be quashed - Decided in favour of assessee

Issues Involved:
1. Legality of notice under Section 148.
2. Validity of "reason to believe" for income escapement under Section 147.
3. Reopening based on directions from the Investigation Wing.
4. Notice issuance based on a general statement.
5. Applicability of the first proviso to Section 147.
6. Reopening based on change of opinion.
7. Allegation of omission or failure to disclose material facts.
8. Applicability of the second proviso to Section 147.
9. Legality and justification of the assessment order.
10. Legality of treating share application money as unexplained cash credit under Section 68.

Detailed Analysis:

1. Legality of Notice under Section 148:
The assessee contended that the notice under Section 148 was illegal and void ab initio. The Tribunal found that the notice was issued after the expiry of four years from the end of the relevant assessment year, which is governed by the first proviso to Section 147. Since there was no omission or failure by the assessee to disclose fully and truly all material facts, the notice was deemed time-barred and illegal.

2. Validity of "Reason to Believe" for Income Escapement under Section 147:
The assessee argued that there was no "reason to believe" that income had escaped assessment. The Tribunal noted that the reasons recorded by the AO did not allege any omission or failure by the assessee to disclose material facts. Detailed inquiries had been made during the original assessment, and the share application money had been verified. Thus, the Tribunal concluded that the reopening was not justified.

3. Reopening Based on Directions from the Investigation Wing:
The assessee claimed that the AO had reopened the case based on directions from the Investigation Wing, without forming an independent belief. The Tribunal observed that the AO had relied on information from the Investigation Wing regarding accommodation entries but did not independently verify the facts. This reliance without independent assessment was deemed inappropriate.

4. Notice Issuance Based on a General Statement:
The assessee argued that the notice was based on a general statement from an individual involved in name lending. The Tribunal found that the AO's reasons were based on statements from Mahesh Garg, who admitted to providing accommodation entries. However, these statements did not directly implicate the assessee or establish a failure to disclose material facts.

5. Applicability of the First Proviso to Section 147:
The Tribunal emphasized that the case was governed by the first proviso to Section 147, which requires an omission or failure to disclose material facts for reopening beyond four years. As the assessee had fully disclosed the share application money during the original assessment, the reopening was deemed invalid.

6. Reopening Based on Change of Opinion:
The assessee contended that the reopening was merely a change of opinion. The Tribunal agreed, noting that the AO had already examined the share application money during the original assessment. Reopening on the same grounds without new evidence constituted a change of opinion, which is not permissible.

7. Allegation of Omission or Failure to Disclose Material Facts:
The Tribunal found no evidence of omission or failure by the assessee to disclose material facts. The AO did not allege any such failure in the recorded reasons. Therefore, the condition for reopening under the first proviso to Section 147 was not met.

8. Applicability of the Second Proviso to Section 147:
The assessee argued that the reopening was barred by the second proviso to Section 147, as the issue of share application money had already been subject to appeal. The Tribunal did not specifically address this issue, as the notice and reassessment were quashed on other grounds.

9. Legality and Justification of the Assessment Order:
The Tribunal quashed the reassessment proceedings, rendering the assessment order illegal and unjustified. The AO's addition of ?7,00,000 as unexplained cash credit under Section 68 was also invalidated.

10. Legality of Treating Share Application Money as Unexplained Cash Credit:
The Tribunal concluded that the share application money had been duly verified during the original assessment. The AO's treatment of ?7,00,000 as unexplained cash credit was unjustified, as there was no new evidence to support this addition.

Conclusion:
The Tribunal quashed the notice under Section 148 and the reassessment proceedings, rendering the assessment order invalid. The appeal filed by the assessee was allowed, and the other grounds raised were not adjudicated as they became irrelevant. The judgment emphasized adherence to procedural requirements and the necessity of independent verification by the AO in reopening assessments.

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