2016 (12) TMI 1409 - AT - Income Tax

Validity of reopening of assessment - Held that - We hold that the proceedings u/s.147 of the Act were not validity initiated in the present case as the condition precedent for such initiation is absent in the present case. We therefore annul the order of assessment u/s.147 of the Act. In view of the above conclusion, we do not deem it necessary to deal with the ground of appeal raised by the revenue in its appeal. Suffice it to say that the issue raised by the revenue has already been decided by the Tribunal in the appeal u/s.158BC of the Act and decided in favour of the Assessee on merits.

Issues Involved:
1. Legality of the addition of ?2 Crores as unexplained cash credit under section 68 of the Income Tax Act.
2. Validity of the reassessment proceedings under section 147 of the Income Tax Act.
3. Protective vs. substantive assessment in the context of reassessment proceedings.

Detailed Analysis:

1. Legality of the Addition of ?2 Crores as Unexplained Cash Credit:

The Revenue initiated a search and seizure operation at the Assessee's premises and found an exercise book (BG/2) indicating cash payments related to share capital. The Assessing Officer (AO) added ?2 Crores as unexplained cash credit on a protective basis in the Assessee's hands, asserting that the amount represented unaccounted money of Sri Bhanaram Gupta. The CIT(A) confirmed ?1 Crore as unexplained credits in the Assessee's books but deleted ?1 Crore, which was satisfactorily explained by the Assessee. The Tribunal upheld the CIT(A)'s deletion of ?1 Crore and reversed the addition of the remaining ?1 Crore, stating that the addition was based on a statement recorded by an unauthorized officer and was beyond the scope of block assessment proceedings under section 158BC of the Act.

2. Validity of the Reassessment Proceedings Under Section 147:

The Tribunal's order in the block assessment proceedings contained observations that the unexplained share capital could be treated as escaped income. Based on these observations, the AO issued a notice under section 148 and reassessed the income, adding ?2 Crores on a protective basis. The CIT(A) deleted this addition, noting that the Assessee had explained the sources of subscription from four corporate entities, which were regularly assessed to income tax, and the transactions were genuine. The Tribunal found that the reassessment proceedings were not validly initiated because the observations in the Tribunal's earlier order were not a direction to reopen the assessment under section 147. Additionally, the Tribunal noted that the reasons for reassessment did not indicate any failure by the Assessee to disclose material facts fully and truly, which is a prerequisite for reassessment beyond four years.

3. Protective vs. Substantive Assessment in Reassessment Proceedings:

The Tribunal highlighted that protective assessments are permissible during regular assessments when there is doubt about the person who received the income. However, in reassessment proceedings under section 147, there must be a reason to believe that income has escaped assessment, which indicates an event that has already occurred. The Tribunal referenced the Bombay High Court's decision in DHFL Venture Capital Fund Vs. ITO, which held that protective assessments are not permissible in reassessment proceedings. The Tribunal concluded that the reassessment proceedings in the present case were invalid as they were based on a contingent future event and did not fulfill the jurisdictional requirement of section 147.

Conclusion:

The Tribunal annulled the reassessment proceedings under section 147, holding them to be invalid. Consequently, the addition of ?2 Crores as unexplained cash credit under section 68 was also deleted. The appeal by the Revenue was dismissed, and the order of the CIT(A) deleting the addition was upheld. The Tribunal emphasized that reassessment proceedings must be based on concrete reasons indicating that income has indeed escaped assessment and cannot be initiated on speculative or protective grounds.

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