2019 (5) TMI 429 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - case reopen based of reasons that sale of shares held as investments represented assessee s income escaping assessment - addition made regarding share capital raised - CIT-A quashed reopening notice - HELD THAT - Unless in the order u/s 147 the AO makes addition on the foundational issue for which the reason was recorded, the AO is not permitted to make addition in respect of any other issue for which reason was not recorded prior to issue of the notice. See SOFTWARE CONSULTANTS 2012 (2) TMI 18 - DELHI HIGH COURT and INDU ARTS VERSUS ACIT, CIRCLE 19 (1) , NEW DELHI. 2017 (6) TMI 449 - ITAT DELHI The reasons which the AO recorded on 09/02/2015 and as set out in the foregoing, do not in any manner suggest that the AO was satisfied that the share subscription amounts received during the relevant year represented assessee s income escaping assessment. Undeniably in the reasons set out, the AO has made reference to two separate and distinct transactions; one involving the shares which the assessee issued to twenty two share subscribing companies and another involving sale of investments which the assessee held in other bodies corporate. It may be so that Shri Mahavar or companies managed by him were connected with both the set of transactions. However both the sets of transactions were separate from each other and consequences flowing from these sets of transactions were also separate and could not be intermixed. In the reasons the AO recorded his satisfaction about escapement of income specifically with reference to assessee s transactions involving sale of investments totaling ₹ 34 Crs. The satisfaction recorded did not any manner suggest that in AO s opinion share subscription amount of ₹ 30.20 Crs. received during the year from 22 subscribers represented assessee s income escaping assessment. We therefore concur with the findings of the Ld. CIT(A) that no addition was made in the order u/s 147/143(3) dated 31.03.2016 with reference to the reasons for which the assessment was reopened and in that view of the matter the impugned order u/s 147/143(3) is held to be legally unsustainable. No reason to interfere with the findings returned by the Ld. CIT(A) in his order. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment order passed under sections 147/143(3) of the Income Tax Act.
2. Merits of the additions made under section 68 of the Income Tax Act.
3. Compliance with statutory provisions of Section 151 regarding obtaining prior approval before issuing notice under Section 148.

Detailed Analysis:

1. Validity of the Reassessment Order:
The Revenue challenged the Ld. CIT(A)’s action of quashing the reassessment order passed under sections 147/143(3). The assessee argued that the reassessment was invalid as the AO did not make any addition based on the specific issue for which the assessment was reopened. The Ld. CIT(A) upheld this argument, finding that the AO's reasons for reopening were based on the belief that the assessee's investments worth ?34 crores were laundered funds. However, the AO's final assessment focused on the share capital and premium received, amounting to ?30.20 crores, which was not the original reason for reopening. The Tribunal agreed with the Ld. CIT(A), citing several judicial precedents that an AO must make additions based on the reasons recorded for reopening; otherwise, the reassessment is invalid.

2. Merits of the Additions Made Under Section 68:
The assessee's cross-objection challenged the merits of the additions made under section 68, which were not adjudicated by the Ld. CIT(A) due to the quashing of the reassessment order. The Tribunal did not delve into the merits of the additions, as the reassessment order itself was found to be invalid.

3. Compliance with Section 151:
The assessee argued that the AO did not obtain prior approval from the prescribed authority before issuing the notice under section 148, as required by Section 151. The Tribunal noted this argument but did not make a ruling on it, as the reassessment order was already quashed on other grounds. The Tribunal observed that the order sheet and the notice under section 148 did not mention any prior approval, suggesting a potential procedural lapse.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)’s decision to quash the reassessment order due to the AO's failure to make additions based on the specific reasons for reopening the assessment. The cross-objections raised by the assessee were dismissed as infructuous, given the primary ruling on the invalidity of the reassessment order. The Tribunal emphasized that an AO cannot make additions on issues unrelated to the reasons recorded for reopening, reinforcing the necessity of adherence to procedural and substantive requirements in reassessment proceedings.