2020 (2) TMI 311 - AT - Income Tax

Reopening of assessment u/s 147 - HELD THAT - The effect of section 147 as it now stands after the amendment of 2009 can therefore, be summarised as follows (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148 ; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income, chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section ; and (iv) though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. Therefore, as no addition has been made on the reasons for which the assessment of the assessee is reopened, the other it issuance made by the learned assessing officer cannot be sustained. In view of this we allow ground number 1-3 of the appeal of the assessee. The effect of section 147 as it now stands after the amendment of 2009 can therefore, be summarised as follows (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148 ; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income, chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section ; and (iv) though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. Therefore, as no addition has been made on the reasons for which the assessment of the assessee is reopened, the other it issuance made by the learned assessing officer cannot be sustained. In view of this we allow ground number 1-3 of the appeal of the assessee.

Summary

Issues Involved:
1. Validity of notice under section 148 of the Income Tax Act.
2. Jurisdiction and application of mind in issuing notice under section 148.
3. Addition of ?11,78,304 under section 2(22)(e) as deemed dividend.
4. Computation of disallowance.

Issue-Wise Detailed Analysis:

1. Validity of Notice under Section 148:
The assessee challenged the validity of the notice issued under section 148 of the Income Tax Act, which was issued to examine the source of investment for the purchase of property worth ?40 lakhs. The notice was issued after the assessee failed to respond to a verification letter and did not file an income tax return for the relevant year. The Tribunal noted that the case was reopened for taxing the source of investment in the property, but no addition was made on that account in the assessment order. The Tribunal held that if no addition is made on the issue for which the case was reopened, the Assessing Officer (AO) cannot make any addition on any other issue in the reopened assessment proceedings. This was supported by the decision of the Bombay High Court in the case of Commissioner of Income-Tax v. Jet Airways (I.) Ltd., where it was held that the AO must assess or reassess the income which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which comes to his notice during the proceedings. Therefore, the Tribunal allowed the grounds related to the validity of the notice under section 148.

2. Jurisdiction and Application of Mind in Issuing Notice under Section 148:
The assessee argued that the notice under section 148 was issued without proper application of mind and satisfaction by the AO or the approving authority, and was merely to conduct roving enquiries. The Tribunal observed that the principal Commissioner of Income Tax had granted approval for issuing the notice under section 148, stating that it was a fit case for such notice. However, since no addition was made on the issue for which the case was reopened, the Tribunal held that the AO did not have jurisdiction to make any other addition. Therefore, the Tribunal allowed the ground related to the jurisdiction and application of mind in issuing the notice.

3. Addition of ?11,78,304 under Section 2(22)(e) as Deemed Dividend:
The AO had made an addition of ?11,78,304 as deemed dividend under section 2(22)(e) of the Income Tax Act, on the grounds that the assessee had received an interest-free loan from a company in which he and his wife held 50% shareholding each. The assessee contended that the amount was received as part of a business transaction for providing event management services to the company, and not as a loan or advance. The Tribunal did not adjudicate this issue on merits, as it had already allowed the grounds related to the reopening of the assessment. Therefore, the Tribunal did not sustain the addition of ?11,78,304 as deemed dividend.

4. Computation of Disallowance:
The assessee also challenged the computation of disallowance related to the addition of ?11,78,304 under section 2(22)(e). However, since the Tribunal allowed the grounds related to the reopening of the assessment and did not adjudicate the issue of deemed dividend on merits, the computation of disallowance was not addressed in the judgment.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the AO could not make any addition on issues other than the one for which the assessment was reopened, and since no addition was made on the original issue, the other additions could not be sustained. The appeal was allowed, and the order pronounced in the open court on 13/01/2020.