2020 (11) TMI 704 - AT - Income Tax

Reopening of assessment u/s 147 - Deemed dividend addition 2(22)(e) - approval by the JCIT without expressing any satisfaction - HELD THAT - A summary approval by the JCIT without expressing any satisfaction on presence of underlying materials showing escapement while exercising the functions under s.151 of the Act cannot be countenanced in law. This apart, a consolidated approval memo of multiple assessee without recording satisfaction qua each individual case raises serious doubt on plausibility of implicit satisfaction for each case as contemplated in Section 151 of the Act. A nondescript approval under S. 151 without requisite satisfaction is a nullity. The issuance of notice under S. 147 itself is thus void where the sanction is not obtained in terms of S. 151 of the Act. Hence, on this ground also, the notice under s.147 of the Act itself gets vitiated. Section 147 of the Act confers jurisdiction upon the Assessing Officer for carrying out assessment proceedings. The legal objection raised by the assessee on the validity of assumption of jurisdiction under s.147 r.w.s. 151 of the Act and consequent additions carried out under s.2(22)(e) of the Act within the framework of the provisions of Section 147 of the Act strikes to the root of the matter and therefore can be challenged before the Tribunal even if not raised or not argued diligently before the lower authorities. We, thus, do not concur with the objections of the Revenue on this score. Additions made under s.2(22)(e) of the Act in departure with recorded reasons, cannot be sustained in the current proceedings under s.147 of the Act where no additions towards retuned income has been made on the grounds for which powers under S. 147 were exercised. We thus are not inclined to go into the remaining aspects, if any, concerning merits of the additions. The proceedings under s.147/s.148 of the Act are thus quashed as void ab-initio and the additions made under s.2(22)(e) of the Act is held to be bad in law. - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Applicability of Section 2(22)(e) concerning deemed dividend.
3. Validity of approval under Section 151 for initiating reassessment.
4. Jurisdictional and procedural errors in reassessment proceedings.
5. Merits of the addition of ?1,80,60,000 as deemed dividend.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act:
The reassessment proceedings were initiated based on the belief that the assessee had not filed a return of income despite purchasing an immovable property worth ?1,72,00,000 and having contract receipts of ?47,539. The AO issued a notice under Section 148 of the Act, and the assessee filed a return declaring an income of ?2,58,110. However, the AO did not make any additions related to the grounds for which the reassessment was initiated (i.e., the purchase of the property and contract receipts). Instead, the AO assessed an altogether different genre of income under Section 2(22)(e) of the Act. The Tribunal held that the AO could not make additions on grounds that did not form part of the reasons recorded for reassessment, citing the decision of the Hon’ble Gujarat High Court in CIT v. Mohmed Juned Dadani (2014) 355 ITR 172 (Guj). Therefore, the reassessment proceedings were deemed invalid.

2. Applicability of Section 2(22)(e) Concerning Deemed Dividend:
The AO made additions of ?1,80,60,000 as deemed dividend under Section 2(22)(e) of the Act, alleging that the assessee held 40% equity shares in the lender company. The assessee argued that the provisions of Section 2(22)(e) were not applicable as there was no fresh advance during the year, and the amount represented money paid by the lender company to another individual, not the assessee. The Tribunal noted that the AO did not bring any material to establish that the assessee held voting power of 10% or more. Thus, the primary onus lay on the assessee to prove that they did not hold the requisite voting power. However, since the reassessment was invalidated on jurisdictional grounds, the Tribunal did not delve into the merits of the addition under Section 2(22)(e).

3. Validity of Approval under Section 151 for Initiating Reassessment:
The approval for initiating reassessment was obtained from the Joint Commissioner of Income Tax (JCIT) via a consolidated order involving nine cases. The Tribunal found that the approval was given mechanically without application of mind, as it was a summary approval without any specific satisfaction recorded for each case. Citing various judicial precedents, including the Hon’ble Supreme Court in Chhugamal Rajpal vs. S. P. Chaliha (1971) 79 ITR 603 (SC), the Tribunal held that the approval granted without satisfaction is a nullity in law. Consequently, the reassessment proceedings based on such approval were invalid.

4. Jurisdictional and Procedural Errors in Reassessment Proceedings:
The Tribunal emphasized that the jurisdiction to reassess under Section 147 is substantive and requires strict adherence to procedural safeguards. The AO's action of making additions under Section 2(22)(e) without addressing the grounds for which the reassessment was initiated was beyond the scope of Section 147. Additionally, the lack of proper approval under Section 151 further invalidated the reassessment proceedings. The Tribunal reiterated that the reassessment proceedings must be quashed if the AO does not act upon the grounds for which the reassessment was initiated.

5. Merits of the Addition of ?1,80,60,000 as Deemed Dividend:
While the Tribunal primarily focused on the jurisdictional and procedural aspects, it briefly touched upon the merits. The assessee argued that no fresh advances were received during the year and that the amount represented payments to another individual. The Tribunal noted that the AO did not substantiate the applicability of Section 2(22)(e) with relevant material. However, since the reassessment itself was invalidated, the Tribunal did not make a detailed analysis on the merits of the addition.

Conclusion:
The Tribunal quashed the reassessment proceedings under Section 147 as void ab initio due to the AO's failure to act upon the grounds for which the reassessment was initiated and the lack of proper approval under Section 151. Consequently, the addition of ?1,80,60,000 under Section 2(22)(e) was held to be bad in law. The appeal of the assessee was allowed.

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