2021 (8) TMI 419 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - insertion of Explanation 3 to Section 147 - HELD THAT - A perusal of the assessment order shows that the two additions made by the Assessing Officer while completing assessment order were on the basis of the detailed investigations carried out by the Investigation Wing which came to the notice of the Assessing Officer during scrutiny assessment proceedings. It can be seen that the computation of assessed income is totally devoid of any addition which was the basis for the Assessing Officer to believe that income has escaped assessment i.e. ₹ 95 lakhs. This insertion of Explanation 3 to Section 147 of the Act has been examined and interpreted by the Hon'ble High Court of Bombay in the case of CIT Vs. Jet Airways I Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY and held that Assessing Officer has accepted the objections of the assessee, and has not assessed or reassessed the income, which was the basis of the notice. Therefore, in light of the judgment of the Hon'ble High Court of Bombay supra it would not be open to the Assessing Officer to assess income under some other issue independently. - Decided in favour of assessee.

Issues Involved:

1. Legality of the reopening of assessment under Section 148 of the Income Tax Act.
2. Justification of the addition of ?24,20,00,000 under Section 68 of the Income Tax Act.
3. Justification of the addition of ?48,40,000 on account of alleged commission paid for procuring accommodation entries.

Issue-wise Detailed Analysis:

1. Legality of the Reopening of Assessment under Section 148 of the Income Tax Act:

The primary issue is whether the reopening of the assessment by the Assessing Officer (AO) under Section 148 was justified. The AO had reasons to believe that income amounting to ?95,00,000 had escaped assessment based on information from the Deputy Director of Income Tax (Inv.), Kolkata. This information indicated that the assessee had received ?95,00,000 from certain entities involved in layering funds. The AO recorded these reasons and initiated reassessment proceedings.

The Tribunal analyzed the reasons recorded for reopening and noted that the AO had sufficient grounds to believe that income had escaped assessment. However, the Tribunal observed that the AO, while completing the assessment, did not make any addition based on the initial reason for reopening (i.e., the ?95,00,000). Instead, the AO made additions based on other issues that came to notice during the reassessment proceedings.

The Tribunal referred to Explanation 3 to Section 147, which allows the AO to assess any other income that comes to notice during reassessment proceedings, even if it was not part of the initial reasons for reopening. However, the Tribunal emphasized that this provision does not permit the AO to ignore the primary reason for reopening and solely assess other issues.

Citing the Bombay High Court's judgment in CIT Vs. Jet Airways [I] Ltd., the Tribunal held that if the AO does not assess or reassess the income that was the basis for reopening, it is not permissible to assess other issues independently. Since the AO did not assess the ?95,00,000, the Tribunal found the reopening of the assessment to be invalid.

2. Justification of the Addition of ?24,20,00,000 under Section 68 of the Income Tax Act:

The AO added ?24,20,00,000 to the assessee's income under Section 68, which pertains to unexplained cash credits. This amount included share capital, share premium, and share application money received by the assessee. The AO held that the assessee failed to discharge the onus of proving the genuineness of these transactions.

Given the Tribunal's decision to quash the assessment order due to the invalid reopening, the Tribunal did not delve into the merits of this addition. However, it is implied that the addition under Section 68 would not stand since the entire reassessment was invalidated.

3. Justification of the Addition of ?48,40,000 on Account of Alleged Commission Paid for Procuring Accommodation Entries:

The AO also added ?48,40,000 to the assessee's income, alleging that this amount was paid as commission for procuring accommodation entries. This addition was based on information and investigations carried out by the Investigation Wing.

Similar to the addition under Section 68, the Tribunal did not examine the merits of this addition due to the quashing of the reassessment order. The invalidation of the reassessment proceedings rendered this addition moot.

Conclusion:

The Tribunal quashed the assessment order dated 28.12.2016 framed under Section 147 read with Section 143(3) of the Income Tax Act, as the AO did not assess the income that was the basis for reopening the assessment. Consequently, the appeal of the assessee was allowed, and the Tribunal did not address the merits of the additions made by the AO. The order was pronounced in the open court on 29.07.2021.

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