2021 (9) TMI 738 - AT - Income Tax

Reopening of assessment u/s 147 - escapement of income of the capital gain generated on the sale of the property - addition made by the AO, u/s.56(2)(vii) as amount received without consideration - HELD THAT - On perusal of the above reasons, it is transpired that there was the property which was sold by the assessee but the assessee failed to disclose the income under the head capital gain on account of transfer of such property. Accordingly, the AO formed his reason to believe that income of the assessee has escaped assessment. Moving further, we find that the AO in the assessment framed under section 147 read with section 143(3) of the Act has made the addition for the money received by the assessee from the company namely M/s Multi Industrial Ceramic Pvt Ltd amounting to ₹ 40 Lakh. The basis/reason on which the proceedings were initiated under section 147 of the Act, there was no addition made by the AO qua to that reason. Thus, the basic premise on which the satisfaction was recorded by the AO for initiating the proceedings under section 147 of the Act i.e. escapement of income on account of sale of the property does not survive. Once the basic foundation goes, then there cannot be any addition on account of any other income which has come to the notice of the AO during the proceedings under section 147 of the Act. In holding so, we draw support and guidance from the judgment of CIT vs. Mohmed Juned Dadani 2013 (2) TMI 292 - GUJARAT HIGH COURT Thus proceedings initiated under section 147 of the Act is invalid as there was no escapement of income in the hands of the assessee on account of sale of the property - Decided in favour of assessee.

Summary

Issues:
1. Addition of income from other sources.
2. Validity of assessment proceedings under section 147 of the Income Tax Act.

Issue 1: Addition of Income from Other Sources
The assessee appealed against the addition of ?40,00,000 as income from other sources by the Assessing Officer (AO) under section 56(2)(vii) of the Income Tax Act. The AO contended that the amount was received without consideration from a company. The assessee argued that the proceedings under section 147 were initiated based on the escapement of income from capital gains on the sale of property, which did not result in any addition. The AO's addition under a different head was challenged by the assessee. The AO's decision was supported by the Commissioner of Income Tax (Appeals). However, the Tribunal found that since the basis for initiating proceedings under section 147 did not lead to any addition, the subsequent addition under a different head was invalid. Citing a relevant judgment, the Tribunal held that if no addition was made based on the reasons for reopening the assessment, additional grounds for addition should not be entertained. Consequently, the Tribunal quashed the assessment proceedings and allowed the assessee's appeal on this ground.

Issue 2: Validity of Assessment Proceedings under Section 147
The assessee raised an additional ground challenging the validity of assessment proceedings under section 147 of the Income Tax Act. The assessee contended that the notice issued by the Assessing Officer under section 148 was illegal and should be quashed. The Tribunal admitted this additional ground based on the Supreme Court judgment allowing legal issues to be raised at any stage. The AO initiated proceedings under section 147 due to alleged income escapement from the sale of property, but the subsequent addition was related to money received from a company. The Tribunal found that as no income escapement occurred as per the reasons for initiating section 147 proceedings, the entire assessment was deemed invalid. Consequently, the Tribunal allowed the additional ground challenging the validity of the assessment proceedings and dismissed the assessee's merit-based issues as infructuous.

In conclusion, the Tribunal partly allowed the assessee's appeal, quashing the assessment proceedings under section 147 and dismissing the merit-based issues as infructuous. The decision was based on the invalidity of the proceedings due to the lack of income escapement as per the reasons for initiating the assessment.