2022 (11) TMI 18 - AT - Income Tax

Reopening of assessment u/s 147 - assessment has been reopened after expiry of 4 years from the end of the relevant assessment year - Addition u/s 68 - unsecured loans obtained - HELD THAT - In the present case, return of income filed by the assessee was only processed under section 143(1) of the Act and returned income was accepted. The said return was not selected for scrutiny and thus, no order was passed under section 143(3) of the Act. However, after expiry of 4 years from the end of the relevant assessment year, notice under section 148 of the Act was issued to the assessee on 29/03/2012. As per the provisions of section 149(1)(b) where 4 years, but not more than 6 years, have elapsed, no notice under section 148 can be issued unless the income chargeable to tax which has escaped assessment is Rs. 1 lakh or more. Since, it is duty of the AO to record the reasons clearly and unambiguously and no inference can be drawn there from, thus, respectfully following the aforesaid decisions, we are of the considered view that the impugned reassessment proceedings are not in conformity with the provisions of section 149(1)(b) of the Act. As the requirement of provisions of section 149(1)(b) of the Act are not fulfilled in the present case, therefore, the reassessment proceedings under section 147 of the Act are set aside being bad in law. Accordingly, the impugned order passed by the learned CIT(A) upholding reassessment proceedings, which resulted in passing of order under section 143(3) r/w section 147 of the Act is set aside. As a result, ground raised by the assessee vide petition under Rule 27 of ITAT Rules, 1963 is allowed.

Issues Involved:
1. Deletion of addition of Rs. 13,64,200/- under Section 68 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 9,08,799/- on account of devaluation of share price.
3. Deletion of addition of Rs. 1,50,692/- on account of disallowance of salary and traveling expenses.
4. Computation of disallowance under Section 14A of the Income Tax Act, 1961 as per Rule 8D of the Income Tax Rules, 1962.
5. Deletion of disallowance of Rs. 37,46,945/- made under Section 36(1)(iii) of the Income Tax Act, 1961.
6. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.

Detailed Analysis:

1. Deletion of Addition under Section 68:
The Revenue challenged the deletion of Rs. 13,64,200/- made under Section 68 of the Income Tax Act, 1961. The learned Commissioner of Income Tax (Appeals) [CIT(A)] had deleted this addition, which was contested by the Revenue on the grounds that the unsecured loans obtained were not genuine. However, the Tribunal did not provide a separate analysis on this issue as the reassessment proceedings were found invalid.

2. Deletion of Addition on Account of Devaluation of Share Price:
The Revenue disputed the deletion of Rs. 9,08,799/- on account of devaluation of share price. The CIT(A) had deleted this addition, but the Tribunal did not delve into this issue independently due to the overarching decision on the reassessment's validity.

3. Deletion of Disallowance of Salary and Traveling Expenses:
The Revenue also contested the deletion of Rs. 1,50,692/- on account of disallowance of salary and traveling expenses. The CIT(A) had provided relief to the assessee, which was challenged by the Revenue. Similar to other issues, this was not separately analyzed by the Tribunal due to the primary decision on reassessment proceedings.

4. Computation of Disallowance under Section 14A:
The Revenue argued that the CIT(A) erred in not appreciating that the disallowance under Section 14A of the Income Tax Act, 1961 should be computed as per Rule 8D of the Income Tax Rules, 1962. The Tribunal did not address this issue independently as the reassessment proceedings were deemed invalid.

5. Deletion of Disallowance under Section 36(1)(iii):
The Revenue challenged the deletion of Rs. 37,46,945/- made under Section 36(1)(iii) of the Income Tax Act, 1961. The CIT(A) had deleted this disallowance, but the Tribunal did not provide a separate analysis due to the invalidity of the reassessment proceedings.

6. Validity of Reassessment Proceedings:
The primary issue was the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961. The Tribunal found that the reassessment proceedings were initiated based on information from the CBI, Anti-Corruption Bureau, indicating that the assessee was involved in providing accommodation entries and operating dummy concerns. However, the Tribunal noted that the reasons recorded by the Assessing Officer (AO) did not comply with Section 149(1)(b) of the Act, which mandates that the income chargeable to tax, which has escaped assessment, should be Rs. 1 lakh or more. The Tribunal cited various judicial precedents, including decisions from the Karnataka High Court and the Allahabad High Court, emphasizing that the AO must clearly state the amount of income that has escaped assessment.

The Tribunal concluded that the reassessment proceedings were not in conformity with the provisions of Section 149(1)(b) and, therefore, were invalid. Consequently, the reassessment proceedings and the order passed under Section 143(3) read with Section 147 were set aside.

Conclusion:
The Tribunal allowed the petition under Rule 27 of ITAT Rules, 1963, filed by the assessee, and set aside the reassessment proceedings as being bad in law. As a result, the grounds raised by the Revenue on merits were dismissed as academic in nature. The appeal by the Revenue was dismissed, and the petition by the assessee was allowed.

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