2021 (5) TMI 790 - AT - Income Tax

Challenges to Income Tax re-assessment under Section 68: Procedural irregularities, related investments, comprehensive evidence consideration

DCIT, CC-5 (1), Mumbai Versus M/s. Auster Properties Ltd. And (Vice-Versa)

The case involved challenges to the validity of re-assessment proceedings initiated after a four-year period, focusing on additions of unexplained cash ... Validity of re-assessment proceedings - approval of the ld. Pr. Commissioner of Income Tax (PCIT) u/s.151 of the Act was sought in the instant case in a mechanical manner - assessee had filed additional evidences - HELD THAT:- Additional evidences were filed by the assessee before us for the first time and admittedly these documents were not available before the ld. CIT(A) while adjudicating the ground raised regarding challenging the validity of re-assessment proceedings. We feel that these additional evidences go to the root of the matter for deciding the legal issue of validity of re-assessment proceedings. Hence, we deem it fit and appropriate to admit these additional evidences and since these evidences were not placed before the ld. CIT(A), we deem it fit and appropriate, to remand these appeals to the file of the ld. CIT(A) to decide the issue challenging the validity of reopening of assessment by considering these evidences, in accordance with law - the appeals are remanded back to the file of the ld. CIT(A) only for the limited purpose of adjudication of the legal issue of challenging the validity of re-assessment proceedings. But since, the validity of re-assessment proceedings and challenging the addition on merits are to be considered together for the purpose of better administration and convenience, we deem it fit to remand these appeals to the file of the ld. CIT(A) for denovo adjudication Issues Involved:1. Validity of re-assessment proceedings challenging protective additions.2. Addition of unexplained cash credit under section 68 of the Income Tax Act.3. Deletion of protective additions and commission.4. Common Directors and related investment activities of various companies.5. Approval process under section 151 of the Act.6. Admission of additional evidences challenging the initiation of re-assessment proceedings.Issue 1: Validity of re-assessment proceedings challenging protective additions:The case involved a challenge to the validity of re-assessment proceedings initiated after a four-year period from the end of the relevant assessment year. The Assessing Officer (AO) had made an addition of Rs. 2,50,00,000 on account of unexplained cash credit under section 68 of the Act. The Commissioner of Income Tax (Appeals) (CIT(A)) deleted the protective additions but directed the addition to be made on a substantive basis in the hands of another entity. The AO's reasons for reopening the assessment were provided to the assessee, who raised objections that were rejected. The CIT(A) dismissed the grounds challenging the validity of re-assessment proceedings but granted relief to the assessee on the merits of the addition.Issue 2: Addition of unexplained cash credit under section 68 of the Income Tax Act:The AO added Rs. 2,50,00,000 on account of unexplained cash credit under section 68 of the Act in relation to share application money received by the assessee company. This addition included an amount already added in a previous assessment. Additionally, a commission of Rs. 7,50,000 was added on the initial amount. The CIT(A) deleted the protective addition but directed the substantive addition to be made in the hands of another entity, thereby also deleting the commission in the assessee's hands.Issue 3: Deletion of protective additions and commission:The CIT(A) deleted the protective addition made by the AO in the sum of Rs. 2,50,00,000 but directed a substantive addition in the hands of another entity. The commission of Rs. 7,50,000 was also directed to be deleted in the assessee's hands. The assessee challenged the validity of re-assessment proceedings and the addition on merits, with the CIT(A) dismissing the former and granting relief on the latter.Issue 4: Common Directors and related investment activities of various companies:During a search and seizure action, it was found that multiple companies, including the assessee company, were operating from the same premises and had shown investment activities. Common directors were identified among these companies, who were related and belonged to the same family. It was discovered that these companies had received bogus share application money from concerns operated by another individual during the search action.Issue 5: Approval process under section 151 of the Act:The assessee argued that the approval of the Principal Commissioner of Income Tax under section 151 of the Act was sought in a mechanical manner without proper satisfaction being recorded. The assessee relied on a previous Tribunal decision to support this argument, highlighting the procedural irregularity in seeking approval.Issue 6: Admission of additional evidences challenging the initiation of re-assessment proceedings:The assessee submitted additional evidences challenging the initiation of re-assessment proceedings, which were not available before the CIT(A) during the initial adjudication. The Tribunal deemed it appropriate to admit these additional evidences and remanded the case back to the CIT(A) for a de novo adjudication of the legal issue concerning the validity of re-assessment proceedings. This decision aimed to ensure a comprehensive consideration of all relevant evidence for a just outcome.This detailed analysis of the judgment provides insights into the various legal issues addressed, including challenges to the validity of re-assessment proceedings, additions under section 68 of the Act, common directorships, approval processes, and the admission of additional evidences for a more thorough examination of the case.