2024 (5) TMI 488 - AT - Income Tax

Reassessment under Section 147 invalid without Section 151 approval, Section 68 addition deleted after proper verification of share subscribers

ITAT Kolkata held that reassessment u/s 147 was invalid due to lack of competent authority approval u/s 151, despite information being received from the ... Revision u/s 263 - setting aside assessment order passed u/s 147 of the Act for de-novo assessment - HELD THAT:- We note that for reopening of the assessment u/s 147 r.w.s. 148 of the Act, the Assessing Officer must have reasons to believe that the income of the assessee for the relevant assessment year has escaped assessment. The said reasons to believe could be based on any tangible material or information received by the Assessing Officer. In this case, the letter written by the assessee to the AO was nothing else, but an information received by the Assessing Officer of escapement of income of the assessee for the year under consideration. However, merely because the information of escapement of income was received from the assessee itself that itself did not give any jurisdiction to the AO to surpass the mandate of the statutory provisions as provided u/s 151 of the Act to get the necessary approval from the competent authority before issuing notice u/s 148 of the Act. Therefore, the reopening of the assessment u/s 147 r.w.s. 148 of the Act in this was bad in law for want of jurisdiction of the Assessing officer to reopen the assessment without approval of competent authority u/s 151 of the Act. Thus since the base order passed u/s 147 r.w.s. 148 of the Act was bad in law being without jurisdiction for want of approval of the competent authority, therefore, the subsequent proceedings/orders which were on the basis of the said order passed u/s 147 of the Act are also held as bad in law. In view of the above discussion, the assessee succeeds on the legal ground. PCIT exercised his revision jurisdiction in respect of order passed u/s 147 wherein the issue of share subscriptions was not the subject matter of reassessment - As assessment was reopened on a particular issue of the escapement of income earned by the assessee as profit on share dealing. The Assessing Officer examined that particular issue and made addition in respect of the said profits earned by the assessee. The issue relating to any other transaction i.e. share application money received by the assessee, was not the subject matter of the reassessment proceedings. Since, the issue of share application money on which the ld. PCIT has sought to revise the order was not the subject matter of the reassessment order, therefore, in the light of the decision of Alagendran Finance Ltd [2007 (7) TMI 304 - SUPREME COURT] it cannot be said that the reassessment order passed by the Assessing Officer was erroneous, therefore, the revision jurisdiction exercised by the ld. PCIT, in this case, cannot be held to be justified. In view of the discussion, since, the revision order passed by the Ld. PCIT u/s 263 of the Act was without jurisdiction, therefore the consequential assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 263 of the Act was also not sustainable. Addition u/s 68 - assessee had failed to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction - Assessing Officer to get the identity and creditworthiness of the said share subscribers verified, had issued notices u/s 133(6) of the Act, which were duly complied with by all the share subscribers during the remand proceedings and they furnished the necessary details. Not only this, the Assessing Officer also issued summons u/s 131 of the Act and all the directors of the share subscribing companies personally appeared and their statements were recorded. Copies of the bank accounts of all the share subscribers were also furnished and all the share subscribers duly confirmed that they had made share subscription in the assessee company. The ld. CIT(A) has also noted that the Assessing Officer, himself, has admitted that the directors of the share applicant companies and source of such investor companies belonged to the same family and he produced the family tree to prove that funds were coming from the same companies with common family members. The ld. CIT(A) observed that this fact, itself, establishes that the share subscribers were interested parties for promotion of the assessee company and therefore, justification of premium was also proved. CIT(A) had discussed the creditworthiness and financials of each of the 9 shareholders and has also observed only a part of their net worth was invested by the share subscribers into assessee company. The ld. CIT(A) has also relied various case laws including that of Sagun Commercial P Ltd. [2011 (2) TMI 1555 - CALCUTTA HIGH COURT] CIT(A), thereafter, impugned order has concluded that the identity, creditworthiness and genuineness of the transactions were duly established in this case. Decided in favour of assessee. Issues Involved:1. Validity of the reopening of assessment u/s 147 r.w.s. 148 of the Income Tax Act.2. Validity of the revision jurisdiction exercised by the CIT u/s 263 of the Act.3. Merits of the addition made by the Assessing Officer regarding the share application money.Summary:Issue 1: Validity of the Reopening of Assessment u/s 147 r.w.s. 148 of the ActThe assessee argued that the reopening of the assessment u/s 147 r.w.s. 148 of the Act was invalid due to the absence of approval from the competent authority u/s 151 of the Act. The Tribunal noted that the reopening was based on information provided by the assessee itself, but the Assessing Officer failed to obtain the mandatory approval u/s 151. The Tribunal emphasized that jurisdictional defects can be challenged in collateral proceedings and cited several case laws supporting this view. Consequently, the reopening of the assessment was deemed bad in law, rendering the subsequent reassessment order non-est.Issue 2: Validity of the Revision Jurisdiction Exercised by the CIT u/s 263 of the ActThe Tribunal considered the assessee's argument that the CIT's revision jurisdiction u/s 263 was invalid because the reassessment order u/s 147 did not address the issue of share application money. The Tribunal referred to the decision of the Hon'ble Supreme Court in 'CIT vs. Alagendran Finance Ltd.', which held that the period of limitation for revision would commence from the date of the original assessment if the reassessment did not cover the specific issue. The Tribunal concluded that the CIT's revision jurisdiction was without basis since the reassessment order was non-est, making the subsequent order passed u/s 143(3) r.w.s. 263 also unsustainable.Issue 3: Merits of the Addition Made by the Assessing Officer Regarding the Share Application MoneyOn the merits, the Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 10,61,00,000/- made by the Assessing Officer. The CIT(A) had thoroughly examined the evidence, including the identity, creditworthiness, and genuineness of the share subscribers. The CIT(A) noted that all share subscribers responded to notices u/s 133(6) and u/s 131, provided necessary documents, and their directors appeared before the Assessing Officer. The Tribunal found no reason to interfere with the CIT(A)'s well-reasoned order and dismissed the revenue's appeal.Conclusion:The Tribunal allowed the assessee's cross objections, declaring the reopening of the assessment and the revision jurisdiction exercised by the CIT as invalid. The revenue's appeal on the merits of the addition was dismissed, upholding the CIT(A)'s order.