Recent cases under section 147 & section 148
Author
CA. AJAY KUMAR AGRAWAL
His email id is ajay@caajaykagrawal.com
SUMMARY OF RECENT CASES UNDER SECTION 147 /148 OF INCOME TAX ACT
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MADRAS HIGH COURT
PALANIAMMAL PALANIAPPAN VERSUS INCOME TAX OFFICER, WARD 2 (2) , CIRCLE-2, SALEM No.- WP No.12793 of 2018 And WMP No.15016 of 2018 Dated.- April 26, 2021
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Reopening of assessment u/s 147 – assessee submitted that notice issued beyond the period of limitation of six years from the end of the relevant assessment year – HELD THAT:- In view of these facts and circumstances, if at all the ground regarding the limitation exists, then the petitioner is at liberty to raise the same before the Authority Competent and certainly not before this Court.
The notice under Section 148 of the Act, which is impugned in the present writ petition, reveals that the respondent has reason to believe that the income chargeable to tax for the assessment year 2011-2012 has escaped assessment within the meaning of Section 147 of the Act. Thus the procedures as contemplated in case of GKN Driveshafts (India) Ltd [2002 – SUPREME COURT] is to be followed for the purpose of further adjudication and this Court is of an opinion that the present writ petition is premature. Writ against a notice is not entertainable in a routine manner. Undoubtedly, a notice can be challenged if the authority issued such notice has no competence of jurisdiction or if the notice is issued beyond the period of limitation. In the present case, the respondent has filed certain documents to establish that the notice was issued within the period of limitation and an additional typed set of paper is also filed. Thus, the petitioner is at liberty to raise the point of limitation before the authority with relevant documents and evidences and the Authority Competent is well within his power to adjudicate the same and take decision on merits and in accordance with law. WP dismissed.
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| 2 | MADRAS HIGH COURT
M/S. SANMINA-SCI TECHNOLOGY INDIA PRIVATE LIMITED VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 6 (1) , CHENNAI, PRINCIPAL COMMISSIONER OF INCOME TAX, CHENNAI-6 No.- W.P. Nos.954 of 2020 & 35909 of 2019 WMP. No.36831 & 36829 of 2019, 1162 & 1161 of 2020 Dated.- March 12, 2021
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Reopening of assessment u/s 147 – notice beyond the period of four years as stipulated in Section 147 – excess claim of deduction under Section 10AA – HELD THAT:- The provisions of Section 147 prescribe a limitation of four years normally, extended to six years in cases where an order of scrutiny has been passed at the first instance. In addition, the petitioner should have defaulted in filing of the return, or the proceedings for re-assessment should be based on the failure of the petitioner to have made full and true disclosure of income.
These conditions are not satisfied in the present case, seeing as the return of the petitioner has, admittedly, been filed within time and the disclosure of the petitioner is also not in question. In fact, the original order passed under Section 143(3) proceeds to examine the claim of exemption under Section 10AA, minutely. No error is pointed out in the returns or annexures filed by the petitioner or any of the details filed at the time of assessment and in such an instance, the proceedings for assessment, initiated beyond a period of four years, is barred by limitation. It appears that the Assessing Officer had lost sight of the issue now raised. Explanation 2(c) to Section 147 will not come to the aide of the relevance as, while the income chargeable has been made subject to excessive relief, the explanation cannot override the statutory prescription of limitation as set out in the proviso to Section 147. The purpose of the Explanation is merely to explain the scope of re-assessment as set out in the statutory provision and not to expand on or tinker with the limitation set out thereunder. – Decided in favour of assessee.
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| 3 | GUJARAT HIGH COURT
NISHANT VILASKUMAR PAREKH VERSUS THE INCOME TAX OFFICER WARD 1 (3) No.- R/SPECIAL CIVIL APPLICATION NO. 21929 of 2019 Dated.- May 13, 2021
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Reopening of assessment u/s 147 – penny stock transaction made by assessee – HELD THAT:- Assessing officer was satisfied with regard to the information and other materials on record, he formed an opinion that, the income has escaped assessment. Therefore, when the information was specific with regard to transactions of penny stock entered into by the assessee with the Tuni Textiles Ltd., and the Assessing Officer had applied his independent mind to the information and upon due satisfaction, led to form an opinion that, the amount of claim of LTCG claimed by the assessee is chargeable to tax has escaped assessment, which facts suggests that, there is live link between the material which suggested escapement of income and information of belief. Under the circumstances, we are satisfied that, there was enough material before the Assessing Officer to initiate proceedings under Section 147 of the Act.
We do not agree with the contention that, merely on the information, the Assessing Officer has recorded the reasons and on the basis of borrowed satisfaction, he formed an opinion with respect to the income chargeable to tax has escaped assessment. As examined the issue of valid sanction as raised by the learned counsel for the writ applicant. We take the notice of the fact that, the copy of the approval has been provided to the assessee at the stage of passing the order of disposing the objections raised by the assessee. Therefore, it is evident that, in the instant case, the authorities concerned have given approval after due application of mind and expressed their satisfaction with regard to the reasons recoded for reopening of the assessment. No hesitation to hold that it could not be said to have that there was no material or grounds before the Assessing Officer and the assumption of jurisdiction on the part of the Assessing Officer under Section 147 of the Act to reopen the assessment by issuing impugned notice under Section 147 of the Act is without authority of law, which render into the notice unsustainable. Therefore, the assessee failed to make out a case.
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| 4 | GUJARAT HIGH COURT
DIVYA JYOTI DIAMONDS PRIVATE LIMITED VERSUS INCOME TAX OFFICER
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Reopening of assessment u/s 147 – non disposing of objections properly – HELD THAT:- AO while disposing off the preliminary objections filed by the writ applicant against the reasons recorded for reassessment, has not properly dealt with the objections. We take notice of the fact that, while disposing the objections, the AO has concluded that the objections made by the assessee are duly considered and not acceptable. AO has observed that the transactions made by the assessee company with Rashmi Diamond were bogus entries and the fact of difference in respect of credit entries in the bank account were not brought into knowledge of the AO during the course of assessment proceedings.
AO failed to take note of various objections filed against the reasons recorded. No proper application of mind to the objections raised by the applicant and it could not be said that the objections having been disposed of by passing reason order. In the case of GKN Driveshaft [2002 – SUPREME COURT] as laid down the procedure as to the manner of dealing with the objections raised against the notice under Section 148 of the Act. The Supreme Court has held that when a notice under Section 148 of the Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notice. It was further held that the AO is bound to furnish reasons within a reasonable time and upon receipt of reasons, the noticee is entitled to file an objection to issuance of notice and AO is bound to dispose of the same by speaking order. In the case of SABH Infrastructure Ltd [2017 – DELHI HIGH COURT] has held that the exercise of considering the assessee’s objections to the reopening of the assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objection should deal with each objection and give proper reason for conclusion. The order should reflect proper application of mind. Applying the dictum as laid down by the Supreme Court in the case of GKN Driveshaft [2002 – SUPREME COURT] we are of the view that disposing of the objections raised by the assessee against the reasons recorded before issuance of notice u/s 148 though not part of the statutory requirement, as prescribed under the Act, however, same is guided by the directions issued by the Apex Court. The specific objections raised by the writ applicant, produced on record at page-33 to 45 to this writ application, have not been properly dealt with by the AO. The lapse is in clear violation of the decision of the Apex Court. We are of the view that the AO has passed the order mechanically and without application of his mind and not in a meaningful manner. Writ application succeeds in part. The order disposing of the objections filed by the assessee dated 18.11.2019 at Annexure – A, page-18 to this petition is hereby set aside and the matter is remitted to the AO. The AO shall take into consideration the objections raised by the assessee and pass a fresh speaking order in accordance with law.
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| 5 | ITAT DELHI
DUGGAL ESTATES PVT. LTD. VERSUS INCOME TAX OFFICER, WARD : 1 (2) FARIDABAD. AND DUGGAL & SONS BUILDWELL PVT. LTD., VS. INCOME TAX OFFICER, WARD : 1 (2) FARIDABAD.
No.- ITA. No. 3395/DEL/2019 ITA. No. 3396/DEL/2019 Dated.- May 24, 2021
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Validity of reopening of assessment u/s 147 – Reasons for initiation of proceedings under section 147 – HELD THAT:- AO was not specific as to on what basis the Assessing Officer has the reason to believe that the income of the assessee to the tune of 1 crore has escaped assessment. In fact, in one para the Assessing Officer is observing the assessee as accommodation entry provider and in next, the assessee is treated as the receiver of the share application money. But the basis for which is not elaborated and there is contradiction in the reasons given by the Assessing Officer.
Besides this the Assessing Officer has not disposed off the objections filed by the assessee prior to concluding of the assessment proceedings, but has given a general finding in the Assessment order itself which is not in consonance with the provisions of the Income Tax statute relating to disposal of the objections by the Revenue authorities. In the present case, the Assessing Officer has not taken proper cognizance of the direction of the Hon’ble Supreme Court in case of GKN driveshaft India Ltd versus ITO [2002 – SUPREME COURT]. Thus, the assessment becomes a nullity and does not survive as the Assessing Officer has not passed a speaking order of disposal of the objections filed by the assessee. The assessment also becomes void-ab-intio as the reasons recorded are also not in consonance with the actual escapement of the income of the assessee. Thus, the assessment order itself is null and void-ab-intio as the reassessment proceedings becomes invalid. Decided in favour of assessee.
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| 6 | ITAT HYDERABAD
MEENA LAHOTI, SECUNDERABAD VERSUS INCOME TAX OFFICER, WARD-6 (2) , HYDERABAD, ASST. COMMISSIONER OF INCOME TAX, CIRCLE-15 (1) , HYDERABAD No.- ITA No. 795/Hyd/15, 77/Hyd/18 Dated.- May 19, 2021
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Gain on sale of land – capital gain or business receipts – plot of land purchased followed by the development agreement – transfer of asset u/s 2(47) – HELD THAT:- As Learned counsel first of all stated very fairly that there is no dispute raised at the assessee’s behest regarding correctness of the both the lower authorities’ action treating the impugned development agreement dt.15-08-2004 with M/s.Ashwini Abodes for construction of flats and to receive the developed area to this effect having ratio of 44:56; party-wise; respectively as amounting to transfer u/s.2(47)(v) of the Act. We thus affirm the learner lower authorities’ action to this effect.
LTCG or Business income – As assessee’s development agreement that she had herself not undertaken any development activity indicating the adventure component which in fact had been borne by the concerned developer only. We also wish to highlight the fact that the parcel of land has remained the same in AYs.2005-06 to 2008-09 wherein the assessee has herself accepted the learned lower authorities’ action treating the developed area as the capital asset only giving rise to long term capital gains. We rather note that the assessee has claimed Section 54 deduction of ₹ 69,27,420/- AY.2008-09 as well. We thus hold that the assessee’s divergent stand in treating herself as engaged in adventure in real estate development in AY.2005- 06 and capital gains in AY.2008-09 does not deserve to the concurred with. We therefore decline her argument that the plot of land purchased on 15-08-2004 followed by the development agreement within a very short span of time i.e., 19-10-2004 could give rise to huge profits in the nature of business income only.
Reopening of assessment – It is an admitted fact that their lordship’s decision herein nowhere dealt with an instance of double addition per se as is the assessee’s case before us.We therefore restore the instant issue back to the Assessing Officer to frame his necessary computation afresh after ensuring that whatever the assessee’s income has been assessed in preceding assessment year(s) would not be treated as her income escaping assessment pertaining to AY.2008-09.
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| 7 | ITAT DELHI
SHRI SHYAM SUNDER INFRASTRUCTURE (P) LTD. [FORMERLY KNOWN AS M/S. SHALOM EXIM (P) LTD., AND THEN AS MAMRAM DEVELOPERS P. LTD.,] VERSUS THE INCOME TAX OFFICER, WARD – 8 (3) , NEW DELHI.
No.- ITA.No.2106/Del./2013 Dated.- May 19, 2021
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Reopening of assessment u/s 147 – Addition u/s 68 – unexplained share capital – assessee not explaining the genuine share application money received from the Investor Companies – HELD THAT:- AO recorded wrong, incorrect and non-existing reasons in the reasons recorded for reopening of the assessment and has merely relied upon the report of Investigation Wing without any verification. The information received by the A.O. is vague and do not lead to formation of belief that any income chargeable to tax has escaped assessment. In these circumstances, it was the duty of the A.O. to verify the facts before coming into the conclusion that there is an escapement of income on account of credit entries received in the Bank A/c of the assessee.
A.O. even did not verify the information received from the Investigation Wing and even did not verify the name of the assessee. Thus, the A.O. recorded incorrect and wrong reasons for reopening of the assessment and did not apply his mind to the facts of the case before recording reasons for reopening of the assessment. Even the Sanctioning Authority has not applied his mind to the conclusion drawn by the A.O. based on specific material on record which clearly reveal that reasons recorded by the A.O. are wrong, incorrect and based on no evidence. It is, therefore, clear case of non-application of mind by the A.O. at the time of recording reasons for reopening of the assessment.
Addition u/s 68 – Non-production before the A.O. would not be a ground to make the addition against the assessee. Since the initial onus to prove genuine credits received by assessee from the Investor Companies have been duly discharged by the assessee and no material have been produced by the A.O. to rebut the documentary evidences filed by the assessee, therefore, there were no reason for the authorities below to make any addition against the assessee. Originally assessee company was incorporated on 27.02.2003 and the financial year ended on 31.03.2003 relevant to assessment year 2003-2004 under appeal. It is difficult to believe that during a period of about one month assessee would have earned such a huge unaccounted money. Since it is the first year of the business and Incorporation of the Assessee-Company and share application money is received at the end of the financial year after Incorporation of the Assessee-Company, therefore, there were no justification to held that assessee received unexplained share application money. Assessee produced sufficient documentary evidences before A.O. to prove ingredients of Section 68 of the I.T. Act, 1961. The Investors have directly confirmed making investment in assessee company in reply to the notice under section 133(6) of the I.T. Act, 1961 at the appellate stage. Therefore, the assessee has discharged its initial onus to prove the identity of the Investor Companies, their creditworthiness and genuineness of the transaction. No evidence have been brought on record by the A.O. if assessee paid any commission to any person of ₹ 1,96,000/-. Therefore, there is no justification to make both the additions against the assessee. In view of the above discussion, we set aside the Orders of the authorities below and delete the addition – Decided in favour of assessee.
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| 8 | ITAT DELHI
M/S VSR ENTERPRISES VERSUS ITO, WARD-27 (4) , NEW DELHI No.- ITA No.1855/Del/2016 Dated.- May 18, 2021
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Reopening of assessment u/s 147 – Addition u/s 68 – reassessment on basis of information received from REIC through Income Tax Officer, Ward 43(4), New Delhi – HELD THAT:- As relying on assessee’s own case . [2021 – ITAT DELHI] in absence of any contrary material brought to our notice, we hold that the Assessing Officer in the instant case has recorded incorrect/wrong and non-existing reasons in the reason for reopening of the assessment and has not applied his mind to the information received from REIC, Ward 43(4)(New Delhi). Therefore, the reopening of the assessment is illegal and bad in law and is liable to be quashed. Therefore, the additional grounds raised by the assessee are allowed. |
| 9 | ITAT DELHI
ACIT CIRCLE-45 (1) NEW DELHI. VERSUS M/S. K.S. CHAWLA & SONS [HUF] AND (VICE-VERSA) No.- ITA. 2724/DEL/2015 C. O. No. 456/Del/2015 in ITA. 2724/DEL/2015 Dated.- May 18, 2021
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Assessment u/s 147 or 153C – search from the premises of a 3rd party – Unexplained Money addition under Section 69A – HELD THAT:- In the present assessee’s case, search & seizure action u/s 132 of the Act was carried out on 15.10.2009 in the premises of Mr. Abhinav Arora and Mrs. Ranju Arora. Consequently, the Assessing Officer initiated reassessment proceedings u/s 147 of the Act relying upon the information received based on the certain documents found during the course of search from the premises of a 3rd party i.e. Mr. Abhinav Arora and Mrs. Ranju Arora.
Thus, the assessment is based upon the documents found during the course of search of 3rd party premises, but that can be made only u/s 153C of the Act. The provision of Section 153C of the Act is attracted when there are any incriminating documents pertaining to the assessee which are found during the search of 3rd party premises. The contention of the Ld. AR that the provisions of Section 153C of the Act are non-obstantive provisions and the same specifically excludes the operation of Sec. 147 of the Act, therefore, the Assessing Officer in the present case has grossly erred in invoking the provisions of Sec. 147, instead of 153C of the Act appears to be correct in legal parlance. When any incriminating documents are found Section 153C is invoked and the same has to be applied by the Revenue authorities as Section 147 has its own separate footing for invoking the provisions. If Sec. 147 is permitted on the basis of documents found in the course of search of 3rd party premises, then the provisions of Sec. 153C of the Act would become redundant. As decided in ARUN KUMAR KAPOOR [2012 ITAT AMRITSAR] held that the notice issued u/s 148 of the Act and the consequent assessment framed u/s 147 of the Act is void-ab-initio as in the instant case, assessment based upon incriminating documents found during the course of search of 3rd party premises can be made u/s 153C of the Act. Thus, the assessment in the present case itself becomes null and void. Where the basis for making the addition in the hands of the buyer has been held as inadmissible and unsustainable, the addition made in the hands of the assessee HUF solely relying on the additions in the hands of the buyer does not sustain and the same has to be deleted, particularly, in view of the fact that the said valuation report has not been found from the possession of the assessee. Besides this, the report of the valuation officer found during search does not specifically set out that differential amount has been received by the assessee. Thus, it can be clearly established that the addition made on the basis of valuation report does not sustain and deserved to be deleted. Therefore, we are allowing the cross objections of the assessee. Since we have allowed the additional grounds of the cross objections and held that the assessment itself is null and void, the appeal of the revenue which is on the merit of the addition does not sustain. Hence, appeal of the Revenue is dismissed.
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| 10 | ITAT MUMBAI
M/S. SETH CARBON AND ALLOYS PRIVATE LIMITED VERSUS DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2 (3) , MUMBAI No.- ITA No.2865/Mum/2019 And ITA No.2866/Mum/2019, ITA No.2868/Mum/2019, ITA No.2864/Mum/2019 Dated.- May 17, 2021
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Validity of reopening of assessment u/s 147 – HELD THAT:- During the course of search proceedings in the case of Shirish Chandrakant Shah, statements were recorded from various persons on oath. Similarly statement of Shri Shirish Chandrakant Shah was recorded u/s.132(4) of the Act on 13/04/2013 wherein he had accepted that he is engaged in providing accommodation entries against receipt of cash. In the said statement, he also explained the modus operandi followed by him in providing various accommodation entries to various people. From the aforesaid statements, AO observed that M/s. Avance Technologies Ltd.and M/s. Prabhav Industries Ltd., were controlled and managed by the Shri Shirish Chandrakant Shah and these companies are bogus entities from whom the assessee has received share application money against cash.
Since these evidences were gathered by the ld. AO pursuant to search and seizure operation conducted in the case of Shri Shirish Chandrakant Shah, the said information constitutes tangible information and accordingly, assessment of the assessee was duly reopened. In the instant case, the reopening has been made within four years from the end of the relevant assessment year. We hold that tangible information was very much available with the ld. AO to trigger the process of reopening and hence, the reopening is held to be valid and accordingly, the ground No.1 raised by the assessee challenging the validity of reopening of assessment is dismissed. Unexplained cash credit u/s.68 – Capital share gain with share premium – All the transactions are routed through account payee cheques in the regular banking channels. The justification for premium was also duly made by the assessee by giving explanation in writing. This clearly proves the genuineness of the transactions. We find that the ld. AO after receiving all the information in the form of various documentary evidence remained silent. AO did not resort to make any verification in any manner whatsoever either by issuing notice u/s.133(6) of the Act or issuing summons u/s.131 of the Act to the concerned shareholders in order to exmine the veracity of such documents. We find that the ld. AO without resorting to any sort of verification in the manner known to law, had simply proceeded to make addition in the hands of the assessee by treating the receipt of share capital and share premium as accommodation entries merely by relying on the statement recorded from Shri Shirish Chandrakant Shah and his key employess. In any case we also find that the statement of Shri Shirish Chandrakant Shah and his key employees were never furnished to the assessee for its rebuttal. Hence, the said statements cannot be relied upon as sole basis for framing addition in the hands of the assessee. We hold that the addition made u/s.68 of the Act in the case of the assessee is merely based on surmise and conjecture and absolutely without any basis and absolutely without any verification in the manner known to law. Accordingly, we have no hesitation in deleting the addition made u/s.68 of the Act in the case of the assessee. Receipt of share capital and share premium are not accommodation entries, there cannot be any addition that could survive on account of commission u/s.69C.
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| 11 | ITAT DELHI
SIMRANPAL SINGH SURI VERSUS ITO, WARD 45 (5) , NEW DELHI. No.- ITA No.2821/Del/2019 Dated.- May 12, 2021
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Reopening of assessment u/s 147 – notice u/s 143(2) was issued to the assessee on the very same day on which the assessee appeared and furnished copy of ITR in response to notice u/s 148 – HELD THAT:- The notice u/s 143(2) was issued to the assessee on the very same day on which the assessee appeared and furnished copy of ITR in response to notice u/s 148 of the IT Act.
As held in various decisions that when the notice u/s 143(2) is issued to the assessee on the very same day on which the assessee filed the return in response to notice u/s 148 stating that the return already filed may be treated as return in response to notice u/s 148, such notice issued u/s 143(2) on the very same day has to be treated as invalid and assessment is vitiated due to non-application of mind by the AO. Therefore, on all counts the reassessment proceedings initiated by the AO and upheld by the CIT(A) in my opinion is not in accordance with the law. Therefore, quash the reassessment proceedings and the grounds raised by the assessee are allowed.
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| 12 | ITAT KOLKATA
KHUSHI COMMOTRADE PVT. LTD. VERSUS PRINCIPAL COMMISSIONER OF INCOME TAX-2, KOLKATA No.- I.T.A. No. 462/Kol/2020 Dated.- May 11, 2021
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Revision u/s 263 by CIT – defect of non-issuance of notice u/s. 143(2) – validity of reopening of assessment u/s 147 – HELD THAT:- We note that the Hon’ble Supreme Court in the case of CIT V Hotel Blue Moon [2010 – SUPREME COURT] has held that before the scrutiny assessment is made u/s. 143(3) of the Act the issuance of notice u/s. 143(2) of the Act is mandatory which is applicable also in the case of reopening of assessment once the assessee has filed return pursuant to notice u/s. 148 of the Act. In this case, in the impugned order itself the Ld. Pr. CIT has clearly given a finding of fact that the AO has not issued notice u/s. 143(2) of the Act after the event of the assessee having filed the return of income pursuant to the notice u/s. 148 We find merit in the contention of the assessee that the AO while passing the order u/s. 147/143(3) of the Act on 25.07.2017 has not issued notice u/s. 143(2) of the Act. And, therefore, the mandatory requirement of law to usurp the jurisdiction to frame the assessment u/s. 143(3)/147 of the Act pursuant to reopening is absent and, therefore, the legal effect is that the order of the AO dated 25.07.2017 is null in the eyes of law. Rescue u/s 292BB – Section 292BB is only safeguarding the deficiency if any of the service/non-service of notice and it does not cure the omission of issuance of mandatory notice by the AO And since in this case, the AO has not issued the mandatory notice u/s. 143(2) of the Act as found by the Ld. Pr. CIT, the question of section 292BB coming to the rescue of the AO to pass the reassessment order does not arise. Respectfully taking note of the ratio of Laxman Das Kandelwal [2019 – SUPREME COURT], we find no merit in the contention of the Ld. DR that section 292BB of the Act would cure the defect of non-issuance of notice u/s. 143(2) of the Act and since the AO in this case had not issued notice u/s. 143(2) of the Act before framing the re-assessment u/s. 143(3)/147 of the Act as discussed supra, the order passed by the AO dated 25.07.2017 u/s. 143(3)/147 of the Act is without jurisdiction and, therefore, is non-est in the eyes of law and therefore, the Ld. Pr. CIT could not have interfered by exercising his power u/s. 263 of the Act in respect of non-est order – Decided in favour of assessee.
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