TMI Blog2019 (5) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... ving the shares which the assessee issued to twenty two share subscribing companies and another involving sale of investments which the assessee held in other bodies corporate. It may be so that Shri Mahavar or companies managed by him were connected with both the set of transactions. However both the sets of transactions were separate from each other and consequences flowing from these sets of transactions were also separate and could not be intermixed. In the reasons the AO recorded his satisfaction about escapement of income specifically with reference to assessee s transactions involving sale of investments totaling ₹ 34 Crs. The satisfaction recorded did not any manner suggest that in AO s opinion share subscription amount of ₹ 30.20 Crs. received during the year from 22 subscribers represented assessee s income escaping assessment. We therefore concur with the findings of the Ld. CIT(A) that no addition was made in the order u/s 147/143(3) dated 31.03.2016 with reference to the reasons for which the assessment was reopened and in that view of the matter the impugned order u/s 147/143(3) is held to be legally unsustainable. No reason to interfere with the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with share premium of ₹ 34 crores raised during FY 2009-10 should not be assessed as it s income u/s 68 of the Act for the AY 2010-11. In response the assessee furnished its rebuttal, which is placed at Pages 17 to 22 of the paper book. The AO ultimately completed the assessment u/s 147/143(3) on 30.03.2016 assesssing ₹ 30.20 crores as unexplained cash credit u/s 68 being the amount received as share subscription for shares issued during the relevant year. Aggrieved by the order the assessee preferred appeal before the Ld. CIT(A) challenging the legal validity of the assessment completed u/s 147/143(3) as also the merits of the addition u/s 68 of the Act. The Ld. CIT(A) found merit in the assessee s initial plea that when the AO reopened the assessment after recording specific reasons but in assessment order no addition was ultimately made with reference to the specific issue for which the assessment was reopened, then the consequent assessment order was legally unsustainable. The relevant findings of the Ld. CIT(A) were as follows: 4.5 From bare perusal of the reasons recorded it is apparent that based on the information provided by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected in the assessee s balance sheet were utilized to launder the unaccounted cash by Shri Mahawar. In AO s opinion such deposit of money in the assessee s bank account in the form of proceeds of sale of shares represented assessee s income which had escaped assessment in AY 2010-11. 4.6 On scrutiny of the impugned order u/s 143(3)/147, I however find that in the course of reassessment proceedings the AO conducted enquiry only with regard to shares which the assessee issued at premium during FY 2009-10 to 22 bodies corporate from whom it received ₹ 30.20 crores. Although in the impugned order the AO has extensively extracted the statements which the Investigation Officers of the Department had recorded in the course of survey u/s 133A and thereafter u/s131 from Shri Mahawar and his associates yet ultimately the AO confined his enquiry and his findings with regard to the issue of taxability of share subscription amounts received from 22 bodies corporate. After setting out extensively the statements of Shri Mahawar and others the AO claimed that in view of the findings made during the course of reassessment and findings made during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground for which the assessment was reopened in the first instance. 4.13 Applying the ratio emanating from the foregoing judgments of different judicial authorities to the facts of the appellant s case I find that it has been unanimously held that an AO can proceed to make additions in the order u/s 147 to the earlier assessed income if and only if the addition is first made by the AO with reference to the grounds or issue for which reason is recorded u/s 148(2) of the Act. Where however no addition is made in the order u/s 147 with reference to the reason recorded u/s 148 or where the addition made with reference to the reasons recorded is deleted by the appellate authority then the only course open to the appellate authority is to cancel the entire re-assessment since the very rationale for initiation of the reassessment proceedings stands invalidated once no addition in respect of recorded reason survives. The unanimity of the view in all these decisions is that the AO cannot travel beyond the recorded reasons and make additions with regard to other issues if no addition is made or no addition is found sustainable with reference to the recorded reasons before i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the ratio laid down in the judicial decisions discussed herein before applies on all force. In terms of the said decisions, the only course open for the appellate authority in such circumstances is to quash the reassessment. I order accordingly. Ground Nos. 1 2 are therefore allowed. 4. Since the Ld. CIT(A) upheld the assessee s preliminary challenge to the validity of the order passed u/s 147/143(3), he did not adjudicate the assessee s grounds involving merits of the addition made by the AO. Being aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal raising the following grounds :- 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in fact and in law in accepting assessee s contention that addition was not made on the basis of which the case was reopened. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that no addition can be made on any ground other than those on the basis of which the case was re-opened. 5. We have heard the rival submissions and considered factual matrix involved in the present case. Assailing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry operator named Shri Binod Kumar Jaiswal. Initial capital was only ₹ 5 Lakh with 4,95,200 shares of face value ₹ 1 issue at par. In 2005 this company was purchased by one Shri Uday Shankar Mahawar, another entry operator. In 2005, further 3,56,000 shares of face value ₹ 10/- were issued at a premium of ₹ 90/- per share and on paper ₹ 3.56 crore was raised. This was again only on paper as the subscribers were only other paper companies of Shri Mahawar and the subscription was through circular transactions. In March, 2010 again 12,08,000 shares of FV ₹ 10 were issued at a premium of ₹ 240/- per share and nearly ₹ 31 Crore was raised by the same modus operandi. After this issue the net worth of the company became ₹ 34.52 Crores. Thereafter, in March, 2010 Shri Mahawar sold this company to the RPG group and Shri Rajendra Jha and Shri Sunil Bhandari who are the employee of the RPG Group become the directors of M/s. Dotex Merchandise Pvt Ltd. It is also found that from 12/10/2011 to 28/03/2013 Shri R. P. Goenka himself was the director of this company. After RPG group purchased this company, entire share holding was bought back b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause notice and the impugned assessment order to show that after reasons were recorded on 09/02/2015,the AO abandoned the principal reason on which the assessment was reopened and at no point of time after 09/02/2015, did the AO enquire about the sale of investments. Instead, post issue of the notice u/s 148, entire line of enquiry and the ultimate addition was only in respect of the share subscription amount of ₹ 30.20 crores received during the year. The Ld. AR therefore submitted that the reason for which the assessment was reopened was completely divorced from the findings ultimately recorded by the AO. He submitted that mere reference in the recorded reasons about the historical facts of raising of equity capital by the appellant company from time to time did not in any manner justify the Ld. DR s argument that the AO had formed reason to believe that subscription to the equity capital received during the relevant year represented income escaping assessment. The Ld. AR pointed out that in the reasons recorded the AO was consciously aware that the share capital raised during the relevant year was only ₹ 30.20 crores which was separate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prior approval being obtained by the AO from his Additional / Joint Commissioner of Incometax. In particular he drew our attention to the fact that the notice u/s 148 was dated 09.03.2015. He also brought to our attention that as per the order sheet entries the reasons to believe were recorded by the AO on the same date as of the issuance of the notice. He also pointed out that having recorded his reasons which led him to form belief that income chargeable to tax had escaped assessment; he had categorically recorded as follows: Thus there is reason to believe that the income of the assessee company amounting to ₹ 34 crores has escaped assessment for the assessment year 2010-11. Proceeding u/s 147 is initiated, issue notice u/s 148 for the assessment year 2010-11. 9. The Ld. AR therefore submitted that if the notice u/s 148 and the reasons recorded on the same date are read in conjunction and harmoniously then the only conclusion that can be drawn is that the AO having recorded his own satisfaction about alleged escapement of income straightaway initiated the proceedings u/s 147 by issuing the notice u/s 148 without obtaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could not have been formed as a sole foundation for forming his reason to belief that income had escaped assessment. On receipt of information, it was incumbent upon the AO to verify the correctness of such information with reference to information and material already available in his records at the time of framing of the original order u/s 147/143(3). In such a scenario on receipt of the information, the proper course for the AO was to make reasonable enquiry and collect material, which would make him believe that there is in fact an escapement of income. Without doing so, the jurisdictional fact necessary to usurp jurisdiction to reopen the regular assessment cannot be made by the AO. For the said proposition, the Ld. AR drew our attention to following case laws : - PCIT Vs. Meenakshi Overseas Ltd., 395 ITR 677(Del.) - PCIT Vs. Tupperware India Pvt. Ltd., 236 Taxman 494 (Del) - PCIT Vs. Shodiman Investments (P) Ltd., 93 taxmann.com 153 (Bom) - CIT VsParamjitKaur, 168 Taxman 39 (P H HC) - Pr.CITVs RMG Polyvinyl (I) Ltd, 83 taxmann.com 348 (Del HC) - CIT VsInsceticides (India) Ltd, 357 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about income escaping assessment only with specific reference to the sale of investment made by the assessee and in respect of which sales realization of ₹ 34 Crores was made. We are of the considered view that merely because Mr. Uday Mahawar and companies controlled by him were a common thread in relation to assessee s transactions involving issue of fresh shares and the sale of shares by the appellant, yet the transactions with reference to which the AO recorded his satisfaction about income escaping assessment, pertained specifically to sale of investments and not the fresh issue of shares by the appellant. It is for this reason that in the recorded reasons the AO recorded his satisfaction about income escaping assessment to the extent of ₹ 34 crores and not ₹ 30.20 crores being the amount received during the relevant year on issue of fresh shares. We therefore have no hesitation in holding that the reason for which the AO recorded his satisfaction about income escaping assessment had no connection whatsoever with the fresh issuance of equity shares totaling ₹ 30.20 crores. In our considered opinion the AO s satisfaction was specific and it was with refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the fact that during the relevant previous year the assessee had issued fresh equity capital totaling ₹ 30.20 crores, did not amount to recording of satisfaction as required u/s 147/148 of the Act, particularly when the satisfaction recorded was specific and it was with reference to alleged introduction of unaccounted cash totaling ₹ 34 crores in the guise of sale of investments by Mr. Mahawar. We are therefore unable to accept the Ld. DR s contention that the AO had recorded his satisfaction about income escaping assessment with reference to issue of fresh capital during the relevant year. On the contrary we find that in the penultimate last paragraph, the AO had specifically recorded his satisfaction as follows: As expected after the purchase by Sanjeev RPG group, the investment worth ₹ 34 Crores in paper companies shown in the balance sheet of M/s. Dotex Merchandise Pvt Ltd, were sold on paper to the paper companies of Shri Mahawar and sale proceeds was credited in the bank account of Dotex Merchandise Pvt Ltd. As is clear from the statement of Shri Mahawar that the source of the sale proceed is cash provided by Sanjeev RPG Group to Shri M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part to make the addition in respect of the issue for which reasons were recorded u/s 147 then such omission could be overcome by the Ld CIT(A) by making addition at the appellate stage. We however are unable to accept the contention raised by the Ld. DR at this stage. It may be true that the Ld. CIT(A) has coterminus powers with that of the AO but it has been judicially held that such co-terminus powers are not so wide so as to include the power to consider a source of income which was not considered by the AO and which was not the subject matter of appeal before him. If there is a jurisdictional lacuna in the AO s order then such infirmity cannot be cured by the first appellate authority while exercising his appellate jurisdiction even though the law grants him co-terminus and plenary powers to the extent of issues and sources considered by the AO. 15. In this regard we rely on the judgment of the Hon ble Delhi High Court in the case of CIT Vs Software Consultants (supra). In this case, in the course of search conducted against the promoter, the AO had found fixed deposits with bank and the person searched explained that the assessee company had provided the requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section ; and (iv) though the notice under section 148(2) does not include a particular, issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. 11. Thereafter, the High Court referred to the decision of the Rajasthan High Court in the case of CIT v.Shri Ram Singh, [2008] 306 ITR 343 in which it has been observed as under: It is only when, in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. 19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave enca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 147/148. Accordingly, the assessment order is not erroneous. Thus, the Commissioner of Income Tax could not have exercised jurisdiction under Section 263 of the Act. 16. Similar view was expressed by this Tribunal at Delhi in the case of Indu ArtsVs ACIT (supra). In this case in the order u/s 147, the AO had made the addition in respect of an issue for which reasons were recorded. On appeal the CIT(A) deleted the addition in respect of the issue for which the reasons were recorded but made enhancement in respect of some other issue. No appeal against the relief allowed by the CIT(A) was preferred by the Revenue but the assessee objected to the enhancement made by the CIT(A). In deciding the appeal of the assessee, this Tribunal observed as follows: 6. The Assessing Officer made a solitary addition of ₹ 22.57 lakh in the assessment under section 147 which was the only basis for initiating the reassessment and the same got finally deleted in the first appeal. At this juncture, it is relevant to note the mandate of the section, which provides that : 'If the Assessing Officer has reason to believe that any income chargeable to tax has es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se proceedings ceased to survive. The Hon'ble Bombay High Court in CIT v. Jet Airways (I) Ltd. [2010] 195 Taxman 117/[2011] 331 ITR 236, has also reiterated the same proposition by holding that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue was not included in the notice. However, if, after issuing a notice u/s. 148, the Assessing Officer accepts the contention of the assessee and holds that the income, of which he has initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to assess some other income. Similar view has been taken by the Hon'ble Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343. 7. The position which follows from the above discussion is that the Assessing Officer can make 'other addition' in the reassessment proceedings, provided, the 'foundational addition' is made. When this proposition is taken to a next level, no different consequences will emerge, if the 'foundational addition' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above judgment, it is vivid that if the 'foundational addition' is finally deleted in appeal, then 'other addition' also can't stand. 8. At this stage, it is pertinent to note the effect of insertion of Explanation 3 to Section 147 by the Finance (No.2) Act, 2009 w.r.e.f. 1.4.1989, which reads as under : - 'Explanation 3.- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.' 9. The Memorandum explaining the provisions of the Finance Bill, in this regard, reads as under : 'The existing provisions of section 147 provides, inter alia, that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g his coterminous power, could have made the 'other addition'. 12. The situation can be viewed from another angle as well. The Assessing Officer initiated reassessment proceedings and made addition of ₹ 22.57 lakh. When the ld. CIT (A) held that the addition of ₹ 22.57 lakh was not sustainable, it meant that the jurisdiction of the Assessing Officer was lacking in initiating the reassessment proceedings. As a consequence of his deletion of the addition, not only the assessment order but all the proceedings flowing therefrom had the effect of becoming null and void. As such, he could not have gone ahead with any other issue and made enhancement of income. Making an enhancement in such circumstances would mean that though the jurisdiction of the Assessing Officer in initiating the reassessment was lacking, still, the assessment would be valid and ex consequenti, the addition would be sustainable. This, in my considered opinion, is a totally illogical and unsound proposition. I, therefore, order to delete the addition of ₹ 2.36 lakh and odd made by the ld. CIT (A). 17. In both these decisions the concurrent view expressed was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment and this has resulted in under-assessment of income or under charge of consequent tax payable. The reason to believe that assessee s income chargeable to tax has escaped assessment must be based on some tangible material, which comes into AO s possession subsequent to passing of the assessment order. Once the AO forms such reasonable belief then such reason constitutes the key to open the lock which is placed on the assessment by the order passed earlier u/s 143(3) or 147 as a case may be. It is therefore necessary for the AO to show that the key used for opening the lock placed earlier by an order u/s 143(3) is the most appropriate key to unlock and thereby reopen the proceedings for bringing to charge all items of income which had escaped assessment earlier. Once it is established by the AO that the reason recorded by him is the correct key for reopening of assessment, only then the entire assessment gets opened and the AO is then permitted to bring to tax every item of income which had escaped assessment earlier even though in respect of such other items the AO may not have recorded his satisfaction prior to issue of notice u/s 148. It is this essence, which has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. 19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under sections 80HH and 80-I as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s appeal, the CIT (Appeal) accepted the contention that the Assessing Officer was not competent to continue with the proceeding under section 147 of the Income Tax Act, 1961 on some other issues which were not mentioned in the reasons recorded under section 148(2) of the Act. In appeal preferred by the Revenue, the Tribunal following the judgments in Ranbaxy Laboratories Ltd. (supra) vs- CIT and in CIT vs- Jet Airways India Ltd. (supra) held as under : We further find that similar view was taken by the Hon'ble Bombay High Court in the case of CIT vs- Jet Airways India Ltd. (supra) and the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories India Ltd (supra). The ratio laid down in these decisions is that reassessment must be in the first place, be in respect of income escaped assessment for which the reasons were recorded and only thereafter in respect of some other items of escaped income. If, however, the income, escapement of which was the foundation for recording of reasons to believe, is not assessed or reassessed inthe order under section 147, then it is not mere open to the AO to independently assess any other income, which comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). 26. But then if it were to be so read, the word also becomes redundant, and to make sense of the sentence, the section would be required to be read by ignoring the words also , as well, in which event, the section would read as under: 147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). 27. It is established principle of interpretation of sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additions were required to be made. Having reopened the assessments of these years on the ground that escapement of income was caused as a result of suppression of sales, in the assessments ultimately passed u/s 147/143(3) for these years the additions were made on account of bogus purchases. Applying the ratio laid down by the Hon ble Bombay High Court in the case of CIT Vs Jet Airways Ltd (331 ITR 236), the Tribunal held that the reasons which formed the basis of formation of belief that income had escaped assessment was not pursued and the additions were made on account of bogus purchase, the assessment order u/s 147/143(3) were therefore held to be legally unsustainable. 22. Applying the ratio laid down in foregoing decisions to the assessee s case we find that the AO had recorded his satisfaction u/s 147 on the sole premise that the proceeds received by the assessee on sale of shares held as investments totaling ₹ 34 crores represented assessee s income escaping assessment. The said reason was based on the statement recorded in the course of survey, conducted against Mr. Uday Mahawar. The reasons which the AO recorded on 09/02/2015 and as set out in the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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