Case Law Details
DCIT Vs Reliance Industrial Holdings Pvt Ltd (ITAT Mumbai)
In the cases of the reopened assessments first and foremost one has to see the reasons recorded for reopening the assessment, as these are the reasons which give jurisdiction to the Assessing Officer for initiating, and proceedings with, the reassessment. The reasons so recorded must meet judicial scrutiny. Unless this bridge is crossed, there is no occasion to deal with anything else pertaining to the whole process of reassessment. It is well settled in law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor anything can be deleted from the reasons so recorded. Hon’ble Bombay High Court, in the case of Hindustan Lever Ltd. v. R.B. Wadkar [(2004) 268 ITR 332 (Bom)], has, inter alia, observed that “W… 1It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons.” Their Lordships added that “The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence…1 L,Iand QhaLI 3The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.‘ Therefore, the reasons are to be examined only on the basis of the reasons as recorded. The next important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment and not merely need for an inquiry which may result in detection of an income escaping assessment.
Let us in this light revert to the reasons recorded for reopening the assessment. The only basis for the assessee company, being treated as an associated enterprise of Biomatrix- of which 91% equity was held by Sandeep Tandon, was that “The books of the assessee company reveal that one Sandeep Tandon (Since deceased), who was a Director in the assessee company, was 91% shareholder in M/s. Biomatrix at the time of this deal. As per para 10 of the Notes and Accounts of the Audit Report of the financial year 2008-09 of the assessee, Mr. Sandeep Tandon has been shown as the “Key Managerial Person”.…In the instance case, as is evident Sandeep Tandon was a person controlling the affairs of both the assessee company …… Thus assessee company and M/s. Biomatrix Ltd become Associates Enterprises, within the ambit of section 92A(2)(j)”. The question then arises whether just because someone is described as a key managerial person in the annual accounts and is a director of the company, can it be said that that said, “enterprise is controlled by an individual”as is the necessary precondition for invoking Section 92A(2)(j). The answer is emphatically in negative. It is not even the case of the Assessing Officer, and that is the actual position, that Sandeep Tandon had any shareholdings in the assessee company, and it is an admitted position that he was just a director of the company. Being a director in a company or even being stated to be a key managerial person does not, in our humble understanding, imply that the company in question is controlled by the director. While on this aspect, it is important to bear in mind the fact that in order to be said to be in control of another company, as stated in section 92A(2)(b) and (f), either such person should hold more than 26% of the voting power of the company or such person appoints more than half of the directors or members of the governing board or one or more of the executive directors or members of the governing board. Clearly, the connotations of “control” in the scheme of Section 92A(2) are far more cogent than visualized by a simplistic notion of „key managerial person‟. When a person appointing less than half of the board of directors cannot be said to be in control of a company, it is futile to even suggest that a person can be said to be in control of a company merely because he is a director of the company, or he is described as a „key managerial person ‟of the said company in its own choice of words in the annual accounts. Nothing recorded in the reasons for reopening even remotely suggests that this person had more than 26% voting rights, or even significant voting rights, in the company, that person had right to nominate less than half the board of directors, or one or more executive directors or the members of the governing body, or that there was anything cogent to signify control over the company. There is no material or substantive indication to the effect that the assessee company “is controlled by an individual”, i.e. Sandeep Tandon, as is the necessary precondition for invoking Section 92A(2)(j). Unless the Assessing Officer was to give reasons for holding that the assessee company was controlled by this person, Section 92A(2)(j) could not have been invoked- and, as we have analyzed earlier as well, mere directorship of the assessee company or that person being described as „key managerial person ‟in the annual accounts of the company, can not, by itself, be reason enough to come to this conclusion. It also well-settled in law, to quote the words of the Hon‟ble jurisdictional High Court in Hindustan Lever’s case (supra), that “The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced”. Viewed thus, the reasons recorded by the Assessing Officer do not lead to the conclusion that the assessee and Biomatrix were associated enterprises, and, therefore, it could not be said that any income, on account of ALP adjustment, had escaped assessment.
In view of these discussions, as also bearing in mind the entirety of the case, we hold that the reasons for reopening the assessment were unsustainable in law. The impugned reassessment proceedings must stand quashed for this short reason alone.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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