Reopening of assessment with incorrect reasons is bad in law

ACIT Vs Rakhi Properties and Leasing Pvt. Ltd. (ITAT Mumbai)

We observe that Assessing Officer completed the assessment based on the reasons recorded for reopening that assessee has received share application money from Mr. Shirish C. Shah, who provides accommodation entries. Subsequently when the remand report filed before Ld.CIT(A) in which Assessing Officer has agreed that share applicants do not belong to Shri Shirish C. Shah group. Accordingly, Ld.CIT(A) has held that Assessing Officer issued 148 notice with the incorrect reasons. Therefore Ld.CIT(A) allowed the appeal of the assessee for reopening the assessment with incorrect reasons which is bad in law. In light of the above facts on record, we do not see any reasons to interfere with the above findings of the Ld.CIT(A). Accordingly, appeal filed by the Revenue is dismissed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. This appeal and cross objection are filed by the revenue and assessee against the order of the Learned Commissioner of Income Tax (Appeals)–48, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 06.07.2020 for the A.Y. 2007-08.

2. Assessee has filed the cross objection raising following grounds in its appeal: –

“1.0 On facts and circumstances of the case and in law, Ld. CIT(A), having held that the assessee had proved the identity, credit­worthiness and genuineness of share capital/premium received from disputed shareholders, ought to have deleted the addition on merits u/s.68 of Rs.2,00,00,000/-;

2.0 A humble prayer is made to delete the addition on merits of Rs.2,00,00,000/- since the assessee had proved the identity and credit-worthiness of the shareholders and genuineness of share capital/premium received during the year.”

3. At the time of hearing, assessee has not pressed the grounds raised in the cross objection. Accordingly, grounds raised in the cross objection are dismissed.

4. Coming to the appeal of the revenue in ITA.No. 947/Mum/2021, brief facts of the case are, assessee is engaged in the business of Developers and Construction activities. The assessee filed its original return u/s 139(1) on 30/10/2007 on disclosing the total loss of ₹.1,11,686/-. The Assessing Officer reopened the completed assessment on issuing the notice u/s 148 on 29/03/2014. In response, the assessee filed the return u/s 148 and requested to provide a copy of recorded reasons. The AO provided a copy of recorded reasons and in response, the assessee filed the objections on disputing the validity of notice u/s.148 of the Act. However, Assessing Officer rejected the assessee’s contentions vide Disposal of objection order dated 09/03/2015. Thereafter, the assessee participated in assessment and filed detailed submissions and documentary evidences to prove the identity, credit-worthiness and genuineness of share application monies received from 5 share applicants of ₹.3,90,00,000/-. The Assessing Officer, in the assessment order, had not disputed the fact that the share applicants do not belong to Shri Shirish C Shah. The Assessing Officer accepted the genuineness of share application money received from 1 share applicant of ₹.1,90,00,000/-, however, Assessing Officer made the addition u/s.68 of the Act of share application monies received from 4 share applicants of ₹.2,00,00,000/-.

5. Aggrieved assessee preferred an appeal before Ld.CIT(A) and again challenged the validity of notice u/s 148 since the recorded reasons contained incorrect fact that the assessee had received the share application monies from the parties allegedly belonging to tainted person named Shri Shirish C Shah. The assessee contended that such share applicants do not belong to Shri Shirish C Shah and furnished the supporting evidences on record. The Ld. CIT(A) directed the Assessing Officer to submit the Remand report. In remand report dated 19/2/2016, Assessing Officer fairly accepted that the share applicants do not belong to Shri Shirish C Shah and the name of such share applicants does not appear in the list of 212 companies operated by Shri Shirish C Shah. The relevant para of the remand report dated 19/2/2016 is reproduced as under: –

“The assessee has inter alia raised the share application money through Clifton Securities P Ltd, Jagadishwar Pharmaceutical Works Ltd, Macrosoft Technology P Ltd and Ramkrishan Fincap Ltd. Names of the above mentioned companies do not appear in list of 212 companies pertaining to Shri Shirish C Shah. Though the name of these companies does not appear in list of 212 companies operated by Shri Shirish C Shah, but the fact remained that all these companies had provided bogus accommodation entries to the assessee. … “

6. The Ld. CIT(A) held that the validity of notice u/s 148 could be tested only on considering the reasons recorded while issuing the notice u/s 148 and if the reasons are faulty, then the notice u/s 148 and entire reassessment could be annulled. The Ld. CIT(A) held that Assessing Officer is not permitted to alter or modify the recorded reasons and placed reliance on the judicial decisions of Jurisdictional High Court in the cases of M/s Nirmal Bang Securities Pvt. Ltd. v. ACIT reported in 95 CCH 19 (Bom) and M/s Hindustan Lever Ltd v. R B Wadkar reported in 269 ITR 332 (Bom) and Shri Prashat S Joshi v. ITO reported in 324 ITR154 (Bom). The Ld. CIT(A) observed that the Assessing Officer, in remand report dated 19/02/2016, had stated that :- “Names of the above mentioned companies do not appear in list of 212 companies pertaining of Shri Shirish C Shah. “and therefore, the Assessing Officer had accepted that the share applicants do not belong to Shri Shirish C Shah. The Assessing Officer, in assessment order, had also not made any allegation that such share applicants belong to Shri Shirish C Shah. The Ld. CIT(A) held that the notice u/s 148 could be issued on the basis of fresh tangible material, however Assessing Officer had issued the notice u/s 148 under an incorrect reason that the share applicants belong to Shri Shirish C Shah and such material had been found to be incorrect since Assessing Officer had accepted the fact in the remand report that such share applicants do not belong to Shri Shirish C Shah and name of such share applicants do not appear in the list of 212 companies operated by Shri Shirish C Shah. The Ld. CIT(A) placed reliance on the judicial decision of Apex Court and Jurisdictional High Court in the case of CIT v. Kelvinator of India reported in 187 Taxmann 312 (SC) and NYK Line (India) Ltd. v. DCIT reported in 68 DTR 90 (Bom). In conclusion, Ld. CIT(A) held that the material alleging that the share applicants belong to Shri Shirish C Shah group is found to be incorrect as also has been accepted in remand report dated 19/02/2016.

7. Aggrieved, Revenue is in appeal before us.

8. At the time of hearing, Ld.DR heavily relied on the order of the Assessing Officer and Ld. AR relied on order of the First Appellant Authority.

9. Considered the rival submissions and material placed on record, we observe that Assessing Officer completed the assessment based on the reasons recorded for reopening that assessee has received share application money from Mr. Shirish C. Shah, who provides accommodation entries. Subsequently when the remand report filed before Ld.CIT(A) in which Assessing Officer has agreed that share applicants do not belong to Shri Shirish C. Shah group. Accordingly, Ld.CIT(A) has held that Assessing Officer issued 148 notice with the incorrect reasons. Therefore Ld.CIT(A) allowed the appeal of the assessee for reopening the assessment with incorrect reasons which is bad in law. In light of the above facts on record, we do not see any reasons to interfere with the above findings of the Ld.CIT(A). Accordingly, appeal filed by the Revenue is dismissed.

10. In the result, appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 10.03.2022.