Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Mumbai: Dealing with the issue on the validity of the reassessment proceedings objecting to the reasons based on which the A.O had assumed jurisdiction the tribunal has reiterated that A.O had failed to independently apply his mind to the “material” available on his record and mechanically acting on the information supplied by the Directorate of Income-tax (Inv.) had on the basis of incomplete and incorrect facts reopened the case of the Assessee u/s 147 of the Act.

The Assessee, in the present case, was engaged in the business of trading in shares and derivatives. The original assessment was framed by the A.O vide his order passed under Sec. 143(3). Whereby, an appeal against the original assessment was partly allowed by the CIT(A). Vide his order the assessed income of the Assessee was reduced. Subsequently, information was received by the A.O through a letter from the DIT(I&CI), New Delhi. Wherein it was intimated that search and seizure proceedings were conducted and the name of the Assessee had figured as one of the beneficiaries that had invested in shares of different securities amounting through a broker, during the financial year 2007-08.

In the backdrop of the aforesaid information, the A.O reopened the case of the Assessee under Sec. 147 of the Act. Notice under Sec. 148 was issued and served upon the Assessee. In compliance, the Assessee e-filed its return declaring the income as was determined pursuant to the order of the CIT(A).

The Assessee assailed the validity of the reassessment proceedings objecting to the reasons based on which the A.O had assumed jurisdiction. However, not finding favor with the objections raised by the Assessee the A.O rejected the same.

Aggrieved, the Assessee assailed the assessment framed by the A.O in appeal before the CIT(A). The Assessee assailed the validity of the jurisdiction that was assumed by the A.O under Sec.147 of the Act, as well as the disallowance of its F&O loss on merits. The CIT(A) did not find favour with the claim of the Assessee that the A.O had wrongly assumed jurisdiction u/s 147 of the Act and rejected the same. Accordingly, the CIT(A) partly allowed the appeal and vacated the disallowance of F&O loss.

The revenue being aggrieved with the order of the CIT(A) whereby the addition was deleted on account of loss on future & options, carried the matter in appeal before the LD. ITAT. The Assessee preferred a cross-appeal and assailed the order of the CIT(A) to the extent he had upheld the validity of the jurisdiction assumed by the A.O for framing the reassessment. Whereby, the tribunal was pleased to Dismiss the Appeal filed by the Revenue and conclude that A.O had failed to independently apply his mind to the “material” available on his record and mechanically acting on the information supplied by the Directorate of Income-tax (Inv.) had on the basis of incomplete and incorrect facts reopened the case of the Assessee u/s 147 of the Act

“Though the A.O had referred to the material/information on the basis of which the case of the Assessee was sought to be reopened under Sec. 147 of the Act i.e the information received from the DDIT(Inv.), Unit-1(4), Mumbai, but then, there is nothing discernible therefrom on the basis of which it could be gathered that there was any independent formation of a bonafide belief by the A.O that the income of the Assessee chargeable to tax had escaped assessment.”

“That the A.O had mechanically acted upon the information received from the DDIT(Inv.), Unit 1(4), Mumbai, and without even doing the bare minimum i.e consulting the assessment records of the Assessee for the year in question as was indispensably required on his part for arriving at a bonafide belief that the income of the Assessee chargeable to tax had escaped assessment therein reopened its concluded assessment.”

[DCIT Vs. M/s Shradha Tradelinks Pvt. Ltd ITA No. 656/Mum/2016 AND C.O No. 323/Mum/2017]


† Advocate, Supreme Court of India and Delhi High Court  

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of UU Lalit, Indira Banerjee and MR Shah, JJ has held that mere mentioning of the new address in the return of income without specifically intimating the Assessing Officer with respect to change of address and without getting the PAN database changed, is not enough and sufficient.

The Court said that though merely by filing of return of income with the new address, it shall be enough for the assessee to discharge its legal responsibility for observing proper procedural steps as per the Companies Act and the Income Tax Act is concerned,

“In absence of any specific intimation to the Assessing Officer with respect to change in address and/or change in the name of the assessee, the Assessing Officer would be justified in sending the notice at the available address mentioned in the PAN database of the assessee, more particularly when the return has been filed under E­Module scheme.”

The Court further explained that the notices under Section 143(2) of the 1961 Act are issued on selection of case generated under automated system of the Department which picks up the address of the assessee from the database of the PAN.  Therefore, the change of address in the database of PAN is must, in case of change in the name of the company and/or any change in the registered office or the corporate office and the same has to be intimated to the Registrar of Companies in the prescribed format (Form 18) and after completing with the said requirement, the assessee is required to approach the Department with the copy of the said document and the assessee is also required to make an application for change of address in the departmental database of PAN.

[Principal Commissioner of Income Tax, Mumbai v.  I­Ven Interactive Limited, 2019 SCC OnLine SC 1369, decided on 18.10.2019]

Case BriefsHigh Courts

Delhi High Court: A Division Bench of Dr S. Muralidhar and Talwant Singh, JJ. quashed an order of reassessment passed by the Assessing officer for non-compliance of the procedure outlined by the Supreme Court in GKN Driveshafts India (P) Ltd. v. CIT, (2003) 1 SCC 72.

The short point involved in the present case was — whether the Assessing Officer could have proceeded to finalise the reassessment pursuant to notices issued under Section 147/148 of the Income Tax Act, 1961 without compliance of procedure laid down by the Supreme Court in GKN Driveshafts case?

The High Court observed: “This Court has emphasised ins several decisions that the procedure outlined by the Supreme Court in GKN Driveshafts (India) Ltd. is sacrosanct. in other words, where in response to a notice issued under Section 147 by the AO, the Assessee seeks the reasons to believe that prompted the reopening, and files objections thereto, those objections have to be considered on their merits and only a reasoned order has to be passed thereon by the AO. Importantly, this has to happen prior to the AO proceeding with the reassessment.”

In the present case, it was noted, the Assessment Officer had not chosen to dispose of the objections filed by the petitioner against reopening of the assessment, but had proceeded to the stage of passing the impugned reassessment order.

The Court, therefore, set aside the reassessment order. Directions were issued to the Assessing Officer to consider the petitioner’s objections to reopening of assessment and dispose of them by a reasoned order within 4 weeks of the date of the order.[Surendra Kumar Jain v. CIT, 2019 SCC OnLine Del 9393, decided on 29-07-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Delhi (ITAT):  In a case related to bogus Share Capital/Premium, the Accountant Member RK Panda took note of the fact that the Supreme Court verdict in PCIT vs. NRA Iron & Steel (P) Ltd., 2019 SCC Online SC 311 was pronounced subsequently wherein it was held,

“The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.”

In the present case,

  • The case of the assessee was reopened by issue of notice u/s 148 on 27th March, 2014, after recording reasons for issue of notice and after obtaining the approval from the Addl. CIT u/s 151 of the IT Act. The reason for such reopening was on account of accepting of accommodation entry of Rs. 10 Lakhs by the assessee company from two companies.
  • The Assessing Officer asked the assessee to substantiate such accommodation entry of Rs.10 lakhs. Since there was no compliance from the side of the assessee to his satisfaction, the Assessing Officer made addition of Rs.10 lakhs being the amount received as share capital not proved and invoking the provisions of section 68 of the IT Act, the Assessing Officer treated the same as income of the assessee.
  • In appeal, the CIT(A) not only sustained the addition so made by the Assessing Officer, but, further enhanced the same by Rs.20,000/- being the amount incurred by the assessee for arranging such bogus share capital.

Aggrieved by the said order of CIT(A), the assessee appealed before ITAT and argued that CIT(A) has not given effective opportunity to the assessee to substantiate his case. Advocate Swarnendu Chatterjee argued that no enhancement notice was given for enhancing the income of the assessee.

The Court noticed that Supreme Court verdict in PCIT vs. NRA Iron & Steel (P) Ltd., 2019 SCC Online SC 311 was pronounced subsequently wherein it was held,

“i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.

ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.

iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.”

Noticing that the ld.CIT(A) shall decide the issue as per fact and law, after giving due opportunity of being heard to the assessee, it was held that the issue be restored to the file of the CIT(A) with a direction to give one more opportunity to the assessee to substantiate its case.

[Shivalik Cotex Ltd. v. ITO, ITA No.5819/Del/2018, decided on 01.07.2019]

Case BriefsHigh Courts

Karnataka High Court: A Division Judge Bench comprising of Vineet Kothari and S. Sujatha, JJ., decided an Income Tax Appeal wherein it was held that the income tax appellate tribunal has the power to give direction for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on the grounds raised by any party.

The appellant-assessee company bought back it’s share from it’s Holding Company at an extremely high price out of the Reserve and Surplus and on the directions of Dispute Resolution Panel, the same was taxed as a dividend under Section 115-O of the IT Act, 1961. Thereafter the appellant went for appeal before the ITAT, it held that as per Section 26-A of IT Act, the buyback of shares should be taxed as Capital Gains and ordered for the re-opening of the matter by Assessing Officer who should also decide the fair market value of shares. Hence, the present appeal.

The appellant-assessee submitted that the Tribunal had exceeded its jurisdiction in opening the enquiry upon questions of market price of the shares’ buy-back. Whereas, the respondent submitted that the Tribunal was completely justified in re-opening the assessment and the same was well within the parameters of the subject of appeal.

The Court kept away from deciding the second issue of taxability in the light of Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613. Thereafter, it held that ITAT has the power to give directions for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on any grounds raised by either party to the appeal which have not been investigated or enquired into by the lower Authorities earlier and which may result in enhancement of tax liability of the assessee. The Court added that payment by the assessee to its holding company could not be taxed as dividend. The powers of the Tribunal are not limited or circumscribed by the grounds raised before it and it has the freedom to pass any order on important matters related to appeal. The appeal was thus dismissed.[ Fidelity Business Services India (P) Ltd v. CIT,  2018 SCC OnLine Kar 756,  dated 23-07-2018]