Delhi H.C : The CIT(A) recorded a finding that the initiation of proceedings under s. 147 was itself invalid

High Court Of Delhi

CIT vs. DCM Ltd.

Section 147, proviso

Asst. Year 1996-97

Badar Durrez Ahmed & Rajiv Shakdher, JJ.

IT Appeal No. 823 of 2008

1st August, 2008

Counsel appeared :

Ms. Prem Lata Bansal, for the Appellant : S.K. Aggarwal, for the Respondent

JUDGMENT

by the court :

This appeal at the instance of the Revenue pertains to the asst. yr. 1996-97. The issue involved in this appeal centres around the question of reopening of the assessment proceedings of the assessee in respect of the said assessment year.

The original assessment was completed under s. 143(3) of the IT Act, 1961 and after an expiry of four years from the end of the assessment year in question, the AO reopened the assessment by invoking the provisions of s. 147. The reasons indicated by the AO for reopening the assessment had a reference to allotment and sale and purchase of certain shares of DCM Estate & Infrastructure Ltd. But, in the reasons recorded, there is no allegation with regard to the purchase and sale of shares of DCM Estate & Infrastructure Ltd. (DEIL) by the assessee company. The allegation only pertains to some of the promoters of the assessee company and subsidiary companies/trusts. The AO upon reassessment did not make any addition in pursuance of these reasons recorded by him. Instead, he made an addition on account of interest notionally calculated by him on the amount of advances given to subsidiary companies/trusts.

Being aggrieved by the reassessment order that was framed by the AO, the assessee preferred an appeal before the CIT(A) who allowed the said appeal. The CIT(A) recorded a finding that the initiation of proceedings under s. 147 was itself invalid. He also recorded a finding that in any event the addition on account of notional interest was also not made out on merits, inasmuch as the assessee company had more interest-free funds than the amount of the loans/advances said to have been given to the subsidiary companies/trusts.

In the appeal before the Tribunal, it was urged on behalf of the Revenue that the proceedings under s. 147 were valid and that the addition made by the AO ought to be restored. The Tribunal after considering the arguments advanced by the parties and examining the purported reasons recorded for reopening the assessment came to the conclusion that the proceedings initiated purportedly under s. 147 of the said Act were invalid. The Tribunal also examined the finding on merits recorded by the CIT(A) and on both counts the Tribunal agreed with the CIT(A). The Tribunal’s findings are as under : “In the reasons so recorded for reopening the assessment, there is no allegation of the AO that assessee has failed to file his return under s. 139 or in response to notice under s. 142(1) or 148 of the Act, nor there is any allegation by the AO that the assessee has failed to disclose fully and truly all material facts in its return of income. We have carefully gone through the reasons recorded for reopening and found that while recording the reasons, AO has nowhere referred any material which has come to her possession after passing the original order and also on the point that reasons recorded had any nexus and reference to the case. In the reasons so recorded, reference has been made to the allotment and sale and purchase of certain shares of DEIL. However, there is no allegation with regard to the purchase and sale of shares of DEIL by the assessee company. Furthermore, simple purchase or sale of shares cannot result in escapement of income unless there is information to the effect that some shares were sold and profits arising therefrom had not been declared in the IT returns. There was no mention of any particular material on the basis of which belief can be found that any income thereof has escaped assessment. In the reasons recorded, there is not even allegation regarding escapement of income in the case of assessee’s company, DCM Ltd., the name of the DEIL referred to in the reasons was a separate and independent company. We also found that in the reassessment order framed, there is no addition in pursuance of the reasons recorded by the AO. The only addition has been made on account of interest notionally calculated by the AO on the amount of advances given to the subsidiary company/trust. In this respect, the CIT(A) has recorded a finding that the assessee company was having much more interest-free funds than the amount of the loan. Nothing was brought on record to controvert this finding of the CIT(A). We, therefore, do not find any infirmity in the order of the CIT(A) both on account of legal issue of reopening as well as on merit of deletion of disallowance on account of interest notionally calculated. In the result, Revenue’s appeal in the asst. yr. 1996-97 is dismissed.”

5. There is nothing which has been placed before us to enable us to take a different view from that of the Tribunal. No substantial question of law arises for our consideration. The appeal is dismissed.

[Citation : 325 ITR 310]