MARS MERCANTILES PVT.LTD.,DHANBAD vs. ASSISTANT COMMISSIONE OF INCOME TAX, CENTRAL CIRCLE, DHANBAD, DHANBAD

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH VIRTUAL HEARING AT KOLKATA BEFORE SHRI SONJOY SARMA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.73/RAN/2022 Assessment Year: 2012-13

Mars Mercantiles Pvt. Ltd. Assistant Commissioner of Premises of Mahesh Income-tax, Central Circle, Pradhan, Adarsh Nagar, Vs. Dhanbad. Hirapur, Dhanbad, Jharkhand-826001 (PAN: AADCM4232G) (Appellant) (Respondent)

Present for: Appellant by : Shri Devesh Poddar, Advocate Respondent by : Shri Pranab Kr. Koley, Sr. DR Date of Hearing : 03.05.2023 Date of Pronouncement : 05.06.2023

O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of Ld. CIT(A), Patna-3 vide Order No. ITBA/APL/S/250/2022-23/1045044930(1) dated 30.08.2022 against the order of ACIT, Circle-2, Dhanbad u/s. 143(3) read with sections 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 05.11.2019 for AY 20-12-13.

“1. For that Ld. CIT(A) was not justified in confirming the addition of Rs.13,50,000/- received from Aakash Varma son of the then director of the company u/s. 68 of the income Tax Act, 1961. 2, For that Ld. CIT(A) was not justified in confirming the addition of Rs.16,25,000/- received from Manish Varma son of the then director of the company u/s. 68 of the Income Tax Act, 1961.”

2 ITA No.73/Ran/2022 Mars Mercantile Pvt. Ltd., AY: 2012-13. 3. Assessee has taken an additional ground vide its application dated 01.03.2023. The additional ground taken by the assessee reads as under: “1. For that the proceeding initiated u/s. 148 and the order of assessment passed u/s. 147/143(3) is bad in law to the extent that no addition has been made in the order of assessment on basis of the reasons recorded for initiating proceeding u/s. 148.”

3 ITA No.73/Ran/2022 Mars Mercantile Pvt. Ltd., AY: 2012-13. new addition can be made and, therefore, the addition of Rs.29,75,000/- is bad in law and ought to be deleted.

5.1. Assessee had filed its return of income on 22.09.2012 reporting income as “Nil” (current year loss Rs.21,71,450/-) which was processed on 25.05.2013. Subsequently, case of the assessee was reopened for which a notice u/s. 148 of the Act was issued on 03.12.2018. Return in response to notice u/s. 148 was filed on 01.02.2019 reporting income at Rs. ‘Nil’ (current year’s loss Rs.21,71,450/-). Reasons recorded by the Ld. AO before issuing notice u/s. 148, placed in the paper book at pages 4 and 5 are reproduced as under: “Reasons for reopening of the assessment in case of M/s Mars Mercantiles (P) Ltd. for the A.Y. 2012-13.

4 ITA No.73/Ran/2022 Mars Mercantile Pvt. Ltd., AY: 2012-13. As the assessee did not reply to the notice u/s. 133(6), its claim of having received share application money and share premium remained unverified. 6. Basis of forming reason to believe and details of escapement of income:- From the perusal of information received in the case of the assessee, it is found that the assessee has claimed to have received share application money and share premium of Rs.3,05,85,000/- but has failed to substantiate his claim with tenable evidence. Therefore, I have reason to believe that in this case income of Rs.3,05,85,000/- has escaped assessment for the relevant assessment year 2012-13. 7. Applicability of the provisions of section 147/151 to the facts of the case. In this case, a return of income was filed for the year under consideration but no scrutiny assessment u/s. 143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceeding u/s. 147 is reason to believe which has been recorded above in Para No. 6 above. It is pertinent to mention here that in this case the assessee had filed return of income for the year under consideration but assessment as stipulated u/s. 2(40) of the Act was made and the return of income was only processed u/s. 143(10 of the Act. In view of the above, provisions of clause B of explanation to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 has been obtained separately from the Principal Commissioner of Income-tax, Dhanbad as per the provisions of section 151 of the Act.”

5.2. From the perusal of reasons to believe (supra), it is observed that Ld. AO has noted that genuineness of claim of assessee in respect of share application money and share premium amounting to Rs.3,05,85,000/- has to be ascertained since assessee has failed to substantiate its claim with tenable evidence leading to belief that income has escaped assessment. In the reasons to believe recorded by the Ld. AO, there is no mention in respect of addition made by the Ld. AO of Rs.29,75,000/- towards unsecured loan from Akash Verma and

5 ITA No.73/Ran/2022 Mars Mercantile Pvt. Ltd., AY: 2012-13. Manish Verma. In the impugned order in para 3, Ld. AO has noted that assessee was issued a show cause notice on 15.10.2019 to prove the genuineness of all the unsecured loans claimed to have been taken during the year. In the said show cause notice, Ld. AO stated that assessee has not filed confirmation from the following two depositors i.e. Shri Akash Verma of Rs.13,50,000/- and from Shri Manish Verma of Rs.16,25,000/-, totalling to Rs.29,75,000/-. In this show cause notice, there is nothing mentioned in respect of share application money and share premium of Rs.3,05,85,000/- as noted in the reasons to believe.

5.3. Thus, by referring to these facts, Ld. Counsel for the assessee made out a case that the reassessment proceedings have been initiated on the issue of share application money and share premium of Rs.3,05,85,000/- which has escaped assessment whereas the assessment has been completed by making an addition in respect of unsecured loans of Rs.29,75,000/-. Reliance was placed on the decision of Hon’ble High Court of Bombay in the case of CIT Vs. Jet Airways Ltd. 331 ITR 236 and Hon’ble High Court of Madras in the case of Martech Peripherals Pvt. Ltd. Vs. DCIT reported in 394 ITR 733 wherein it was held as under: “Whether Explanation 3 of section 147 Clearly expounds that if, notice for reopening of assessment was issued on one aspect, and in course of reassessment proceedings another aspect was discovered, reassessment order would be valid, only if, aspect, which led to reopening of assessment, continues to form part of reassessed income - Held, yes - Whether where reassessment notice was issued to tax gain/loss on sale of investments made in mutual funds whereas reassessment order was passed on a completely different ground to tax forfeited share application money, reassessment order was unjustified - Held, yes [Paras 14 and 22] [in favour of assessee]”

6 ITA No.73/Ran/2022 Mars Mercantile Pvt. Ltd., AY: 2012-13. 5.4. Ld. Counsel also placed reliance on the decision of Coordinate Bench of ITAT, Ranchi in the case of S.P Enterprises VS DCIT - ITA No. 32/Ran/2016, order dated 06/12/2016, wherein it has been held that.-

“Respectfully following the decision in the case of jet Airways (1) Ltd (supra), 1 hold that for assuming jurisdiction to frame an assessment u/s.147 of the Act, what is essential is a valid reopening of a previously closed assessment. If the very foundation of the reopening is knocked out, any further proceedings in respect to such assessment naturally would not survive. Explanation 3 to Section 147 does not in any manner, even purport to expand the powers of the Assessing Officer u/s.147 of the Act. Hence, 1 cancel the reassessment order dated 22.3.2012 passed u/s.147 of the Act.”

6.1. This issue has been dealt with by the Hon’ble High Court of Bombay in the case of Jet Airways India Ltd. (supra) in favour of the assessee, the relevant extract from the judgment is reproduced as under: "Explanation 3 to section 147 of the Income-tax Act, 1961, was inserted by the Finance (No.2) Act of 2009, with effect from April 1, 1989. The effect of the Explanation is that even though the notice that has been issued under section 148 containing the reasons for

7 ITA No.73/Ran/2022 Mars Mercantile Pvt. Ltd., AY: 2012-13. reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of the proceedings. Parliament having used the words "assess or reassess” such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and" as well as "also" have been used together and in conjunction. Evidently, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess: (i) such income; and also (ii) 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. Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and 'cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepts the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a notice under section 148 would be necessary in the event of challenge by the assessee. The effect of section 147 as it now stands after the amendment of 2009 can therefore, be summarised as follows: (i) the Assessing 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.”

8 ITA No.73/Ran/2022 Mars Mercantile Pvt. Ltd., AY: 2012-13. 7. Thus, in the facts and circumstances of the present case and respectfully following the above referred judicial precedent, we hold that the impugned assessment order passed u/s. 143(3) read with section 147 of the Act is bad in law. We are of considered view that when the very foundation of reopening is knocked out, further proceedings undertaken would not survive. Accordingly, the additional ground taken by the assessee is allowed. Since the impugned assessment order is held to be bad in law, the grounds taken on merit in the memo of appeal have become academic in nature and, therefore, are not adjudicated upon.

Order pronounced in the open Court on 5th June, 2023.

Sd/- Sd/- (Sonjoy Sarma) (Girish Agrawal) Judicial Member Accountant Member Dated: 5th June, 2023 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent:. 3. CIT(A), Patna-3, Patna. 4. CIT, 5. DR, ITAT, Ranchi Bench, Ranchi //True Copy// By Order

Assistant Registrar ITAT, Kolkata Benches, Kolkata